Mid-Year Tax Planning Ideas by Karla Hopkins

As summer comes to a close and autum approaches the end of the year gets that much closer.  Now is a great time to consider fine tuning your tax plans for 2013.  Here are a few ideas to consider:

·       Harvest Capital Losses.  Don't get stuck at the last minute in December.  Review your portfolio position now and realize those capital losses to offset current or future capital gains plus up to $3,000 in losses against ordinary income.  Under the new tax law, the maximum long term capital gain rate increased to 20% for certain upper-income taxpayers.

·       Are you cleaning out the attic and garage this fall? You can write off donated items that are in good conditiion.  Many organizations including the Salvation Army provide guidelines on the donation value so don't forget to get a receipt when you donate. 

·       The residential energy credit was extended through 2013 so if you haven't done that much desired upgrade to your heating and air conditioning system, this may be the year to do so and benefit for a tax credit.

·       For employees, make sure you are taking advantage of any and all employer tax free benefits.  Take advantage of a tuition reimbursement plan to expand your skills and job performance; fully fund your 401(k) at least up to the employer match; take advantage of the retirement catch up provisions if you are over 50; take advantage of any benefit that you can pay with pre-tax dollars such as child care, tranporation, medical and health costs through a Health Savings Account.

·       Remember that your dependent can earn up to $6,100 tax free.  If you can employ them in your business it's a great way to teach responsibility and to save for college.  Consider also having them contribute to a ROTH IRA.  It is one of the most tax-advantaged savings that the government currently offers.

·       If you are not subject to Alternative Minimum Tax, consider prepaying deductible items such as real estate tax, state income tax estimates and personal property tax.  This could save you as much as 39.6% in taxes.

·       Review your W-4 exemptions and withholdings to date.  Ensure that your are neither overwithholding or under withholdings.  By reviewing them now, you have time to react over the next 5 months instead of just at the end of the year.

·       For businesses who are considered making purchases of equipment, the tax laws consider to be favorable in terms of allowing a deduction of the full amount in the year you acquire the assets.  Don't forget to consider the tax benefit when you are calculating the cost of the equipment.

·       The Work Opportunity Tax Credit is available for certain "target groups" when you hire from the group.  The maximum credit is generally $2,400.  Consider searching for new employees that might meet the requirements for this credit.

·       Contact your accountant just to check in on any transaction or life changes you may have had or are contemplating so that they can advise you on how they might impact your tax returns before the year is over.

How should entrepreneurs and business owners use their accountants - by Karla Hopkins

 

Generally entrepreneurs are constantly driving to perfect a business model and adapt to changes in their industry, economy and market demands.  Data is readily available and everywhere on any subject however, financial data that accountants can read and interpret is often overlooked. 

You may only think of your accountant at tax time, but just maybe they have more value all during the year.  Accountants generally amass a huge amount of financial data and can almost instantly identify strengths and weaknesses of a business.  They see a variety of scenarios from a wide range of clients and can use that information to help with your specific needs.

 

Are your margins where they should be for the industry?  Are your pricing policies in line with your competition?  Are your employees productive?  A good accountant can offer good insights into these types of questions.  Business owners often manage based on their "gut instinct" which is invaluable but having a professional support them with hard and fast facts can also be priceless.

 

So, how best to use your accountant you ask?  When you receive financial information from them, request a written or verbal explanation.  Don't assume you will understand the information yourself, ask the accountant to dig into the details with you.  When you talk to your accountant, focus on how the numbers you are going over affect your bottom line.  Relate everything to the two things that are critical to every company, its profit and cash flow.

 

Know your company's mission and strategic plan.  Managing a company looks like a complete circle.  Numbers tell a story.  They either move you towards your plan or away from it.  In a circle every function of a company impacts another function of a company in some way.  It's a ripple affect.  Your accountant can help you manage your company but only if you see their role and function intertwined with your company's goals, a part of the circle. 

 

Areas like strategy, competition, and data analysis are critical to a business.  Accounting firms often have a background to provide these expertise to their clients, don't be afraid to ask!

 

Five Important Factors in a Strategic Plan Design - By Karla Hopkins

 

 

Create a Leadership Culture.   Leadership focuses on producing change and forward movement.  Leaders are able to clearly communicate their vision and can inspire others to be successful.  Any personality can be a leader, people just need someone to give them the room and support for taking charge of anything from their own job, to a department, to a business model.

