Is Wisconsin Holding Money For You?

On behalf of our business contacts and clients, we periodically search the Wisconsin unclaimed property database managed by the Office of the State Treasurer.  There may be unclaimed property in your name. Through proving legal rights to the unclaimed funds, the State Treasurer will approve payment to you or your heirs without charge.

What is Unclaimed Property?

Unclaimed property is any financial asset that has had no activity by its owner for a period of one year or more.

Wisconsin Unclaimed Property Law

• Enacted in 1970, the Unclaimed Property Law enables Wisconsin residents to reclaim abandoned or missing funds.
• Wisconsin businesses and financial institutions are mandated to turn over all unclaimed property to the State Treasurer’s Office after one to five years of inactivity.

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Steps for Recovering Unclaimed Property:

1. Click here.
2. For Individuals: Enter your last and first name then hit the “search” button.  Search the results using your name, possible middle initial, address, or property type as verification.

For Businesses: Enter the first couple words of your company name and hit the “search” button.  We don’t recommend entering your entire company name because the Database often has an incomplete or misspelled company name.

1. Select  ”Add to My Claim” for any line item that you believe belongs to you.
2. Choose “Create My Claim Form Now” once you have added all unclaimed property for you or your company.
3. Complete the Name/Address/Contact information and either print and mail the claim form or request a form by mail.

Within 10 business days of receiving the completed form, the State Treasurer’s Office will either mail payment to you or possibly a request for more information.  In most cases, they will send a payment

Your Tax Information 101

Everyone has unpleasant experiences in their lives, be it returning an internet purchase, having dental work done, driving in a traffic jam, or gathering information for their annual tax preparation.  While we cannot ease the burden of most of these experiences, we hope to help simplify the process for gathering your personal tax return information.  While the following guide is not all inclusive, we hope it will cover the key specific areas for your personal tax return process.

 Step 1 – Implement a Simple System

We are at that time of year where you need to first be in the right mindset to effectively and efficiently organize your tax information.  This process can be a monumental task if you don’t properly triage the information you receive.  We offer the following very simple advice:

1. Above all, get a designated spot at home for all of your tax information – let’s call it your “1040 File”.  This could be a large envelope, file folder, or the classic shoebox that all accountants love.  Whatever works best for you, have a defined storage system.
2. Next, triage all incoming mail as it come in the door and move it to your 1040 File.  You will receive several documents in January and February that say “Important tax document enclosed” and can save yourself time and possible omissions on your tax returns if those envelopes go directly from the mailbox to your 1040 File.  Many people like to review their mail before filing it, but the fact is that it will be much easier to review your tax information once you receive all of it rather than piece by piece.
3. Be aware of and address the obvious tax information you will receive.  Most banks, investment companies, mutual funds, charities, etc. have very automated and organized systems to efficiently provide all recipients with the annual tax reporting information.  Therefore, watch for mail from these companies and be prepared to move them to your 1040 File.

Step 2 – Go Through Our Standard Checklist

Very few of us deal with taxes on a regular basis, and most of us work diligently to suppress any knowledge of income tax filings on the hope that they will magically disappear or that the tax returns will file themselves.  Therefore, we recommend that everyone go through our two-page checklist of yes/no questions to help jog their memory and also to ensure we receive all relevant tax information. 

Many people think they will remember major components of our tax return preparation process, but we cannot tell you how many times our clients have forgotten to tell us about large donations, new real estate purchased, mortgage refinancing, energy efficient home improvements, and yes, even children born during the year. 

Just like the checklist everyone goes through before a vacation to make sure they turn off the iron and close the windows, our checklist serves as a reminder of the common and important things to address before you provide your tax information to us.

 

Step 3 – Be Aware of Tax Information

The US Tax code is over 70,000 pages long, so there is no short list we can provide that will cover every possible item of taxable income and/or deduction.  However, the following summarizes the key documents you may receive and should put in your 1040 File.

 

Income

There are several categories of taxable income and the following addresses the most common items you may receive regarding various sources of income, both taxable and non-taxable.   Please contact us for guidance if you are unsure of items that may not be below, like business or partnership investments.

