A surprisingly painless process 
 
If your company is under audit by the State, be assured that you will have a very different experience compared to an audit conducted by the IRS.  Most of the WA auditors will take the extra time to teach taxpayers what to do.  Nearly all of our clients who have gone through State audits tell us about positive encounters.  In reflecting, clients also say that they wished they had not spent the energy getting so worried ahead of time. 

Survival Tips 

1. Know the www.dor.wa.gov requirements for your business.
   
2. Review your out-of-state purchases and be sure to always pay the sales ("use") tax on your Excise tax returns.
   
3. Always reconcile your accounting system's gross receipts to what you report to Washington and your City.
   
4. Ensure that your total gross business income reported to WA equals the gross business income reported on your IRS corporate tax return. 
   
5. Clear a room in your office for the auditor(s) to work.
   

For your audit, gather all of the items required in the audit notice.  Ask if the auditors will accept a copy of your QuickBooks file.  Most auditors will accept a copy, and that step will help to eliminate much of your paperwork requirements. 

And, as our clients have confirmed, try to think of your WA audit as a business learning opportunity.  You will benefit from the experience.

Retirement: Second in a Series
  
Reduced SS benefits:  If your plan is to work while collecting Social Security (SS) benefits prior to your full retirement age of 67, your SS income might be reduced by the earnings test.  If your wages or self-employment income exceed a certain threshold -- $15,120 per year in 2013 -- then your SS income is reduced by $1 for every $2 of earnings over the threshold.

For example:  suppose you're age 63 (four years younger than your full retirement age of 67), and you've started your SS income.  If you earn $17,120 in wages -- $2,000 more than the threshold -- then your Social Security benefits will be reduced by $1,000.

It's important to understand that the amount of benefits that are reduced is not "lost."  Once you reach your full retirement age, your monthly SS income will be increased permanently to reflect the months that benefits were reduced.

Also, you will still pay SS taxes on your wages or self-employment income, regardless of whether your Social Security benefit is reduced.

Tax on SS benefits:  No retiree pays taxes on more than 85 percent of their SS benefits, and that percentage can be less.

Next month:  A specific discussion on Minimum Required Distributions (MRDs).

For more information on tax deferred retirement plans and understanding the tax implications on your retirement, contact us at 206-522-0110 for a consultation.

New rules make it simple 

With the advancement of Internet access and Cloud storage, working from home is becoming the norm for many professionals. Yet, claiming an office in the home has been a burden for some taxpayers, so the IRS has provided a simplified home office deduction rate to make the process easier. 

To claim the home office deduction, if you are a business owner, you must use a portion of your home regularly and exclusively as the principal place of business, as a place to meet with clients, or in connection with your trade or business. As an employee, to claim the deduction, your employer must require that you maintain a home office for his or her convenience and you must meet the regular and exclusive use requirement.

If you maintain a qualifying home office, you may elect to use the new simplified method to compute your deduction. The simplified method allows you to deduct $5 per square foot of home office space up to 300 square feet, for an annual maximum deduction of $1,500. If you choose this method, you cannot claim depreciation; however, you can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. 

These deductions need not be allocated between personal and business use, as is required under the regular method. Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees are still fully deductible.

For more information on deducting your home office contact us at 206-522-0110 for a consultation.