End of the Year Tax Preparation Tips: What Should I Do Ahead of Time?

"What can you do to help them do a better job for you?"
To ensure a great experience with your CPA, get optimal results and a faster turnaround, you should follow these tips below:

1. Review your past year's tax return to familiarize yourself with what you reported income, adjustments and deductions last year. This will serve as a good guide for the categories of income and expenses you'll need to tell your accountant.
2. Look for any information - such as your address or dependents - that may have changed, and make a note to tell your accountant.
3. Don't send piles of receipts to your tax payer. Instead bring to your appointment a list of those items organized by category (for example, home, office, rental property, charity, etc.).
4. Being disorganized and unprepared wastes time, which will cost you money.
5. Open any envelopes with the words "tax information" or "tax documents" and sort the contents by category before you meet with your tax person.
6.  Remember to organize and bring:
   - Real estate tax receipts if you don't pay those taxes through escrow.
   - A new baby's Social Security number (needed to claim the child as a dependent).
   - The taxpayer-ID numbers, addresses, and phone numbers of child-care providers.
7. Remember that all charitable cash donations, no matter how small, must be substantiated either by a canceled check, a bank record with the charity's name, donation amount, and date; or a detailed receipt from the chairty, or the contribution is not deductible. So collect everything in one place. Did you drive your personal vehicle to do work for a chairty? That mileage may be deductible, at 14 cents per mile.
8. Gather your cost of investments sold. Cost basis is the purchase price, plus the transaction fees, etc of the investments you own.
9. Tell your preparer about major purchases such as a new vehicle, purchase of a home, refinance of your mortgage and even some major home improvements made in 2011. Doing so can save you real money.
10. Provide a list of the improvements, description and cost of any energy saving improvments made to your home in 2011.
11. Points, interest and property taxes paid in connection with the refinance of your mortgage or a home purchase can also be deductible.

We hope this list is helpful to you and will ease your tax experience. Contact us at Cover & Rossiter to get more information on our tax services. Call us at 302-656-6632.

“Field of Dreams” vs. Responsible Capital Projects

“GetInvolved Nonprofit Guide” Article for November 2011 from Cover & Rossiter, P.A.

“Field of Dreams” vs. Responsible Capital Projects

By Pete Kennedy, CPA of Cover & Rossiter, P.A.

There have been several local stories recently regarding nonprofit organizations that have fallen on hard times after undertaking building projects without the financial means to complete them.  As I write this article, the News Journal is reporting that the Hockessin Community Center’s building and property are being sent to Sheriff’s sale to cover unpaid construction bills.  Isn’t this ironic for an organization that lists among its programs “Foreclosure Prevention and Intervention Counseling” and “Mortgage Delinquency and Default & Resolution Counseling?” How does this happen?  Why would an organization undertake a building project without the means to pay for it?
 
We’ve seen dozens of capital campaigns in a variety of situations.  There are some common themes and tendencies that should be considered when thinking about capital expansion:

- Capital campaigns are exciting, particularly where buildings are involved.  New/renovated buildings say “permanence” in a way that new programs or enlarged endowments never can.  It is also a way for a Board of Directors or Chief Executive to say “Here is my lasting legacy with this organization.”  In the heady atmosphere where buildings are being discussed, it takes a strong, pragmatic Board to ask the tough questions involved in making sure the project is financially viable before taking the leap.    

- I’ve never met a gloomy, cynical Development person.  They are universally upbeat, enthusiastic and optimistic – great people to be around.  This mindset can be dangerous where a capital campaign is involved, since in many campaigns realistic fundraising targets and tracking progress toward them is crucial to decision-makers understanding where they stand financially and in forming their decisions on which direction to take.   Anyone involved in a capital campaign has probably seen one of those donor pyramids that fundraising consultants use – large lead donors at the top and stepping down to the smaller masses of $100 gifts at the bottom.  It makes the whole thing seem attainable if the blocks can be populated with names.  Even if the large upper blocks are filled with formal commitments, it takes a great deal of effort to fill in the lower ones.

The confluence of the two issues discussed above can create a “perfect storm” environment.  It comes as no surprise that many organizations begin building campaigns without all the financing lined up to complete them.  A certain type of “groupthink” can accompany the thought process around building campaigns.  Famous last words can include “Only a few more blocks on that pyramid to fill;” “What will the donors who already gave think if we turn back now?”; “Once the project starts we will have increased visibility and a further outpouring of support;” “We’ll just borrow the money now and pay it down when the donations come in.” 

To nonprofit decision makers, it may seem like words are being whispered in your ear “Go the distance” and “If you build it, they will come.”  Unlike (Field of Dreams protagonist) Ray Kinsella’s happy ending, there are many cautionary tales of capital expansion plans gone badly awry, threatening the financial viability of the nonprofit organization.  Instead of a statement of permanence, a new building can become a tombstone if the financial viability of the project is not carefully and critically appraised before committing.

Even if all the planned funding is lined up, you’re still not out of the woods.  There are a few other things you can generally count on:

- Buildings usually cost more than anticipated:  Contractors will often deliver the bad news up front in the form of a “contingency” line in the neighborhood of 5-10% of the total contract.  This isn’t a slush fund for the contractor to tap into.  Things can and do happen in the building/renovation process that are impossible to foresee and are beyond the contractor’s ability to control.

- Increased operating costs:  Programs are often offered at cost or at a loss that is subsidized.  More programs equal more costs to be covered.  Larger building square footage equals more space to heat or cool equals more costs.  Offering more programs does not always equal more contributions to support them. 

 

- Decreased annual fund giving:  Capital giving nearly always results in decreased annual fund giving.  Donors who give to a capital campaign will often not give to the annual fund or won’t give as much.   This should be factored in to your operating budget for the duration of the fundraising effort.

For help in planning your capital campaign, please contact Pete Kennedy or any other member of our Nonprofit Practice team at Cover & Rossiter at (302) 656-6632.

Cover & Rossiter, P.A. (www.CoverRossiter.com) is one of the most respected and experienced CPA firms serving the accounting, tax and audit needs of the nonprofit community in Delaware.  This article was published in this yesterday's GetInvolved Nonprofit Guide in The News Journal. You can also find this article

Captive Insurance Taxation – The Basics

Captive Insurance Taxation – The Basics
A captive insurance company is essentially a form of self-insurance.   In its simplest form, an operating company sets up a subsidiary, which is the captive insurance company, and moves risk off the parent company’s book onto the subsidiary’s books by paying premiums to the captive insurance company.   The captive insurance company acts as the insurance company for the parent and invests the premium dollars so that they grow and are available to pay claims when they arise.

In recent years, the use of captives, both domestic and foreign, has increased dramatically.  Use of captives opens numerous issues which have ramifications for federal income tax purposes.

The main issue for captives is whether the captive insurance company is a valid insurance entity from an IRS standpoint.

This is an important factor in determining whether or not the insurance premiums that are paid to the captive insurance company are deductible by the insured and whether or not the captive insurance company is able to take advantage of the unique tax treatment available to insurance companies (i.e., deductibility of reserves). 