One size doesn't work for all companies.  In additon to size, a company's position on its life cycle is an important factor.  For example a new company with a virtual business model would approach their strategic plan differently than a single shop third generation business.

 

Create a culture of shared accountability and personal responsibility.  Leaders who inspire trust and share their vision with their employees generally can create a team that supports them and their vision.  Their workforce becomes engaged in the overall goals of the company and these company goals become their personal goals.
 
Execute and implement timely.  Create a sense of urgency by getting senior leaders on board, communicate exhaustively, and reward incremental success in the strategic plan development.  Garner commitment and once you have employees who understand the vision, are involved with its process, own the future success, and believe in it, you can execute effectively.

Measure your success factors.  What are the metrics for measuring the success, are there rewards for stages in the plan, is the strategy clear, how is every level of the company benefitted from the plan.   According to Peter Dricker, management consultant, "what gets measured gets done"

The Massachusetts Small Employer Wellness Program
Tax Credit by Karla Hopkins, CPA



 

For most, taking care of our health is just as important as saving money on taxes.  To support this, the Massachusetts Department of Public Health has created an annual tax credit (up to $10,000 per year) equal to 25% of the costs associated with implementing an employer-sponsored certified wellness program.

The employer's wellness program must provide for things such as:

·       A work environment that supports physical and mental health

·        A process for identifying and addressing specific needs and health risks of  employees

·        Offering awareness and education programs for health information

·        Offering behavior and change programs for the employees seeking to change their lifestyle.

The program must be certified by the Massachusetts Department of Public Health in advance of filing for the tax credit.  The business must have fewer than 200 employees.  The business must offer health benefits to its employees and not have recent OSHA violations.

A minimum of 33% of the employees must participate in at least one element of the wellness program to qualify for the credit.

This credit is available for 2013 through 2017 on an annual basis and employers must submit their plan for approval each year to be eligible for the credit.  Preference for approval is given to employers with fewer than 100 employees.

The following link provides detailed information on the process for creating a qualifying plan.  In a day where taxes are taking more and more of company profits and employee disposable income, this may be one way to become a healthy company both physically and financially.

http://www.mass.gov/eohhs/docs/eohhs/wellness-tax-credit/obtaining-a-wellness-tax-credit-cert.pdf

PAYROLL TAX AND WAGE COMPLIANCE RULES

by Karla Hopkins, CPA

Outsourcing your payroll to a service company has the potential to cause compliance issues. Whether you pay your payroll taxes yourself or rely on a service company to remit them for you, you are ultimately and always responsible - even if the payroll company makes errors. 
 
Regularly assure yourself that all payroll taxes are being paid with the following steps:

1. Hire only bonded service companies

2. Do not allow the payroll service company to sign tax returns

3. Always confirm that the payroll company has deposited your payroll taxes by

    logging into the IRS website yourself

4. Do not allow tax correspondence to be sent to the payroll company have it

    sent to you

5. Request that the IRS provide you with a transcript of the company's tax accounts

    on a regular basis

Final Wages - When must you pay them to a terminated employee? 
While state laws vary, the best strategy is always to deliver the final paycheck at the time of termination. It is much easier to reconcile a manually prepared final check than to fight over the check in court. Disgruntled employees will often put in the time and effort to take you to court over noncompliance.

Basic rules for New England states are as follows:

                                                  If an employee quits                     If fired or laid off 
    Massachusetts                            Next Payday                                Immediately
    Maine                                         Next Payday                               Next Payday     
    New Hampshire                         Next Payday                               Next Payday or

                                                                                                           within 72 hours
    Rhode Island                              Next Payday                               Next Payday

When does the workday begin and end?
Technology now allows employees to do work at remote locations in small increments, but is this compensable time? Is every response from your smart phone to an employer, customer or vendor time that should be paid? Regulations allow employers to disregard insubstantial or insignificant periods of time beyond the employees' regular work day if it is not practical for this time to be recorded for payroll purposes.

When you log in to your workday via your computer, what about the time it takes for your computer to wake up in the morning, is this compensable time? The FLSA says “yes”.

 

Filing an Amended Tax Return by Carolyn Flaherty

So you got a jump on things, filed your return early… and then received an unexpected Form 1099 that should be reported. Maybe your investment advisor found a mistake and mailed you a corrected Form 1099 after you filed your return? You filed as married filing jointly and realized later that this year married filing separately generates a lower tax liability. Perhaps you found a mistake when you did the spring cleaning of your finances? Regardless of how the error occurred you need to know how and when to file an amended tax return.

