How You Can Learn from High Profile Tax Scandals

How You Can Learn from High Profile Tax Scandals

The recent college admission scandal involving Lori Laughlin (who played Aunt Becky in the Full House TV series) and others is shedding light on just one way people allegedly cheat on their taxes. Here are examples of some famous people in tax trouble with the IRS and helpful hints to make sure it doesn't happen to you:

·        Lori Laughlin and questionable charitable donations. In this case, the IRS would investigate whether payments deducted as charitable contributions on her tax return were really charitable contributions. Regardless of how the legal charges shake out, Loughlin is looking at a large tax bill if the charity she contributed to is stripped of their non-profit status.
Helpful hint: Charitable giving must be to legitimate charitable organizations, for legitimate purposes, and must be reduced by any value received in return.

·        Al Capone and his illegal earnings. After years of bribing and wriggling his way out of violent crime charges, Capone was charged with 22 counts of tax evasion for not reporting income on illegal activities. He was sentenced to 11 years in prison - some of which were served at Alcatraz prison in San Francisco.
Helpful hint: ALL income - even if obtained illegally - is taxable.

·        Wesley Snipes decided not to file his taxes. In 2008, actor Snipes was convicted for not filing tax returns from 1999 to 2001. Among his many arguments, Snipes used the tax protester theory claiming domestic income is not taxable. After jail time, Snipes' offer in compromise to lower his $23 million tax bill request was shot down by the IRS.
Helpful hint: Exotic tax schemes are actively monitored by the IRS. If it seems too good to be true, it probably is too good to be true and requires a second opinion.

·        Leona Helmsley faked her business expenses. Helmsley, A famous real estate mogul in the 1980s, had more than $8 million of renovations to her private home billed to one of her hotels so she could deduct the expense on her taxes. After being convicted, Helmsey had to pay back the $8 million and served 18 months in prison.
Helpful hint: Separate business expenses from personal expenses. Open separate bank accounts and never intermingle expenses. The IRS is quick to disallow deductions when personal expenses and business expenses are mixed together.

·        Pete Rose hid his "likeness" income. Many famous athletes go on to sell autographs, memorabilia and get paid for appearances after they retire from their sport. Rose was no different, but he opted not to report the $354,968 he earned over a four-year period. The result was five months in prison and a $50,000 fine in addition to having to pay back the taxes he tried to avoid.
Helpful hint: Don't attempt to hide income. With less and less businesses using cash payments, the IRS now can use matching programs to quickly find underreporting problems.

While seeing well-known celebrities in the press for tax trouble makes for interesting reading, there are useful tax lessons for all of us. It provides an opportunity to see how IRS employees think and what they are reviewing.

If you have questions, call us at (219) 769-3616 or email them to tlynch@swartz-retson.com.

How to Raise a Financially Savvy Child

How to Raise a Financially Savvy Child

If you have children (or grandchildren) you have an opportunity to give them a jump-start on their journey to becoming financially responsible adults. While teaching your child about money and finances is easier when you start early, it's never too late to impart your wisdom. Here are some age-relevant suggestions to help develop a financially savvy young adult:

• Preschool – Start by using bills and coins to teach them what the value of each is worth. Even if you don't get into the exact values, explain that a quarter is worth more than a dime and a dollar is worth more than a quarter. From there, explain that buying things at the store comes down to a choice based on how much money you have (you can't buy every toy you see!). Also, get them a piggy bank to start saving coins and small bills.
• Grade school – Consider starting an allowance and developing a simple spending plan. Teach them how to read price tags and do comparison-shopping. Open a savings account to replace the piggy bank and teach them about interest and the importance of regular saving. Have them participate in family financial discussions about major purchases, vacations and other simple money decisions.
• Middle school – Start connecting work with earning money. Start simple with babysitting, mowing lawns or walking dogs. Open a checking account and transition the simple spending plan into a budget to save funds to make larger purchases. If you have not already done so, it is a good time to introduce the importance of donating money to church or charity.
• High school – Explain the job application and interview process. Work with them to get a part-time job to start building work experience. Add additional expense responsibility by transferring direct responsibility for things like gas, lunches and expenses for going out with friends. Introduce investing by explaining stocks, mutual funds, CDs and IRAs. Talk about financial mistakes and how to deal with them when they happen - try to use some of your real-life examples. If college is the goal after high school, include them in the financial planning decisions.
• College – Teach them about borrowing money and all its future implications. Explain how credit cards can be a good companion to a budget, but warn of the dangers of mismanagement or not paying the bill in full each month. Discuss the importance of their credit score and how it affects future plans like buying a house. Talk about retirement savings and the importance of building their retirement account.