In order for the captive to be treated as a true insurance entity for income tax purposes, the elements of risk-shifting and risk distribution must be present.

Risk-shifting is defined as the transfer of the impact of a potential loss from the insured to the insurer.   If the insured has truly shifted the risk, then a loss incurred on the risk does not affect the insured.   Instead, the insurer bears the loss in its payment of proceeds to the insured. 

Risk-distribution is the spreading of the risk of loss to others beyond the insured (typically through reinsurance).  Therefore, if the insured suffers a loss, the cost of the loss is distributed to all parties who have paid a premium to the insurer.   The more parties which insure their risks and pay insurance premiums to the insurer, the more distribution of risk there is.

There are a number of revenue rulings and tax court cases that discuss these two factors at length.  
At the very least, I would recommend you read Revenue Rulings 2005-40, 2002-89, 90 and 2002-91.
If you have any questions or would like more information, please contact:

Joanne Shaver, CPA
302-656-6632
JShaver@CoverRossiter.com

QuickBooks Tip #25 - Merging Duplicate Customer Names

QuickBooks Tip #25: Merging Duplicate customer names.
First of all - Once you merge two customers or jobs, you can't reverse it.

• All transactions, even in closed periods, will be under the one name. It may also affect previous financial reports. The data associated with the merged customer or job, such as address, phone number, etc., is removed from your records along with the name.

Merge two customers or jobs:

• Click the Customer Center.
• Click the Customers & Jobs tab.
• Double-click the customer or job you don't want to use.
• In the Edit window, change the customer or job name (at the top of the window) to the same name as the entry you're combining it with.
• Click OK.
• Click Yes to confirm that you want to merge the two names under the same name.

Situations where you can't merge a customer or job:

• You can't combine more than two names at a time.
• You can't combine customer names if both names have jobs. You must first delete or move the jobs from the customer name you want remove.

How do I do this?

• You may occasionally need to move sub-entries to be under a different top-level entry. For example, say you entered a job under the wrong customer. You can move it under the correct customer.
• You can't merge a customer name with a name from a different list, such as merging a customer with a vendor.

Limitations:

• You can recognize the lists that can be reorganized by the small diamond that appears in front of each list entry. These lists are: Chart of Accounts, Class, Customers & Jobs, Customer Type, Item, Job Type, Memorized Transaction, and Vendor Type. 
• On the Chart of Accounts, accounts of the same type must remain together. On the Item list, items of the same type must remain together.
• You can't move entries in a list that has been sorted. Click the diamond column to return to the original sort order.

For more Cover & Rossiter QuickBooks Tips, explore http://bit.ly/TipSeries. If you have any questions about this tip or any other tips, please email Marketing@CoverRossiter.com or call 302-656-6632. Visit our website at www.CoverRossiter.com/ for more information about our firm and its services.

QuickBooks Tip #24 - Adding a New Vehicle to Track

Here’s how to add a new vehicle in QuickBooks to allow mileage tracking.
To track mileage for a vehicle, you must add it to the Vehicle list.

If you already have the Enter Vehicle Mileage window open, you can Quick Add a vehicle by clicking "Add New" on the Vehicle dropdown list.

• Go to the Company menu and click Enter Vehicle Mileage.  
• In the Enter Vehicle Mileage window, click Vehicle List.
• Click the Vehicle menu and choose New.
• Enter a name for the vehicle and an optional description.
• The vehicle name might be the model and year of the car, the license number, or a specific number that you've given to a vehicle.
• Click OK.

For more QuickBooks Tips, explore http://bit.ly/TipSeries. If you have any questions about this tip or any other tips, please email Marketing@CoverRossiter.com or call 302-656-6632. Visit our website at www.CoverRossiter.com/ for more information about our firm and its services.

QuickBooks Tip #23 - The Importance of Tracking Mileage

Here’s why Tracking vehicle mileages can be important:

 

Many small business owners miss out on deducting their business-related mileage. By tracking your vehicle mileage, you can enter, sort, and print lists of your vehicles and the mileage you've driven for work-related tasks. You can use this information for your tax deductions and for billing your customers.

 

Limitations: You cannot use this feature to reimburse employees or vendors for mileage. You cannot track specific vehicle expenses, such as gas, tolls, etc. with this feature. However, you can track these types of expenses by entering bills for them as the expenses are incurred by your employees. Also, if you converted your data from a Quicken file, your vehicle mileage information does not transfer to QuickBooks.

 

In general, you can use one of the following for figuring out your vehicle mileage expenses:

- Standard mileage rate
- Actual expenses

Important: Consult with your tax advisor or accountant to determine if you can deduct the costs of operating and maintaining your vehicle and which method you should use.

• Go to the Company menu and click Enter Vehicle Mileage.  
• Select the vehicle (or add a new vehicle) for which you want to enter a mileage record.
• Enter the start and end dates for the trip.
• Enter the mileage from the odometer start and end readings. QuickBooks will calculate the total mileage for you, based on these numbers.
• (Optional) If you plan to bill a customer, select the Billable checkbox.
• If you selected to bill a customer for the mileage, click the Customer: Job, Item, and Class (if class tracking is turned on and it is applicable to this record) drop-down lists and choose the appropriate items.
• Save your mileage record.

For more QuickBooks Tips, explore http://bit.ly/TipSeries. If you have any questions about this tip or any other tips, please email Marketing@CoverRossiter.com or call 302-656-6632. Visit our website at www.CoverRossiter.com/ for more information about our firm and its services.

Credit Card Reward Programs

With the economy the way it is today, every little bit helps.  So look to something that you most likely use-the credit card!  Reward programs have become a common feature with credit issuers.  They have a wide variety of benefits and can be easily found.  All it takes is a little research to find the perfect credit card for you and your family.

The most popular type of reward card is the cash back card.  These cards reward you for using them with cash back incentives.  With many cards, the return is between one and five percent of your total purchases.  Credit cards with cash incentives usually require a “good” to “excellent” credit rating for approval.  Most of these cards offer higher payouts for spending at certain places, such as supermarkets or at the gas pumps.  Usually there are caps on these accelerated rewards and they can vary significantly, so be aware of those caps when looking for a cash reward card.
A couple of other popular reward cards are the points reward cards and travel credit cards.  Points reward credit cards feature the ability to earn reward points for card purchases.  Reward points can be redeemed for a variety of things including merchandise, gift cards or cash back.   The travel credit cards offer airline or hotel rewards.  You can earn frequent flyer miles or rewards points when you travel or when you spend.  The miles or points can be redeemed for airline discounts, free flights, or free nights at hotels.  If you’re a frequent flyer, an airline or travel credit card could help you save on travel costs.

Whatever credit card you choose, keep in mind that additional fees may be tacked on, such as annual fees, late fees or interest charges.   Make sure the rewards outweigh the expense of having the card.
And make sure to pay off your credit card balance on a monthly basis so that you don’t incur any interest charges!