First, you do not typically need to file an amended return for math errors. The IRS automatically corrects the errors and changes your refund or liability for you. Neither do you need to file an amended return if you neglected to attach required forms. The IRS will contact you to request forms if they need them. However, you should consider an amendment if filing status, income, deductions or credits require adjustment.

Amendments generally must be filed by the later of three years from the date you originally filed the tax return or two years from the date the tax was paid. You must prepare a Form 1040X to amend your return. As you compile your amended return, consider the following:

1.       You cannot correct a prior year error on your current year return. You must go back and properly report the item in question in the year that generated the error.

2.       If corrections are necessary for more than one year, you should prepare a Form 1040X for each year and mail them to the IRS separately.

3.       Include support for your changes with Form 1040X. For example the corrected or additional 1099, W2 or other forms should be attached and mailed with the amendment.

4.       Form 1040X cannot be filed electronically.

5.       If you are filing an amended return to claim an additional refund: file after receiving your initial refund. You may utilize the original refund: the IRS will remit the differential after the amendment is processed.

6.       If you are filing an amended return that results in additional tax liability: remit payment with the filing so that penalties and interest can be minimized.

7.       Amended returns will take up to twelve weeks to process.

Mistakes can occur whether you prepare your own return or consult with a CPA to do so. Our blog posted February 19, 2011 “Should I prepare my own tax return,” (direct link: http://www.prrllc.blogspot.com/2011/02/should-i-prepare-my-own-tax-return-by.html), may help you decide how to proceed. As stated in that blog, regardless of whether or not you are confident in your ability to prepare your own returns; we strongly recommend that about every three years you go for a financial “checkup.” If a professional finds missing deductions or mistakes during their review; you will have the ability to amend during the three year period.

In addition, sometimes an IRS Notice will be the catalyst for an amended return. The most important thing to remember upon receiving a notice form the IRS is not to panic. Review our blog published January 19, 2012 “What to do if you receive an IRS Notice,” (direct link: http://www.prrllc.blogspot.com/2012/01/accounting-news-has-been-reporting.html), and consult your tax advisor so they may review your return and properly advise you.

Taxpayer's Burden of Proof by Carolyn Flaherty

Most US citizens understand the concept of criminal law that provides a person is innocent until proven guilty. However, many fail to grasp that the same is not true in tax court. To the contrary, in general, the IRS commissioner’s determinations are presumed to be correct and the taxpayer bears the burden of proving that the positions are erroneous.

The IRS is allowed to reconstruct income using various manners including the commonly used method of bank account analysis. The IRS reconstruction of income is simply required to be reasonable in light of the surrounding facts and circumstances. As established by case law, all bank deposits constitute evidence of income and as such the IRS can simply assert that all deposits made to bank accounts are taxable income. If deposits represent loans, contributions from the owner of a business or transfers between accounts; it is the responsibility of the taxpayer to prove this fact. The Tax Court will not reconcile accounts to match transfers nor attempt to gather evidence to support the source of funds to an account. The substantiation must be efficiently and concisely supported by documentation provided by the taxpayer.

Furthermore, Tax Court Rule 142(a) states that deductions are a matter of “legislative grace” and the taxpayer therefore must prove that they are eligible for the deduction and also substantiate the deduction claimed with appropriate receipts and documentation. If the taxpayer is unable or unwilling to prove eligibility or substantiate the deduction, it will be denied.

Business income and expenses reported on Schedule C are increasingly scrutinized by the IRS. Ordinary and necessary expenses incurred in a trade or business are normally deductible. However, taxpayers should note that banks statements or tables of expenses generated from bank statements are not considered sufficient evidence of eligibility for deduction. The court asserts that the tables do nothing more than summarize purchases and therefore do not prove that they were ordinary and necessary business costs as opposed to personal or other non-deductible business expenditures.  In addition, a memo notation in a check is not necessarily enough to substantiate a payment as a legitimate business expense if it could also be presumed a personal expense.

