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young children saving money in a piggy bank with grandmaIn the current economy, we need to ensure that our children are financially literate.  Parents should teach their children the fundamentals of handling money. But where do you start? Perhaps begin with the following benchmarks of financial literacy.

*  Saving money vs. incurring debt

Children should be shown the benefits of saving money, watching it grow, and patiently deferring purchases until a future time. When children grow a little older, they can learn the reverse lesson: how debt today results in accumulated interest costs down the road. Also, there are some types of debt that are better than other, i.e., mortgage vs. credit card debt.

*  Checks, debit/credit cards and online banking

In today's cashless society, your children will someday need to know how to write a check, use a debit or credit card, and how to bank online. When they are ready, consider setting aside a morning to take them to the bank, introduce them to a representative, and set up their first checking account and bank card under the tutelage of the banker. Children will appreciate this rite of passage to adulthood, and they will learn how to navigate an ATM or bank website the right way, not just the way you do it.

*  Reconciling and tracking expenses

Knowing how to reconcile a checkbook and track where they spend their money is a valuable life skill. Many banks allow the account holder to add categories to the transactions online to help track spending.  Developing a system for safely storing receipts, warranties, and other valuable papers is also important.

*  My parents always said…

Like any other area of life, you will naturally want to pass down truisms that have guided you financially. Succinct phrases often suit this purpose quite effectively, such as, "keep a little gas in the tank, a little money in the bank." Or, "don't place all your eggs in one basket." Sound corny? Perhaps. But such sayings today might just remind your children of something important tomorrow.

*  Charity

Consider including your children in the charity selection process. Teach them why certain causes are important to you and how you determine the amount to give. Perhaps you could give your children gifting discretion over a small sum of charitable dollars.

*  Ask the accountant

The day will eventually come when your children will be ready to talk investments, retirement, and taxes. Feeling intimidated yet? There is no need to fear. Our firm can assist you and your children with these advanced topics. Being financially literate is not child's play. But then again, neither is being a parent.

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Stopwatch on 1040 formTick-tock. Time is almost up on that six-month extension you filed back in April to give yourself more time to complete your 2010 individual income tax return.What happens if you fail to file your return by the extended due date? One consequence: Unless a disaster-relief exception applies or you have a valid reason, you may be charged penalties and interest.For example, the penalty for filing your return after October 17, 2011, is 5% of the amount of your unpaid tax, per month, up to a maximum of 25%. After 60 days, a minimum penalty of the smaller of $135 or 100% of the tax due applies.In addition, a late payment penalty of ½ of 1% of the tax due may apply for each month or part of a month that you fail to pay the tax due until you reach the full 25%. The two penalties interact and can be combined.You'll also have to pay interest on the tax due. During 2011, the rate on underpayment of tax was 3% in the first quarter, 4% in the second and third quarters, and back to 3% in the fourth quarter. The interest is compounded daily and can be charged on penalties.Since the penalty and interest are based on unpaid tax, neither applies when your return shows zero tax due. Filing a return is still a good idea, however. Why? The general rule limiting the IRS to a three-year period for assessing tax begins when you file. No return means no triggering of the statute of limitations.Generally, the IRS will not provide filing extensions beyond the October 17, 2011; however, victims of recent natural disasters have been given more time to file returns and pay taxes. This tax relief is part of the federal response to recent hurricanes on the East coast, wildfires in Texas, and severe storms and flooding in other parts of the country.Give us a call if you think you may miss a deadline, or need updates on relief and areas covered. We can help keep penalties to a minimum. 

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Gift giving can be an important tax planning strategy. This year, a slowing economy might lead you to help family members with college bills or unexpected expenses. Now - before you write the checks - is a great opportunity to get a handle on the rules.Here are two:

1.)  Tax returns are not always required. The person receiving your gift does not have to file a return, no matter the amount.More good news: When you give gifts of $13,000 or less to any one person within a calendar year, you don't have to file a return either. If you're married, your spouse can also make gifts of $13,000 to the same or different recipients without the need to file a return.Other non-reportable gifts include amounts you pay for anyone's tuition or medical bills, as long as you write the checks directly to the school or health care facility. That's true even if the cost exceeds $13,000.

