Sunday 30 December 2012

How to bring back black money stashed offshore to India?


கறுப்புப் பணம்.. பொது மன்னிப்புதான் தீர்வு!


இந்தியாவிலிருந்து இதுவரை வெளியேறிய கறுப்புப் பணத்தின் அளவு பல லட்சம் கோடி ரூபாய் என சமீபத்தில் ஒரு தகவல் வெளியாகி எல்லோரையும் அதிர்ச்சி அடைய வைத்தது.
கிட்டத்தட்ட 150 நாடுகளில் கணக்கெடுப்பு நடத்திய நியூயார்க்கைச் சேர்ந்த குளோபல் ஃபைனான்ஷியல் இன்டெக்ரிட்டிஒவ்வொரு நாட்டிலிருந்தும் இதுவரை வெளியேறிய கறுப்புப் பணம் எவ்வளவு என்கிற புள்ளிவிவரங்களை வெளியிட்டிருக்கிறது. இந்த ரிப்போர்ட்படி, 2010-ல் மட்டும் ரூ.8,720 கோடி கறுப்புப் பணம் இந்தியாவிலிருந்து வெளிநாடுகளுக்குச் சென்றிருக்கிறதாம். 1947முதல் 2010-ம் ஆண்டுவரை மொத்தமாக சுமார் ரூ.12,64,400 கோடி (232 பில்லியன் டாலர்)  கறுப்புப் பணம் வெளிநாடு களுக்குப் போயிருப்பதாகச் சொல்லி இருக்கிறது.
வெளிநாடுகளில் கறுப்புப் பணம் வைத்திருப்போர் பட்டியலில் சீனா மற்றும் மெக்ஸிகோ நாடுகள் முதல் இரண்டு இடங்களைப் பிடித்துள்ள நிலையில் இந்தியா எட்டாம் இடத்தில் உள்ளது. அரசியல் அதிகாரத்தில் இருப்பவர்கள் பெறும் லஞ்சம் மற்றும் ஊழல் பணம்சில பெரும் தொழிலதிபர்கள் வரி ஏய்ப்பு செய்து சேர்க்கும் பணம் போன்றவைதான் கறுப்புப் பணமாக  வெளிநாட்டு வங்கிகளில் தஞ்சம் அடைகிறது. எதிர்காலத்தில் அரசியல் மற்றும் வியாபாரத் தேவைக்கு பயன்படும் என்கிற நோக்கத்தில்தான் இந்தப் பணத்தை வெளிநாட்டு வங்கிகளுக்குக் கொண்டுபோய் பதுக்கி வைக்கிறார்கள். ஆனால் இந்த பணம்பல சமயங்களில் எடுக்கப்படாமல்,யாருக்கும் பயன்படாமல் போய்விடுவது கொடுமையான விஷயம். இந்தப் பணத்தை இந்தியாவுக்கு சரியாக கொண்டுவர முடியும்பட்சத்தில் மின் உற்பத்திஉள்கட்டமைப்பு,சுகாதாரம்கல்வி போன்ற பல முக்கியத் திட்டங்களுக்கு அதிக அளவில் செலவுசெய்ய முடியும்.  
மீட்பது சாத்தியமா?
வெளிநாடுகளில் இருக்கும் கறுப்புப் பணத்தை மீட்பது இரண்டு விதங்களில் சாத்தியப்படலாம். ஒன்றுதீவிர அரசாங்க நடவடிக்கை மூலம் பிற நாடுகளுடன் ரகசிய ஒப்பந்தம் செய்துகொண்டு மீட்க முயற்சி செய்வது.  இரண்டாவதுபணத்தைக் கொண்டு சென்றவர் தாமாகவே முன்வந்து இந்தியாவிற்குள் மீண்டும் கொண்டுவர வாய்ப்பு அளிப்பது.
இந்தியாவில் கடந்த முப்பது ஆண்டுகளில் மூன்றுமுறை 'தாமாக முன்வந்து வரிச் செலுத்தும்திட்டங்களை வருமான வரித்துறை அறிமுகப்படுத்தியது. கடைசியாக 1997-ல் அறிமுகப்படுத்தப்பட்ட திட்டத்தில் Voluntary Disclosure of Income Scheme (VDIS) சுமார் 3,50,000வரிதாரர்கள் கிட்டத்தட்ட ரூ.7,800 கோடி கறுப்புப் பணத்தை வெளிக்கொண்டு வந்து அதற்கான வரியைச் செலுத்தினார்கள்.  
இவை அனைத்தும் உள்நாட்டில் இருக்கும் கறுப்புப் பணத்தை வெளிக் கொண்டுவர அறிவிக்கப்பட்ட திட்டங்கள். இதுவரை வெளிநாட்டில் இருக்கும் கறுப்புப் பணத்தைக் கொண்டுவர எந்த திட்டமும் போடப்படவில்லை. ஆனால்வெளிநாடுகளில் இது மாதிரியான முயற்சிகள் நடந்திருக்கின்றன. ஜெர்மனியானதுவெளிநாட்டில் ஏதும் சொத்துக்களையோ அல்லது பணத்தையோ வைத்திருந்தால் அவற்றுக்கான வரி கட்டிசிறைத் தண்டனையிலிருந்து விடுபடும் திட்டத்தை அறிவித்தது. ஜெர்மனியைத் தொடர்ந்துஇங்கிலாந்துபிரான்ஸ்,அமெரிக்காபோர்ச்சுகல்இஸ்ரேல்கிரீஸ்தென் ஆப்பிரிக்கா ஆகிய நாடுகள் இத்தகையத் திட்டத்தை அறிமுகம் செய்து கணிசமான வரிப்பணம் வசூலித்தன.

