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Werner, O'Meara's Best Year-End Tax Tips

1. Know where you are by estimating your current tax liability.

2. If you owe taxes, consider adding to your Federal income tax withheld or consider paying your January 15th Estimated Tax Payment.

3. Establish a retirement plan by December 31st. Depending on the plan, this can be funded up until due date of your tax return including extensions. IRA contributions are due by April 15th.

4. If you are itemizing deductions or claiming medical or miscellaneous deductions, consider bunching these deductions in the current year by pre-paying next year's deductions.

5. Pay charitable contributions before year-end. These must be received by the charity before December 31st.

6. Use up your balances in your cafeteria (Sec. 125) plans.

7. Those over 70 ½ need to take their Required Minimum Distributions.

8. Recognize capital losses from your investments to offset capital gains.

9. Consider doing a Roth IRA Rollover to offset tax losses, control income, or to take advantage of Roth IRA’s tax benefits.

10. Certain businesses must pay bonuses to their owners before year-end in order to deduct the bonus this year and reduce overall taxes.

11. Businesses should consider buying and placing equipment into service before year end to get accelerated depreciation deductions.

Our last suggestion - after considering all of the above tax steps pour a tall mug of eggnog and look forward to a happy and prosperous New Year.

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1099 Penalty Increased

The maximum penalty for not filing the required 1099s has increased from $350 to $500 for each instance of non-filing. As a reminder, 1099s are generally required to be distributed to recipients by January 31, and filed with the IRS by the last day of February. If you think you may need to issue a 1099 from your trade or business, or have any other questions regarding the issuance of 1099s, give us a call.

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Shred This? A Guide to Document Retention

As the year comes to a close, files do too. Before you pack away your information, it might be a good idea to check the back of your file cabinet for documents you don’t need any more. Here are some general guidelines for when to answer “YES!” to shredding:

Filed tax returns - Never. Keep these as proof of filing.

Tax return supporting documents (bank & credit card statements, receipts, etc) - 7 full years after date of filing.

Business receipts - 7 full years after the date of filing.

Purchase papers (business asset purchase receipts, HUD-1 Forms for home purchases, etc) - As long as you own the asset; then treat as a tax return supporting document.

Remember, to make sure you dispose of these papers appropriately. If you don’t own a shredder, keep your eye out for a community shredding drive – many of these are either free, or require a minimal contribution. When in doubt, feel free to give us a call!

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The Importance of Good Accounting in the Information Age

In history, various periods get tagged with a description. There were the Dark Ages followed by the Age of Enlightenment, later came the Industrial Age and more recently the Atomic Era. Our era seems likely to be destined as the “Information Age”. The proliferation of computerization, use of the internet, and the increased presence of smart phones are now sending great quantities of information at lightning speed to the far corners of the world. In this Age of Information, accounting has become more important than ever. Businesses are doing comprehensive double entry accounting on a real-time basis and are providing real-time performance information to owners, managers, creditors and other interested parties. Small companies are using inexpensive general ledger software, midsized companies are adopting various canned software and large companies customize systems to meet their unique needs. In the end, the results travel faster, but are also expected to travel better. As a result, missteps in business, and especially accounting missteps, are greatly magnified and now cause indelible harm, whereas in the past most businesses could have merely stepped around reporting issues.

Why is this important to your business? It is because accounting is how business communicates how well it is doing to those interested. With good accounting, a misstep can be promptly identified and corrected before major damage occurs. Moreover, accounting reports tell others how the business is doing in this environment compared to budgets, prior periods, and competitors.

At Werner, O’Meara & Co., we make it a priority to advise our business clients on how to improve their accounting methods and means of reporting business results. We can help you improve the accounting and reporting systems at your business — please call us when the time is right.

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Sales Tax Tips for Businesses

For businesses that deliver products or services to different locations, reporting sales tax can be a difficult task. The State of Washington Department of Revenue (DOR) requires a breakdown of sales into location codes. For example, there are five different location codes in Everett alone. The DOR’s website has tools to help businesses save time and report sales tax properly.

The first step is finding the correct location code and sales tax rate for the delivery address. On the DOR homepage, http://www.dor.wa.gov, there is a link that says, “I need to find a sales tax rate”. When you click on this link you simply enter the delivery address for the location code and tax rate.

