2009 Year End Newsletter January 5, 2010 Dear Clients:      I hope this letter finds you at the start of a happy, healthy and prosperous new year!      Thank you for making it to our website and taking the time to read our newsletter.  This year I've included links in the newsletter so you can see more detail on the items that interest you.      Let me start with the big news:  2010 is our 15th anniversary!  To celebrate, we're giving away a prize each week during tax season.  I'm calling it The Harding Group's Great 2010 15th Anniversary Give-Away.  (Catchy, huh?)  Click the link for more info and the full list of prizes. Portals      I am currently in the process of setting up a portal for each of our clients.  For our monthly clients, the portal will provide online access to year end financial statements, W-2s, payroll reports and income taxes- business and individual returns.  For our other clients, the portals will be established automatically when we print your 2009 tax return.      Either way, your login in will be 107644@LASTNAME and your password will be your initials (first and last name) followed by your social security number.  To access your documents, you will go to the Client Login section of our website. Tax Questionnaires        Tax questionnaires (for both businesses and individuals) are available here.   You will be ever so pleased to know that we have just streamlined the business tax questionnaire considerably!  It's now a checklist of things to include, just like we use for the individual returns.  I think you'll find it much easier.       As you know, we process taxes in the order we receive the information.  But, you don't have to wait for every last statement to come in .  We're happy to get your file when it's about 90% complete.  Just put a note on the questionnaire letting us know what paperwork you're waiting for.  Then, when it comes in, we should be able to finish your return quickly.      February 15th is the last day to get us your business information if you would like us to complete your corporate return on time.  After that, we will have to extend your return.  Likewise, March 15th is the last day to get us your personal information if you would like to have your individual return completed on time.      Below are the deadlines for filing.           Individual return deadlines  (includes sole proprietor returns)          Business return deadlines  (includes partnerships & corporations)          If you have an LLC and aren't sure which deadline applies, click here for more info.  (And you should probably give me a call.) New Tax Law, IRS Areas of Interest, and Other Things      There was a lot of new tax law in 2009.  I'm going to give you some of the highlights, as well as some other information I think you might appreciate.   Please feel free to contact me with any questions or comments on these items or anything related to your business or taxes. The Good Home-Buyer Credit - On November 9th, the First Time Home-buyer Credit was expanded to include "long-time residents".  If you bought a new home in 2009 or might buy one in 2010, click here. Sales Tax Deduction for Vehicle Purchases - If you purchased a vehicle (which includes cars, light trucks, motor homes and motorcycles) between Feb 17 and Dec 31, 2009, we can deduct the sales tax.  There are some restrictions. SBA Loans - If you are in need of a short term loan, the SBA has a new program for interest free loans of up to $35,000!  Here's the info.  Mortgage Rates - It's a good time to look at refinancing if you have some equity in your home.  If you have a 30 year loan and can afford to pay a little bit more, moving to a 15 year loan could save hundreds of thousands of dollars.  Click on the calculator to see what you can save. Energy Credits - The energy credits are back for 2009.  (They had expired for 2008.)  If you made energy saving improvements to your home or business, click here. Don't forget about the Maryland Homestead Tax Credit - Some of you may have received the a homestead tax credit application with your property assessment this year.  (One third of home owners received them last year, one third this year, and one third will get them next year.)  Don't ignore it- the credit will save you money.  Here are the details. Converting your traditional IRA to a Roth IRA - Beginning in 2010, everyone is eligible to convert a traditional IRA to a Roth IRA.   (In previous years there was an income limitation.)  Let me give you a quick refresher on IRAs.  With a traditional IRA, you get a tax deduction for putting money in, but you have to pay taxes when you take it out at retirement.  With a Roth IRA, you don't get a deduction for putting money in, but you get to take it out tax free at retirement.  So, if you have money in a traditional IRA, and you would rather pay tax on it now, instead of during retirement, you can convert it to a Roth IRA.  Even better, for conversions in 2010, the income can be taxed in 2010, or you can elect to tax half of it in 2011 and half in 2012.  But this requires some thought.  It's not a good deal for everyone.  Here's a good article I found on the Charles Schwab website to help you decide if you should convert.  2010 Roth Conversion: Look Before You Leap 5 Year Net Operation Loss Carry-back - If your business had a loss, that loss can be carried back to get a refund of taxes you paid previously.  For 2008 and 2009 losses, it can be carried back up to 5 years.  (Previously it was only 2 years.)  Here are the details.  (But we'll take care of this for you when we do your taxes.) Education Incentives - There were some improvements to the education credits and deductions this year.  