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August 2013

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This newsletter is intended to provide generalized information that is appropriate in certain situations. It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer. The contents of this newsletter should not be acted upon without specific professional guidance. Please call us if you have questions.



How to Save for College Tax-Free

According to a 2014 study published by the Federal Reserve Bank of San Francisco, researchers found that over a lifetime, the average U.S. college graduate will earn at least $800,000 more than the average high school graduate—even after taking into consideration the cost of college tuition and the four years of lost wages it entails. So even though tuition and fees are always on the rise, most people still feel that a college education is well worth the investment. That said however, the need to set money aside for their child's education often weighs heavily on parents.

Fortunately, there are two savings plans available to help parents save money that also provide certain tax benefits. Let's take a closer look.

The two most popular college savings programs are the Qualified Tuition Programs (QTPs) or Coverdell Education Savings Accounts (ESAs). Whichever one you choose, try to start when your child is young. The sooner you begin saving, the less money you will have to put away each year.

Example: Suppose you have one child, age six months, and you estimate that you'll need $120,000 to finance his college education 18 years from now. If you start putting away money immediately, you'll need to save $3,500 per year for 18 years (assuming an after-tax return of 7%). On the other hand, if you put off saving until your son is six years old, you'll have to save almost double that amount every year for 12 years.

Financial Calculator: College Savings Planner
Use this calculator to help develop and fine-tune your child's college education savings plan.

How Much Will College Cost?

Based on the survey completed for the 2012 Trends in College Pricing, the average cost for tuition, fees, and room and board for 2012-13 was:

$17,860 per year for 4-year public (in state) colleges and universities, an increase of 4.2% from the 2011-12 academic year.

$39,518 per year for 4-year private colleges and universities, an increase of 4.1% from the 2011-12 academic year.

According to Trends in Student Aid, in 2011-12, undergraduate students received an average of $13,218 per full-time equivalent (FTE) student in financial aid, including $6,932 in grant aid from all sources, and $5,056 in federal loans.

Saving with Qualified Tuition Programs (QTPs)

Qualified Tuition Programs, also known as 529 plans, are often the best choice for many families. Every state now has a program allowing persons to prepay for future higher education, with tax relief. There are two basic plan types, with many variations among them:

  1. The prepaid education arrangement. With this type of plan one is essentially buying future education at today's costs, by buying education credits or certificates. This is the older type of program and tends to limit the student's choice to schools within the state; however, private colleges and universities often offer this type of arrangement.

  2. Education Savings Account (ESA). With an ESA, contributions are made to an account to be used for future higher education.

Tip: When approaching state programs, one must distinguish between what the federal tax law allows and what an individual state's program may impose.

You may open a 529 plan in any state, but when buying prepaid tuition credits (less popular than savings accounts), you will want to know what institutions the credits will be applied to.

Unlike certain other tax-favored higher education programs, such as the American Opportunity Credit (formerly the Hope Credit) and Lifetime Learning Credit, federal tax law doesn't limit the benefit to tuition, but can also extend it to room, board, and books (individual state programs could be narrower).

The two key individual parties to the program are the Designated Beneficiary (the student-to-be) and the Account Owner, who is entitled to choose and change the beneficiary and who is normally the principal contributor to the program.

There are no income limits on who may be an account owner. There's only one designated beneficiary per account. Thus, a parent with three college-bound children might set up three accounts. Some state programs don't allow the same person to be both beneficiary and account owner.

Tax Rules Relating to Qualified Tuition Programs

Income Tax. Contributions made by an account owner or other contributor are not tax deductible for federal income tax purposes, but earnings on contributions do grow tax-free while in the program.

Distributions from the fund are tax-free to the extent used for qualified higher education expenses. Distributions used otherwise are taxable to the extent of the portion which represents earnings.

A distribution may be tax-free even though the student is claiming an American Opportunity Credit (formerly the Hope Credit) or Lifetime Learning Credit, or tax-free treatment for a Coverdell ESA distribution, provided the programs aren't covering the same specific expenses.