குறிப்பாகஅமெரிக்கா இத்திட்டத்தை எப்படி செயல்படுத்தியது என்று பார்ப்போம். அமெரிக்க பிரஜை  ஒருவர்வெளி நாட்டில் தன் மீதோ அல்லது தன் கையப்பத்தில் செயல்படுத்தப்படும் வங்கிக் கணக்கிலோ அல்லது நிதிச் சொத்தாகவோ 10,000 டாலருக்கு அதிகமாக வைத்திருந்தால் ஒவ்வொரு ஆண்டும் ஜூன் 30-ம் தேதிக்கு முன்பு திஙிகிஸி படிவம் தாக்கல் செய்வது அவசியம். இதை செய்யத் தவறினாலோவெளிநாட்டு வருமானம் அல்லது சொத்துக்களை அறிவிக்காமல்விட்டாலோ அதிகபட்சமாக ஆண்டுகள் சிறைத் தண்டனை வழங்க அரசுக்கு அதிகாரம் உள்ளது.
அமெரிக்காவில் ஒபாமா பதவியேற்றபின் 2009 மற்றும் 2011 ஆண்டுகளில் OVDI (Offshore Voluntary Disclosure Initiative), OVDP (Offshore Voluntary Disclosure Programme)  என்னும் திட்டங்களை அறிமுகப்படுத்தினார். இந்த 'பொது மன்னிப்புத் திட்டத்தில்’  (Amnesty)  தாமாக முன்வந்து இதுவரை கணக்கில் காண்பிக்காதச் சொத்துக்களை காட்டிவரி மற்றும் வட்டி செலுத்தும்பட்சத்தில் அமெரிக்க வருமானவரித்துறை (IRS)அதிகபட்ச அபராதமாக சொத்து மதிப்பில் 25 சதவிகிதத்தை விதித்துசிறைத்தண்டனை ஏதும் இல்லாமல் மன்னித்து விட்டுவிடுவது இத்திட்டங்களின் அனுகூலம்.
இத்திட்டங்கள் வந்தபிறகு சுமார் 33,000 பேர் கிட்டத்தட்ட பில்லியன் டாலர் அளவிற்கு வரி மற்றும் அபராதத்தைச் செலுத்தினார்கள். மேலும்இத்திட்டத்தை மூன்றாவது முறையாகத் தொடர்ந்து இந்த ஆண்டு அமெரிக்க அரசாங்கம் மீண்டும் அறிமுகப்படுத்தி இருப்பதைப் பார்க்கும்போது இதன் முக்கியத்துவத்தையும் வெற்றியையும் புரிந்துகொள்ளலாம். இத்திட்டங்களில் கிரிமினல் சட்டத்திற்குப் புறம்பான வருமானம் அதாவதுதுப்பாக்கி வியாபாரம்,போதை மருந்து கடத்தல் ஆகியவற்றுக்கு மன்னிப்பு வழங்காது என்பது குறிப்பிடத்தக்கது.
இந்தியாவில் முடியுமா?
2012 பட்ஜெட்டில்இந்தியாவில் உள்ள வரிதாரர்கள் வெளிநாட்டில் உள்ள சொத்துகள் மற்றும் வெளிநாட்டு வருமானம் குறித்து விவரம் தெரிவிக்கவேண்டும் என சொல்லப் பட்டாலும்,அதனால் பெரிய மாற்றம் ஏதும் வந்துவிடவில்லை.
கறுப்புப் பண பதுக்கல் பேர்வழிகள்வெளிநாடுகளில் வைத்திருக்கும் கறுப்புப் பணத்தை இந்தியாவிற்குள் கொண்டுவந்து அதற்கான வரி மற்றும் அபராதம் செலுத்த பொது மன்னிப்பு வழங்கலாம். உதாரணமாக, 70 சதவிகித வரி கட்டினால் போதும்சிறைத் தண்டனை எதுவும் இல்லை என்று அறிவிப்பதன் மூலம் பலரும் இந்த வாய்ப்பைப் பயன்படுத்தலாம். இதன் மூலம் இந்தியாவை விட்டு வெளியே எடுத்துச் செல்லப்பட்ட கறுப்புப் பணம் மீண்டும் இந்திய மண்ணுக்குள் வரும் வாய்ப்பு உருவாகும்.
இப்படி ஒரு நடவடிக்கையை மத்திய அரசு எடுத்தால்பலரும் குறை சொல்வார்கள்விமர்சனம் செய்வார்கள்.
ஆனாலும்அது பற்றி கவலைப்படாமல் பொது மன்னிப்பு அளிப்பதன் மூலம் சில லட்சம் கோடிகளாவது நமக்குக் கிடைக்கலாம். அதனைக்கொண்டு நம் நாட்டின் அடிப்படைத் தேவைகள் பலவற்றை நிறைவேற்ற முயற்சிக்கலாமே!  