Knowing about money - how to earn it, use it, invest it and share it - is a valuable life skill. Simply talking with your children about its importance is often not enough. Find simple, age specific ways to build their financial IQ. A financially savvy child will hopefully lead to a financially wise adult.

If you have questions, call us at (219) 769-3616 or email them to tlynch@swartz-retson.com.

Six Ideas to Help Your Business Survive and Thrive

Six Ideas to Help Your Business Survive and Thrive

If you are like millions of taxpayers trying to make a living running a small business, you know it is tough out there. Here are six ideas to help your business survive and thrive.

1. Understand your cash flow. One of the biggest causes of business failure is lack of positive cash flow. At the end of the day, you need enough cash to pay your vendors and your employees. If you run a seasonal business you understand this challenge. The high season sales harvest needs to be ample enough to support you during the slow non-seasonal periods.
   
   Recommendation: Create a 12-month rolling forecast of revenue and expenses to help understand your cash needs each month.
2. Know your pressure points. When looking at your business, there are a few categories that drive your business success. Do you know the top four drivers of your financial success or failure? By focusing on the key financial drivers of your business, success will be easier to accomplish.
   
   Recommendation: Look at last year's tax return and identify the key financial drivers of your business. Do the same thing with your day-to-day operations and staffing.
3. Prioritize your inventory. If your business sells physical product, you need a good inventory management system. This system does not have to be complex, it just needs to help you keep control of your inventory. Cash turned into inventory that becomes stuck as inventory can create a cash flow problem.
   
   Recommendation: Develop an inventory system with periodic counts (cycle counting) to help identify when you need to take action to liquidate old inventory or research any discrepancies.
4. Know your customers. Who are your current customers? Are there enough of them? Where can you get more of them? How loyal are they? Are they happy? A few large customers can drive a business or create tremendous risk should they go to a competitor.
   
   Recommendation: Know who your target audience is and then cater your business toward them and what they are looking for in your offerings.
5. Learn your point of difference. Once you know who your customer is (your target audience), understand why they buy your product or service. What makes you different from others selling a similar item?
   
   Recommendation: If you don't know what makes your business better than others, ask your key customers. They will tell you. Then take advantage of this information to generate new customers.
6. Create a great support team. Successful small business owners know they cannot do it all themselves. Do you have a good group of support professionals helping you? You will need accounting, tax, legal, insurance, and employment help along with your traditional suppliers.
   
   Recommendation: Conduct an annual review of your resources, be prepared to review your suppliers and make improvements where necessary.

While libraries are filled with small business advisory books, sometimes focusing on a few basic ideas can help improve your business' outlook. Please call if you wish to discuss your situation.

If you have questions, call us at (219) 769-3616 or email them to gward@swartz-retson.com.

How to Correct Common Financial Mistakes

How to Correct Common Financial Mistakes

You're working at the office, getting stuff done around the house, or hanging out with family when - wham! - a phone call, email or text alerts you that something is wrong with your finances. When a negative financial event hits, don't let it take you down. Here are some common mistakes and steps to remedy each situation:

• You overdraw your bank account. First, stop using the account to avoid additional overdraft fees. Next, manually balance your account by reviewing all posted transactions. Look for unexpected items and fraudulent activity. Then, call your bank to explain the situation and ask that all fees be refunded. Banks are not obligated to refund fees, but often times they will. The next steps vary based on the reason for the overdraft, but ultimately your goal is to bring your account back to a positive balance as soon as possible.
• You miss a credit card payment. Make as big a payment as possible as soon as you realize you missed it. Time is of the essence with late credit card payments - the longer it goes, the more serious the consequences. Then call the credit card company to discuss the missed payment. You might be able to get a refund of the late fees, and perhaps a reversal of the interest charge.
• You forget to file a tax return. Gather all your tax documents as soon as possible, and file the tax return even if you can't pay the taxes owed. This will limit additional penalties. You can then work with the IRS on a payment plan if need be. The sooner you file, the sooner the money will be in your bank account if you're due a refund. If you wait too long (three years or more), any potential refunds will be gone forever.
• You lose your wallet. Start by calling all of your debit card providers, then your bank and the credit card companies. Next, set up fraud alerts with the major credit reporting companies and get a new driver's license. Finally, if you think it was stolen, file a report with the police.
• You miss an estimated tax payment. Estimated payments are due in April, June, September and January each year. If you are required to make estimated payments and miss a due date, don't simply wait until the next due date. Pay it as soon as possible to avoid further penalties. If you have a legitimate reason for missing the payment, such as a casualty or disaster loss, you might be able to reduce your penalty.