Distribution for a purpose other than qualified education is taxable to the one getting the distribution. In addition, a 10% penalty must be imposed on the taxable portion of the distribution, which is comparable to the 10% penalty in Coverdell ESAs.

The account owner may change beneficiary designation from one to another in the same family. Funds in the account roll over tax-free for the benefit of the new beneficiary.

Tip: In 2009, the American Recovery and Reinvestment Act (ARRA) added expenses for computer technology/equipment or Internet access to the list of qualifying expenses. Software designed for sports, games, or hobbies does not qualify, unless it is predominantly educational in nature. In general, however, expenses for computer technology are not considered qualified expenses.

Gift Tax. For gift tax purposes, contributions are treated as completed gifts even though the account owner has the right to withdraw them. Thus they qualify for the up-to-$14,000 annual gift tax exclusion in 2013 (up $1,000 from 2012). One contributing more than $14,000 may elect to treat the gift as made in equal installments over the year of gift and the following four years, so that up to $70,000 can be given tax-free in the first year.

However, a rollover from one beneficiary to another in a younger generation is treated as a gift from the first beneficiary, an odd result for an act the "giver" may have had nothing to do with.

Estate Tax. Funds in the account at the designated beneficiary's death are included in the beneficiary's estate, another odd result, since those funds may not be available to pay the tax.

Funds in the account at the account owner's death are not included in the owner's estate, except for a portion thereof where the gift tax exclusion installment election is made for gifts over $14,000. For example, if the account owner made the election for a gift of $70,000 in 2013, a part of that gift is included in the estate if he or she dies within five years.

Tip: A Qualified Tuition Program can be an especially attractive estate-planning move for grandparents. There are no income limits, and the account owner giving up to $70,000 avoids gift tax and estate tax by living five years after the gift, yet has the power to change the beneficiary.

State Tax. State tax rules are all over the map. Some reflect the federal rules, some reflect quite different rules. For specifics of each state's program, see College Savings Plans Network (CSPN). If you need assistance with this, please contact us.

Saving with Coverdell Education Savings Accounts (ESAs)

You can contribute up to $2,000 in 2013 to a Coverdell Education Savings account (a Section 530 program formerly known as an Education IRA) for a child under 18. These contributions are not tax deductible, but grow tax-free until withdrawn. Contributions for any year, for example 2013 can be made through the (unextended) due date for the return for that year (April 15, 2014). There is no adjustment for inflation; therefore the $2,000 contribution limit is expected to remain at $2,000 for 2013 and beyond.

Only cash can be contributed to a Coverdell ESA and you cannot contribute to the account after the child reaches his or her 18th birthday.

The beneficiary will not owe tax on the distributions if they are less than a beneficiary's qualified education expenses at an eligible institution. This benefit applies to higher education expenses as well as to elementary and secondary education expenses.

Anyone can establish and contribute to a Coverdell ESA, including the child and an account may be established for as many children as you wish; however, the amount contributed during the year to each account cannot exceed $2,000. The child need not be a dependent, and in fact does not even need to be related to you. The maximum contribution amount in 2013 for each child is subject to a phase out limitation with a modified AGI between $190,000 and $220,000 for joint filers and $95,000 and $110,000 for single filers.

A 6% excise tax (to be paid by the beneficiary) applies to excess contributions. These are amounts in excess of the applicable contribution limit ($2,000 or phase out amount) and contributions for a year that amounts are contributed to a Qualified Tuition Program for the same child. The 6% tax continues for each year the excess contribution stays in the Coverdell ESA.

Exceptions. The excise tax does not apply if excess contributions made during 2013 (and any earnings on them) are distributed before the first day of the sixth month of the following tax year (June 1, 2014, for a calendar year taxpayer). However, you must include the distributed earnings in gross income for the year in which the excess contribution was made. The excise tax does not apply to any rollover contribution.

The child must be named (designated as beneficiary) in the Coverdell document, but the beneficiary can be changed to another family member, for example, to a sibling where the first beneficiary gets a scholarship or drops out. Funds can also be rolled over tax-free from one child's account to another child's account. Funds must be distributed not later than 30 days after the beneficiary's 30th birthday (or 20 days after the beneficiary's death if earlier). For "special needs" beneficiaries the age limits (no contributions after age 18, distribution by age 30) don't apply.