If you have any questions or would like more information, please contact:
Jan Snow
302-656-6632
JSnow@CoverRossiter.com

QuickBooks Tip #22 - Mileage Charges for Customers

QuickBooks Tip #22 - Setting up mileage charges for customers in QuickBooks.
If you plan to charge your customers for your mileage expenses, you must do the following:

• Create a service item or an 'other charge' item for the mileage expense. You can use either item type, depending on how you like to set up your expenses in QuickBooks.
• When you set up either item, you can:
• Set a fixed rate to charge your customers, such as for a fixed delivery fee
• Leave the rate blank if you will charge varying fees for a reimbursable expense, such as only charging the actual mileage expense.

For more QuickBooks Tips, explore http://bit.ly/TipSeries. If you have any questions about this tip or any other tips, please email Marketing@CoverRossiter.com or call 302-656-6632. Visit our website at www.CoverRossiter.com/ for more information about our firm and its services.

QuickBooks Tip #21 - Assessing an Overdue Balance

Here’s how to Clear the asterisk (*) next to a Customer’s name so you can assess finance charges for overdue balance.

In the Assess Finance Charges window, customers and jobs marked with an asterisk (*) have credits in the form of payments or credit memos that you haven't yet applied to an invoice or statement charge. The overdue balance displayed in the window does not reflect these credits. You need to apply the existing credits before assessing finance charges on overdue balances.

• Go to the Customers menu and click Receive Payments.
• Select the customer or job against whose balance you want to apply the credits.
• Click Discount & Credits. (Make sure the customer's payment is marked in the detail area of the form.)
• Save the payment.
• If the customer still has an outstanding balance, return to the Assess Finance Charges window to enter the finance charges.

For more QuickBooks Tips, explore http://bit.ly/TipSeries. If you have any questions about this tip or any other tips, please email Marketing@CoverRossiter.com or call 302-656-6632. Visit our website at www.CoverRossiter.com/ for more information about our firm and its services.

QuickBooks Tip #20 - Using Statement Charge to Assess Finance Charges

If  you are using the Statement Charge feature in QuickBooks and need to assess finance charges for past due customers balances, here’s how to do it:

•    When you assess finance charges, QuickBooks creates an invoice for each customer's finance charge and increases the accounts receivable for that customer.
•    If you use billing statements, don't print the finance charge invoice that QuickBooks creates. When you send your next statement after assessing finance charges, the finance charges will be reflected on the statement along with any other statement charges.
•    It is critical when entering statement charges in the register that you set a due date for the charge. Without the due date the statement charge will not access a finance charges or age the statement from the current status on an Accounts Receivable Aging Report.
•    When you assess finance charges, QuickBooks creates an invoice for each charge.

Step #1: To set up QuickBooks to assess finance charges. Only the QuickBooks Administrator can do this.

Open the finance charge preferences.
•    Go to the Edit menu and click Preferences.
•    In the Preferences window, click Finance Charge in the list on the left.
•    Click the Company Preferences tab.

•    Enter your annual interest rate, minimum finance charge, and grace period.
•    Enter the name of the account you use to track income from finance charges. Usually, this is an income account.
•    (Optional) If you don't want QuickBooks to assess finance charges on overdue finance charges, clear the checkbox for assessing overdue finance charges.

Important: Laws vary about whether you can charge interest on overdue interest payments. Confirm with the appropriate jurisdiction that you are in compliance with that jurisdiction's lending laws.
•    Indicate the date (due date or invoice/billed date) that you want QuickBooks to calculate finance charges from.
What these two dates mean.
•    Due date: Starts the day the invoice or statement is due.
For example, if a customer is 5 days overdue on an invoice that was due in 30 days, QuickBooks assesses finance charges on the 5 overdue days, but not the original 30 days.
•    Transaction date: Starts the day you wrote the invoice or statement.
For example, if a customer is 5 days overdue on an invoice that was due in 30 days, QuickBooks assesses finance charges on the full 35 days (the 30 days to pay plus the 5 overdue days).
(Optional) To be able to print all your finance charge invoices in a single operation, select the Mark finance charge invoices as To be printed checkbox.
•    If you send statements, leave this checkbox cleared. QuickBooks will include the finance charges on the next statement to the customer.
•    Click OK.

Step #2: Set up Associate Payment Terms with Customers
•    Click Customer Center.
•    Double-click the customer you want to apply the terms to.
•    Click the Additional Info tab and enter the terms you want to apply.

These terms will always be associated with the customer and will automatically fill in whenever you create a sales form for this customer.

Step #3: Assess Finance Charges.

Go to the Customers menu and click Assess Finance Charges. 

•    Select the customers and jobs for which you want to assess finance charges.
o    To select an individual customer or job, click in the Assess column opposite the customer or job name.
o    To select all the customers and jobs listed, click Mark All.
o    To clear everything you've selected, click Unmark All.

Important: Customers and jobs marked with an asterisk (*) have credits in the form of payments or credit memos that you have not yet applied to an invoice. The overdue balance shown in the Assess Finance Charges window does not reflect these credits.

•    (Optional) Change finance charge amounts by typing over the amounts shown in the Fin. Charge column.
•    To change the interest rate, click Settings and enter the new rate.
•    (Optional) If you plan to print the finance charge invoices to send to customers, select the Mark invoices to be printed checkbox.
•    If you send statements, leave this checkbox cleared. The finance charges will be included the next time you print statements.
•    Click Assess Charges.


For more QuickBooks Tips, explore http://bit.ly/TipSeries. If you have any questions about this tip or any other tips, please email Marketing@CoverRossiter.com or call 302-656-6632. Visit our website at www.CoverRossiter.com/ for more information about our firm and its services.

Trauma Healing in Africa - Through Vickie's Eyes

As some may know, I grew up in Burundi, Africa - a small landlocked country about the size of Maryland in the heart of Africa - just south of Rwanda, east of Congo, and north & west of Tanzania. This small, mountainous country of 9 million people has been ravaged by war and tribal conflict since the early part of the 20th century, the most recent of which was a civil war lasting from 1993 through 2005. In 2002, David Niyonzima, a Burundian childhood friend of mine, started a counseling ministry, "Trauma Healing & Reconciliation Services" ("THARS" - see www.THARS.org), to help the country heal from the many decades of fear and trauma and to provide peace and conflict transformation initiatives.

