Missed the Income Tax Deadline?

In the past few weeks, we’ve gotten more than a few questions about filing late tax returns. Although it can be overwhelming and intimidating, it’s extremely important to file back tax returns as soon as possible.

A few points about late filing:

  • If you owe a balance, penalties and interest will most likely apply. However, these will continue to increase the longer you wait.
  • If you have reasonable cause, penalties may be able to be abated.
  • E-filing is still available for 2011 tax returns until October 15, 2012.
  • If you can’t pay the entire balance you owe, payment plans are available through the IRS.
  • If you have a refund waiting, you have three years to claim it. If you haven’t filed three years after the due date, you forfeit your right to the refund.

Unfiled tax returns can be a heavy burden, and often the outcome is much better than expected. A knowledgeable CPA can help you get caught up on back tax returns and get you on the right track so it doesn’t happen again.

In accordance with IRS Circular 230, this newsletter is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose.

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OnAugust 2, 2012, posted in: Tax & Accounting Tips by

Why you should think twice about an early distribution from your retirement plan

It’s the end of July and the last thing on your mind is your 2012 tax return, right? For many people that may be okay, but there are many decisions that should be considered in light of the potential tax consequences. One that occurs fairly frequently is an early distribution for a retirement plan. It’s important to consider all of your options and the tax consequence of each BEFORE you act.

Especially in these difficult economic times, early retirement distributions are frequent. Although you receive the funds relatively quickly, the tax consequences can hit you next year when you file your return, and that impact may leave you in a worse situation than before.

Distributions you receive from your IRA before you reach age 59 ½ are generally considered early or premature distributions. If you received a distribution from any other qualified retirement plan, generally the entire distribution is taxable unless you made after-tax employee contributions to the plan. Early distributions are usually subject to an additional 10 percent tax. Here are some things to keep in mind if you need to make an early distribution:

  • Distributions you roll over to another IRA or qualified retirement plan are not subject to the additional 10 percent tax. You must complete the rollover within 60 days after the day you received the distribution.
  • There are several exceptions to the additional 10 percent early distribution tax, which include:
    • Distributions are used for the purchase of a first home (up to $10,000)
    • Distribution to pay for unreimbursed medical expenses to the extent they exceed 7.5% of AGI
    • Distribution from an IRS to pay for higher education expenses
    • Distribution from an IRA to an unemployed individual to pay for health insurance after leaving a job if the individual has received unemployment compensation for 12 consecutive weeks
    • Distribution when the participant is totally and permanently disabled

    Regardless of your situation, if you’re considering an early retirement distribution, you should always consult with your CPA before making any permanent decisions. For more information, visit the IRS’s tip sheet for early retirement distributions here.

    In accordance with IRS Circular 230, this newsletter is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose.

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    OnJuly 24, 2012, posted in: Tax & Accounting Tips by

Understanding Estimated Payments

In an effort to demystify the tax return, let’s talk for a moment about the necessity for a small business owner to at least be aware of the process to pay estimated payments throughout the year. If you are a sole proprietor (Schedule C on a Form 1040), a partner (Schedule 1065), or simply an individual with income that is not having taxes withheld, estimated payments are very important to you.

Unlike a W-2 employee, a self-employed individual must remit his or her own tax payments to the government. This should be done on a quarterly basis, the schedule of which is as follows for the 2012 tax year: April 17, 2012, June 15, 2012, September 17, 2012 and January 15, 2013.

So why should you make estimated payments? Besides the obvious answer (because you have to), the IRS assesses a penalty to those who do not pay enough of their tax throughout the year. This applies to all taxpayers, but is usually more applicable to the self-employed.

Per the IRS, you must pay estimated tax if (1) You expect to owe at least $1,000 in tax for 2012 and (2) You expect your withholding and refundable credits to be the smaller of 90% of the tax you owe in 2012 or 100% of the tax shown on your 2011 return. If these conditions apply to you and you do not make estimated payments throughout the year, you can expect to pay a penalty on your tax return.

Talk to your CPA now to avoid paying more than you should in April—an analysis can be done quickly, on a quarterly basis to make sure there are no surprises on April 15! Here’s an article from the IRS for more information:

Six Tips for People Who Pay Estimated Taxes

In accordance with IRS Circular 230, this newsletter is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose.

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OnJuly 17, 2012, posted in: Tax & Accounting Tips by

Getting Ready for an Audit

If there’s one thing that gives accounting staff in a company or nonprofit organization anxiety, it is definitely the word ‘audit.’ The very thought of scary auditors coming in to analyze your every decision throughout the year is quite intimidating.