Withdrawals are taxable to the person who gets the money, with these major exceptions: Only the earnings portion is taxable (the contributions come back tax-free). Also, even that part isn't taxable income, as long as the amount withdrawn doesn't exceed a child's "qualified higher education expenses" for that year.

The definition of "qualified higher education expenses" includes room and board and books, as well as tuition. In figuring whether withdrawals exceed qualified expenses, expenses are reduced by certain scholarships and by amounts for which tax credits are allowed. If the amount withdrawn for the year exceeds the education expenses for the year, the excess is partly taxable under a complex formula. A different formula is used if the sum of withdrawals from a Coverdell ESA and from the Qualified Tuition Program exceeds education expenses.

As the person who sets up the Coverdell ESA, you may change the beneficiary (the child who will get the funds) or roll the funds over to the account of a new beneficiary, tax-free, if the new beneficiary is a member of your family. But funds you take back (for example, withdrawal in a year when there are no qualified higher education expenses, because the child is not enrolled in higher education) are taxable to you, to the extent of earnings on your contributions, and you will generally have to pay an additional 10% tax on the taxable amount. However, you won't owe tax on earnings on amounts contributed that are returned to you by June 1 of the year following contribution.

Professional Guidance

Considering the wide differences among state plans, federal and state tax issues, and the dollar amounts at stake, please call us before getting started with any type of college savings plan.

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Tax Planning for Small Business Owners

Tax planning is the process of looking at various tax options in order to determine when, whether, and how to conduct business and personal transactions to reduce or eliminate tax liability.

Many small business owners ignore tax planning. They don't even think about their taxes until it's time to meet with their accountants, but tax planning is an ongoing process and good tax advice is a valuable commodity. It is to your benefit to review your income and expenses monthly and meet with your CPA or tax advisor quarterly to analyze how you can take full advantage of the provisions, credits and deductions that are legally available to you.

Although tax avoidance planning is legal, tax evasion - the reduction of tax through deceit, subterfuge, or concealment - is not. Frequently what sets tax evasion apart from tax avoidance is the IRS's finding that there was fraudulent intent on the part of the business owner. The following are four of the areas most commonly focused on by IRS examiners as pointing to possible fraud:

  1. Failure to report substantial amounts of income such as a shareholder's failure to report dividends or a store owner's failure to report a portion of the daily business receipts.
  2. Claims for fictitious or improper deductions on a return such as a sales representative's substantial overstatement of travel expenses or a taxpayer's claim of a large deduction for charitable contributions when no verification exists.
  3. Accounting irregularities such as a business's failure to keep adequate records or a discrepancy between amounts reported on a corporation's return and amounts reported on its financial statements.
  4. Improper allocation of income to a related taxpayer who is in a lower tax bracket such as where a corporation makes distributions to the controlling shareholder's children.

Tax Planning Strategies

Countless tax planning strategies are available to small business owners. Some are aimed at the owner's individual tax situation, and some at the business itself, but regardless of how simple or how complex a tax strategy is, it will be based on structuring the strategy to accomplish one or more of these often overlapping goals:

  • Reducing the amount of taxable income
  • Lowering your tax rate
  • Controlling the time when the tax must be paid
  • Claiming any available tax credits
  • Controlling the effects of the Alternative Minimum Tax
  • Avoiding the most common tax planning mistakes

In order to plan effectively, you'll need to estimate your personal and business income for the next few years. This is necessary because many tax planning strategies will save tax dollars at one income level, but will create a larger tax bill at other income levels. You will want to avoid having the "right" tax plan made "wrong" by erroneous income projections. Once you know what your approximate income will be, you can then take the next step: estimating your tax bracket.

The effort to come up with crystal-ball estimates may be difficult and by its very nature will be inexact. On the other hand, you should already be projecting your sales revenues, income, and cash flow for general business planning purposes. The better your estimates, the better the odds that your tax planning efforts will succeed.

