We got notification last night that Justin has passed the fourth and final of the CPA Exams!

This is the last major hurdle to getting my license. Now it’s a matter of paperwork – ethics, experience affadavit, application, etc.

I’ll have to take some time to celebrate after the tax season.

Categories: Tax News and Tips
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The new stimulus package contains hundreds of tax changes. We will spend some time highlighting these throughout the year, but we want to start with an issue that affects employers and employees.

The “Making Work Pay” credit is going to cause a lot of confusion for a lot of people. The idea is that you get up to $400 ($800 married) against your social security tax (6.2% of income). The credit will appear on your tax return in 2010, but you’ll also see a decrease in federal income tax withheld.

This means that if you have net pay of $1000 and usually have $50 of federal tax withheld, you might only have $40 withheld, increasing your net pay to $1010. (For employers, this is an anti-stimulus. Instead of holding onto that $10 for two to six weeks, you’ll have to pay it with each paycheck).

The change in withholding means that the credit will not increase your refund next year. If you reduce withholding by $400 and increase tax credits by $400, the net result is a $0 change in tax/refund due.

Do you have multiple jobs? Be careful! The withholding tables don’t know how many jobs you have. You might see a decrease at each job, even though you only get one credit. Furthermore, the credit phases out if you make too much money; a worker with multiple jobs might have withholding reduced and yet not qualify for the credit to offset it.

For information from the IRS, see this page.

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Good news today! The Washington Board of Accountancy has already finished grading my CPA Exam on Financial Accounting and Reporting and I’ve passed with flying colors – a score of 88 when a 75 would have sufficed.

This seems to be a trend. The first exam (Busines Environment and Concepts) was 86. The second exam (Regulation) was 87.

So, can I expect 89 on the Auditing & Attestation exam?  I’ll know for sure before the end of March.

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We’ve talked about this before, but a reminder is always good. In their latest Tax Tips newsletter, the IRS says:

You probably already keep records in your daily routine. This includes keeping receipts for purchases and recording information in your checkbook. Keeping these and other records will help you avoid headaches at tax time. Good recordkeeping will help you remember the various transactions you made during the year, which in turn may make filing your return a less taxing experience.

Records help you document the deductions you’ve claimed on your return. You’ll need this documentation should the IRS select your return for examination. Normally, tax records should be kept for three years, but some documents — such as records relating to a home purchase or sale, stock transactions, IRA and business or rental property — should be kept longer.

In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, however, you should keep any and all documents that may have an impact on your federal tax return:

• Bills
• Credit card and other receipts
• Invoices
• Mileage logs
• Canceled, imaged or substitute checks or any other proof of payment
• Any other records to support deductions or credits you claim on your return

Good recordkeeping throughout the year saves you time and effort at tax time when organizing and completing your return. If you hire a paid professional to complete your return, the records you have kept will assist the preparer in quickly and accurately completing your return.

Categories: Tax News and Tips
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Did you know that most Washington businesses file monthly, quarterly and/or annual reports on 14 or more different forms? And that they report to at least 7 different government agencies?

We will be conducting a free workshop, called “What to expect when you’re expecting business” which is open to all who are interested.* We’ll be covering what to expect when you register a business, such as who to register with, what taxes you’ll be paying and how to know if you’ve done everything right.
*  Just get a free Biznik membership to attend.

The workshop is on Friday, February 20, 2009 at the Inside Scoop in Mill Creek. Space is limited to 12 people.

Categories: Business Tips, Full Potential News, Tax News and Tips
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The IRS has responded to pressures from the Taxpayer Advocates to help those who may have trouble paying their taxes this season. Full details can be found on their site.

One of the things that many people don’t know is that you can make payments by credit card. I don’t recommend this necessarily, since you’ll face an extra fee of about 2.5%. But failure to file penalties are 5% per month and failure to pay penalties can be as high as 10% for payroll tax deposits.

The IRS is also improving how they deal with people when it comes to missed installment payments, collection actions and levy releases.

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From the IRS Tax Tips Newsletter:

First-time homebuyers should begin planning now to take advantage of a new tax credit. Available for a limited time, the credit:

• Applies to home purchases after April 8, 2008, and before July 1, 2009.
• Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.
• Is fully refundable, meaning that the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax that they owe.

The credit operates much like an interest-free loan because it must be repaid in equal installments over a 15-year period. Taxpayers will claim the credit on new IRS Form 5405, First-Time Homebuyer Credit.

Only the purchase of a main home located in the United States qualifies. Vacation homes and rental property are not eligible. For a home that you construct, the purchase date is the first date you occupy the home.

Taxpayers who owned a main home at any time during the three years prior to the date of purchase are not eligible for the credit. This means that first-time homebuyers and those who have not owned a home in the three years prior to a purchase can qualify for the credit.

If you make an eligible purchase in 2008, you claim the first-time homebuyer credit on your 2008 tax return. If you make an eligible purchase in 2009, you can choose to claim the credit on either your original or amended 2008 return, or on your 2009 return.

The credit is 10 percent of the purchase price of the home, with a maximum available credit of $7,500 for either a single taxpayer or a married couple filing jointly. The limit is $3,750 for a married person filing a separate return. In most cases, the maximum credit will be available for homes costing $75,000 or more. The credit normally must be repaid over a 15-year period starting the second year after the year the credit is claimed.

The credit is reduced or eliminated for higher-income taxpayers. The credit is phased out based on your modified adjusted gross income. In general, for a married couple filing a joint return the phase-out begins at $150,000 and is completely phased out at $170,000. For other taxpayers, the phase-out range is between $75,000 and $95,000.

Not everyone will qualify for the credit. There are other rules that may impact your eligibility and decision to claim the First-Time Homebuyer Credit. Get all the information at IRS.gov.

Links: First-Time Homebuyer Credit Information Center

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Last year, Congress authorized the IRS to provide “Economic Stimulus Payments” (often abbreviated ESP). Many of our clients received these payments last year. They were worth $300 if you had any income at all, $600 if you owed income tax, plus $300 per dependent child.

This year, ESP’s twin is the Recovery Rebate Credit, or RRC. The calculations are the same, the law is the same, but the name is different.

While this is confusing for some people, just remember it this way:

• The ESP is based strictly on 2007 tax return information
• The RRC is based strictly on 2008 tax return information
• You’ll get whichever amount was higher. If RRC is higher, consider the ESP an advance; you’ll get the difference this year.

Categories: Tax News and Tips
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To introduce you to our new home office (and prevent confusion with the international branches), we’d like to invite you to a Full Potential open house!

January 1st, from 2 pm to 4 pm, we’ll have drinks and appetizers and an open door for anyone who would like to drop by.

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There are many difficult choices that business owners have to make, and none is as challenging as deciding how to respond to a difficult economy or the need to move. We have come to a decision regarding this and have decided to move the office back home.

The majority of our clients are small businesses; many of them are in real estate and construction. We understand their need to cut back or delay services. If we knew that the economy would recover in just a few months, we’d happily tough it out, but the pessimists are talking about years of slower economic activity.

We bought our home because it has a lower floor that can be dedicated to office space. We’ll be moving the majority of our furniture back in, and you should feel just as at home as we do. During regular business hours (which are unchanged), just come on in!

The move is timed to start in the second week of December and we should be completely finished by January 1st.

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