The IRS may impose a 20% accuracy-related penalty when there is a substantial understatement of tax. Substantial understatement is considered to exist when it exceeds 10% of the tax required to be shown on the return (unless the understatement is less than $5,000). The penalty will not be imposed on any portion of the understatement which resulted due to reasonable cause and in good faith. To establish reasonable cause and good faith, the most important factor is the extent of effort the taxpayer has taken to arrive at the correct tax liability.

Therefore, careful record keeping and documentation are imperative. Moreover, business and personal expenditures should be maintained independently through separate bank accounts and credit cards. For more information on how to document and defend your tax position, contact a tax advisor.

Deducting Home Office Expenses by Carolyn Flaherty

The home office deduction can prove to be a valuable deduction; particularly for self-employed taxpayers. The deduction may convert otherwise non-deductible expenses, (such as utilities, home owner’s insurance, association fees and more) into deductible business write offs that will reduce self-employment tax liabilities. However, the deduction is one that has been scrutinized by the IRS due to abuses by taxpayers and proper record-keeping can be onerous.

Therefore, for tax years starting in 2013, the IRS has provided an optional safe-harbor method to calculate the home office deduction. Under the safe-harbor method the taxpayer will look to the square footage of the area used exclusively for business and simply multiply that by $5. The maximum allowable square footage for figuring the safe-harbor deduction is 300. As such, the maximum safe-harbor deduction is $1,500.

Interestingly, taxpayers are allowed to switch back and forth from year to year between the safe-harbor and the actual expense method. Therefore, in a year when significant repairs and maintenance work was done: the taxpayer may wish to use actual expenses whereas in other years, it may be easier to use the safe-harbor. Note that the safe-harbor election once made for a tax year is irrevocable for that year.

Depreciation expense cannot be taken in a year the safe-harbor election is made, but may be taken in subsequent years when the actual expense method is used.

Whether the safe-harbor or actual expense method is used, the home office deduction cannot reduce the qualified business income below zero. However, the actual expense method allows the unused deduction to be carried forward to subsequent profitable years. The safe-harbor rules do not. Additionally, the actual expense carry over can NOT offset business income in a year when the safe-harbor rules are used. The carry forwards may only be applied to a future tax year when the actual method is utilized.

Regardless of the method used, your home office must be used exclusively for business and must also be your principal place of business. Exclusive use specifies that the personal use of your home office is no more than would be permitted in an office building. If you work at multiple sites, your home office is still your principal place of business if you regularly meet customers or clients there.

List of potential costs deductible under actual expense method:

·         Direct expenses such as business phone lines, computer equipment etc.

·         Indirect expenses (in proportion to the square footage of the office as compared to the total home), the following are common expenses considered in the deduction calculation:

1.       Utilities

2.       Home owner’s insurance

3.       Association fees

4.       Security costs

5.       General repairs and maintenance

6.       Depreciation or rent

7.       Mortgage Interest

8.       Property taxes

PREPARING FOR TAX CHANGES IN 2013 by Karla Hopkins

2012 was a year of negation and election.  Many of us were watching and waiting for our congressional leaders to come to agreement on the terms of our federal budget and especially changes that would impact our tax liabilities in 2012 and future.  Here are a few highlights on these changes which will be important for you to consider for 2013:

• A 3.8% additional tax on the lower of net investment income  or the amount of  modified adjusted gross income over the $250,000/$200,000 threshold.  Net investment income includes, interest, dividends, rents, and gains.

• Additional .9% Medicare Tax for employees (not employers) on compensation over a $250,000/$200,000 threshold.  Because the threshold amounts are based on filing status and combined wages for a joint return, not all employees will have the correct amount of withholdings.

• The top federal  tax rate will return to 39.6% for a married couple with in excess of $450,000 of income and a single taxpayer with $400,000 of income.

• Capital gain rates will return to 20% based on a threshold again of $450,000/$400,000.

• Phase outs of personal exemptions and itemized deductions will return for taxpayers over a threshold of $300,000/$250,000 in income.

• The payroll tax holiday has ended.  Employees' FICA withholdings will return to a 6.2% rate from the reduced 2012 rate of 4.2%.

• Personal tax credits including the $1,000 child tax credit and advanced opportunity college tax credit are extended.

• The elective contribution to a 401(K) plan has been increased to $17,500.

• The elective contribution to an IRA account has been increased to $5,500.

Because many of these came so late in the year, it will be critical in 2013 for all taxpayers to play an active role in their tax planning during the year.  Follow our newsletters and blogs for the most up-to-date information and as always, contact our office with questions and we will gladly assist you with your tax planning: http://www.prrllc.net/ 508-553-3091.