Maximizing Business Entertainment Expenses

Entertainment expenses are legitimate deductions that can lower your tax bill and save you money--provided you follow certain guidelines.

In order to qualify as a deduction, business must be discussed before, during, or after the meal and the surroundings must be conducive to a business discussion. For instance, a small, quiet restaurant would be an ideal location for a business dinner. A nightclub would not. Be careful of locations that include ongoing floor shows or other distracting events that inhibit business discussions. Prime distractions are theater locations, ski trips, golf courses, sports events, and hunting trips.

The IRS allows up to a 50 percent deduction on entertainment expenses, but you must keep good records and the business meal must be arranged with the purpose of conducting specific business. Don't hesitate to call us if you need assistance with recordkeeping requirements.

Important Business Automobile Deductions

If you use your car for business such as visiting clients or going to business meetings away from your regular workplace you may be able to take certain deductions for the cost of operating and maintaining your vehicle. You can deduct car expenses by taking either the standard mileage rate or using actual expenses.

The mileage reimbursement rates for 2013 are as follows: 56.5 cents a mile for business, 24 cents for moving and medical miles and 14 cents per charitable mile.

If you own two cars, another way to increase deductions is to include both cars in your deductions. This deduction works because business miles driven is determined by business use. To figure business use, divide the business miles driven by the total miles driven. This strategy can result in significant deductions.

Whichever method you decide to use to take the deduction, always be sure to keep accurate records such as a mileage log and receipts. If you need assistance figuring out which method is best for your business, please contact us.

Increase Your Bottom Line When You Work At Home

The home office deduction is quite possibly one of the most difficult deductions ever to come around the block. Yet, there are so many tax advantages it becomes worth the navigational trouble. Here are a few common tips for home office deductions that can make tax season significantly less traumatic for those of you with a home office.

Try prominently displaying your home phone number and address on business cards, have business guests sign a guest log book when they visit your office, deduct long-distance phone charges, keep a time and work activity log, retain receipts and paid invoices. Keeping these receipts makes it so much easier to determine percentages of deductions later on in the year.

Section 179 expensing allows you to immediately deduct, rather than depreciate over time, up to $500,000, with a cap of $2,000,000, worth of qualified business property that you purchase during 2013. The key word is "purchase". Equipment can be new or used and includes certain software. All home office depreciable equipment meets the qualification. Also, if you purchase more than $500,000 in equipment, you can expense the first $500,000 and then depreciate the rest. In addition, a "Bonus Depreciation" of 50 percent is allowed on qualified assets (new equipment only--no used equipment and no software) placed in service during 2013.

Some deductions can be taken whether or not you qualify for the home office deduction itself. If you'd like to meet with us to learn more about home office deductions, please give us a call.

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Leaving a Business: Which Exit Plan Is Right For You?

Selecting your business successor is a fundamental objective of planning an exit strategy and requires a careful assessment of what you want from the sale of your business and who can best give it to you.

There are only four ways to leave your business: transfer ownership to family members, Employee Stock Option Plan (ESOP), sale to a third party, and liquidation. The more you understand about each one, the better the chance is that you will leave your business on your terms and under the conditions you want. With that in mind, here's what you need to know about each one.

1. Transfer Ownership to Your Children

Transferring a business within the family fulfills many people's personal goals of keeping their business and family together, but while most business owners want to transfer their business to their children, few end up doing so for various reasons. As such, it's necessary to develop a contingency plan to convey your business to another type of buyer.

Transferring your business to your children can provide financial well-being for younger family members unable to earn comparable income from outside employment, as well as allow you to stay actively involved in the business with your children until you choose your departure date.

It also affords you the luxury of selling the business for whatever amount of money you need to live on, even if the value of the business does not justify that sum of money.

On the other hand, this option also holds the potential to increase family friction, discord, and feelings of unequal treatment among siblings. Parents often feel the need to treat all of their children equally. In reality, this is difficult to achieve. In most cases, one child will probably run or own the business at the perceived expense of the others.

