Victoria Majors Jones, CPA - Blog

When it comes to taxes, reaching age 70-1/2 is an important milestone. That's because you have to start taking minimum annual distributions from your traditional IRAs when you reach age 70-1/2.  If you don't take these minimum distributions when you're supposed to, you could get hit with a 50% penalty tax!

When must these minimum distributions begin? If you reached age 70-1/2 in 2011, you have until April 1, 2012 to take your first year's distribution. However, if you wait until 2012 to take this distribution, you may end up being in a higher tax bracket in 2012. That's because you'll also have to take your second year's annual minimum distribution in 2012, since the extended deadline until April 1 is available only in the first distribution year.

The decision whether or not to accelerate minimum distribution payouts is not an easy one.  Contact our office if you would like any help setting up the right IRA and retirement plan payout strategy for you and your family.

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The Franchise Tax Board (FTB) has announced that California's ReadyReturn program, which provides free completed tax returns, is now available for taxpayers to access. ReadyReturn reduces the tax-filing burden for those with simple tax returns by using existing wage records to complete their returns.

Taxpayers can check to see if they qualify by visiting the FTB's website at ftb.ca.gov, clicking on ReadyReturn, and providing a name and Social Security number.  Taxpayers can accept the tax return as presented, change any information on the return, or disregard it for another filing method. To qualify, taxpayers must have in 2010: earned wages from only one employer; filed either as single or head of household; taken the standard deduction, and claimed no more than five dependents. Taxpayers who are renters and who can be claimed as a dependent are also eligible. Taxpayers who married, entered into a registered domestic partnership (RDP), had a child, received added income, or qualify for a tax credit, can update their ReadyReturn online. For those who do not qualify for ReadyReturn, the FTB offers CalFile; a free e-file program for more complicated tax filings, that takes about 15 to 30 minutes to complete. For taxpayers who may be interested but are unfamiliar with the programs, the FTB has on its website, two short videos demonstrating how the programs work.

Here is the link to the FTB's ReadyReturn webpage.

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In a recent "Early Show" segment, CBS News asked a Miami couple to file their taxes in three different ways -- online via TurboTax, with H&R Block, and with a CPA (in this case, Monte Kane of Kane and Company in Miami).

What were the results?

TurboTax: The couple spent $74.95 for the software and prepared their own taxes with a refund of $3,103.

H&R Block: After spending $200 for H&R Block's services, H&R Block determined that they would receive a refund of $2,763.

CPA: For a fee of $350, the couple would receive a refund of $4,063.

Click here to see the video.

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This is the first year that the IRS has asked tax preparers to register with the IRS.  It is a great first step in monitoring the almost 1 million tax preparers in this country.  However, now a report has come out saying that the IRS just doesn't have the resources or systems to collect the information for another three years.

The IRS's initiative would require competency testing and 15 hours annually of tax education for all tax preparers.   CPA's are already required to take 40 continuing education hours annually by their state boards of accountancy.  Most of my annual hours are tax related as the tax laws change almost continually.   I am amazed at the work I see on client's past returns done by some "tax preparers" that do not have adequate knowledge of the tax laws. 

According to the IRS report,  it is going to be another three years before these types of tax preparers are weeded out of the system by adequate testing of their abilities. 

Buyer beware.  I suggest that if you are looking for a tax preparer that you either use a CPA or an enrolled agent. They both have have competency tests and continuing-education requirements.  CPAs are governed by state boards of accountancy and EAs by the IRS.  Also it is fairly easy to find out whether a CPA or EA has been censured. That is not the case for paid preparers who don’t have a designation.

Currently almost anyone can start calling themselves a tax preparer and start preparing returns.  This needs to be changed and hopefully taxpayers won't have to wait until 2014.

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If you typically receive a large refund from IRS after you file your income tax return, or you owe the IRS a substantial amount at that time, you should consider adjusting your income tax withholding.

Your employer withholds income tax from your paycheck based on the number of withholding allowances you claim on Form W-4, Employee's Withholding Allowance Certificate. You must give your employer a Form W-4 when you first begin work.

If your tax circumstances change, it's up to you to give your employer a new W-4. Many employees neglect to take this step, resulting in withholding that is either too high or too low.

If your withholding is too high, you are in effect giving the government an interest-free loan. Although the overpaid tax will be refunded once you file your return, you would have been better off using the money during the year to generate income or for personal purposes. In this case, you should reduce the amount your employer withholds to increase your regular take-home pay.

At the other extreme are taxpayers who have too little withheld and who owe substantial amounts come April 15th. While they enjoy the “extra” amounts received in each paycheck, they must pay back the taxes owed in April, and will likely be tacking on extra in the form of penalties. If this is your situation, you should increase your withholding. As a rough guideline, you should owe less than 10% of your tax bill come April.

Even if you have had too little tax withheld for most of the year, you still may be able to avoid a penalty by asking your employer to withhold additional amounts for the rest of the year. This is because the increased withholding at year's end will be treated as paid equally throughout the year.  (However, Obama's current budget proposal for 2012 looks like it will end this loop hole by requiring quarterly reporting.)

You should check your withholding whenever significant personal or financial changes occur in your life, including the following:

Changes in filing status or exemptions: You get married or divorced; you have a new child; a child goes off on his or her own.

Changes in wage income: You or your spouse start or stop working, or start or stop a second job.

Changes in income not subject to withholding: You have an increase or decrease in rental income, interest income, dividends, capital gains, or IRA distributions.

Changes in deductions and credits: You take out or pay off a mortgage; you become entitled to the dependent care credit, child tax credit, or the higher education credit; you have changes in medical, alimony, or job expenses.

Changes in other taxes: You owe self-employment tax or employment taxes for your household workers.

Unfortunately, the procedures for arriving at the proper withholding amounts are among the more complex ones taxpayers confront. A wide array of factors play a role: exemptions, deductions, credits, marital status, your spouse's income, and others. The Form W-4 includes three worksheets that you may have to complete to determine the proper withholding. If you think your situation calls for a withholding adjustment (up or down), and you would like some guidance in getting through this maze, please give me a call.

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