MA Septic Credit by Carolyn Flaherty

The cost to repair or replace a failed septic system can be financially crippling to home owners. As such, the Title V testing that is required as part of the sale of all Massachusetts homes can be a nerve racking undertaking. Should you find yourself the unfortunate owner of a failed system, you may find some consolation in the MA Septic Credit.

The MA Septic Credit is equal to 40% of the actual costs (actual costs not to exceed $15,000), incurred to repair or replace a failed system. The credit is available on your primary residence located in Massachusetts.

Actual costs include materials, equipment, demolition, relocation, design, engineering, testing and inspection paid to upgrade, replace or connect a failed system to a sewer system.

The maximum septic credit is $6,000 (40% of $15,000), but the maximum allowed for any one tax year is $1,500. The remaining credit is carried forward for a period not to exceed five tax years after the initial credit is claimed. The initial credit is taken on MA Schedule SC in the year in which the repair or replacement of the failed system is completed. A Certificate of Compliance or verification letter stating that the system complies with the Title V Department of Environmental Protection requirements along with the bills for costs incurred to cure the system, must be kept for your records to substantiate the credit.

Massachusetts also offers qualified home owners low interest loans and betterment for the repair or replacement of failed systems. The interest subsidy associated with any such loan or betterment will be subtracted from the Septic Credit. The reduction of the Septic Credit is generally equal to the difference between the annualized non-subsidized state interest rate (as determined under General Law c. 62C, s. 32(a)) and the state subsidized rate.

Note: The taxpayer claiming a MA Septic Credit cannot be a dependent of another. In addition voluntary repairs or replacements of a cesspool or septic tank do not qualify for the MA Septic Credit. However, if a federal or state court order or similar mandate causes the taxpayer to pay for connection to a municipal sewer system, the credit is allowed.

Form 990 Audit Triggers by Carolyn Flaherty

Each year the IRS announces its exempt organization work plan. Evaluation of the plan reveals exempt organization audit triggers. For 2013 the IRS will be scrutinizing entities with the following characteristics:

1. Organizations with high foreign expenditures.

2. Medium to large organizations that report substantial fundraising income but proportionally small fundraising expenses.

3. Entities that report high annual gross receipts but low compensation of directors, trustees, officers and key employees.

4. Organizations reporting considerable unrelated business income for three or more consecutive tax years with little or no related taxable income.

5. Exempt organizations that have potential impermissible campaign spending.

6. 501(c)(4), (c)(5) and (c)(6) filers including social welfare organizations; labor, agricultural and horticultural groups; and trade associations that have self-declared themselves tax-exempt without an IRS determination.

Because the IRS continues to use analytical evaluators of Form 990 responses to select organizations for audit and review: filers should take care to review and follow Form 990 instructions.

Refinancing Your Rental Property by Carolyn Flaherty

Mortgage interest rates have been trending downward for many years. As such, many people have taken the opportunity to re-finance their loans to ascertain shorter terms or lower monthly payments. Although you are only allowed to deduct qualified points and interest on your primary residence: you may be able to deduct more from a rental property you own.

The fees associated with the refinance are deducted over the term of the loan. However, if the refinance is done to take equity out of the property in order to make substantial improvements on the property; the fees may be deductible in the year they are paid.

Some of the settlement expenses that can be deducted include the following:

• Abstract fees
• Appraisal fees
• Attorney fees
• Bank fees
• Mortgage commissions
• Notary fees
• Points
• Recording fees
• Title search fees
• Underwriting fees

These amounts can be found on your closing statement and again, should be amortized over the life of your loan.

The remaining balance of charges from the previous loan that were being amortized may be deducted in full the year you refinance if you refinance with a new lender. On the other hand, if you refinance with the same lender, you should deduct your unamortized balance of old charges over the life of the new loan.

The 411 on Social Security

As published by Bank Investment Consultant:

You don’t need to retire to collect Social Security, even at age 62, but you will pay a penalty
Those who retire at 62, or before reaching full retirement age of 66 (67 for those born after 1960), pay a penalty of $1 for each $2 earned over $15,120 in 2013. For those who are reaching full retirement age of 66 this year and who start collecting Social Security will pay a $1 penalty for every $3 earned over $40,080 (these limits are raised each year for inflation). But don’t be too troubled by the penalty. The Social Security Administration, after you reach full retirement age, will adjust upward your benefit amount to reflect the extra money you earned by continuing to work while collecting early benefits, and the money that was withheld as a penalty.