As it turns out, I am on the Board of a DE non-profit organization (Development & Research Innovations, Inc. or "DRI" - see www.D-R-I.org) dedicated to developing and providing community-based programs and services for under-served people in partnership with local organizations. After reconnecting with David in 2008, we began researching and planning how we could come alongside what THARS was doing locally in Burundi and fill in any gaps in training, supplies, therapeutic resources, etc. that we could. Hence the dream was born! It became a reality on June 9 - 26, 2011 as a team of 5 (3 clinical psychologists, 1 teacher/social worker and myself) made the adventurous trip to Burundi. We left the U.S. on June 9th and, after recovering from missed flights (due to bad weather) and jet lag, we spent 5 days of intense training with 19 Burundian counselors in Gitega, Burundi.  We played with the community children, the poorest of the poor, and saw their eyes light up as we pulled out the frisbees and soccer balls. We heard many difficult stories and marveled at the strength of the people telling them. We met former rebel soldiers, victims of nameless torture, wrongly imprisoned individuals who served long terms for crimes they did not commit, women who were ostracized from their communities because of crimes committed against them. Yet these were the very people we saw form self-help groups, meeting together to pool their meager resources, working together to raise goats or make soap and baskets, form support groups to share their stories, pray and find healing together.  We greatly enjoyed the interaction with these beautiful people and are amazed by the impact they are already having on their communities and country.

The following week, we travelled from Burundi to Kigali, Rwanda, to consult with the Friends Peace House  as they sought to launch a similar counseling program. You may recall that Rwanda experienced a horrific genocide, which erupted in 1994. There is still much healing needed in that country as the wounds are deep and raw, even 17 years later. Visiting some of the memorials was difficult - they are not preserved as sterile, impersonal sites but rather reflect the raw humanity of the people that died there en masse. We were honored to contribute even in such a small way to the peace-building and healing efforts underway in Rwanda.
It was a whirlwind trip with so much packed into the 14 days we were there. We have received enthusiastic invites from the organizations in both countries to return and bring additional training, resources, expertise and encouragement. We hope to do just that!

QuickBooks Tip #19 - Memorizing Statement Charges

If you use the Statement Charge feature in Quickbooks, you can memorize these charges for your customers so that they show up automatically on the customer statements going forward.

If you enter statement charges automatically, you can add new customers to the memorized transaction group that you originally set up to enter the statement charges.

• For each new customer, enter the statement charges that you want QuickBooks to enter automatically.
• Memorize the statement charges, and add them to the memorized transaction group.
• In the A/R or customer register, select the statement charge.
• Go to the Edit menu and click Memorize Stmt Charge.
• Click With Transactions in Group.
• Click the Group Name drop-down list and choose the memorized transaction group you want to add the customer to.
• Click OK.
• When you have memorized all the new statement charges, delete them from the register.
• In the A/R or customer register, select the statement charge.
• Go to the Edit menu and click Delete Stmt Charge.
• Click OK to confirm that you want to delete the statement charge.

Why delete the charges? When you use the memorized transaction group, QuickBooks re-enters the charges. If you leave the original charges in the register, the next time you print billing statements, the charges will appear twice.

For more QuickBooks Tips, explore http://bit.ly/TipSeries. If you have any questions about this tip or any other tips, please email Marketing@CoverRossiter.com or call 302-656-6632. Visit our website at www.CoverRossiter.com/ for more information about our firm and its services.

QuickBooks Tip #18 - Gross Payroll

Here’s how to break gross payroll out between regular and bonus pay for worker’s compensation purposes:

In order to do this, you will need “After-the-Fact Payroll”, which is only available in QuickBooks version 2007 and higher. While you will not be able to break out "Gross Wages" into separate columns on the main entry form, there is another way to separate out these values. If you click on the View/ Edit Detail button at the bottom of the form, you will be able to separate it out on the actual check (See below).

For more QuickBooks Tips, explore http://bit.ly/TipSeries. If you have any questions about this tip or any other tips, please email Marketing@CoverRossiter.com or call 302-656-6632. Visit our website at www.CoverRossiter.com/ for more information about our firm and its services.

QuickBooks Tip #17 - Reduce a Cumbersome General Ledger

QuickBooks Tip #17

If your detail general ledger report is too large and cumbersome, you can minimize the detail in your report by doing the following:

Run the detail general ledger report:

• Modify the Report
• Click on the Filters Tab
• Under Filters, scroll down to Detail level
• Click the radio button for Summary Only
• Click OK

For more QuickBooks Tips, explore http://bit.ly/TipSeries. If you have any questions about this tip or any other tips, please email Marketing@CoverRossiter.com or call 302-656-6632. Visit our website at www.CoverRossiter.com/ for more information about our firm and its services.

Roth IRA - Recharacteriziation

The recent drop in the stock market indices is a timely reminder to anyone who converted a retirement plan to a Roth IRA in 2010 – you have until October 15, 2011 to undo SOME or ALL of this conversion.

This process is called “recharacterizing” your conversion and it allows you to simply erase the conversion, as if it never occurred.*  If you elected to pay the tax on a 2010 conversion in 2011 and 2012, those taxes will no longer be due.  If you paid the taxes on the conversion in 2010, you can amend your return and obtain a refund.   The following points summarize the process:

• Step One – decide if you want to recharacterize by comparing the current value of your Roth IRA to its value on the date of conversion.  If the investment loss is small, it may not be worth going through the process.  For example, if you converted a traditional IRA worth $10,000 to a Roth and after the conversion the value of your Roth fell to $8,000, your tax savings would be $500 if you are in the 25% tax bracket, plus any state and local taxes.
• Step Two -  notify your Roth custodian that you intend to recharacterize and obtain the paperwork you must complete to undo the conversion.  The recharacterization must be done by “IRA-to-IRA transfer” – if you take the money yourself, you will have a distribution.  THE NOTIFICATION AND THE TRANSFER MUST TAKE PLACE BY OCTOBER 17, 2011 FOR ALL 2010 CONVERSIONS.
• Step Three – file an amended 2010 federal and, if necessary, state return by the filing deadline (three years after the original return was filed).
• Step Four – consider re-converting to a Roth – after an IRS-imposed waiting period (30 days after recharacterization or one year after the initial conversion, whichever is later), you are free to convert again.  You will convert a lower amount and thus pay less taxes.

*This option is NOT available if you made an in-plan conversion, which is irrevocable.  An example is a conversion of all or a portion of your traditional 401(k) plan to a Roth 401(k) plan.

Call or email Diane Burke at 302.656.6632 or DBurke@CoverRossiter.com for more information and/
or assistance in the recharacterization process.

QuickBooks Tip #16 - Optimize Your Morning Routine

If the first thing you do when you turn on your computer every morning is launch Outlook, why not launch it automatically?

Have Outlook start when you launch your computer.

• Add an Outlook shortcut to the Startup folder.
• First, create a shortcut to Outlook on your desktop, if you don't already have one.
• To do so, choose All Programs > Microsoft Office from the Windows Start menu. Then, right-click on Microsoft Outlook and choose Create Shortcut. Drag the newly created shortcut to your desktop.
• Next, move the shortcut to your Startup folder.
• Using Windows Explorer, navigate to the following folder:
     \Documents and Settings\All Users\Start Menu\Programs\Startup

Drag the Outlook shortcut from your desktop to this folder.

• The next time you start up your computer, Outlook automatically launches.

For more QuickBooks Tips, explore http://bit.ly/TipSeries. If you have any questions about this tip or any other tips, please email Marketing@CoverRossiter.com or call 302-656-6632. Visit our website at www.CoverRossiter.com/ for more information about our firm and its services.

