Archives for January 2014

What Happens Post-Filing

Right now, the IRS is preparing for the busiest part of the year. It is tax return time, but what are they responsible for after all the tax returns. In recent years, the IRS stepped up its efforts to reduce the amount of noncompliance issues, including underreporting income, overstating deductions and credits, non-filing, and non-payments. During the off-season, the IRS will work on the following items:

Audits: The IRS conducts over a half million audits each year. While many people will never be subjected to the audit process, the idea can be scary. The purpose of an audit is to prove that the client’s deductions and credits are legitimate and there were no other reporting issues.

Penalties: Four penalties that make up 98% of all the individual penalties, and they are failure to file, failure to pay, failure to deposit, and accuracy penalties. There can be some relief if penalties occur, but it depends on a case-by-case basis.

Underreporting/Matching Notices: The IRS sends out thousands of notices each year. Many of them are notices of a discrepancy between what was reported and what was earned. The notices are not audits, but may appear similar to some people.

Collection Alternatives: Sometimes clients get into financial problems and are unable to pay their tax bill. There are several alternatives available to them to help pay their taxes in a timely manner. The IRS offers installment payments, offers in compromise (OIC), and currently not collectible statuses are all option for clients if payment is a problem. The IRS usually like the simplest which is guaranteed or streamlined installment payments or extension of time to pay.

Accounting Corrections: In this most unpredictable world, anything can happen. The IRS deal with correction issues that can clog up the process. These problems can lead to holds on refunds, payments posting late or not at all, and other tax return adjustments. If an unexpected notice arrives in the mail, it is important to contact the IRS quickly to resolve the issue.

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Super-Funding College Saving Plans

We all know that college is expensive. It can cost upwards of $41,000 a year for private four-year college and $18,500 for a state college. Because of the high cost of college many wealthy clients are taking advantage of 529 college saving plans and the special rule that allows contributors to front-load five years of savings in one year.

The 529 college saving plan are a great way to save for college. The plan allows a parent, grandparent, etc. to establish a college fund for each child. This fund can be used to pay for college, but does not have a timetable on which the money has to be spent or withdrawn. It is a great way to save for college and can be included in estate planning.

There is currently a special rule that governs how contributions can be made. This rule allows contributors to front-load five years of savings in one year. So for clients, that means they can set aside 14,000 at the end of one year (in December) and then in January they can contribute another $70,000 for each would-be scholar. This is a grand total of $84,000 per child.

This strategy allows wealthy clients to take substantial amounts of money out of there estate without facing penalties from the IRS. If the money or part of the money is not used then the account can be transferred to another child, or the funds can be withdrawn. If the funds are withdrawn then there is a 10% penalty and taxes on the earnings.

There is one drawback. If the account is owned by the college student or their parents this counts as an asset and reduces the need-based aid by a maximum of 5.64% of the asset’s value. If the plan is in the name of the grandparents it will not affect the federal financial aid application, but the withdrawals made on the account do count against the aid needs and have a large consequence.

While this plan is good, very few can afford to do contribute that much at a time, but contributions can be made in December and then again in the spring with tax refunds. It just matters that you do something then wait until it is too late.

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Hiring the Right Person

Businesses are not successful without dedicated people to run it, but how do you find the right person for the job? Choosing a person whose personality fits into the company and credentials will fit the company’s needs is an art. Not everyone has mastered the process, but with a few set rules, anyone can fine the gems amongst the rocks.

The first step into hiring the right candidate is to evaluate how they fit into the company’s culture equality to how well they fit the qualifications of the job. Most jobs require employees to work with a variety of people in many different situations. The ability to work with others is an integral part of any job and should be evaluated equality with skill qualifications. Make sure that the person has the right behavioral requirements for the job. Knowing ahead of time the specific set of personality styles and behaviors the job requires, and look for candidates that fit the job.

The second part is to screen for the right set of skills. In interviews and on resumes people tend to stay on the safe side. People know how to give a good interview, but that does not determine if they will be a good candidate. The only thing that determines how well do in a job is past behaviors and results. Those are hard to see in an interview.

The third part to hiring a good candidate is to bring the finalists in and conduct 360-degree behavioral interviews. These interviews give you a broader picture of the applicants. The interview should include people that they will work with including bosses, peers, and direct reports. Ask questions that will probe into the person character and provide you with the feedback you need to make the decision.

The last step is to verify credentials. A bad hire could cost the company from $25,000 to $300,000. It is important to know that the candidate is truthful, and spending the extra $100 to ensure that is money well spent.

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Demonstrating Ownership

Many people work hard to own something, but do they really show ownership for what they strived to achieve. Ownership can have a powerful effect on leadership within a business. Ownership is the fundamental element that people strive for in any firm or partnership. It is important that workers are assigned some part of the ownership in a company. Many fear that by assigning ownership you are forcing people to take on more than they are ready for, or are giving away too much power. If done correctly, then this will only empower employees and give them something to take pride in. Below are five key elements and ideas to help foster the ownership in others.

  1. Do the thinking for the things you own. Owners take on their own thinking. They do not expect anyone else to do it for them. They do not wait for someone else to come up with the ideas, they are the ones coming up with the ideas. They are thinkers and doers. Provide opportunities for other to bring ideas to the table, and accept input. Assign someone to work on question to a lingering problem, and consider new ideas or concepts on things they own.
  2. Plan for the future. Owners envision both positive and negative possibilities for things they own. They ease the risks and plan to enhance the positives. They make plans for the future, and are proactive with those plans.
  3. Enroll the ownership of others. They seek advice from other stakeholders. They modify their plans based on the valuable feedback they receive, and welcome other into the ownership who have the drive to move it forward. Owners understand that they alone cannot drive the growth and success of their holdings, so they seek others that can assist in the growth.
  4. Communication. Owners ask questions. They seek the input they need for their progression. They stay informed on what will help move their business forward, and regularly communicate with other that can help them accomplish this plan.
  5. Take responsibility when they are wrong. Owners take responsibility for both the good and the bad. They acknowledge their shortfalls. They then take actions to fix the problems and do not place the blame on others.
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