The benefits are better and more people will qualify.  There are a number of different options, so it's just a question of what's best for you.  If you have a college student, make sure to include all the information with your return. Our software will optimize the credits and deductions for you.  If you want to know more, click here. The Bad Income Taxes Expected to Rise - You've probably heard that the Bush tax cuts are scheduled to expire at the end of 2010.  That's if Congress does nothing.  If that happens, income tax rates and capital gains rates both go up.  If you have the ability to pay taxes in 2010 instead of 2011 or later, you may want to do that.  This is contrary to the traditional tax planning strategy that it's always better to pay taxes later.  This should factor in to your decision on whether or not to convert your traditional IRA to a Roth IRA, and when to pay the taxes on that conversion.  (It's time to take out the crystal ball.) The IRS does NOT email - If you receive an email claiming to be from the IRS, possibly saying there's a refund for you- it's a scam! Higher Penalties for S Corps and Partnerships - The penalty for filing a late partnership or S corp return is now $195 per partner (or shareholder) per month.   It adds up fast!  (It used to be $87.)  Business return due dates Employees vs. Independent Contractors - This continues to be a huge area of interest for the IRS.  They are looking for people who are being paid as independent contractors when they should be employees.  It's a little bit of a gray area, but if the IRS reclassifies your worker as an employee, instead of an independent contractor, there are huge penalties to be paid.  Here is some more information. S Corp owners who are taking too low a salary - are also being targeted.  Give me a call to discuss any concerns. Don't forget to treat your corporation like a corporation - The IRS expects corporations to have a ledger book that shows what stock certificates were issued when, and they expect you to have minutes of the corporate meetings. The Ugly Maryland Unemployment Rates - The MD unemployment tax rates have gone up dramatically for 2010.  Tax rates are different for each business based on the unemployment claims against the business.  The range of rates was .6% - 9.0% in 2009 (which was double the rates in 2008).  For 2010, they have jumped to 2.2% - 13.5%.  That's $187 - $1147 per employee.  This is a huge increase that you will feel when we complete your 1st quarter 2010 MD unemployment tax return.  MD unemployment is taxed on the first $8500 an employee earns, so the bulk of it is paid for the first quarter.  You will be receiving a notice from Maryland this month that tells you your new rate.  Please give that to us when you get it.  If you'd like us to give you an estimate of what you can expect to pay in April, just let us know. Foreign Accounts - The IRS is really trying to get a handle on foreign bank accounts.  If you have a foreign bank account that had a balance of over $10,000 in it on any day in 2009, you are required to file a special form.  There's no tax due, but the IRS wants to know.  (They're looking for money launderers and other financial criminals.)  If you don't file, penalties start in the thousands of dollars and include jail time!  This is not something to play with. Payroll Issues       We have already begun processing W-2s for those of you who have returned the 2009 W-2 Adjustment Form.  If you haven't done it yet, please read the 2009 year end payroll notice so you'll know what to do.  W-2s are due to your employees by January 31st, but most employees will be very happy to get them early.  We'll do everything we can to process them as quickly as possible.      Now is a very good time to have your employees do new W-4s and MW-507s to update their withholding. Make sure you have a valid I-9 for each employee too.  And don't forget that you need to do the MD New Hire Registration when you hire a new employee.  The link to register a new employee and all the forms you need in the payroll section of our website under employee forms.  1099s - Due January 31      If you paid anyone (an individual or a sole proprietor) more than $600 for service during the 2009 calendar year, then you are required to issue a 1099-MISC.  It is due to the recipient by January 31st.  Besides your independent contractors, you may also need to give one to your landlord, attorney, computer guy, etc.  1099s also need to be issued for interest paid, so try to think of anyone holding a note for you.  If you have loaned more than $10,000 to your corporation, then the corporation is required to issue you a 1099-INT.      The purpose of the 1099 is to inform the IRS (and the state) that the recipient has taxable income.  The IRS computers will check to see that the recipients reported the income on their individual returns. While there is some temptation to just let this slide, please don't.  If you fail to file 1099s you can be penalized, and the IRS can even come in and reclassify your workers as employees, which adds a whole host of payroll tax penalties.      It is not required that 1099s be given to corporations, but they are required for attorneys, even if the amount is less than $600.       Here's the information that we need: Name Social Security Number Address Amount      Please help us with this.  We want to help you file these on time. Thank You for Your Business!      Thank you so much for your business.  We strive to provide exceptional service and we stand behind our work.  We hope to continue growing in 2010 and I welcome any referrals you may have.  Sincerely,      Marla