Wednesday 19 December 2012

Points to remember during company incorporation




1.   Can the same person be a Director as well as Shareholder of the Company?

Shareholders and directors have two completely different roles in a company. The shareholders (also called members) own the company and the directors take day to day managerial decisions including tactical and strategically decision making. However, a single person can play both the roles and can act as a shareholder as well as a director of the Company. A person invested (having shares) in the company and also having proficiency on the responsibility of managing or supervising the corporation then the person can individually play both the roles.

2.   Can I use my home address as the Registered Office address of my Company?

All Indian registered companies are required by law to have a registered office address in India. It is the address of a company to which all official letters and reminders will be sent. The registered company address must be in a state in which company is registered.
Therefore, a home address can also be used as the Registered Office address of the Company. It is not compulsorily required that an address where the company is actually situated can only be used as address of the registered office of that company.

3.   Can a Registered Office and an Administrative Office be situated at different places?

Registered Office is the location (or merely the address) where the company has registered as a corporation. All official letters and reminders will be sent at this address only. On the other hand, an administrative office is the office where the actual operations are conducted. It is for the convenience of business activities and infrastructure from where all commercial activities of a company are undertaken. So, either both can lie at the same address or can be situated at a different places too. There are no restrictions for the same.

4.  Do I need to contribute my capital immediately into the bank before incorporating a company?

To open a Company’s Bank Account, it is necessary to have the company PAN Card. Further, PAN can only be applied for only when the company is incorporated. Thus, capital amount is a pre-requisite of the company as it needs to be acknowledged in the subscriber’s sheet, which is required at the time of incorporation. Hence, deposit into the Bank is not possible, and therefore the initial capital infusion may be in cash.

5.   Can a Shareholding Ratio be in 99:1 proportion?

The ideal shareholding pattern of the company is 50:50, for a two shareholder company. But in case you intend to hold the majority stake of the company you can make the proportion to 60:40, 70:30 etc. In case if the other shareholder focuses on having a substantial interest in the company then the proportion would, in all general circumstances  be 80:20. Alternatively, to have complete stake of the company restricted to self, then the proportion has to be 99:1, since there has to be at least two shareholders of the Pvt. Ltd Company.


6.  I am already employed. Can I still be a Director of another Company?

It depends on the terms and conditions of the offer letter which you will receive as an employee of the Company. If you are not bound to any restrictions or if there is no clause in your offer letter which prohibits you to take part in some other company (directly or indirectly), then you can be a Director of other company.

7.   I am already a Director of a privately held company and therefore have a DIN. Do I need to have another DIN to become a Director of another company?