QuickBooks Tip #15 - Single Vendor Credit for Multiple Bills?

Do you need to use a single vendor credit to pay multiple bills?

• Click on the Vendors drop down menu, and choose Pay Bills
• On the bottom of the Pay Bills window, select the Payment Account, Payment Method, and Payment Date

Repeat the following steps for each Bill you would like to apply a portion of the Credit.

• Put a check mark next to the bill in which you are applying the credit
• Click the Set Credits button.
• In the Discount and Credits window, select a credit that you want to use for this bill.
• Change the amount in the Amt. To Use column.
• Click the Done button.
• When you have applied the credit to the appropriate bills, click on Pay Selected Bills

For more QuickBooks Tips, explore http://bit.ly/TipSeries. If you have any questions about this tip or any other tips, please email Marketing@CoverRossiter.com or call 302-656-6632. Visit our website at www.CoverRossiter.com/ for more information about our firm and its services.

QuickBooks Tip #14 - Switching the A/P Account

QuickBooks Tip #14

Would you like to switch the default A/P account in the Pay Bills Screen?

Customers using more than one Accounts Payable (AP) account in QuickBooks will have an option to select an AP account at the top of the Pay bills window. Customers may want to change this preference so that an account other than the default AP account automatically shows up in this window.

The list in QuickBooks is pulled from the order of the account in the chart of accounts list. There is no preference in Edit, Preferences to change this default account but it can be done.

Detailed instructions:    
• From QuickBooks menu bar, click "Lists", click "Chart of Accounts".
• From Chart of Accounts, scroll down in the list to the Accounts Payable accounts.
• Click and drag the diamond next to the AP account that you want to be the default one and move it up above the other AP accounts in the list.
• Once you've moved it higher in the list than all of the other AP accounts, this account will now show up as the default account in the pay bills screen.

For more QuickBooks Tips, explore http://bit.ly/TipSeries. If you have any questions about this tip or any other tips, please email marketing@coverrossiter.com or call 302-656-6632. Visit our website at www.CoverRossiter.com/ for more information about our firm and its services.

Fraud at the Top

Cover and Rossiter, P.A. Fraud at the top

By Pete Kennedy, CPA of Cover & Rossiter, P.A.

On June 2, the U.S. Attorney for the Eastern District of Pennsylvania issued a 10-page report indicating that the person who was the executive vice president and general counsel for the The Children’s Hospital of Philadelphia stole $1.7 million from 1999 until his firing in February 2011. As the saying goes, a person with a suit, tie and briefcase can steal more money than a person with a gun. There was nothing too fancy about the scheme itself.

Acting alone, the defendant allegedly made up a series of phony vendors, submitted phony invoices, and authorized payment of the phony invoices using the authority of his positions. There were bank accounts and address/PO boxes set up in the name of the phony vendor into which the checks were deposited giving the defendant access to the cash. From 1999 to 2003, the defendant was in charge of coordinating CHOP’s defense for medical malpractice claims.

He dummied up invoices for nonexistent expert witnesses for $225,000 in total. In 2003, CHOP evidently changed its procedures and required a second approval on these expenses, temporarily squashing the scheme, but the existence of the fraud remained undiscovered. In 2007, the defendant was promoted to senior vice president for community and government relations and was off to the races again. Using the same tactics, he submitted over 100 bogus invoices and was paid $1.5 million until he was caught in February of this year. Questions arose when the defendant began making errors on the bogus invoices, which generated inquiries and, eventually, suspicions. The report made it sound more sophisticated than it was. It was a garden variety fraud scheme and all organizations should have controls in place to prevent it. The distinguishing factor of this fraud was the senior-level position of the alleged perpetrator.

Was the defendant a poorly paid underling just trying to get by? Hardly! A quick check of CHOP’s Form 990 for the years ended June 30, 2007, 2008 and 2009 indicates that the defendant earned $420,000, $450,000 and $700,000 respectively. But even this compensation was not enough to support a lifestyle that included a yacht and a full-time captain. I guess those yachts are expensive, but I wouldn’t know. In its June 30, 2009 Form 990, CHOP reported that, as general counsel for CHOP, the defendant would have been responsible for reviewing conflict of interest statements given by the board and all senior management. Essentially, this person was so highly regarded and so deeply trusted that he was tasked with critical control procedures such as passing judgment on the acceptability of vendor/board member relationships, etc. In the meantime, he was running a crude fraud scheme taking advantage of his position of trust and a chink in the internal control armor of CHOP. This situation painfully illustrates two issues: 1. No one in any position from bottom to top of a nonprofit can be considered immune from fraud risk.

There is a percentage of people in the population that will steal if given the opportunity. They may work in the janitorial staff or they may work in the corner office. If your organization employs more than 10 or 20 people, you probably have one or more of them working in your organization right now. The system of controls should not treat anyone as being above suspicion. 2. Many fraud studies stress the importance of the “Tone at the Top.” The attitudes of senior personnel can have a profound impact on the overall fertility of the environment to sprout fraud schemes. If the senior people are fudging their expense reports, ignoring or circumventing controls, or otherwise taking advantage of their positions of authority, even in a small way, it can make justification of fraud in lower ranks that much easier. As auditors, we conduct interviews of personnel semi-randomly selected throughout an organization to help us assess where the risks of fraud may be.

We directly ask questions about where fraud may be occurring and try to gauge the overall moral tone. A response I all too frequently receive is “Oh my goodness! Fraud could never happen here! Everyone is so honest and we all share the same commitment to the mission. It is unthinkable!” I cringe when I hear this reply because it tells me no one is really critically thinking about where and how fraud could be occurring and then taking active steps to address weaknesses. Alternatively, the best responses are “We know there are controls in operation, they are strictly and consistently enforced from the top down, they apply equally to everyone and the penalty for theft of any amount is immediate termination.”

What responses would we hear in your organization? For advice about fraud control policies and procedures, or any other aspect of nonprofit management, please contact Pete Kennedy or any other member of the Nonprofit Practice team at Cover & Rossiter at (302) 656-6632. Cover & Rossiter, P.A. is one of the area's oldest and most respected certified public accounting and advisory firms serving the accounting, tax and audit needs of the nonprofit community in Delaware.


This article was originally published in Delaware Online.

QuickBooks Tip #13 - Correcting a Vendor Invoice

QuickBooks Tip #13

How to correct a vendor invoice that is showing up as outstanding when it was paid with a check?

• If you don’t need to track the bill, you can delete it.

• If you need to track the bill, open the check that was written to the vendor:
        -  Change the items/expense accounts used to A/P (on expense tab).  Add the vendor name in the customer:job column. This will generate a credit for the vendor.      
        -  Open the bill payment window.
        -  Place a checkmark next to the bill.
        -  Click the set credits button.
        -  Place a checkmark next to the credit to be applied.    
        -  Click Done.      
        -  Click Pay & Close.

