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Retirement Plan and IRA Rollover Advice

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When moving your retirement money to an IRA, you should follow this one rule of thumb. If you fail to follow the rule I’m about to reveal, you can face two big problems:

  • First, your check will be shorted by 20 percent.
  • Second, you will be on the search for replacement money.

Here is this significant rule of thumb that you need to follow: Move the money using a trustee-to-trustee transfer. Nothing else. There are two types of transfers that can be used to move qualified plan distributions into IRAs in a tax-free manner: (1) direct (trustee-to-trustee) rollovers and (2) what we will call traditional rollovers.

If you want to do a tax-free rollover, do nothing other than the direct (trustee-to-trustee) rollover of your qualified retirement plan distribution into the rollover IRA. This is easy to do.

Just instruct the qualified plan trustee or administrator to (1) make a wire transfer into your rollover IRA or (2) cut a check payable to the trustee of your rollover IRA (this option is not as preferable than a wire transfer). Your employee benefits department should have all the forms necessary to arrange for a direct rollover.

How to Keep Your QuickBooks Data Safe

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You work hard to make sure your QuickBooks data is accurate. Make sure it’s safe, too.

Your QuickBooks company file contains some of the most sensitive information on your computer. You may have customers’ credit card numbers and employees’ Social Security numbers. An intruder who captured all that data could create tremendous problems for you and a lot of other people.

That’s probably the worst-case scenario. But other situations could also spell disaster for your business, which involves losing your company data through fraud, hacking, or simple technical failures.

We can’t overstate the vital importance of protecting your QuickBooks company file, especially your customer and payroll information. Whether someone steals it or it’s inaccessible for another reason, it’s gone. Keeping your business going after such a loss would be very difficult – maybe even impossible.

Here’s what we suggest to prevent that.

Internal Safeguards

No business owner wants to believe that his or her employees could use their QuickBooks access to commit fraud. But it happens. Your company file contains credit card and checking account data that could be used for nefarious purposes. As we discussed last spring, you can restrict user access to specific areas and actions of QuickBooks.

You can limit your employees who have QuickBooks access to certain areas and activities.

To get started, open the Company menu and select Set Up Users and Passwords | Set Up Users. The User List window opens. It should have at least one entry there, for you (Admin). Click Add User and enter the employee’s name and password in the next window that opens, then click Next.

Tip: Your QuickBooks license limits you to a specified number of users. If you’re not sure how many you’re allowed, click F2 to open the Product Information page. The number of user licenses you’ve paid for appears in the upper left.

On the next page of this wizard, click the button in front of Selected Areas of QuickBooks. The following screens will let you define that employee’s access permissions in areas like Sales and Accounts Receivable, Inventory, and Payroll and Employees. When you’ve clicked through every screen and reviewed the summary displayed, click Finish. Your user will now be able to sign in and access the areas you specified.

You can—and should—take numerous other steps to keep your QuickBooks data safe. If your company is big enough to have a dedicated IT expert, he or she will handle most of this. But there’s a lot you can do on your own to prevent data loss and theft.

Keep Your Operating System and Applications Updated

Don’t ignore this dialog box.

Software companies’ occasional updates offer more than just adding new features and fixing bugs. They sometimes refresh your software to ensure greater security based on new threats. Don’t forget about those all-important antivirus and anti-malware applications, as well as QuickBooks itself.

Keep Your Networks Safe

Just as a cold virus spreads around your office, so, too, can unwanted intrusions like computer viruses. Don’t allow an electronic epidemic to get started; take steps ahead of time to prevent it:

Discourage employees from excessive web browsing. This can be a hard rule to enforce, as some employees probably need internet access for research, timecard entry, and other work-related tasks. Create a firm policy legislating what workers can and can’t do on company-issued equipment (including tablets and smartphones) or any personal devices that use your wireless network.
Ask employees to refrain from using public networks on work equipment. Enforce the rules vigorously, and make compliance an element of performance evaluations.
Minimize app installations on business smartphones. Employees should ask for approval. Viruses and malware get in that way, as well as through some websites and email attachments.
Use monitoring software. If you can’t afford to pay for “managed IT” (a la carte, third-party IT services), install an application that alerts you to problems.

Use Common Sense

You can fight data loss and theft by being cautious. Be diligent about backups, and if you create them on a local, portable device, don’t leave them in the office. Cloud-based solutions are better. Shred papers that have sensitive information on them. Log out of QuickBooks when you’re not using it or when you leave your office. Be aware of who may be around you, looking over your shoulder.

We take data security very seriously in our own office, and we strongly encourage you to do the same. If you’d like to learn more about how our Round Rock QuickBooks advisors can help you make the most of your QuickBooks system, call 512-255-7110 to set up a no-cost, no-obligation consultation.

What are the Tax Advantages of Being a Landlord?

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Owning rental property can bring in extra income, but it’s not without its downsides. If the furnace breaks or a pipe bursts, you can be sure you’ll get the call — sometimes in the middle of the night. But for all the hassles that being a landlord can bring, there are some bright spots. One of them is the ability to deduct certain expenses from your total rental income on your tax return.

Owning a rental home, apartment, or other residential property may entitle you to take some or all of the following deductions.

House Calls

Real estate taxes and mortgage interest on rental property are potentially deductible, as are fire, flood, theft, and liability insurance premiums. Services, such as lawn care, performed on the rental property and any wages you pay employees in connection with the rental activity may be deductible as well.

Wanted: Tenants

You can deduct expenses associated with renting the property, including management fees, commissions, and cleaning and maintenance.

This Old House

The costs of repairs that keep the property in good condition, such as painting, are deductible in the year you incur them.