2.)   When a return is required, you may not owe gift tax. Under present tax law, up to $5 million of gifts made during your lifetime can be shielded from tax. This is in addition to the $13,000 per donee annual exclusion.

Call us about other rules that apply to your situation. We'll be happy to discuss tax-wise strategies and help you make the most of your gift giving.  

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hands holding the word 401kHave you heard about solo 401(k) plans? The traditional type of 401(k) retirement plan is now available for self-employed individuals. And it lets you save more than other types of plans.Now you can establish the same type of plan if you're self-employed or run an "owner only" business. That's a business with just you and possibly your spouse, but no employees. You can save more with a solo 401(k) than with the traditional SEP, SIMPLE, or Keogh plans. That's because you are able to make two types of tax-deductible contributions. First you make the usual employer contribution as owner of the business. Then you can make an additional salary deferral as an employee. As a result, you could potentially shelter up to $49,000 of your 2011 self-employment earnings from tax. If you're eligible for the over-50 catch-up, that rises to $54,500.The solo 401(k) plans are flexible and relatively simple to administer. If you think this plan might be right for you, please contact our office. We can tell you more about it and help show you how much you could save. 

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Gunnip & Company LLP is pleased to announce that it has successfully completed a peer review of its accounting and auditing practice.

After a thorough study of its policies and procedures, the reviewer concluded Gunnip & Company complies with the stringent quality control standards established by the American Institute of Certified Public Accountants (AICPA). The firm received the highest possible rating which exemplifies its commitment to provide the highest standard of excellence in the quality of their work.Robert D. Mosch, Jr. CPA, Partner, who heads quality control at Gunnip & Company, says "We are proud to once again successfully complete our peer review, especially given the increasing scrutiny of the accounting sector."  

Peer review is a periodic outside review, performed by another accounting firm, of a firm's quality control system in accounting and auditing. The rigorous review is based on a series of standards for quality control set by the AICPA, the national professional organization of CPAs.  Gunnip is committed to periodic peer reviews to enhance the quality of its accounting and auditing services. To see the latest peer review report, please click here. 

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Books with a pencil and eraser in front of a chalkboard, Back to SchoolAs schools get back in session, it is a good time to check the education tax breaks for which you might qualify.First, there's the American Opportunity Tax Credit (formerly called the Hope credit) for a percentage of qualified expenses paid during the first four years of higher education.Second, the Lifetime Learning Credit allows a deduction for a percentage of qualified expenses paid for any year the American Opportunity Credit isn't claimed, and it even applies to job-related classes.Third, you may qualify for a deduction for interest paid on student loans.Fourth, education savings accounts allow annual nondeductible contributions for children under 18, with tax-free withdrawals for qualifying education expenses. Section 529 plans for college expenses should also be investigated.As always, please contact our office to discuss if these are appropriate for you. 

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Important tax deadlines fall on September 15. Check this list to see if any apply to you or your business:

  • The third quarter installment of 2011 estimated income tax is due for individuals.
  • September 15 is the filing deadline for 2010 tax returns for calendar-year corporations that received an extension of the March 15 filing deadline.
  • September 15 is the filing deadline for 2010 partnership tax returns that had an extension of the April 18 filing deadline.
  • The third installment of 2011 estimated tax is due for calendar-year trusts and estates.

Contact our office if you need more information or filing assistance. 

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Fallen tree after Hurricane IreneWith an earthquake, hurricane and tornados in the space of a week there have been several reminders that disasters can occur at any time - often with staggering human and financial costs.For the unlucky victims of a disaster, you may receive help from insurance and federal disaster aid. But the tax code also offers some relief. You may be able to take an itemized deduction for part of your loss. In tax terms, it's a "casualty loss" and it can also apply to events such as a car crash, a house fire, or theft. Here are the basics. The loss or damage must be due to an unexpected and sudden event. Losses due to slow deterioration over the years, such as rot, rust, or insect damage, don't qualify.