A DIN allotted to any person is valid for the lifetime of the individual like PAN Number and shall not be allotted to any other person during his lifetime. Since you are the director of the Pvt. Ltd. Co. and already having DIN, then you are not required to have another DIN, as the same can be used to become the director of other Companies or designated partners of other LLPs.

8.   Can I have two companies at the same Registered Office?

For startup companies, it is very common to share common workspace to deliver services, thereby sharing the rent of the premises and minimizing outflows in the initial years. In that case, the companies, while getting incorporated under MCA, can use the same registered address proof. In an alternate scenario, an IT professional having two different private limited companies can use his common residential address to fit the purpose.

9. What is the difference between Authorised and Paid Up Capital of a Company?

Authorised Capital is that amount of capital with which a company is registered with the registrar of companies (body responsible for registration of companies). It is the maximum amount of capital which a company can raise through shares i.e. share capital can be maximum up to the authorized capital and not beyond. Authorized capital is also called registered capital or Nominal capital.
On the other hand, the Paid up Capital is that amount of capital (out of called-up capital) against which the company has received the payments from the shareholders so far. In other words, Paid up capital means that capital for which investors have actually paid money.

10.  What is Face Value per Share?

Face value is the nominal, or stated, amount of security. The face value of a bond is the amount the issuer agrees to pay upon maturity. Face value is also the amount upon which interest payments or discount is determined.

Thursday 13 December 2012

Why start a business retirement plan?





Starting a business retirement plan can be a complex process for small business owners in particular as they need to factor in issues such as multiple sources of retirement income, special tax considerations and succession issues. 

Beginning a business retirement plan will help make deductible contributions for 2012. Listed below are some compelling reasons for you to start a retirement plan:

Reduce the income tax your business pays, as plan contributions for the business owner are deductible as a business expense. Income contributed to a tax-deferred retirement account reduces your personal taxable income for the year. For instance, if $20,000 has been contributed in 2012, there is no need to pay income tax on that amount that year. Income tax is deferred until money is withdrawn from the account.
Minimize your exposure to the new 3.8% Medicare tax on net investment income. Effective January 1, 2013, individuals with modified adjusted gross incomes over $200,000 [$250,000 if married filing jointly, $125,000 if married filing separately) will be subject to an additional 0.9 percent HI (Medicare) tax. The additional Medicare tax is also applicable for the self-employed. Contributing to a tax-deferred retirement plan will help minimize exposure to tax.
Investment earnings grow tax-deferred. While in a tax-deferred retirement account, investment earnings are exempt from tax, enabling investments to potentially grow faster than in a taxable account.
Your plan not only helps secure your future, it may be the primary way your employees can help secure theirs. This is important given that more people will likely be relying on employer-sponsored plans as Social Security becomes less certain, health care gets more expensive, and life spans grow longer.
You can contribute a greater amount each year than to a personal IRA. Contributions to a personal IRA are limited to a maximum of $5,000 in 2012, while going up to $50,000, between employer & employee contributions in the case of some business retirement plans.
Gain access to a Roth retirement account. Unlike personal Roth IRAs, even high-income individuals can contribute to a Roth account at work without any income limits in business retirement plans.
Offering a retirement plan helps make your business competitive when it comes to attracting and retaining good employees.
Retirement assets are generally protected from creditors.
There are potential tax benefits to offering a plan, because plan contributions for the business owner are deductible as a business expense.
What type of retirement plan is the right fit for your business? There are several types to choose from and many small business owners can find the options confusing. For example, some small business retirement plans are better for sole proprietors while others may be more appropriate for businesses with up to 100 employees.

With help from your financial and legal advisors, you can choose a plan which best suits your business retirement plan needs and objectives. 


2012 year-end tax planning guide





Uncertainty is the name of the game when it comes to year-end tax planning. A combination of events which include possible expiry of the Bush-era tax cuts, imposition of new Medicare taxes on investment and wages, massive federal budget cuts threaten to throw the economy back into recession. This has resulted in many taxpayers asking how they can prepare for 2013 and beyond. Here are some tax planning strategies taking into account the various possible scenarios and outcomes.

Strategies to mitigate the impact of these tax increases

Plan how much, if any, capital gains on appreciated securities you would want to recognize in 2012. Prioritize what holdings should be sold.
If you are planning to sell your business, try to close the sale in 2012 to take advantage of the lower capital gains tax rate.Gain from installment sale payments is taxed in the year received; payments received in 2013 on a 2012 sale would be subject to the higher capital gains rate.