At the same time, financial security also may be diminished, rather than enhanced, and the very existence of the business is at risk if it's transferred to a family member who can't or won't run it properly. In addition, family dynamics in general, may also significantly diminish your control over the business and its operations.

2. Employee Stock Option Plans (ESOP)

If your children have no interest or are unable to take over your business, there is another option to ensure the continued success of your business: the Employee Stock Ownership Plan (ESOP).

ESOPs are qualified retirement plans subject to the regulatory requirements of the Employee Retirement Income Security Act of 1974 (ERISA). There's one important difference however; the majority (more than half) of their investment must be derived from their own company stock.

Whether it's due to lack of interest from your children, an economic downturn or a high asking price that no one is willing to pay, what an ESOP does is create a third-party buyer (your employees) where none previously existed. After all, who more than your employees has a vested interest in your company?

ESOPs are set up as a trust (complete with trustees) into which either cash to buy company stock or newly issued stock is placed. Contributions the company makes to the trust are generally tax deductible, subject to certain limitations and because transactions are considered stock sales, the owner who is selling (you) can avoid paying capital gains. Shares are then distributed to employees (typically based on compensation levels) and grow tax free until distribution.

If your company is a stable, well-established one with steady, consistent earnings, then an ESOP might be just the ticket to creating a winning exit plan from your business.

If you have any questions about setting up an ESOP for your business, give us a call today.

3. Sale to a Third Party

In a retirement situation, a sale to a third party too often becomes a bargain sale--and the only alternative to liquidation. But if the business is well prepared for sale this option just might be your best way to cash out. In fact, you may find that this so called "last resort" strategy just happens to land you at the resort of your choice.

Although many owners don't realize it, most or all of your money should come from the business at closing. Therefore, the fundamental advantage of a third party sale is immediate cash or at least a substantial up front portion of the selling price. This ensures that you obtain your fundamental objectives of financial security and, perhaps, avoid risk as well.

If you do not receive the bulk of the purchase price in cash, at closing, however, your risk will suddenly become immense. You will place a substantial amount of the money you counted on receiving in the unpredictable hands of fate. The best way to avoid this risk is to get all of the money you are going to need at closing. This way any outstanding balance payable to you is "icing on the cake."

4. Liquidation

If there is no one to buy your business, you shut it down. In liquidation the owners sell off their assets, collect outstanding accounts receivable, pay off their bills, and keep what's left, if anything, for themselves.

The primary reason liquidation is considered as an exit plan is that a business lacks sufficient income-producing capacity apart from the owner's direct efforts and apart from the value of the assets themselves. For example, if the business can produce only $75,000 per year and the assets themselves are worth $1 million, no one would pay more for the business than the value of the assets.

Service businesses in particular are thought to have little value when the owner leaves the business. Since most service businesses have little "hard value" other than accounts receivable, liquidation produces the smallest return for the owner's lifelong commitment to the business. Smart owners guard against this. They plan ahead to ensure that they do not have to rely on this last ditch method to fund their retirement.

If you need assistance figuring out which exit strategy is best for you and your business, please don't hesitate to contact us. The sooner you start planning, the easier it will be.

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Seven Tax Tips for Students with a Summer Job

Is your child a student with a summer job? Here's what you should know about the income your child earns over the summer.

  1. All taxpayers fill out a W-4 when starting a new job. This form is used by employers to determine the amount of tax that will be withheld from your paycheck. Taxpayers with multiple summer jobs will want to make sure all their employers are withholding an adequate amount of taxes to cover their total income tax liability. To make sure your child's withholding is correct, call our office.
  2. Whether you are working as a waiter or a camp counselor, you may receive tips as part of your summer income. All tip income you receive is taxable and is therefore subject to federal income tax.
  3. Many students do odd jobs over the summer to make extra cash. If this is your situation, keep in mind that earnings you receive from self-employment are subject to income tax. This includes income from odd jobs like baby-sitting and lawn mowing.
  4. If you have net earnings of $400 or more from self-employment, you also have to pay self-employment tax. (Church employee income of $108.28 or more must also pay.) This tax pays for your benefits under the Social Security system. Social Security and Medicare benefits are available to individuals who are self-employed just as they are to wage earners who have Social Security tax and Medicare tax withheld from their wages. The self-employment tax is figured on Form 1040, Schedule SE.
  5. Subsistence allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay - such as pay received during summer advanced camp - is taxable.
  6. Special rules apply to services you perform as a newspaper carrier or distributor. You are a direct seller and treated as self-employed for federal tax purposes if you meet the following conditions:
    • You are in the business of delivering newspapers.
    • All your pay for these services directly relates to sales rather than to the number of hours worked.
    • You perform the delivery services under a written contract which states that you will not be treated as an employee for federal tax purposes.

