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Tax News from your friendly CPA! |
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The Sunderland Group E-newsletter
| June, 2012 |
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Online Client Access
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Please remember that all of your tax information is available 24/7 via your Online Client Access (OCA) web portal! Access to your OCA is done via our website under the Client Login section of our website.
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Greetings!
Happy Summertime!
Welcome to another Colorado summer! It has started out to be quite a troubling summer so far with the many wildfires our state has and continues to face, and it seems it may only get worse. Our hearts and prayers go out to those directly effected by these fires. As we should always do, please thank ALL firefighters for their service.
In this issue, please read about your online client access (OCA) web portals - this is your centralized hub to access all of your tax information and we will continue to enhance the capabilities and ease of use of this system. The technology enhancements these days continue to amaze me and we will continue to embrace the change that comes with adapting to this progress.
This issue also addresses estimated taxes and stock options, as we tend to field many questions in each of these areas.
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Your Online Client Access Web Portal
Most of you have now become a bit more familiar with the convenience and efficiency of accessing and utilizing your Online Client Access web portal via our website. However, we also realize that many of you may only access your portal once each year - at tax time! Therefore, we want to continue to remind you how you can access your portal.
You will go to www.sunderlandcpa.com and under the Client Center (along the right side of our site), you will want to select the Client Login radio button. Unless otherwise provided, each of you will use your email address as your Username. For married taxpayers, this is usually the primary taxpayer that is reported on the tax returns. For others, it will be our primary contact. The passwords we created are the first letter of your last name (capitalized) followed by your SSN (no dashes) - for example: S123456789.
Once you have successfully logged in, you will see a Document Presentation folder. Within this folder you will find your name(s) and/or business name(s) as separate folders. Continue to drill down into each folder to find various documents. You have access to your tax returns & your source documents that were provided to us (W-2s, 1099s, etc.). For those of you required to make estimated tax payments, the payment vouchers are also posted here.
There is also a File Exchange within your portal that allows you to upload important tax documents throughout the year - this is a great tool to help store your charitable donation receipts and other docs that may come in during the year.
We hope to post a video to our website soon that will visually walk you through accessing and utilizing your portal.
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Cost Basis Reporting - New Rules
Those of you that hold investments - stocks, bonds, mutual funds, etc. - probably noticed this past tax season that the brokerage statements have changed considerably. This is due to the new cost basis reporting rules that the IRS has released. These new rules are an attempt to require the brokerage firms to begin reporting the cost basis information to the IRS. In the past, they have only reported the sales proceeds information.
Obviously, this has allowed for a lot of very creative "assumptions" that folks have used to report their own cost basis information. Since gathering the proper cost basis information may be quite difficult for your current custodian/brokerage firm, the IRS is phasing these new rules in. Brokers are now required to report basis for any securities acquired after 2010, and for any mutual fund shares and stock acquired through a DRIP (Dividend Reinvestment Plan) acquired after 2011.
Beginning with the 2011 tax returns that we filed this year, there is now a separate schedule - Form 8949 - that must be filed to report the various "categories" of investments between "Covered Securities" which represents those that are now required to have the cost basis information included on your 1099-B and which is reported to the IRS; and "Non-Covered Securities" which represents those that were acquired prior to the dates mentioned above.
How is the cost basis calculated? Generally, the broker must report use the FIFO - First In First Out - method to determine which shares were sold. However, you may still elect to specifically identify which shares were sold, but you must either set this as your default method with your broker or make sure you inform your broker prior to the date the transaction settles. Many brokers are asking folks to verify their default choices up front. Please let us know if we can be of assistance with these new rules.
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Stock Options - revisited
With the recovering stock market, stock options have once again become an attractive form of compensation for many firms, especially the various technology "start-ups" we see in our area. The good thing is that your entire profit from selling ISOs (incentive stock options) may be taxed at lower capital gains rates (as opposed to ordinary income tax rates), assuming you play your cards right.
However, exercising an ISO when the market value of the company stock is above your exercise price may cause you to owe the dreaded AMT for the year in which you exercise. In addition, you will lose favorable capital gain treatment for your profit if you sell the option shares within 2 years of the option grant date or within 1 year of the option exercise date.
There may be other important tax considerations as well, and non-qualified stock options may be treated differently (above we are addressing qualified stock options). Careful advance planning is advisable before exercising an ISO or selling shares acquired by exercising them. Please call us if you have questions.
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Do You Need to Pay Estimated Taxes?
Many of you are self-employed, have large amounts of investment income, or other forms of income that are not taxed at the time you receive the money. So the questions that must be asked is whether or not you should - or are required - to make estimated tax payments to either the IRS and/or your state.
Generally, we advise folks to pay estimates in accordance with the IRS requirements to avoid potential penalties. This requirement provides that taxpayers make estimated tax payments if (1) they expect to owe at least $1,000 in tax after subtracting your withholdings and applicable tax credits, and (2) your total withholdings and credits are expected to be less than the smaller of 90% of your 2012 tax liability or 100% of the tax that was reported on your 2011 return (some folks may need to pay in 110% of your prior year tax).
Therefore, for our many self-employed clients, we calculate estimates primarily based on the 2011 return information since that number will not change. If your business or investment income is increasing year over year, you may still owe money when April 15th arrives since the estimates you will have paid are assuming the current year is similar to the prior year. Therefore, careful planning is necessary to ensure there are no surprises. Please contact us if you need to discuss this in more detail.
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