If you plan on selling your home and the gain exceeds the $500,000 home exclusion, plan to close by year-end so that the gain will still be taxable, but will avoid the 3.8 percent Medicare tax.

Distributebonus payouts in 2012 to mitigate the employee payroll tax increase.Consider 
accelerating income to 2012 to take advantage of the lower rates. Likewise you may want to defer deductions until 2013 to offset the higher rates in that year.

The 2 percent payroll tax cut will expire (reducing take-home pay for employees and increasing self-employment tax for qualifying individuals).

Accelerate income to minimize being hit by the new 0.9% Medicare tax - Effective January 1, 2013, higher income individuals will be subject to an additional 0.9 percent HI (Medicare) tax. The additional Medicare tax is also applicable for the self-employed.

Pay medical expenses before the deduction threshold increases - This year, the AGI threshold is set at 7.5%, while next year, it will increase of 10% for most taxpayers due to a provision in the 2010 health care reform act. Hence, consider moving up some of the medical procedures and purchases planned for next year so that you can take full advantage of this year's lower deduction threshold.

Every tax situation is different and requires a careful and comprehensive plan. GKM can assist you in aligning traditional year-end techniques with strategies for minimizing your 2012 and 2013 taxes.


Do's and Don'ts of refinancing



There is never a better time for refinancing than now. Mortgage rates are at historic lows.  This can save thousands of dollars in interest and help build up equity on one's home faster. However, refinancing can also be expensive and cost more than the savings. Here are some tips to help navigate the field of refinancing.

Cost calculations and credit history
DO the numbers. With a good credit history, you might easily get a mortgage refinance. However, what you see is not what you get.
Calculate the new interest rate you are considering, and plug in the closing costs. Request for a detailed list of all fees and expenses; look out for hidden expenses, padding of fees for services offered by third parties, and any prepayment fees your current lender might charge. These can be expensive (1 to 3 percent of the mortgage balance) and nullify any benefits gained from refinancing.
Talk to your current lender
DO talk to your current lender first. Some lenders -- who do not want to lose your business as well as your loan may be willing to modify your existing loan so that you will get a lower rate at no cost or at reduced settlement costs. Also determine if you will have to pay a prepayment penalty for paying off your current loan early.
Consider the same payment over a shorter mortgage
DO consider changing to a 15-year mortgage instead of just refinancing to get the monthly payment down. Depending on your situation, you may be able to do it with little or no increase in your monthly payment. But the debt will be cleared much sooner, so the overall interest payments will be much lower. And in case you sell your house in the interim, you'll have built up much more equity.
Move from Floating to Fixed Rates
DO inquire about "lock-ins" and "float downs". One of the huge benefits refinancing offers is upgrading from potentially risky floating interest rates to a safer fixed interest rate. Fixed interest rates allow for better budgeting as you will be sure of the monthly mortgage payments.
If you are in doubt as to the validity of a potential lender, contact your local Better Business Bureau, your State (or local) Banking Commissioner or even the AARP for further information.
Investment properties traditionally come at higher interest rates. The best rates available are for single-family homes that are mostly lived in. For condos, lenders worry that buying just part of a building is more risky than buying a single family home. There are too many other risk factors one cannot control, and they have higher default rates.
In conclusion, when refinancing one's current mortgage, it is effectively a brand new settlement. The only difference is that there is no buyer or seller present at closing, and there will be no real estate broker involved.The tax consequences of refinancing can be difficult to grasp. But instead of grappling with the hassle alone, contact your tax advisor who understands the tax ins and outs of refinancing and can help you through the process. 