  7. Generally, newspaper carriers or distributors under age 18 are not subject to self-employment tax.

A summer work schedule is sometimes a patchwork of odd jobs - which makes for confusion come tax time. Contact us if you have any questions at all about income your child earned this summer season.

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Five Tax Tips if You're Starting a Business

If you plan to start a new business, or you've just opened your doors, it is important for you to know your federal tax responsibilities. Here are five tips to help you get started.

1. Type of Business. Early on, you will need to decide the type of business entity you are going to establish. The most common types are sole proprietorship, partnership, corporation, S corporation and Limited Liability Company. Each type reports its business activity on a different federal tax form.

2. Types of Taxes. The type of business you run usually determines the type of taxes you pay. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.

3. Employer Identification Number. A business often needs to get a federal EIN for tax purposes. Check with us to find out whether you need this number. If you do, we can help you apply for one.

4. Recordkeeping. Keeping good records helps you when it's time to file your business tax forms at the end of the year. They help track deductible expenses and support all the items you report on your tax return. Good records also help you monitor your business' progress and prepare your financial statements. You may choose any recordkeeping system that clearly shows your income and expenses. Call us if you need assistance setting up your recordkeeping system.

5. Accounting Method. Each taxpayer must also use a consistent accounting method, which is a set of rules that determine when to report income and expenses. The most common are the cash method and accrual method. Under the cash method, you normally report income in the year you receive it and deduct expenses in the year you pay them. Under the accrual method, you generally report income in the year you earn it and deduct expenses in the year you incur them. This is true even if you receive the income or pay the expenses in a future year. We can help you figure out which accounting method is best for your business.

If you're a new business owner or are thinking about starting a business, don't hesitate to call us today. We're here to help new business owners like you understand the tax aspects of running a business.

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Eight Tips to Determine if Your Gift is Taxable

If you gave money or property to someone as a gift, you may owe federal gift tax. Many gifts are not subject to the gift tax, but there are exceptions. Here are eight tips you can use to figure out whether your gift is taxable.

1. Most gifts are not subject to the gift tax. For example, there is usually no tax if you make a gift to your spouse or to a charity. If you make a gift to someone else, the gift tax usually does not apply until the value of the gifts you give that person exceeds the annual exclusion for the year. For 2013 the annual exclusion is $14,000 (up from $13,000 in 2012).

2. Gift tax returns do not need to be filed unless you give someone, other than your spouse, money or property worth more than the annual exclusion for that year.

3. Generally, the person who receives your gift will not have to pay any federal gift tax because of it. Also, that person will not have to pay income tax on the value of the gift received.

4. Making a gift does not ordinarily affect your federal income tax. You cannot deduct the value of gifts you make (other than deductible charitable contributions).

5. The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. The following gifts are not taxable gifts:

  • Gifts that are do not exceed the annual exclusion for the calendar year,
  • Tuition or medical expenses you pay directly to a medical or educational institution for someone,
  • Gifts to your spouse,
  • Gifts to a political organization for its use, and
  • Gifts to charities.

6. You and your spouse can make a gift up to $28,000 to a third party without making a taxable gift. The gift can be considered as made one-half by you and one-half by your spouse. If you split a gift you made, you must file a gift tax return to show that you and your spouse agree to use gift splitting. You must file a Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, even if half of the split gift is less than the annual exclusion.

