Virtual Currency...Every Bit Counts

In recent Internal Revenue Service Notice 2014-21, virtual currencies like Bitcoin have been classified as property. The IRS is aware of the growing popularity of this medium of exchange and that it is not considered legal tender by any government. The IRS notice hopes to clarify how you must treat your use of this new technology. The outcome for users is not good. Here is what you need to know;

You must take care to plan your retirement plan withdrawals to avoid a potential 10% early withdrawal penalty. Unfortunately, each retirement account type has different rules. Here are some tips for Roth IRAs.

Roth IRA basics

Roth IRA accounts differ from other IRAs in that your contributions are made in after-tax dollars. If you follow the Roth IRA rules, your withdrawals of any earnings in the account can be tax-free. Generally, to take advantage of the tax-free distribution from a Roth IRA:

Keeping your company profitable when the economy slows down is a challenge for every business. You may be able to boost your bottom line with the following financial controls.

* Watch your customer credit. Use an accounts receivable aging report to flag past due accounts. Follow up with a customer immediately when you spot a delinquent bill. Don't extend any more credit until the customer brings the account up to date.

It is no surprise that states audit their small business community as a productive way to increase revenue for their state coffers. Should you receive the dreaded notice of one of these audits, here are some ideas that can make this a more pleasant experience:

1. Review the sales tax rules. Know the rules in your state and locality. Pay special attention to areas that are not taxed. A quick internet search on sales and use tax audits for your state should yield examples of areas the auditor will focus their resources. Pay attention to the terminology used in these documents. Use the same terminology when talking with the auditor.
2. Conduct a self-audit. Prior to the arrival of the auditor, audit yourself. Begin with your sales receipts, migrate to capital purchases, and then finish with your bills. Pay special attention to internet sales and purchases you make with your credit card.
3. The best defense is a good offense. You may find areas in your self-audit where you paid tax when none was due. Perhaps you have production equipment and your energy providers charge you sales tax on all your power. You may be due a sales tax refund for up to three years of this production energy use.
4. Watch out for capital equipment. The sales tax rules on capital equipment can vary dramatically. Some vendors may be required to collect and send in sales tax on equipment purchases that are not taxable. You must then file to collect a refund.
5. The expense report trap. An easy way to have the auditor pay for their time is to review your expense reports. Often you do not keep receipts of items purchased at a retail store. An auditor could assess you sales tax on items purchased at Walmart, simply because you did not keep the receipt. This despite the fact that a Walmart retail store always collects sales tax.
6. It’s not usually taxes on your sales that gets you. Remember, it is not often the collecting and transmitting taxes on your sales that gets attention in an audit, it is the payment of use tax and sales tax purchases you make and potentially overlook.
7. Pre-determine scope of audit. Prior to the audit please inquire what the scope of the audit will entail. If the timing of the audit will create a hardship, request a time that is better for you and your business. Consider recommending sampling a defined period of time versus a full review of all your records.
8. Get help. Finally, please consider that you will typically encounter an audit of this type once or twice during your career. The auditor does this every day. So get help as soon as you receive the audit notice.

Remember, all states share information with each other. They know sales and use tax audits of small businesses often generate more income than the state pays their auditor. Knowing this, it is best to be prepared.

We're happy to offer guidance and help you make smart tax decisions.

DiSabatino CPA
Michael DiSabatino
651 Via Alondra Suite 715
Camarillo, CA 93012
Phone: 805-389-7300
ww.sharpcpa.com

This publication provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, rewritten or redistributed without permission, except as noted here.  All rights reserved.

Unemployment compensation can provide a welcome buffer while you're transitioning to a new job. But with the help comes a tax effect, because the benefits provided under federal or state laws are usually includable in your income in the year you receive them.

As a result, depending on the amount of unemployment you expect to receive, you may want to complete "Form W-4V, Voluntary Withholding Request," to have federal income tax withheld from your benefits.

If you earned $400 or more of net profit during 2013 from work as a sole proprietor or independent contractor, you may owe self-employment tax. That's true no matter what your age - even if you're receiving social security benefits.

The tax is assessed on your net earnings from self-employment, which can include income from qualified joint ventures and partnerships, as well as fees you earn working as a director for a corporation. In this context, "earnings" generally means your income after deducting expenses incurred while operating your business. If you have multiple businesses, you combine the net income and losses.