Cost Recovery

You generally can begin claiming deductions for depreciation on rental property in the year the property is ready and available for rent. In addition, you can recover the cost of improvements that add value to your property, such as replacing the roof or adding a deck, by claiming depreciation over time.

Over the River, Through the Woods

You may be able to deduct the expenses of traveling to your property when the main purpose of your visit is to collect rental income or to manage and maintain the property.

It’s important to keep complete and accurate records of all expenses related to your rental property. Keep in mind that there are tax law limits on deducting losses from rental activities.

Don’t deal with tax issues on your own. Call us right now at 512-255-7110 to find out how we can provide you with the answers you need on your real estate accounting and tax needs. Our Round Rock, TX CPA Firm has experience working with all types of real estate industry professionals.

As a Corporation You Need to Follow the Rules

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When you started your business, you may have formed a corporation to protect your personal assets from lawsuits against your company. However, you must also operate your business like a corporation — or risk losing the liability protection you expect to have.

No matter how long you’ve been in business, always treat your corporation as a separate legal entity. The corporation’s name should appear on company letterhead, checks, and invoices. Contracts should be made in the corporation’s name, not yours or another individual’s.

Avoid mixing your personal affairs and your corporation’s business. Maintain separate bank accounts and credit cards, and keep careful records of corporate transactions. File tax returns and pay any corporate taxes due on time.

Meet and Document

Hold shareholder and director meetings according to a regular schedule and keep official minutes of those meetings. Corporate minutes provide documentation of key financial and legal decisions, such as

  • Authorization for a substantial loan to or from the corporation
  • Adoption of a retirement plan or approval to make a contribution to an existing plan (e.g., a profit sharing contribution)
  • Issuance of stock
  • Purchase of real property or approval of a long-term lease

By observing the formalities, you can protect yourself and have the records you may need if the IRS, a creditor, or a company insider challenges critical decisions that were made.

Don’t get left behind. Contact us today to discover how we can help you keep your business on the right track. You can contact our Round Rock, TX CPA at 512-255-7110 or browse our website to learn more about our Business Advisory Services or our Business Tax Planning.

Understanding Tax Breaks for Moving

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Everybody likes tax breaks. For many taxpayers, the tax break they get on the gain from selling a home is one of the most valuable of all. If you’re thinking the time is right to put your house on the market and it has appreciated in value, make sure your gain will qualify for the home-sale gain exclusion before you make your move.

Good Deal

Here’s how the home-sale gain exclusion works: If you make a profit when you sell your principal residence, all or part of your gain may be tax free. Eligible individual filers may exclude up to $250,000 of gain from their income; married couples filing jointly may exclude up to $500,000 of gain.

Ownership and Use Tests

In general, this tax break is available only once every two years. To qualify, you generally must have owned and used the home as your principal residence for at least two years (a total of 24 full months or 730 days) during the five-year period ending on the date of the sale. The ownership and use periods don’t necessarily have to coincide.

Only one spouse must pass the ownership test, although neither spouse may have excluded gain from a previous home sale during the two-year period ending on the sale date. As for the use test, both spouses must pass it. Note that short, temporary absences count as periods of use. So, for example, a three-week vacation tour of Europe would count as time spent in your principal residence.

Reduced Exclusion Possible

If you don’t meet the requirements for the full $250,000/$500,000 exclusion, you might qualify for a reduced exclusion under certain circumstances: if you have to sell your home because of a change in employment, you move for health reasons, or there are other qualifying “unforeseen circumstances.” The amount of the reduced exclusion is based on the portion of the two-year use and ownership periods you satisfy.

Call us today at 512-255-7110 for more tips on how to ensure you’re following business best practices or to learn more about real estate taxes. Our Round Rock CPA Firm offers accounting and tax services to individuals and businesses.

Steps to Creating a Continuation Plan for Your Business

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Are you a business owner who wants to retire someday? Would you like to see the business continue after your departure with younger family members and/or other key employees in charge? Accomplishing the dual goals of retirement and continuity of the business is possible, but it takes planning.

Because every situation is different, your plan should be tailored to achieve the results you desire. That said, you may be interested in an illustration of how a transition plan could be crafted.

Step 1 — Establish a New Entity

A new business entity is formed sometime before your anticipated retirement date. The new entity — let’s assume it is a limited liability company (LLC) called “Company 2” — is capitalized with contributions from the new owners and a small contribution from you.

Step 2 — Transition Operations

Company 2 operates alongside your old company during a buyout period, with you as the managing member. During that period, your old company finishes its existing work and collects its outstanding accounts receivable.

New work is funneled to Company 2 as it comes in. Company 2 rents equipment from your old company and gradually buys the equipment. Any new equipment that must be acquired during the transition period is purchased by Company 2.

Your old company receives a management fee for your assistance during the transition and is reimbursed for any operating expenses it incurs on Company 2’s behalf. You continue to receive a salary from your old company. At a prearranged time and price, the new owners of Company 2 buy out your interest in Company 2.

Step 3 — Liquidate

At the end of the transition period, your company sells its remaining equipment to Company 2 and liquidates, distributing its equity to you.

Benefits

With this plan, liability for claims that could arise from Company’s operations during the transition period are shifted away from your old company, helping to ensure that its equity will be available to you for retirement. Meanwhile, Company’s new owners are in a position to benefit from any future increase in the new company’s value.

Note that this is just one of several ideas for implementing a business transition; any plan should be customized to your specific situation.

The future of your business is too important to leave to chance. Why not get ahead of the curve by starting to think about a continuity plan well in advance?

For more help with your retirement and business continuation plan, give our Round Rock, TX CPA Firm a call today at 512-255-7110.