7. You must file a gift tax return on Form 709, if any of the following apply:

  • You gave gifts to at least one person (other than your spouse) that are more than the annual exclusion for the year.
  • You and your spouse are splitting a gift.
  • You gave someone (other than your spouse) a gift of a future interest that he or she cannot actually possess, enjoy, or receive income from until some time in the future.
  • You gave your spouse an interest in property that will terminate due to a future event.

8. You do not have to file a gift tax return to report gifts to political organizations and gifts made by paying someone's tuition or medical expenses.

Questions about the gift tax? Call us. We have the answers.

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Receiving Inventory With or Without Bills in QuickBooks

You're probably happy to see couriers delivering inventory items you've ordered since it means you can ship to customers, but recording the new stock means yet another repetitive task.

QuickBooks' tools can help with this, but you need to be sure you're using the right forms. There are two different ones that you'll use, depending on whether or not you've received a bill.

Bill in Hand

Either way, you'll get started by opening the Vendors menu (or clicking the arrow next to Receive Inventory on the home page). If you do have a bill, select Receive Items and Enter Bill (Receive Inventory with Bill on the home page). The Enter Bills screen opens; select your vendor from the drop-down list. If you had entered a purchase order, you'll see something like this:


Figure 1: If any purchase orders exist for that vendor in QuickBooks, you'll see this message.

Click Yes. The Open Purchase Orders window will open displaying a list. Select the PO(s) for the items received by placing a check mark in front of it/them and click OK.

Tip: If you accidentally click No, the vendor's information will be filled in on the Enter Bills screen, and you can click the Select PO icon in the toolbar.

Now the PO item information has been entered in the window. Check the form for accuracy, then save it.

Of course, if there was no purchase order, you'll enter the information about the items you received (descriptions, prices, etc.) in the Enter Bills screen.

Delayed Billing

If you receive items without a bill, you still need to document the shipment. Open the Vendors menu and select Receive Items (or click the arrow next to the Receive Inventory icon on the home page and select Receive Inventory without Bill).

The Create Item Receipts window opens. Select the vendor by clicking the down arrow next to that field. If a message about existing purchase orders for that vendor appears, click Yes or No and either select the appropriate POs or enter the information about what you received.

If the items were already earmarked for a specific customer on the purchase order, the Customer column will have an entry in it, and there will be a check mark in the Billable column. If there was no purchase order and you're entering the information, you can complete those two fields manually.


Figure 2: If a purchase order was already assigned to a customer and is billable, that information should appear in this window.

Enter a reference number if you'd like. The Memo field should already be filled in with Received items (bill to follow), and the Bill Received box should not be checked.

Warning: Be sure that the Items tab is highlighted when you're recording physical inventory. If there are related costs like freight charges or sales tax, click the Expenses tab and enter them there.

Paying Up

When the bill comes in for merchandise that you've already recorded on an Item Receipt, you'll use this procedure to pay it:

  • Click Vendors | Enter Bill for Received Items, which opens the Select Item Receipt window.
  • Select the vendor, then the correct Item Receipt.
  • Note: If the bill corresponds to more than one Item Receipt, you'll need to convert each into a bill separately. You can create a new bill if some items received were not accounted for on Item Receipts.

  • Click the box next to Use the item receipt date for the bill date if you want to match it to the inventory availability date.



  • Figure 3: You'll select purchase orders that you want to create bills for in this window.

  • Click OK. The Enter Bill screen opens, which can be processed like you'd handle any bill.

Though it may seem like extra work, this last procedure is important, since it prevents you from recording the same inventory items twice.

It's easy to get tangled up on these procedures. We hope you'll consult us when you begin implementing inventory management in QuickBooks, or when you're taking on a new task there. It's a lot easier to prevent errors than to go back and fix them.

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Tax Due Dates for August 2013

August 12

Employers - Social Security, Medicare, and withheld income tax. File Form 941 for the second quarter of 2013. This due date applies only if you deposited the tax for the quarter in full and on time.

Employees Who Work for Tips - If you received $20 or more in tips during July, report them to your employer. You can use Form 4070.

August 15

Employers - Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in July.

Employers - Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in July.


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