Client collaboration in the cloud


In recent years, the accounting profession has seen transition of business data and applications from traditional paper-based models to cloud-based digital platforms. Hosting information and software in a virtual environment helps save cost and improve overall productivity. Accounting technology came in the form of desktop applications, moved on to networking, and now, it is all about the Internet, cloud computing and mobile applications. Navigating successfully through this whirl of activity has propelled accounting firms forward, supporting efficient operations and excellent service.
A look back at the client accounting process shows the transition from handwritten checks to everything happening over the internet with cloud bases servers.The advent of cloud-based software has made it easier than ever for accounting firms to work on the move, and stay in touch with clients. Accessibility of software and client data from anywhere and at anytime helps gain deeper insights into the client's financial status.
This evolution in process control ,presents a significant challenge for accounting professionals to build a more efficient, collaborative client-accounting model. To achieve this, a robust internal system of checks and balances needs to be in place. It must support critical aspects such as a paperless workflow, real-time access & collaboration between staff and clients. This system must be recommended and made mandatory for all clients to follow. The accounting professional must lead the client in the direction desired, defining a standardized process and working by it.
Paperless document storage and opting for hosting and cloud-based solutions are key to establishing the right technological environment. Moving client accounting software to a hosted environment or to the cloud is a game-changer. It means that firm staff can access and clean up client data when needed instead of waiting for backups. It also allows staff to access current information to perform tax projections.
Developments such as video conferencing allow businesses to maintain a degree of face time in their client relationships even in case personal meetings are unable to be arranged.  In a business world where geographic boundaries and time zones are no longer factors in client communications, email and video conferencing facilitate a high level of responsiveness and productivity.
Cloud computing is the current state-of-play in the business world and one cannot afford to be left behind. Clients are always looking for the best value and the most flexible businesses to work with. They will be expecting their accountant to be tech savvy and moving with the times. Looking into how one's accounting business can incorporate cloud computing now is essential if the business owner is ambitious and wants to grow. The ability to elevate the client experience to new levels of convenience is where firms can truly differentiate themselves.
It will take effort and a significant time and material investment; however, one will begin to see the value in the way of efficiency, revenue, and client satisfaction.
It all begins with planning. Take your first step today.

Renting out a vacation home




Over the last five years, the number of people offering their vacation properties for rent has boomed in order to offset expenses and generate income. On the basis of the number of days of the year the property is let out, vacation home owners can avail of certain tax benefits and avoid surprises at tax time.
·         If the vacation home is used as a residence and is rented out for 14 or fewer days that year, there is no need to report any of the rental income.
The best example of this exemption would be vacation home owners near major golf clubs, Super Bowl sites or national political conventions who can earn a fortune by renting out their homes for about 2 weeks, and get to pocket the rental income tax-free. For instance, home owners near the Augusta Golf Club earn as much as $20,000 during the annual tournament. Here, the taxpayer cannot deduct maintenance or depreciation costs, but can deduct mortgage interest, casualty losses and property taxes on Schedule A.
·         If the vacation home is rented out for 15 days or more and used by the owner for 14 days or less, it is deemed a let out property and all rental income must then be reported to the IRS.
The owner can deduct certain rental expenses such as fees paid to property management firms, insurance premiums, maintenance expenses, mortgage interest, property taxes, utilities and depreciation. The amount of deductible rental expenses is calculated by dividing the number of days the home was rented out by the number of days the home was used (rental plus personal use). For instance, let us assume a home owner has rented out his beach house from January through April, and his family uses it for two months starting from July through September. Then, the vacation home has been used for 153 days out of which 91 days were rental days. 60% of the expenses (91 rental days/153 days of total use) can then be deducted against the rental income. The remaining 40% of the rental expenses are non-deductible.      
·         If the personal use is less than 10% of the days rented, however, then joint filers with $100,000 or less of adjusted gross income can deduct up to $25,000 of losses against their ordinary income.
·         If the vacation home is exclusively used by the owner, and not rented out at any time of the year, real estate taxes and interest on home mortgage can be deducted. If personal use is greater than 14 days or greater than 10% of the number of days rented out, the property is deemed residential, and the deductible rental expenses would be limited to the amount of rental income. 
As tax laws are complicated, please feel free to consult with our specialists at GKM to gain a comprehensive understanding of tax laws and how best to utilize a vacation home for rental purposes. 

Tips to determine taxability of gifts


When you  gift  money or property to someone you may owe tax on the value gifted. For tax purposes, a gift is a transfer of property for less than its full value. In other words, if not paid back, at least not fully, it is a gift. The federal gift tax exists for the main reason of preventing citizens from avoiding the federal estate tax by giving away their money before they die. When invoked, the federal gift tax is owed by the giver of the gift, the recipient never owes anything. There is usually no gift tax when given to one's spouse or a charity.
A federal income tax return is usually unaffected by making a gift to someone. The value of gifts other than deductible charitable contributions cannot be deducted.
The following gifts are considered to be taxable when they exceed the annual gift exclusion amount of $13,000 (as of 2012).
·         Checks
·         Adding a joint tenant to real estate
·         Loaning $10,000 or more at less than the market rate of interest. This rule does not apply to loans of $10,000 or less
·         Canceling indebtedness
·         Making a payment owed by someone else
·         Making a gift as an individual to a corporation
·         A gift of foreign real estate from a U.S. citizen 
·         Giving real or tangible property located in the United States