For more QuickBooks Tips, explore http://bit.ly/TipSeries. If you have any questions about this tip or any other tips, please email Marketing@CoverRossiter.com or call 302-656-6632. Visit our website at www.CoverRossiter.com/ for more information about our firm and its services.

QuickBooks Tip #12 - Tracking Upfront Items

QuickBooks Tip #12

Have you ever had to pay for an item (i.e. inventory) upfront and then wondered how to keep track of the payment in the accounts payable system?
• Create a PO for the item(s) (optional).
• Write a check to the vendor using A/P as the expense account and put the vendor name in the customer:job column. This will create an A/P credit in the vendors’ name.
• When the item(s) arrive, create a bill (receive against the PO if applicable).
• Pay the bill using the available vendor credit

For more QuickBooks Tips, explore http://bit.ly/TipSeries. If you have any questions about this tip or any other tips, please email Marketing@CoverRossiter.com or call 302-656-6632. Visit our website at www.CoverRossiter.com/ for more information about our firm and its services.

QuickBooks Tip #11 - Tracking Bills With A Credit Balance

Did you ever wonder how to track a bill that is paid with a credit balance (versus a check or credit card)?

They do not appear on the bill payment voucher.

• The advanced Find Feature found in QuickBooks Edit menu can assist in locating transactions. Select filters pertaining to the bill credit.
• Example: Transaction type, name, and date range then click Find. Double click the item in the results area to open the form.
• Click the history button at the top of the form window
• Click print to generate a list of bills that were paid with the credit

For more QuickBooks Tips, explore http://bit.ly/TipSeries. If you have any questions about this tip or any other tips, please email Marketing@CoverRossiter.com or call 302-656-6632. Visit our website at www.CoverRossiter.com/ for more information about our firm and its services.

QuickBooks Tip #10 - Fixing the Variance Between My QuickBooks and Bank Balance

QuickBooks Tip #10

If your QuickBooks beginning balance is different from the beginning balance on your bank statement in your previously reconciled account, you need to find the cause of the discrepancy.

Some reasons that may cause a discrepancy:

• You may have uncleared a transaction directly in the account register by mistake.
        If you do this, your beginning balance will be off by that amount. You'll be able to see this in the Reconciliation Discrepancy report.

or 

• You've changed or deleted a previously cleared transaction that you have already reconciled.
        To fix this, you'll need to undo the previous reconciliation, then reconcile again with the correct transactions.

What to do next:

• You can find the discrepancy using the Reconciliation Discrepancy report.

• If you're able to resolve the discrepancy, click Restart Reconciliation.

• If you think your discrepancy might be caused by a previous reconciliation, click Undo Last Reconciliation. Once this process completes, you will need to reconcile that particular statement again.

For more QuickBooks Tips, explore http://bit.ly/TipSeries. If you have any questions about this tip or any other tips, please email Marketing@CoverRossiter.com or call 302-656-6632. Visit our website at www.CoverRossiter.com/ for more information about our firm and its services.

QuickBooks Tip #9 - Matching Deposits to Your Bank Statement

Are you having problems matching deposits in your QuickBooks register to your bank statement?

• When receiving payment from a customer, use the undeposited funds account. This will serve as a placeholder for your funds until they get deposited as a group into your bank.
• Once you make a deposit at the bank, go to make deposits in QuickBooks and select the payments that were in your deposit.

This will ensure your bank statement deposits match the deposits made in QuickBooks.

For more QuickBooks Tips, explore http://bit.ly/TipSeries. If you have any questions about this tip or any other tips, please email Marketing@CoverRossiter.com or call 302-656-6632. Visit our website at www.CoverRossiter.com/ for more information about our firm and its services.

QuickBooks Tip #8 - Transfering and Importing Lists

QuickBooks Tip #8

You can transfer & import your customer, vendor, chart of accounts, and many more lists from one company file to another.

• While in your QuickBooks company you would like to export from, go to "File", then "Utilities", choose "Export" and "Lists to IIF files".
• A box will pop up for you to check off which lists you would like to export.
• The system will default to save these files in your QuickBooks folder.
• Once completed, open the company file you would like to import them into.
• Go to "File", "Utilities", "Import", "IIF Files".
• Your QuickBooks folder will open, and you should see the files that you had exported.
• You will need to import these one at a time.
• Depending on what you need to import, there is a specific order in which importing should be done.

For more QuickBooks Tips, explore http://bit.ly/TipSeries. If you have any questions about this tip or any other tips, please email Marketing@CoverRossiter.com or call 302-656-6632. Visit our website at www.CoverRossiter.com/ for more information about our firm and its services.

QuickBooks Tip #7 - How to Pay Someone Salary and Hourly

How to set up an Officer who is configured for salary to also be paid hourly wages.

• The easiest way to do this is to have an hourly wage payroll item and add it to the officer's paycheck, below the salary wage item that appears automatically.
• QuickBooks will take care of all the computations; and won't object if there are two different types of compensation items on a single paycheck.

For more QuickBooks Tips, explore http://bit.ly/TipSeries. If you have any questions about this tip or any other tips, please email Marketing@CoverRossiter.com or call 302-656-6632. Visit our website at www.CoverRossiter.com/ for more information about our firm and its services.

QuickBooks Tip #6 - Handling Return Checks From Customers

QuickBooks Tip #6

Most companies will eventually deal with the customer who bounces a check.   To make your reconciliation an easier task, we suggest the following procedure:

How to handle return checks from customers.

• Create an Other Charge Item called Bounced Check or NSF. In the description field I usually say something like "Your check # has been returned, please remit replacement payment immediately." For the Account enter your Checking account.

• Now, Invoice the customer for the Item Bounced Check and enter in the check #, Invoice # and other information about the check. This takes the money out of your checking account and puts it back on the customer A/R

• I usually also create an Other Charge Item called NSF Fee and charge my customer for any service charge I received from my bank. You can put this to your account for Bank Service Charges to offset what your bank charged you or to a Misc. Income account.

• When the customer sends a replacement check, Receive Payment as usual and make your deposit.

Don't Delete!


Despite the temptation, you really don't want to delete the returned check from the original deposit.

For more QuickBooks Tips, explore http://bit.ly/TipSeries. If you have any questions about this tip or any other tips, please email Marketing@CoverRossiter.com or call 302-656-6632. Visit our website at www.CoverRossiter.com/ for more information about our firm and its services.

QuickBooks Tip #5 - Safely Merging the "Accountant's Copy"

QuickBooks Tip #5

So your accountant provided you with an “Accountant's Copy” and asked you to merge the file with your current Quickbooks file?   To make sure that you don’t lose anything in the process, Quickbooks highly recommends you make a backup copy first.

Merging Your Accountant's Changes:

You should make a backup of your company data before attempting to merge the accountant's changes.

• If the accountant's changes are on a 3.5” disk or usb drive, insert the disk or drive into your computer.
• Open the master company file. Then from the "File" menu, choose "Accountant's Review", and then choose "Import Accountant's Changes".
• When the message about backing up your data appears, click "OK".
• Backing up is a safeguard in case anything goes wrong when you try to merge the changes.
• Enter the filename and location for the backup file and click "Back Up". When the "Import Changes from Accountant's Copy" window appears, select the drive that contains the file and click "Open".