It doesn’t have to be that way. In reality, your auditing firm should provide a non-threatening experience that, in the end, makes your accounting department and company function better. You are paying them, after all. The key to a smooth audit experience is all in the planning:

  • Make sure you use the prior year’s management letter (a letter from your auditor that contains findings, recommendations, etc)
    • Evaluate issues that were identified in the prior year’s audit and consider the cost/benefit of making the changes
    • Establish a timeline for making changes and hold your team accountable
  • Be involved with your audit from the beginning
    • Have a pre-audit meeting to inform your auditor what’s new and communicate any changes
    • Set a timeline for mutual expectations and accountability
    • Work with your auditor to be proactive and resolve questions or issues early – insist on no surprises!
  • Be prepared for fieldwork
    • Create and follow a year-end closing schedule
    • Make sure items provided to the auditors are complete and accurate (and, when possible, provided electronically)
    • If you don’t understand a request, ask about it—you understand your organization better than the auditor. There may be a better solution to the auditor’s question.
    • Keep track of what you provide to help prepare for next year
    • Review adjusting journal entries, reclassification entries and prior year entries – be proactive in dealing with these issues
    • Keep your team and your auditor accountable to the timeline established during planning.

    Always remember that your auditor wants a smooth audit just as much (if not more) than you. The focus of your audit should always be keeping an open line of communication with your auditors – this will keep you on time and usually will result in lower fees in the long run!

    In accordance with IRS Circular 230, this newsletter is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose.

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    OnJuly 10, 2012, posted in: Tax & Accounting Tips by

What’s so great about CPAs?

As a follow up to our post on February 14, (click here) check out what the AICPA (American Institute of Certified Public Accountants) has to say about the value of a CPA:

What’s so great about CPAs? You may not have asked yourself that question in so many words, but you may have wondered what sets CPAs apart from other financial professionals. The answer in short: A lot. We typically begin our careers with years of college and graduate education. To become licensed, we must take the demanding Uniform CPA Examination, which tests our knowledge on a wide range of business topics over a total period of 14 hours. In addition, we have to meet an experience requirement and then be licensed by a State Board of Accountancy to practice. But it doesn’t stop there. Once we become CPAs, we also must meet continuing education requirements to update our knowledge of new business developments as well as commit to a strict code of ethical standards. Armed with this rigorous training, we’re on the job year round, ready to help individuals and businesses address their own unique challenges.

That’s just a little more insight into why choosing a CPA for your tax preparation, planning and advising is a great idea!

In accordance with IRS Circular 230, this newsletter is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose.

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OnMarch 6, 2012, posted in: Tax & Accounting Tips by

The Mysteries of Your Tax Refund

Many taxpayers approach this time of year with fear and dread, not knowing what is going to happen, and expecting the worst. On the other hand, some race to finish their tax return, expecting a belated Christmas present, just waiting to be delivered from the IRS. No matter if you are part of one of these groups, or fall somewhere in the middle, your tax situation should never be a surprise.

Whether you receive a tax refund or owe at tax time is not as complicated as it seems. Basically, your refund or amount you owe comes down to a simple equation:

Payments to the IRS – Total Tax = Refund/Amount Owed

Now, obviously, it gets more complicated when you consider credits, self-employment taxes, deductions, etcetera, but the concept remains the same. So, in reality, if you are receiving a huge refund when you submit your tax return, you have essentially given the US government an interest-free loan throughout the year, which you are just now being repaid. Conversely, if you owe a huge amount, you should have been paying more money in throughout the year, and you may owe penalties.

This is where your CPA comes in—when your taxes are completed each year, your CPA can review your present situation and make recommendations to smooth out your tax payments for the current year, so that next year, you’ll be aware of what’s going on, and know what to expect. If you’re an employee and receive a W-2, you can adjust your withholding to better match what you owe. If you’re self-employed, your estimated payments can be adjusted to approximate the income you’re expecting. This tax planning can be completed quarterly if your income varies during the year.

The bottom line simply comes down to this—it’s your money and financial life, so you should be in control!

In accordance with IRS Circular 230, this newsletter is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose.

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OnFebruary 21, 2012, posted in: Tax & Accounting Tips by

Why have a CPA do your taxes?

A monkey could do taxes if he had the software, right?

Wrong.  While many people assume that tax preparers are created equal, they are not.  Tax preparers can range from free (volunteer sites for low income taxpayers) to bookkeeper/preparers, and from chain preparers to CPAs.  Each has its pros and cons, and it’s up to you to decide what is best for your financial situation.

One of the most important advantages of using a CPA is the relationship you will develop with your CPA. He or she should be interested in all aspects of your financial life,and check in with you regularly. Especially if you’re self-employed or have income that fluctuates during
the year, a CPA can help guide you throughout the tax year, to ensure that your tax situation isn’t a surprise on April 15.