• W-2s – This is the most common document individuals receive.  Very few people forget their W-2 forms, but many people misplace them because their employer hands them out rather than mails them.  Over 95% of W-2 forms come in the first 3 weeks of the year so just make sure to put them in your 1040 File.
• 1099-INT  –  These forms report interest that you earn, typically in a bank account.  Keep your eyes peeled for the “Important Tax Document Enclosed” envelopes and set them in your 1040 File.
• 1099-DIV –  These forms report dividend earnings from mutual funds and other investments.  Keep your eyes peeled for the “Important Tax Document Enclosed” envelopes and set them in your 1040 File. Be aware that mutual funds occasionally restate dividend details so you may receive amended 1099-DIV forms.  We recommend you file all forms in your 1040 File.
• 1099-G – This is a form you receive from the government (usually the State) indicating government payments to you, including the amount of your prior year tax state refund and unemployment compensation.  The Wisconsin Department of Revenue offers this information on their website, and to lessen the tax documents you receive in the mail, you can sign up to receive the information via an email here.
• 1099-R and SSA-1099 – These forms report various forms of retirement distributions, including IRAs, pensions, employer retirement plans, and Social Security payments.  Like W-2 forms, over 95% of these come in the first 3 weeks of the year.

Deductions

There are many more categories of deductions than there are of taxable income, but there are definitely some key deductions that benefit most individuals and for which it is relatively easy to gather the supporting information.

 

• Mortgage Interest (Form 1098) – This is the most common deduction that people miss, usually because of 2^nd mortgages, mortgage refinancing, or home equity lines of credit.  For deductible mortgage interest, you will generally receive a federal form 1098 in the mail in early January.  Please note that some mortgage companies will include the form 1098 with their monthly statement and you therefore need to keep your eyes peeled for it.
• Real Estate Taxes – This is the most common tax deduction.  We recommend you set aside your tax bills and the separate “paid” tax receipts for your home and any other real estate you may own.
• Donations – Most charities mail annual letters to acknowledge donations during the year.  Also, remember that the IRS requires that you have a letter or other acknowledgement for any donation of $250 or more.  You should put the donation letters in your 1040 File.  For noncash donations, remember to ask for receipts when you make the donation and keep lists of what you donate.
• Health Savings Account (HSA) – For those of you with HSA accounts, you should receive an annual form 1099-SA that provides information on your contributions and distributions.
• Health insurance – Most people who are employees have their health insurance subtracted pre-tax, but there is an a deduction available for self-employed health insurance as well as for long-term care insurance, so make sure to put this information in your 1040 File.
• State deductions – Most states have a deduction for section 529 account contributions, including the Wisconsin EdVest program which also allows deductions for grandchildren and other non-dependents.  Therefore, remember to put the annual reporting in your 1040 File.
• Medical expenses – This deduction can be tricky because of income limits and what qualifies, so please contact us for guidance if you have significant medical expenses.

Credits

In the early days of the tax code, tax credits were few and far between and generally benefited very narrow categories of individuals.  We have seen this change over the past 20 years where there are now very few individual tax returns we prepare that don’t have some sort of tax credit.  Here are some common credits that may benefit you.

• Tuition Credits – There significant federal tax credits as well as state deductions for college tuition and other higher education expenses, including some adult coursework.  Most colleges will provide you with a Form 1098-T tuition statement or you can easily request from the school.
• Child Care Credit – There is a pretty generous federal child care credit that gives back at least 20% of the child care costs up to $6,000 for two or more kids ($1,200 credit).  Most day care providers generate a year-end statements that you should promptly put in your 1040 File.

Step 4 – Know the Most Common Omissions

We have prepared tens of thousands of tax returns over the years and have received tax information in every form imaginable, from dinner napkins to photographs, scanned documents to bags of receipts, from overly organized accountants to organization-challenged Zookeepers.  In our years of experience, there are some common omissions in information provided (or not provided) to us.  Here is a list of the most common omissions.