For more QuickBooks Tips, explore http://bit.ly/TipSeries. If you have any questions about this tip or any other tips, please email Marketing@CoverRossiter.com or call 302-656-6632. Visit our website at www.CoverRossiter.com/ for more information about our firm and its services.

QuickBooks Tip #4 - Downloading Bank Statements

Did you know that you can download your bank account transactions on a weekly basis directly into the Quickbooks software?   This time-saving feature is available as a free service through most large banks.  

Check that you have what you need.

• Access to the internet from QuickBooks.
• Banking account that offers online service for QuickBooks

Activate online services with your financial institution.

• You will receive login information from your financial institution.

Add the online service to QuickBooks.

• Banking.
• Online Banking.
• Setup account for online services.
• Follow the instructions in the wizard to complete the setup.

For more QuickBooks Tips, explore http://bit.ly/TipSeries. If you have any questions about this tip or any other tips, please email Marketing@CoverRossiter.com or call 302-656-6632. Visit our website at www.CoverRossiter.com/ for more information about our firm and its services.

Trauma Healing in Africa

Vickie Goes to Africa

Vickie Young Beam, one of the managers at Cover & Rossiter, grew up in Burundi, a small country in central Africa about the size of Maryland.  The Great Lakes region of Africa has been plagued with civil war, tribal conflicts, genocide, refugee displacement, disease and extreme poverty since the middle of the 20th century.  The need for healing and reconciliation is great in the aftermath of prolonged violence and trauma across several generations.  Development & Research Innovations, Inc., is a non-profit organization founded in Delaware to carry out the mission of enhancing the lives of people through partnering with local organizations and individuals to develop mental health and community services that meet important community needs.

Vickie is leading a team of psychological and educational professionals to Burundi and Rwanda June 9 to 26, 2011.  Their goal is to work collaboratively with local organizations, programs and people such as Trauma Healing and Reconciliation Services, to promote healing and reconciliation in this war-torn region in central Africa.

DRI is in need of donations to fund this Mission.  If you are able to make a donation, please refer to the this brochure.  Donations can be made through the mail or website.

We had a Send-off Gathering on Wednesday, June 8 in the Cover Cafe at 10:30 with cake and coffee.

 See more of Cover & Rossiter at www.coverrossiter.com/.

QuickBooks Tip #3 - Tracking Different Areas of Revenue

QuickBooks Tip #3

Did you know that Quickbooks allows you to track different areas of revenue and expense in your company by department (called “classes”)?

You can track the income and expenses of different departments or locations within your company separately by using classes.

In order to do this, you must turn class tracking on:

• From the File menu, choose Preferences. (In versions prior to 8.0, just choose Preferences from the menu bar, select Transactions and skip step 2.)
• Select Accounting in the scroll box.
• Select the "Use class tracking" checkbox.
• Click OK.

To create a list of classes:

• From the Lists menu, choose Classes
• In the Class List window, choose New from the Class menu button.
• Enter the class name in the Class Name field.
• (Optional) If this is a subclass of another class, select the "Subclass of" checkbox and choose the higher-level, or parent, class from the drop-down list.
• Click Next to enter another new class, or click OK to close the window.

For more QuickBooks Tips, explore http://bit.ly/TipSeries. If you have any questions about this tip or any other tips, please email Marketing@CoverRossiter.com or call 302-656-6632. Visit our website at www.CoverRossiter.com/ for more information about our firm and its services.

Filled Your Tank Lately?

FILLED YOUR AUTO TANK LATELY?!

Sticker shock at the gas pump is a big concern-especially for folks on fixed incomes. There ARE steps you can take to cut your fuel costs:

DRIVE LESS -

• You can get some good exercise and walk or bike, take the bus or train and, if you work, join a carpool. Parents can carpool their children to school with neighbors. Many companies with match employees with carpool routes!
• Combine errands - map out a route and cover all of your errands at once.
• Shop on line as much as possible.

SHOP CAREFULLY -

• Many gas credit cards offer discounts and rebates. Some grocery stores give points with purchase - the points can be used to buy gas. Some wholesale clubs offer discounted gas.
• See if your gas station charges less on certain days of the week OR less if you pay with cash.
• Fill up in the early morning or late evening - you will get more liquid gas and fewer vapors in your car. Fill up at a quarter tank for optimal fuel injection and thus better mileage. Don't top off - the extra gas is often wasted.
• Research the internet for the lowest fuel prices in your area.

MAINTAIN YOUR CAR -

• Get your car serviced regularly. Of particular importance are a clean air filter and a clean fuel filter.
• Change your oil every 5,000 miles and use synthetic oil if possible.
• Take the junk out of your car, get your tires aligned and make sure your tires are inflated to the proper pressure.

DRIVE SMARTLY -

• Maintain a steady speed AT or BELOW the speed limit. Use cruise control wherever possible.
• Avoid idling, weaving and generally you will use less gas if you drive without your air conditioner on.
• Avoid prolonged warm-up times and stop and start less - your foot on the brake means more gas used.

Cover & Rossiter helps our clients save money on taxes, investing, budgeting and expense planning. Call us at 302 656 6632 or email us at dburke@coverrossiter.com to learn what we can do for you.

See more articles from Cover & Rossiter at www.coverrossiter.com/.

You can see the original article published in the June edition of Vital! Magazine.

QuickBooks Tip #2 - Recording a "Negative" Deposit

QuickBooks Tip #2

Did you ever wonder what to do if you end up with a negative credit card deposit for the day due to a customer refund?  You have to trick Quickbooks into recording the “negative” deposit (see instructions below).

• On the Payments to Deposit screen, select all items (all positive and negative amounts) for whatever payment method you’re working on. In this case, it’s just the single negative amount for a customer’s VISA refund.
• Then click OK On the Make Deposits screen, change the Deposit To field to your Journal Entries bank account (or other bank account), and add an additional line at the bottom of your deposit, coded to your checking account with the amount necessary to zero out the deposit. Then press Save & Close to record the “negative” deposit.

For more QuickBooks Tips, explore http://bit.ly/TipSeries. If you have any questions about this tip or any other tips, please email Marketing@CoverRossiter.com or call 302-656-6632. Visit our website at www.CoverRossiter.com/ for more information about our firm and its services.

QuickBooks Tip #1 - Adjusting Invoices

QuickBooks Tip #1

Have you ever posted the wrong amount to a customer invoice?  Not to worry.  QB allows you to change the invoice to which a credit was applied with a few simple steps.

You can change the invoice to which a credit was applied. This task requires several steps, but if you follow the instructions a step at a time, it's not as complicated as it seems.