Social Security income is protected by law from most creditors – but not from debts owed to the IRS, federal student loans or other federal government claimants (or from alimony or child-support payments).
This means you may want to settle federal debts using other assets before you are depending upon your Social Security benefits in retirement, but it also suggests that if you have transferred other assets, for example into a Trust for your children, you don’t have to worry about private creditors.

Social Security income is taxes at less than other income
If your taxable income is less than $25,000 or $32,000 for a couple filing jointly, you owe no income tax on your Social Security benefits. Above that amount, the taxable amount of your Social Security benefits increases with income to a maximum of 85%. However, since withdrawals from a Roth IRA don’t count as taxable income, it can be advantageous to start withdrawals from non-Roth retirement funds, holding Roth withdrawals until you start collecting benefits.

Link to Article: http://www.bankinvestmentconsultant.com/news/Social-Security-Debts-Fees-and-How-to-Avoid-Them-2683475-1.html?ET=bankic:e12984:34921a:&st=email

Biggest Social Security Misconceptions: http://www.bankinvestmentconsultant.com/video/Social-Security-Biggest-Misconceptions2683480-1.html?ET=bankic:e12984:34921a:&st=email

UGMA & UTMA Custodial Accounts for Minors by Tish Michelson

The Uniform Gifts to Minors Act (UGMA) was adopted in 1956 to provide a convenient way to make gifts of money and securities to minors. Later, it became clear that a more flexible law was desirable and the Uniform Transfer to Minors Act (UTMA) was adopted in 1986. UTMA expands the types of property that can be transferred to a minor and provides the ability to make other types of transfers besides gifts. Nearly all states have adopted UTMA, but it is up to each individual state to designate the age in which control passes to the child (generally 18 or 21).

Custodial accounts are similar in some ways to trusts. Both vehicles place property under the control of a person who is not the beneficial owner. In the case of a trust, a trustee manages the property for the benefit of the beneficiaries. In the case of a custodial account, the custodian manages the property for the benefit of the minor.

Custodial accounts are also very different from trusts. The whole point of UGMA and UTMA is to permit you to transfer property to a minor without setting up a trust. Trusts provide greater protection and more flexibility, but are more expensive, time-consuming and complicated. As a general rule, custodial accounts are a better option for smaller transfers. If you expect to transfer tens of thousands of dollars, a trust may be a better vehicle.

A transfer to a child under UTMA or UGMA requires the involvement of a custodian. This is an adult who will manage the property until the child reaches the age (dictated by state) when control passes to the child. Even though the child will not have control of the property until later, the child is the owner as soon as the property is transferred to the account. Any income earned on the account is taxed to the child.

Once you have transferred assets into a custodial account, the assets belong to the child (the beneficial owner) - you are not permitted to take them back. When the child reaches the state-specified age, the account terminates and the custodian is legally required to transfer the property to the child, who can use it any way he or she chooses.

Another difference that may affect your decision between setting up a trust or a custodial account is the number of possible beneficiaries. A custodial account may only belong to one child. It is non-transferable until the account terminates. A trust can be set up for the benefit of many beneficiaries.

Because of non-transferability and financial aid implications, it may not be the best vehicle to save for college. It also may not be the best vehicle to avoid taxes. The best use of a custodial account is in situations where you have a genuine desire to make a specific financial gift to a specific child.

Transfer on Death (TOD) Registration By Tish Michelson

The Uniform TOD Security Registration Act provides non-probate transfers of specifically registered investment securities from owner to named beneficiaries at the owner’s death. The letters T.O.D. stand for “transfer on death” signaling that the investment or account is to be re-registered on request after the owner’s death in the name of the beneficiary.

State law, rather than federal law, governs the way securities may be registered in the names of their owners. Most states (48 out of 50) and the District of Columbia and US Virgin Islands, have adopted the Uniform TOD Security Registration Act, although some have modified it. In addition, brokerage firms may decide whether or not to offer TOD registration.