1. Missing mortgage interest statements– Even if you have the same mortgage for the entire year, there’s a chance the mortgage was sold during the year.  Also, with today’s extremely low interest rates, it is possible you refinanced or took out a home equity line of credit.  Therefore, make sure you have 1098 forms for all mortgages you may have paid during the year.
2. Not providing closing statements from the purchase or sale of real estate or mortgage refinancing.  While it is no longer as common as it once was in the mortgage industry, points paid in connection with lowering the interest rate on a mortgage are either currently deductible on your tax return or can be amortized and deducted over the life of your mortgage.
3. Missing annual HSA statements – If you have an HSA, your bank is required to provide you with an annual form 1099-SA if you had any withdrawals and most banks also provide a year-end summary. 
4. Not informing of changes in dependents – Be it a child finally moving out for good, a new child born during the year, or a divorce settlement with dependency exemptions in alternating years, this is a common area for misinformation.
5. Missing donations – Most people remember to provide information on their major donations, but we often have people call us after we’ve completed their tax returns to tell us about forgotten donations.  We therefore recommend that you put all letters you receive immediately in your 1040 File and also review your annual credit card charges to make sure you count any sponsorships or donations during the year.
6. Missing education expenses – While there are income limits on some education credits, you may have the ability to allow for dependants to take the credit and possibly reduce the overall tax liability of the family.  You should therefore provide any information you have regarding college expenses or similar coursework for you and/or your children.
7. Missing all pages of supporting information – While some documents like a W-2 are generally all-inclusive, many other documents come with attachments and supporting information that may be important for tax preparation.  We therefore recommend that you provide us with all supporting documents that come with in the “Important tax document enclosed” mailings you receive.

 

 

Step 5 – Go Through the Checklist One Last Time

Once you have your 1040 File ready to go, we recommend you take 5 minutes to go through our two-page checklist one last time to ensure you address all the “Yes” answers. 

Step 6 – Contact Us, then Relax

After following the above steps, you can provide your well- organized 1040 File to us and we’ll take it from there.  Even if you are worried that your information is not in tip top shape, give us your best shot by March 15, 2012 so we have time to complete your tax filings.

 

Senate Passes Bill With Incentives for Hiring Veterans

Federal and Wisconsin legislators have passed a number of employment incentives in recent years to counter high unemployment rates since 2008. On the 2011 Veterans Day, the 93rd anniversary of the armistice ending World War I, the Senate honored our veterans by approving a jobs bill that provides businesses with a tax credit for hiring unemployed veterans. This is welcome relief, especially for recently discharged veterans, at a time where 20% of veterans age 18-24 are unemployed.

The legislation provides for several different credits, including the following: 

 

• Up to a $2,400 credit for hiring short-term unemployed veterans who have been unemployed for between 4 weeks and 6 months in the past year
• Up to a $5,600 credit for hiring long-term unemployed veterans who have been unemployed for 6 months or more in the past year
• Up to $4,800 of employment credit for hiring service disabled veterans hired within one year of discharge
• Up to $9,600 for hiring veterans with service-related disabilities who have been unemployed for 6 months or more in the past year

The bill passed with near-unanimous bipartisan support in the Senate and is expected to be approved by the House when it moves to their docket next week. While not yet signed into law, we expect to see as such by the end of November. This is a small component of many of the proposed hiring incentives, but the Senate felt it appropriate to fast track this provision rather than tie it to a much larger and more complicated bill.

While this is likely the most focused hiring incentives bill, it is similar to many incentives created in recent years. Please see the Publications page of the Komisar Brady website for more information on recent federal and Wisconsin hiring incentives, including several that expire on December 31, 2011.
Wisconsin Signs on to Federal Tax Law on Health Insurance Benefits (November 2011)
HIRE Act Credit & Wisconsin New Jobs Deduction (October 2011)
Wisconsin’s New Jobs Creation Deduction (February 2011)
Federal Hiring Incentives to Restore Employment (HIRE) Act (June 2010)

I will keep you posted on this bill and other employment incentives expected prior to year-end. As always, please contact me should you have questions on your specific situation.