When it comes to taking qualified deductions on your Federal Tax return three things must happen.

While this may seem evident to most, here are some typical areas that taxpayers often fall short, costing them plenty during tax filing season and during IRS audits.

Take a penalty-free IRA withdrawal for medical expenses

Are you considering withdrawing funds from your traditional IRA to pay unexpected medical costs?

You may be hesitating because of the 10% penalty imposed on withdrawals made when you're under age 59½. Since the 10% is calculated on the total you withdraw, the tax hit could be substantial. Worse, the penalty typically is not withheld from the cash you receive, so you'll need to come up with the money when you file your tax return.

Every small business should establish controls

Every week reporters publish stories about companies that have lost thousands, even millions of dollars because of fraud. They recount the dreadful details of business owners who learned – too late – that a lack of basic controls left their companies vulnerable to pilferage, embezzlement, and other types of misappropriation.

Ask whether you should carry life insurance on your children and you'll receive a variety of answers. Here's a look at the arguments for and against.

* Financial security. Traditionally, you take out life insurance to provide for the financial security of dependents.

There are a number of areas in the tax code that cause confusion as to the taxability of money received. Here are some of the most common areas of confusion.

Some of these areas can be complicated. What is most important is to realize when to discuss your situation.

As always, should you have any questions or concerns regarding your situation please feel free to call.

DiSabatino CPA
651 Via Alondra, Suite 715
Camarillo, CA 93012

Phone: 805-389-7300

If you intend to deduct business travel expenses on your income tax return, keep adequate records. If you are later audited, you will be able to substantiate your deductions. Your oral summary of your business expenses will not hold up to an IRS audit. Besides, audits are often a year or so after the events which make it more difficult to recall what took place if you don't have proper documentation.

You can receive your income tax refund in several ways: (1) direct deposit into a single checking or savings account, (2) direct deposit split into up to three different accounts in up to three different U.S. financial institutions, (3) via a paper check, or (4) purchasing up to $5,000 U.S. Series I savings bonds. Split deposits need not be in equal amounts, though buying savings bonds must be done in multiples of $50. You can't split your refund between a direct deposit and a paper check. For direct deposits, verify that your financial institution accepts such deposits, and verify account and routing numbers.

If you or a dependent had a name change last year, notify the Social Security Administration before you file your 2013 tax return with the IRS. Why? If the name on your tax return does not match SSA records, the IRS is likely to notify you about the mismatch. Any refund you expected could be delayed. So if marriage, divorce, or child adoption resulted in a name change, file "Form SS-5, Application for a Social Security Card" with the SSA to inform them of the change.

Who needs an "Employer Identification Number"?

If you do any of the following, you will need an Employer Identification Number (EIN) from the IRS:

• If you operate your business as a corporation or partnership.
• If you file reports for employment taxes, excise tax, or alcohol, tobacco and firearms.
• If you have even one employee.

Rules just issued by the Treasury Department give a one-year extension to the health insurance mandate for mid-sized businesses. Companies with 50 to 99 employees will now have until January 1, 2016, to provide health insurance for employees or face penalties. Employers must certify that they have not cut workers in order to come under the 100 employee threshold. Companies with 100 or more employees must still meet the January 1, 2015, deadline for providing health insurance coverage.

There are several sources of revenue that are not subject to income tax.

Here are the most common sources of money that are not taxed on your federal income tax return:

* Borrowed money, such as from banks or personal loans.

Have you acquired gold as an investment hedge the last few years?

Watch out for a tax whammy. Gold is subject to a special long-term capital gains rate, significantly higher than the usual rate!  In fact, depending on your situation, a long-term capital gain resulting from the sale of gold could trigger a tax rate almost double the rate you’re paying on your other long term gains.

Emergency savings: How much is enough?

We all need an emergency fund, but what's considered "an emergency?" Any unexpected hit to your finances, including layoffs, unanticipated illnesses, and natural disasters. Car insurance premiums and regular home maintenance are (or should be) anticipated, so they're not emergencies. The same is true of credit card bills for vacations and visits to the dentist's office. An emergency fund is designed to keep your life intact during temporary setbacks and to help you avoid unnecessary debt.

How much emergency savings is enough?

Health insurance tax credits are good medicine for small businesses

Small businesses may be missing out on an important new tax perk related to health insurance. And the stakes are even higher in 2014.