It’s that Time of Year Again- Get Ready for 2010 Tax Returns!

While tax returns are due in the spring, now is the perfect time to start gathering your documents and strategizing for your return. In order to improve our service and efficiency, we have developed a new system this year. We would like to make prescheduled appointments with you to discuss your return. Please contact our office to reserve a date for your tax return. You will receive an email from us shortly with information we will need to prepare your 2010 return. If you do not receive this email, please contact our office. We look forward to the opportunity to work with you!

Struggling to Make Payments on Your Property? Think Outside the Box!

Are you making payments on a private note? The rates you may be paying might be outdated and not reflect the current market and economic circumstances. Additionally, your other liabilities may have placed excess burden on your ability to make payments on your property. Is there any way to seek relief? Of course there is, you just have to think outside the box!

A client of mine, let’s call him Joe, is a contractor who bought property in 2004 in Pinal County. He initially made a down payment of approximately 20% of the purchase price and has been paying interest on the note to the Seller at a rate of 8% for the balance of the purchase price. Ideally, Joe wanted to pay off the balance within a year of two so he committed to the high rate of 8%. However, several factors affected his source of income, which placed Joe in a bit of a quandary. His contracting business suffered severe losses in the last few years and all of his cash reserves were used just to keep his business from going under. Moreover, the value of the land dropped significantly since Joe purchased the property in 2004 and borrowing rates are currently at an all-time low. Why should he pay off the property at this antiquated rate? Since he could no longer make payments at the 8% rate, Joe was determined the find a solution that would get him out of the hole.

Although his cash reserves were running low, Joe had substantial money in his 401(k), just sitting in a money market account. With this source of funding, we were able to find a solution. Joe forfeited the property back to the original owner and reacquired the land from the owner in the name of his 401k with a new purchase price that reflected the current market value. Since he funded the property out of his 401k, he was able to pay off the land in full while saving $100,000. Joe solved his problem; he just had to think outside the box.

Using your 401(k) or other retirement plan can be a great option for investing in real estate. After all, your 401(k) is a long term investment and what is more long term than real estate? You can invest in just about any type of real estate and the income and appreciation will build up tax-free until you start to take withdrawals.

There are a few disadvantages to using a retirement plan to purchase your property. There may be a substantial amount of paperwork required to fund the purchase of your property through your retirement account, depending upon the type of retirement plan that you have. For example, you may need to find an independent custodian who offers real estate as an investment option. If your property is mortgaged, then you may be required to file Form 990-T with the IRS in order to allocate the income earned from the debt-financed portion of the property. The income from the debt-financed portion of the property, not sheltered by the retirement plan, would then be subject to ordinary income tax rates. In most cases, all-cash transactions are the easiest.

Using your 401(k) to invest in real estate is a creative way to utilize your retirement investment options. In Joe’s case, it was the perfect solution to get him out of a bind and saved him an enormous amount of money. If you are considering your retirement plan as a funding source for acquisition, a wrong step could result in a tax nightmare, so be sure to consult with a tax professional.

Give Yourself a Financial Makeover- Evaluate your Net Worth!

It’s the beginning of a new year, and it is the perfect time to evaluate your financial goals for the year. In order to get where you want to go, you need to know where you are. Take a look at our net worth calculator worksheet. Once you see what you have, you can create a budget and determine what your net worth could be and realize your dreams!

Tips for a Successful 2011!

Happy New Year! We hope your 2011 is off to a successful start. January is the perfect time to set goals for your business and get organized. Here are some tips on how to start the New Year on the right foot.

- Update payroll rates in Quickbooks. Last December, Obama declared a “payroll tax holiday” for 2011, meaning the employee’s portion of the Social Security tax will be reduced from 6.2% to 4.2%. The Social Security tax reduction replaced the Making Work Pay tax credit and if the reduction becomes permanent, employees will benefit much more than the tax credit. If you have not already, be sure to update this considerable reduction in Quickbooks. The Arizona Department of Economic Security is also issuing notices regarding your tax rate for 2011. Be sure to adjust the rate if there is a change from 2010.

- 1099 and W-2 Time! The deadline to mail W-2s and 1099s is January 31, 2011. Don’t wait until the last minute to file. Be sure to collect W-9s and issue Form 1099 to any individual, LLC, or partnership if you paid more than $600 in rent or services during 2010.Additionally, as a result of the 2010 Small Business Jobs Act, if you are receiving rental income from real property, you are required to file forms 1099 with the IRS and service providers to report payments of $600 or more during the year for rental property expenses, beginning January 1, 2011.

- Get organized! Getting organized seems to be everyone’s New Year’s resolution, but where do you even start? First of all, establish a filing system for your business whether it be electronic or paper filing. You should scan or file all your bank statements in one place so you can easily retrieve them. Another suggestion is to purchase Pendaflex binders sorted by each month. You should place all paid bills in one binder and all deposits in another binder so all expenses and income are stored in an organized fashion.

- Goals, Expectations, and Budget. Review your P&L from 2010 and use this as your measuring tool to create goals and expectations for your business. At the same time, examine your budget and look for new quotes from your vendors to stick with it.

Do You Need to File 1099s?

If you paid more than $600 to any individual, LLC or partnership for rent or services provided to your business during 2010, then you must send that entity a 1099. You must also file all copies of Forms 1099 with the IRS, along with cover sheet, Form 1096 by February 28, 2011.