• Open the invoice to which you applied the credit.
• Click the History button at the top of the transaction window to display the list of all transactions linked to this invoice.
• Click the listing for the credit you want to change, and click Go To, to open the original credit transaction.
• Change the customer name to another customer. It doesn't matter which customer you choose because you're going to change it back (You could create a “Test” customer for this purpose and then use it again in the future).
• Click Yes in any warning dialogs QuickBooks displays about the results of making this change. Now you've destroyed the link between the credit and the invoice to which it was originally applied. (QuickBooks returns you to the original invoice window, where the credit no longer appears in the History dialog.)
• Open the credit transaction you just moved to another customer. (You can select the credit from the other customer's history by selecting the customer and pressing Ctrl-Q, or, if you're using QuickBooks 2006, by selecting the customer in the Customer Center and displaying transactions.)
• In the Create Credit Memos transaction window, change the customer name back to the original customer name.
• When you save the transaction, QuickBooks offers the original choices for applying this credit. Choose the right invoice.

Stay tuned for our next QuickBooks tip.

For more QuickBooks Tips, explore http://bit.ly/TipSeries. If you have any questions about this tip or any other tips, please email Marketing@CoverRossiter.com or call 302-656-6632. Visit our website at www.CoverRossiter.com/ for more information about our firm and its services.

NAMI Walk

Saturday April 30, 2011 – Loretta Manning, (Principal at Cover & Rossiter) attended the NAMI Walk along with her friends and associates from Delaware Psychological Association!  


“I serve as DPA’s finance chair," says Manning. "This year DPA gathered a team of 15 walkers.  The walk was a nice break from the normal daily activities and the friendships that I have developed with DPA are dear to me.”

Luci Roseman Receives Accounting Senior Excellence in Academics Award

Our intern Luci Roseman was presented an award at the University of Delaware Department of Accounting and MIS Annual Banquet many of us here at Cover & Rossiter attended last week.  She was recognized with the Accounting Senior Excellence in Academics Award. Congratulations Luci! Keep up the hard work. 

Estate Taxes Eased

By now you may have heard that the Estate Tax has been lowered for 2011 and 2012. Taxpayers no longer have to pay federal estate tax unless they own more than $5 million in assets.  Let’s look at how these changes can affect you.

What does it mean to "own more than $5 million?" What possessions count as "your estate?" All investments, cash, vehicles, real estate, furniture, clothing, artwork and other collections, retirement assets and business interests are included in this calculation.   In some cases, life insurance counts, too.

What is the tax rate?  Every US taxpayer is entitled to bequeath up to $5 million to their heirs with zero tax.  Once you leave over $5 million in assets, there is a flat 35% rate.  Note that certain costs, such as funeral expenses, are allowable deductions against the total estate.

Another change in the new Estate Tax rules is that if the first-to-die spouse leaves less than $5 million, the surviving spouse can bequeath their own $5 million plus whatever amount the deceased spouse did not leave. For example, if a spouse has only $2 million in assets, she bequeaths $2 million upon her death. That leaves $3 million of her total $5 million allowance unused. If her surviving spouse has $10 million in assets, he can use his own $5 million plus the $3 million remaining from his wife – leaving only $2 million of his estate as being subject to the tax.

An important point to remember is that you don't have to wait until death to leave possessions to your loved ones.  You can give up to $13,000 of cash or other property to any individual each year – this applies to multiple individuals as well.  Beyond that, you can make lifetime gifts of up to the same $5 million level without paying any tax – the Estate and Gift Taxes have the same tax-free limits and rates.  By gifting now, you avoid any increase in value of that property between now and your death from your estate.

Does this mean you can forget about estate planning?  No, you should continue to work with competent legal resources to make sure your assets pass as you intend without any complications.  Furthermore, this summary applies to federal tax only – your state may assess an estate or inheritance tax as well.  Also, these rules may (and they probably will) change before their December 31, 2012 expiration and your attorney can help you be prepared no matter what happens in the future.

If you have any questions or would like more information, please contact:
Diane Burke, CPA, MBA, AEP
Cover & Rossiter
302-656-6632
DBurke@CoverRossiter.com

See more articles from Cover & Rossiter at www.coverrossiter.com/

Taming Tax Season

Sending your tax materials in each year can be a daunting process.  "Where did I put that Form 1099? Did it come in yet?” I have three copies of the same document what do I do?"  Listed below are seven tips to help insure a smooth tax season:

Designate a central location to store all incoming tax materials such as a box or large envelope.  If you get duplicates feel free to send us both. We can determine which document is most recent and use that document.
Complete and sign the Tax Organizer form as legibly as possible- We know that the organizer is quite lengthy for some of our clients.  You do not need to complete the entire organizer.  Instead complete the first 8-10 pages and provide us with your original tax documents.  This will save you some time and we can refer to the tax documents for the details.

We also ask that you complete certain organizer pages if you own a small business or have rental real estate instead of providing a shoe box of receipts.  Also please list the nature of the expense vs. the name of the party that you paid, i.e. "electrical repair" instead of "Joe Smith"

Be sure to include cost basis information if you sold stock.  You may be able to obtain this on line or by calling your broker.

Improperly listing estimated tax payments is the number one cause of tax notices.  Include the amount paid, date paid, tax year and quarter, check number, and payee.  Please be sure to list the details for the period 1/1/10 through 1/15/11 to properly identify all tax payments.

Provide totals of charitable contributions instead of providing a stack of receipts.  Please be sure to indicate if the contributions were cash, check or donated property.

Deliver your tax information to us as soon as possible and ideally no later than March 10th.   Some data may arrive later but send in the bulk of your information prior to March 10th, accumulate the second wave of information into one stack, and send it in at the end of March

If you have any questions or would like more information, please contact:
Loretta Manning, CPA
302-656-6632
LManning@CoverRossiter.com

See more articles from Cover & Rossiter at www.coverrossiter.com/

Million Dollar Mortgages

The IRS announced in Revenue Ruling 2010-25 that indebtedness in excess of $1 million incurred by a taxpayer to acquire, construct, or substantially improve a qualified residence may constitute home equity indebtedness.  Prior to this ruling, the qualified personal residence interest deduction was limited to interest paid on $1 million of indebtedness incurred to acquire a personal residence.  A deduction was also allowed for another $100,000 of home equity indebtedness; however home equity indebtedness could not be debt incurred to acquire, construct or substantially improve a personal residence.      

Revenue Ruling 2010-25 clarifies that acquisition indebtedness over $1 million can now be treated as home equity indebtedness.  The amount of deductible home equity indebtedness must be secured by a qualified personal residence, cannot exceed the property’s fair market value and is generally deductible regardless of what the homeowner does with the proceeds of the loan.  

So if you have been planning those renovations and were concerned by the tax deductibility you can now plan based on the new interpretation.  This ruling by the IRS seems only fair.  It now evens the field with taxpayers who were able to deduct interest on an additional $100,000 of home equity debt on top of the $1 million mortgage.  

If you have any questions or would like more information, please contact:

Rachael Leberstien, CPA
302-656-6632
RLeberstien@CoverRossiter.com

See more articles from Cover & Rossiter at www.coverrossiter.com/