Remember, mistakes happen. When they do, stay calm and walk through the steps to correct the situation as soon as possible.

If you have questions, call us at (219) 769-3616 or email them to tlynch@swartz-retson.com.

You Know You Need Tax Planning If...

You Know You Need Tax Planning If…

Effective tax planning helps you make smart decisions now to get the future outcome you desire - but you need to make sure you don't miss anything. Forget to account for one of these situations and your tax plans will go off the rails in a hurry:

1. Getting married or divorced. One plus one does not always equal two in the tax world. Marriage means a new tax status, new deduction amounts and income limits, and a potential marriage penalty. The same is true for divorce, but with added complexity. Untangling assets, alimony, child support and dependents are all considerations worthy of discussion.
2. Growing your family. While bringing home a new child adds expenses to your budget, it also comes with some tax breaks. With a properly executed plan, you can take home the savings now to help offset some of those new costs. If you are adopting, you get an additional tax credit to help with the adoption expenses.
3. Changing jobs or getting a raise. Earning more money is great, but if you're not careful, you might be surprised by the tax hit. Each additional dollar you earn gets taxed at your highest tax rate, and might even bump you to the next tax bracket. If you are switching jobs, the change also includes things like new benefit packages to consider.
4. Buying or selling a house. Whether you're a first-time homebuyer, you're moving to your next house, or you're selling a house, there will be tax implications resulting from the move. Knowing how your taxes will be affected ahead of time will help you make solid financial decisions and avoid surprises. If you're looking to buy or sell investment property, even more tax issues come into play.
5. Saving or paying for college. There are so many different college tax breaks, it can be tricky to determine which ones might make the most sense for your situation. These include the American Opportunity Tax Credit, the Lifetime Learning Credit, the Coverdell Education Savings Account, 529 plans and student loan interest deductibility.
6. Planning for retirement. Everyone needs to plan for retirement, but each situation is different. Some of the factors to keep in mind include employment status, current income, available cash, future earnings and tax rates, retirement age and Social Security. Putting all of these variables into one analysis will paint a clearer picture of your retirement strategy and provide a way forward.

Don't make the mistake of omitting key details from your tax plan. Call now to schedule a tax-planning meeting.

If you have questions, call us at (219) 769-3616 or email them to tlynch@swartz-retson.com.

Five Summer Tax Savings Opportunities

Five Summer Tax Savings Opportunities

Ah, summer. The weather is warm, kids are out of school, and it’s time to think about tax saving opportunities! Here are five ways you can enjoy your normal summertime activities and save on taxes:

1. Rent out your property tax-free. If you have a cabin, condo, or similar property, consider renting it out for two weeks. The rental income you receive on property rented for less than 15 days per year is not considered taxable income. In addition, you can still deduct your mortgage interest expense and property taxes in full as itemized deductions!. Track the rental days closely — going over 14 days means all rent is taxable and rental income rules apply.
2. Take a tax credit for summer childcare. For many working parents, the summer comes with the added challenge of finding care for their children. Thankfully, the Child and Dependent Care Credit can cover 20-35 percent of qualified childcare expenses for your children under the age of 13. Eligible types of care include day care, nanny fees and day camps (overnight camps and summer school do not qualify).
3. Hire your kids. If you own a business, hire your kids. If you are a sole proprietor and your child is under age 18, you can pay them to work without withholding or paying Social Security and Medicare tax.
4. Have a garage sale. In general, the money you make from a yard or garage sale is tax-free because you sell your goods for less than you originally paid for them. Once the sale is over, donate the remaining items to a qualified charity to get a potential charitable donation deduction. Just remember to keep a log of the items you donate and ask for a receipt.
5. Start a Roth IRA for your children. Roth IRA contributions are limited to the amount of income your child earns, so earned income is key. This can include income from mowing lawns or selling lemonade. Start making contributions as soon as your child makes some money to take advantage of the tax-free earnings available in a Roth IRA.

Taking the time this summer to execute these tips can put extra money in your pocket right away and provide you tax-saving happiness in the future.

If you have questions, call us at (219) 769-3616 or email them to tlynch@swartz-retson.com.