  • Your tax deduction won't equal your total loss. You must subtract any insurance or other reimbursement. Then you must also deduct $100 for each loss and 10% of your adjusted gross income.
     
  • Your loss may also be limited by your adjusted basis in the property. That's generally what you paid for it, plus or minus any improvements or previous losses.
     
  • In a widespread disaster, the area may be classified a "Presidentially declared disaster area." If that happens, you have a special option. You can claim your casualty loss against the current year's taxes. Or you can amend the previous year's return and claim your loss against that year's taxes. That usually generates a faster refund, but it may change the amount of your deduction.If you suffer a casualty loss, please contact us. We'll explain the rules and help you claim the maximum possible tax benefit. 

** NOTE ** If you are still struggling with hurricane related issues, the Delaware State Chamber of Commerce, in conjunction with the Delaware Economic Development Office offer Post-Irene Assistance. Please see their statement here.   

In reaction to the recession, Congress enacted several tax incentives.  They have extended some into 2012, but at reduced amounts.  With the economy gradually recovering and the budget pressures greater than ever, our expectation is that these 2012 limits signal the end of large up-front depreciation deductions.

Bonus Depreciation

Starting in 2008, through most of 2010, the deduction for bonus depreciation was 50% of the cost of new assets. For assets acquired and placed in service after 9/9/10 through 12/31/11, the deduction moves up to 100% of the total initial cost. However, for 2012 the bonus depreciation deduction reverts back to the lower 50% rate. Presently, the tax law does not extend bonus depreciation after 12/31/12, and given current outlooks, it appears that an extension is unlikely.To qualify for bonus depreciation, the asset must be new property (not used) and must have a depreciable life of 20 years or less. Virtually all tangible personal property (such as autos, trucks, machinery, and equipment) has a depreciable recovery period of 20 years or less, and accordingly all are eligible.

Section 179 Deduction

For most of the past decade, the Section 179 deduction was maximized at just over $100,000. When the recession hit, Congress increased the limit to $250,000, but later increased it again to $500,000 for tax years beginning in 2010 and 2011. More recently, Congress indicated that for tax years beginning in 2012, the Section 179 deduction would drop back to a $125,000.Not only will the Section 179 deduction shrink, but fewer small businesses will have access to this write-off. During 2011, the deduction phases-out only if a taxpayer’s eligible Section 179 asset purchases exceed $2 million. Starting in 2012, the phase-out threshold is $500,000.The Section 179 deduction applies to both new and used asset additions. It applies such assets as machinery, equipment and software.  For 2011 only, up to $250,000 of qualified real property improvements apply. Qualified real property improvements include improvements to restaurant buildings and interiors of retail and leased nonresidential buildings. It is generally not available to landlords who purchase or construct assets that are used by a tenant.If you are planning on taking advantage of major purchases or improvements while these large allowances are still in the tax law, we recommend that you have a detailed depreciation projection prepared. These depreciation incentives can shelter a significant amount of income, but the eligibility rules can be tricky.  We cannot stress enough, the importance of an accurate projection of allowable deductions that can be structured to largely reduce income in the year of purchase.  If you feel that you or your company can take advantage of these deductions, please to not hesitate to contact us at Gunnip & Company for a consultation. 

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If you provide care for stray or feral animals in your home for an IRS-approved charity, you may be able to take a tax deduction for your out-of-pocket expenses. A recent U.S. Tax Court judge ruled that a taxpayer who fostered feral and stray cats in her home could deduct amounts she spent for food, veterinarian bills, litter, and other unreimbursed expenses incurred to help the animal charity in its mission. To be deductible, the taxpayer must keep records of the expenses, and the charity must provide a written acknowledgment of the volunteer work as a charitable gift.Scott Bricker, CPA, Partner at Gunnip & Company and long-serving Faithful Friends volunteer hopes to get the word out on this case.  There are thousands of volunteers fostering homeless animals, spending their own money to support the mission of local shelters and rescue groups.  Chrissie Motoyoshi, of the Delaware SPCA reminds all volunteers to get a written acknowledgement from the charitable organization.  Without it, you can only deduct charitable donations up to $250. 

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