If your business is using QuickBooks, the DOR has a tool that you can use to upload all of the location codes into QuickBooks. When you go to create an invoice, all the state’s location codes will be set up as sales tax items. Once you select the correct code, it will populate the appropriate tax rate. To upload this tool, visit the DOR homepage and click on “Sales Tax Rates”, then select “QuickBooks file format”. This will direct you to download a QuickBooks file to your hard drive. The website will list several effective dates, in almost all cases you will want to select the most current date. The instructions are also on the DOR website at http://www.dor.wa.gov.

Remember that the State changes the sales tax rates periodically; the DOR recommends that you update your rates once a quarter. If you have questions, please feel free to call anytime.





Fraud Alert

It’s very upsetting when a business discovers they’ve been the victim of fraud – Why? Because the person (or persons) committing the fraud are usually the most trusted employees.

Many of our small business clients use QuickBooks, and like most bookkeeping software it has built-in security available. While no system can completely stop fraud, the right set-up can make it easier to establish where the fraud came from. A good place to start? Set up each user with a separate log-on and password. This provides a unique user ID for each person and is very helpful if transactions need to be investigated.

We have QuickBooks ProAdvisors on staff that can help you set up additional users in QuickBooks, or answer other questions about lowering the risk of fraud in your business. Give us a call!

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Preparing for an IRS Audit
A letter from the IRS can strike fear in the heart of even the most steadfast individual. The IRS is dramatically increasing the number and intensity of its audits this year. While only a small percentage of all returns are audited, it is little consolation when it is your return selected for audit.

Because the purpose of an audit is to verify items reported on a tax return, the easiest way to survive an audit is to be prepared. This means, maintaining your documentation — invoices, bills, cancelled checks, receipts or other proof — for each item reported on your tax return. Keep all your records in one place and hold on to your calculations. Simple, right?

Even if you prepared your own return, it is highly recommended you have a tax professional represent you at an audit. Your tax professional knows what issues the IRS agent is likely to focus on and can prepare accordingly. More importantly, they know that IRS agents will sometimes take a position without being aware that courts and other authority have expressed a contrary opinion on the issue. Because the representative knows and can point to the proper authority, the IRS agent may more readily concede.

If you’ve received notice of a tax audit, call us immediately! Our experienced staff members are ready to assist you.

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Consider a Roth IRA Conversion

For tax years beginning after December 31, 2009, the $100,000 modified adjusted gross income limitation on conversions of traditional IRAs to Roth IRAs has been removed.

Why would you want to convert to a Roth IRA?

-    Earnings within the account are tax sheltered (as they are with a regular qualified employer plan or IRA).

-    Withdrawals from a Roth IRA are not taxed if certain conditions are satisfied.

-    Roth IRAs do not have required minimum distributions.

-    Beneficiaries of Roth IRAs also get tax-sheltered earnings and tax-free withdrawals.

What is the catch?

You must include the amount of the rollover in income and it will be fully taxed at your marginal rate (assuming the rollover is made with pre-tax dollars such as from a traditional IRA or a qualified employer sponsored retirement plan).

You may say to yourself that this sounds great, but what if you convert a traditional IRA to a Roth IRA, owe tax on the converted assets and then the stock market takes a dive and those assets lose value?

The IRS has provided an option for a "do over". You are able to recharacterize assets from the Roth conversion back into a traditional IRA if you do it by the due date (or extended due date) of the tax return for the year in which you did the original Roth conversion. This effectively minimizes the risk of the Roth conversion.

As with any investment decision, the decision to roll your traditional IRA into a Roth IRA should be considered carefully. Give us a call to discuss your options.

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What is Your Fraud Risk?

In these challenging economic times the risk for fraud is greater than ever. The financial pressures that your employees may be facing are numerous - Do they have high personal debt? Has a spouse been recently laid off? Are they having trouble making mortgage payments? - These are just a few financial issues people may be encountering. As these pressures continue to mount, the temptation to commit fraud grows as well.

Do you have internal controls in place to meet these challenges? If you have recently laid off any employees, have some of your internal controls gone with them? It may be time to get a fraud check-up. We can help you devise some strategies to help protect your assets from fraud. Remember fraud is frequently perpetrated by the most trusted employees. Give us a call and let us help you mitigate your fraud risk.


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Contact Information:

Werner, O'Meara & CO., PLLC
CPAS and CONSULTANTS

PO Box 2037 •
19109 36th Ave W, Suite 213
Lynnwood, WA 98036

Phone: 425.774.8888
Fax: 425.774.4834

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