Wisconsin Finally Hops on Board With Federal Tax Legislation

Wisconsin tax law adopted almost all federal tax legislation for decades; however, our state experienced challenging financial times in 2001. As a result, Wisconsin has not adopted much of the favorable federal tax legislation for the past ten years. This has included additional depreciation incentives, income exemptions, accelerated deductions, and some tax deductions.

Wisconsin legislators removed one state/federal tax difference in February 2011 when it made Health Savings Account contributions deductible. They also recently passed legislation removing taxability of health insurance coverage for adult children up to age 27.

Background
Effective January 1, 2010, Wisconsin law required employers that offer health insurance to offer coverage for the unmarried adult children (up to age 27) of employees. Soon afterward, the federal Affordable Care Act required employers in all states to offer health insurance for employee’s children up to age 27, effective March 30, 2010.

There was a unique challenge my firm wrote about in late 2010 in that Wisconsin required employers to report the value of the health insurance as taxable in Wisconsin while the federal government specifically exempted it. (View article) I am pleased to announce that Wisconsin lawmakers removed this complication retroactively to January 1, 2011 with legislation signed on November 4, 2011. This change comes many months after Wisconsin lawmakers also married Wisconsin and federal law regarding the tax deductibility of health savings accounts. (View article)

Guidance for Employers
While this is a welcome change that removes a burdensome requirement for employers, the law may facilitate the need for employers to adjust 2011 Wisconsin reporting. We recommend that all Wisconsin employers review their prior payroll reporting to determine if you were adding the Wisconsin adjustment earlier in the year. If so, you should post a reversal prior to 2011 year-end. For those of you who use payroll services, I recommend you confirm that your payroll service will not report any Wisconsin adjustment in 2011.

Should You “Undo” Your 2010 Roth IRA Rollover?

The Roth IRA was created in 1997 as a useful retirement planning tool for individuals to achieve completely untaxed long-term growth in retirement accounts by putting post-tax dollars into a designated Roth IRA account.  Additionally, those earning under $100,000 could choose to rollover a traditional IRA to a Roth IRA and pay the income tax in the year of rollover.

The Rush on 2010 Roth IRA Conversions

Few people took advantage of the Roth rollover option until 2010, when some very unique tax planning opportunities came about.  The 2010 changes included the following:

• No income limit for a Roth IRA rollover
• Ability to spread the taxable income from a 2010 rollover into 2011 and 2012
• Ability to undo or “recharacterize” a 2010 Roth IRA rollover at anytime prior to October 17, 2011

These provisions made a Roth IRA available to everyone, allowed individuals to defer the tax into future years, and, for the first time in history, allowed individuals to retroactively change their mind by undoing a taxable transaction in a subsequent year. 

Should You Recharacterize Your 2010 Roth Rollover?

Many people took advantage of the 2010 Roth IRA conversion incentives and felt pretty good about their decision for the first half of 2011 as the Dow increased nearly 12% at different points in May and July.  However, the American and international stock markets have been on a roller coaster ride since then and many investment accounts have therefore taken unexpected hits in value.  As a result, now is the time for anyone who rolled into a Roth IRA in 2010 to consider whether it makes sense to undo that rollover and consider it a “practice swing.” 

There are some situations where the decision is easy, especially if the assets in the rollover Roth IRA have decreased significantly in value since the rollover.  In short, why would you pay tax on a $100,000 rollover that is currently worth $50,000?  In this situation, one would likely recharacterize (i.e. “undo”) the Roth rollover prior to October 17, 2011 and presumably do the Roth rollover again in 2011 as long as it is at least 30 days after the recharacterization.  This process would presumably save income taxes on $50,000 of Roth IRA rollover and leave the same assets in the resulting Roth IRA.

There are tradeoffs you must consider in making the decision to recharacterize or not, including the cost and process to change the tax reporting and the one-time incentive in 2010 that allowed you to report income in 2011 and 2012.  Therefore, many people are not an open and shut case and I therefore recommend you contact me at mburzynski@komisarbrady.com if you have any questions about your specific situation.