The most obvious advantage of engaging a CPA to do your taxes is education and licensing. A CPA in good standing had to, among other things, graduate from college, pass the CPA exam, and participate in yearly continuing professional education. The Missouri Board of Accountancy posts all disciplinary actions against CPAs in its newsletter (click here).

Dig a little deeper, and you’ll discover that there are many other advantages to having a CPA on your side. While most people’s initial reaction is that a CPA is too expensive, that is not always the case. Be sure to ask your tax preparer about total fees, including fees per form, fees by time, and any add-ons that may appear on your bill.

Most importantly, you should see your CPA as a tax advisor, who can help you navigate your financial situation, and help you use the tax code to your advantage.

In accordance with IRS Circular 230, this newsletter is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose.

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OnFebruary 14, 2012, posted in: Tax & Accounting Tips by

Join us Dec. 2 for a Holiday Open House!

We’d like to invite all of our clients, friends, and family to an open house to celebrate our name change, our office move, and of course, the holiday season!  Brittany, Kailey and Penny would love for you to stop in and say hello. Please let us know if you’d like more information at 417-882-2608 or info@claytoncpas.com.

In accordance with IRS Circular 230, this newsletter is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose.

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OnNovember 17, 2011, posted in: Tax & Accounting Tips by

Clayton CPAs moves to new office and announces name change to Clayton, York & Hopp CPAs

We are proud to announce some exciting changes in our business that, as our clients, we thought you’d like to hear. As of October 3, 2011, Clayton CPAs & Advisors became Clayton, York & Hopp CPAs. With our name change, we also moved offices to 305 Commercial Street. We’re eager to move forward in these decisions, while providing our clients with the same high-quality service as we have in the past.

Our name change to Clayton, York, & Hopp CPAs is in order to reflect the state of our partnership as it has existed since we began. There will be no change in our operations or client service—it is simply recognizing how we’ve operated in the past.

The most exciting news is our move to Commercial Street. As you have probably seen in the news lately, the revitalization of Commercial Street is in full-swing, and has taken a big leap forward recently, with the addition of a Drury University presence on the street. We’re enthusiastic about C-Street’s potential, and are happy to join the community of diverse businesses operating in the area.

So that our clients can get familiar with our new location, and to thank you for your loyalty over the past year, we’ll be having an open house soon—expect an invitation soon! We’d love for you to stop in to enjoy appetizers and drinks, check out our new office space, and explore the Commercial Street area!

As always, we are dedicated to giving our clients the best service and building quality relationships. If you have any questions about these changes, don’t hesitate to contact us at any time!

Sincerely,
Brittany, Kailey, and Penny

In accordance with IRS Circular 230, this newsletter is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose.

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OnOctober 7, 2011, posted in: Tax & Accounting Tips by

Financial Ratios – A Crash Course

Our series on understanding financial statements (Income Statement, Balance Sheet, Statement of Cash Flows) explained the different financials of your business, but going in-depth and analyzing them can be scary. Below we’ve listed some quick and easy financial ratios that are simple to calculate and understand. Contact your CPA today to find out more about these and others that can be tailored especially for your business!

Liquidity – the ability of a firm to satisfy its short-term obligations

  • Current Ratio = Current Assets / Current Liabilities
  • Rule of thumb – current ratio below 2.0 suggests the possibility of liquidity problems

    Overall Leverage – the amount of liabilities in proportion to the amount of assets held by a business

  • Debt Ratio = Total Liabilities / Total Assets
  • Frequently used as an indicator of the overall ability of a company to repay its debts (Company borrowed __% of the money it needed to buy its assets)

    Overall profitability – to measure, net income must be compared to the size of the investment

  • Return on Assets = Net Income / Total Assets
  • Companies purchase assets with the intent of using them to generate profits, therefore, one dollar of assets generated __ in net income

  • Return on Equity = Net Income / Owner’s Equity

  • Measures the percentage return on the actual investment made by owners (Owner earned __ for each dollar of equity investment)

    Efficiency – measures the productive use of resources

  • Average Collection Period = Average Receivables / (Average Daily Sales)
  • Average Receivables = (beginning balance + ending balance) / 2
  • Average Daily Sales = Sales/365
  • Reasonable collection period varies according to the business and its policies, but it is a good benchmark to see if the business enforcing its policies or if a policy change would be beneficial

  • Inventory Turnover = Cost of Goods Sold / Average Inventory
  • Average Inventory = (beginning balance + ending balance) / 2

  • Evaluates inventory position and the appropriateness of its size

    In accordance with IRS Circular 230, this newsletter is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose.

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    OnSeptember 15, 2011, posted in: Tax & Accounting Tips by