Transfer on Death (TOD) registration allows you to pass the securities you own directly to another person or entity (the “TOD beneficiary”) upon your death without having to go through probate. By setting up your account or having your securities registered this way, the executor or administrator of your estate will not have to take any action to ensure that your securities transfer to whomever you have designated. The TOD beneficiary will have to re-register the security or account in their own name once the owner has died. The re-registration typically involves sending a copy of the death certificate and completing an application.

The TOD registration enables avoidance of probate without the risk of problems caused by joint and survivor security titles. Control of an investment registered in TOD beneficiary form, including the right to change or cancel the death beneficiary, lies solely with the owner.

What are Ishares? by Karla Hopkins

iShares® are a brand of exchange-traded fund (ETF). iShares® are the largest ETF provider in terms of both number of products and amount of assets. Each iShares® ETF tracks a different stock market or bond index. They are designed to emulate the performance that specific index. iShares ® have existed since the 1990s; they were created by Barclay’s Global Investors and are currently owned by the BlackRock Investment Company. iShares ® are intended to be a trading option for investors interested in tracking benchmarks of a type of market as opposed to investing in an individual corporation via stock shares or group of corporations via mutual fund shares.

ETFs are funds that trade like stocks, but contain multiple assets similar to mutual funds. Unlike mutual funds which are bought and sold at a set price once per day, ETFs trade at varying prices throughout the day. Also, iShares® disclose the contents of their portfolios daily, rather than quarterly like mutual funds, which allows investors a greater degree of transparency.

The benefits of iShares® include greater diversification, greater options, lower expense ratios, tax efficiency and increased liquidity. Diversification is intrinsic to each iShare®. For example, if you buy the S&P 500 Index Fund ETF – that particular iShare® owns fractional shares of all 500 companies in the S&P 500 Index. You now have an investment whose performance mirrors that specific index – without making 500 purchases and paying 500 commissions. There are numerous categories of iShares® in which to invest such as: growth, value, industry, sector, international, real estate, fixed income and precious metals. The expense ratios of iShares® are between .09% and .75% - which are significantly lower than mutual fund ratios. There is a tax efficiency built into iShares because they are built on specific indices (such as the Dow Jones Industrial Average) and turnover of the investments comprising the iShare® is virtually non-existent – therefore there are no capital gain distributions with their corresponding taxes. Because they are ETFs, iShares® can be bought and sold throughout the day. You can place market, stop, and limit orders, purchase on margin and sell the security short. These options allow iShares® to offer even more liquidity and be even more flexible than regular index funds.

iShares® - and ETFs in general – should be considered a good supplement to mutual funds, money markets, bonds and CDs as the backbone of a diverse portfolio. While unlikely to skyrocket in value, it is also rare that their value will plummet.

After Our Fall Over the Fiscal Cliff: by Karla Hopkins

2012 was a year of negation and election. Many of us were watching with trepidation for our congressional leaders to come to agreement on the terms of our federal budget and especially changes that would impact our tax liabilities in 2012 and future. Now that we have gone over the dreaded fiscal cliff: what does the landscape look like?

Here are a few highlights on the changes which will be important for you to consider for 2013:

• A 3.8% additional tax on the lower of net investment income or the amount of modified adjusted gross income over the $250,000/$200,000 threshold. Net investment income includes, interest, dividends, rents, and gains.

• Additional .9% Medicare Tax for employees (not employers) on compensation over a $250,000/$200,000 threshold. Because the threshold amounts are based on filing status and combined wages for a joint return, not all employees will have the correct amount of withholdings.

• The top federal tax rate will return to 39.6% for a married couple with in excess of $450,000 of income and a single taxpayer with $400,000 of income.

• Capital gain rates will return to 20% based on a threshold again of $450,000/$400,000.

• Phase outs of personal exemptions and itemized deductions will return for taxpayers over a threshold of $300,000/$250,000 in income.

• The payroll tax holiday has ended. Employees' FICA withholdings will return to a 6.2% rate from the reduced 2012 rate of 4.2%.

• Personal tax credits including the $1,000 child tax credit and advanced opportunity college tax credit are extended.

• The elective contribution to a 401(K) plan has been increased to $17,500.

• The elective contribution to an IRA account has been increased to $5,500.

Because many of these changes came so late in the year (and are still being worked out in Washington), it will be critical in 2013 for all taxpayers to play an active role in their tax planning during the year. Follow our newsletters and blogs for the most up-to-date information and as always, contact our office with questions and we will gladly assist you with your tax planning.