Also, stay tuned to various informative articles on my company’s website here – http://www.komisarbrady.com/resources/index.htm 

 

Reminder About 2011 Employment Incentives

Over the past two years, we have all been subject to intense media coverage surrounding high unemployment levels and jobs creation initiatives.  The best know incentives were included in the Hiring Incentives to Restore Employment (“HIRE”) Act from March 2010. 

Many employers took advantage of the HIRE Act credits in 2010 by receiving a FICA “holiday” from hiring unemployed individuals and all American workers benefited from the employee FICA decreasing from 6.2% to 4.2% in 2011.  However, there is another lesser known provision of the HIRE Act known as the HIRE Retention Credit, which rewards employers for keeping those same workers for at least a year.

HIRE Retention Credit Details

We mentioned the HIRE Retention credit in a website article in June 2010 (Click for link), and here is a refresher.  The HIRE Retention Credit is a general business tax credit for each new worker retained at least a year, worth the lesser of $1,000, -or- 6.2 percent of wages earned during the 52-consecutive week period by the new hire. This credit is claimed on the employer’s 2011 corporate income tax returns. There are four main employment parameters for the credit:

1.       Hired after February 3, 2010.

2.       Employed for at least 52 consecutive weeks.

3.       Wages during the last 26 weeks must be at least 80 percent of the wages paid for the first 26 weeks        (i.e. Must truly work full 52 weeks to receive the credit). 

4.       Only wages earned with a check date of March 19, 2010 to December 31, 2010 are eligible for the credit.

Additionally, the credit only applies to tax years beginning after March 18, 2010, meaning it cannot be carried back but may be carried forward to future years.

Wisconsin’s New Jobs Creation Deduction

 In addition to the federal employment credits, Wisconsin stepped into the mix in February 2011 with the New Jobs Creation Bill. This law provides tax incentives to Wisconsin employers who hire additional employees.

Under this law, businesses with annual sales of $5 million or less receive an additional state tax deduction of $4,000 for each job created and larger companies receive an additional state tax deduction of $2,000 for each job created.   “Jobs created” is defined as the increase in the number of full-time equivalent employees hired by the business in Wisconsin during the year.

Both of the above credits can be confusing so please contact me at mburzynski@komisarbrady.com should you have any questions regarding your specific situation.

IRS Exhibits Clarity on Business Mobile Phone Usage

The Internal Revenue Service is generally not regarded as exhibiting a great deal of common sense in its application of tax law.  However, the IRS exhibited admirable clarity and common sense in its recent Notice 11-72.  This interpretation comes almost a year after the Small Business Jobs Act of 2010 which created the original law regarding company-provided mobile phones.  Prior to this Act, mobile phones were subject to the same personal use reporting requirements as employer-provided vehicles.

In short, IRS Notice 11-72 categorizes most employer-provided cell phones as a “de minimus fringe benefit”, meaning the employer is not required to keep extensive recordkeeping regarding business usage and the “personal use” is not taxed to the employee.  The cost of the phone is now categorized similar to the value of employer-provided office supplies and coffee rather than employer-provided vehicles.  Quoting formal tax code, it is a fringe benefit whose value is “so small as to make accounting for it unreasonable or administratively impracticable.” (§132(e))

This ruling provides a basic safe harbor for most employer-provided mobile phones and similar devices, but does not open the floodgates for small business owners to provide a tax free fringe benefit across the board.  In order to qualify for the exclusion, the employer has to provide the mobile phone “primarily for noncompensatory business reasons.”  Without providing specific examples, we can therefore assume that a phone provided to a delivery driver definitely qualifies and a phone provided to a data entry clerk who happens to also be the business owner’s child likely does not qualify. 

While there are still situations where an employer-provided mobile phone is subject to personal use rules, this notice provides welcome common sense guidance that has been long in coming.