Additionally, as a result of the 2010 Small Business Jobs Act, if you are receiving rental income from real property, you are required to file forms 1099 with the IRS and service providers to report payments of $600 or more during the year for rental property expenses, beginning January 1, 2011. Please keep this in mind as you account for your 2011 expenses.

Examples of Rent/Service Providers...
1. Contract Laborers
2. Subcontractors
3. Marketing Services
4. Accountants/Bookkeepers
5. Attorneys
6. Janitorial Services
7. Consulting Services
8. Landlords

What information do you need from the service provider?

You will need the full name of the individual or business, the address and the individual or business' Taxpayer (Employer) Identification Number, along with the amount that you paid to that provider during 2010.

Do you need help in preparing your Forms 1099?

eeCPA is here to help...
1. We will gather the information from you.
2. We will prepare all of the forms and mail them to the recipients by the deadline.
3. We will file the government forms electronically on your behalf.
4. We will send you copies of all of the forms and a summary report once the filings have been completed.

If you provide us with the information that we need, we will charge you just $25 per 1099.

If we need to gather the information from your accounting files and determine the filing requirements, then we will charge you based upon our standard hourly rates.

Why should you file Forms 1099 timely?

The #1 reason to file your Forms 1099 timely is to preserve the deductibility of your expenses.

Secondly, you want to file the 1099's timely to avoid the penalties for late and/or incomplete filings. The penalties range from $15-50 per 1099 Form if not filed, filed late or incorrectly filed.

Tips to make the 1099 process less painless for 2011...

Have all of your service providers complete a Form W-9 prior to making payment to them. That way they have incentive to complete and return the form to you, and you have all of the information that you need when it comes time to prepare your 2011 Forms 1099.

If you think you need to file 1099s, call us right away!

How to Take Advantage of Arizona Tax Credits

Do you pay even $1 of tax to the State of Arizona? If the answer is yes, then you can choose to pledge those dollars directly to education or to charitable organizations that assist the working poor. There are 2 types of Arizona Tax Credits that support the funding of education in Arizona. There is the private school tuition credit and the public school fee credit. The Arizona Department of Revenue recently extended the tax credit deadline. If you make a contribution by April 15, 2011, you have the option of using it as a tax credit on either your 2010 or 2011 return. Here is the Arizona Department of Revenue’s website for details on how you can take advantage of these tax credits. http://www.azdor.gov/TaxCredits.aspx

Furthermore, there are a number of charities that depend on donations and provide programs throughout our community. Many of these organizations are really struggling right now, and you can help them by taking advantage of the Charitable Tax Credit and saving on your 2010 taxes. (Warning - Please note that this credit is only available to individual taxpayers that itemize their deductions. If you take the standard deduction, then you may not claim the credit!)

In sum, every Arizona Resident is eligible to take the following maximum annual charitable/education credits:

Type of Credit	Filing Status
	Single/Head of Household	Married Filing Joint
Private School	500	1,000
Public School	200	400
Charitable Organization	200	400
Total Available	900	1,800

Oftentimes, if you have children in public school, you will be paying fees for extracurricular activities or special programs. Keep track of those fees, since they will most likely qualify for the credit and reduce your tax bill.

If someone close to you is attending a private school (other than your child), you can make a specific tax credit donation to the private school that will benefit that person specifically, if they qualify to receive a scholarship. You would need to contact the school directly to make arrangements for this type of donation.

What the 2010 Tax Relief Act Means for You

With just a little over a week left in 2010, the White House finally delivered an answer to the tax cut quandary when President Obama signed the 2010 Tax Relief Act on December 17, 2010. The law has been championed as a symbol of bipartisan compromise with provisions favored by both parties. Despite the criticism about the deficit, the new law is expected to stimulate the economy; Obama stated, “…real money that’s going to make a real difference in people’s lives.” The new law extends the Bush-era tax cuts for two years, provides relief for the estate tax, and reduces social security taxes in addition to extending other credits. While pundits speculate how the $801 billion tax cut bill will impact Obama’s relationship within his own party, this law can certainly put your mind at ease and here is how.

· Extension of Bush-era Tax Rates. Had the law not passed, rates were scheduled to rise to 15%, 28%, 31%, 36%, and 39.6%. With the passing of the 2010 Tax Relief Act, tax rates for individuals are 10%, 15%, 28%, 33%, and 35%. Since the rates are unchanged, you no longer have to worry about a tax hike in 2011.

o However, there is still plenty of time to finalize any tax savings plans. Contact us for ideas or assistance.

o Now, it might make some more sense to those with lower tax bills to convert your traditional IRA to a Roth IRA. This conversion will allow you to defer the taxes on the income until 2011 and 2012, taking advantage of the lower tax rates that have been extended through 12/31/2012. Furthermore, if you feel the Roth IRA does not suit you, you do have a second chance and can undo the Roth conversion until October 15, 2011, which is unprecedented. However, the ROTH Conversion must be effectuated by 12/31/2010. Please contact us if you are considering this option; we can help guide you!

· Estate Tax Relief. Heirs can opt to treat the estate by 2010 tax laws and calculate the capital gains on all assets in the estate to be taxed at 15%. Otherwise, the 2011 law would exempt the first $5 million and tax the rest at a rate of 35%. The news of this relief will certainly bring holiday cheer to affluent Americans.

· Reduction on Social Security Taxes. This historic bill cuts by two percentage points an employee’s portion of the 6.2% tax. Viewed as the replacement to the Making-Work-Pay income tax credit, the reduction on social security tax can actually apply to a broader range of workers.