Tax quote for the week

“The income tax has made more liars out of the American people than golf has.” ~Will Rogers

National Society of Certified Healthcare Business Consultants Releases 2010 Statistics Report

I’m proud to be a member of the National Society of Certified Healthcare Business Consultants as we release the 2010 Joint Statistics Report.

http://www.nschbc.org/statistics/pr_2010report.cfm

Increased Tax Benefits for Self-Employed Business Owners in 2010

There was a great deal of publicity given late last year to the 2010 Tax Relief Act that was signed into law on December 17, 2010.  This major tax legislation gave extended a number of individual tax incentives that had expired or were set to expire and created some additional tax incentives starting in 2011. (see article) With all the hype and attention given to this act, few focused on some lesser known individual income tax incentives effective in 2010.

Tax Relief for Self-Employed Business Owners

Self-employed business owners received welcome tax relief starting in 2010 to help offset escalating health insurance costs as a result of expanded deductibility of various health insurance premiums.  This expansion includes 100% deductibility of insurance for nondependent children under age 27, self-employed health insurance deduction for Medicare Part B premiums, and a potentially significant benefit of the 100% self-employed health insurance deduction for self-employment tax purposes.  This deduction also applies to LLC or LLP member, partners, and most S corporation shareholders.

Nondependent Children Coverage

The March 2010 Patient Protection and Affordable Care Act included a provision requiring health insurance to be offered to non-dependent children of insured adults until the children reach age 27.  This provision was to expand the breadth of coverage to an often uninsured group of young adults who are no longer students but who have not yet found full-time employment with health coverage, do not have have financial means to pay for health insurance, or who have simply opted not to get health insurance at a time where they are typically more healthy than other adults.

This legislation made a corresponding change in the self-employed health insurance deduction to allow for the cost of the additional insurance.  We caution you that health insurance premiums for nondependent adult children from 1/1/2010-3/30/2010 is not eligible for this deduction; nonetheless, the deduction thereafter is welcome tax relief for parents who are taking on the additional cost.

Medicare Part B Insurance Premiums

Every American who draws wages or pays self-employment tax also pays Medicare tax, which contributes to a fund for Medicare Part A coverage, or the hospital component of Medicare.  There is also optional health insurance coverage for Medicare Part B insurance (non-hospital medical care) and the premiums are deductible as for purposes of the self-employed health insurance deduction.  This change was a surprise to most since IRS instructions specifically excluded Medicare Part B premiums in prior years, but it is a small amount of welcome tax relief.

Note: The 2010 tax form instructions are silent on Medicare Part C (Medicare Advantage) and Part D (Prescription coverage), meaning it would be an aggressive stance to take those premiums as self-employed health insurance.

100% Health Insurance Deduction for Self-Employment Tax Purposes

The most significant new benefit for most self-employed business owners is that the entire self-employed health insurance premium is now deductible for purposes of calculating the 2010 selg-employment tax.  For those making under the 2010 FICA limit of $106,800, this change can result in savings of over 14% of the total cost of health insurance.  For example, the savings for someone paying $10,000 in health insurance premiums could be as much as $1,410! 

This change is welcome news to all self-employed individuals, and the benefits are compounded by the additional new deduction for nondependent adult children and Medicare part B health insurance premiums.  Additionally, the new health insurance deduction does not change the maximum self-employed retirement deduction which would impact negatively on someone’s tax liability.

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We have seen a number of tax incentives for 2010 with broad benefits to most American taxpayers.  The change in self-employed health insurance deduction, while affectinge a much smaller slice of Americans, is welcome relief to self-employed business owners who have likely seen double digit increases in health insurance premiums for over ten years.  Considering the average annual family health insurance premium for small business owners with fewer than 50 employees is over $17,000, it is truly a relief to offset the cost of health insurance with this new tax incentive.

 Tax software and tax preparers will generally catch this change if completed properly, but many individuals may not know of this change.  If you have any questions regarding your eligibility for the tax incentive or if you took the maximum deduction, please contact Michael Burzynski (mburzynski@komisarbrady.com or 414-238-6780) .

www.komisarbrady.com