The following gifts are not taxable:
·         Gifts not more than the annual exclusion for the calendar year
·         Tuition or medical expenses paid directly to an educational or medical institution for someone
·         Gifts to one's spouse
·         Gifs to a political organization for its use and
·         Gifts to charities
In addition, there are certain transactions not considered as gifts, and hence, not taxable:
  • Adding a joint tenant to a bank or brokerage account or to a U.S. Savings Bond
  •  Making a bona fide business transaction

Payments to 529 state tuition plans are gifts, so one can exclude up to the annual $13,000 amount. In fact, it can go up to $65,000 in one year, using up five year's worth of the exclusion, if the individual agrees not to make another gift to the same person in the following four years.
Alongside one's spouse, one can make a gift of up to $26,000 to a third party without it turning taxable. The gift can be considered as made one-half by self and the other half by spouse. If splitting a gift, a gift tax return must be filed to show that the spouse was also in agreement to use gift splitting.
A Form 709 (United States Gift and Generation-Skipping Transfer Tax Return) must be filed in certain cases.  The gift value given should be such that kiddie tax does not kick in.   To learn more please email info@gkmtax.com 

Social Security Statement online



The Social Security Administration has gone high tech.  It has done away with annual paper statements as a cost-cutting measure and added a feature 'My Social Security' to its website that enables viewing online workers' earnings and benefit information. This is convenient, because it makes it possible to access personal social security information anytime anywhere.
This new system asks for personal information and gets one to answer secret security questions. This is similar to the system used while opening a bank account online or request a credit report online. Once the information matches the data on the file maintained with Social Security, a new account is created with a unique user name and password and access to the Social Security statement is provided.
In addition to showing one's earnings record, the statement shows the estimated Social Security payments at full retirement age (66 to 67, depending on one's age), at age 70 and at age 62.   (The estimates are based on the average earnings to date and assume the same annual income will be earned from now until retirement.)
The statement also shows monthly benefits eligible for on disability, and the amount of survivor's benefits one's child and spouse may receive. It is important to check the statement and ensure the annual income which forms the basis for calculating retirement benefits is rightly recorded.
The site allows printing of the social security statement, and there is also an option to deactivate the online account. Workers who are 60 and older and not yet receiving benefits still get paper copies mailed out to them.
The two main items on a Social Security statement are:
•       Benefits. This section is updated regularly to reflect how much money has been contributed over one's lifetime and how much money one can expect to receive. One needs a certain number of "credits" to qualify for retirement benefits, and that is listed in this section.
•       Earnings report. This section displays the earnings for each year, as well as an estimate of how much money has been paid into Social Security and Medicare. The earnings record should be carefully reviewed for inaccuracies. If the number is too low, one could miss out on benefits down the road. If the number is too high, that could be an indication that the identity has been compromised and the Social Security Number is being misused.
The online statement also contains links to other online Social Security services, such as applications for retirement, disability and Medicare.
The link to track and confirm one's annual Social Security earnings ishttp://www.socialsecurity.gov/mystatement/.

Simplify your finances


The task of managing one's finances efficiently is very important.  This can be done by streamlining various aspects of financial management.
Investments:
·         Consolidate old retirement accounts
Rolling up multiple retirement accounts into one or two IRAs is a safe bet as fewer accounts mean fewer statements up for review, saving time. This reduces the paperwork and allows for easier control of one's investments with help from a financial advisor.
·         Automate the investment process- put the savings on autopilot
The most difficult part about saving is actually setting aside the money and transferring it into an investment account. An automated system to take out savings from every month and automatic money transfers from the bank account to the investment account will help keep the investment plan on track and not fritter away the money on something else.
Banking:
·         Automate payroll deposits
Using direct deposits for all income (salary, pension, social security payments etc) eliminates needless trips to the bank. Recipients of federal benefits can switch to direct deposit or a pre-paid debit card in case they are currently receiving paper checks.
·         Sign up for email / mobile alerts
With email / mobile alerts, the individual will receive immediate notification from the bank when the account balance drops below a certain amount or when credits or debits happen.
Spending:
·         Pay bills online/use auto pay options
Opt for automatic bill payments so that the hassle of writing a check and posting it is avoided. Better, if automatic payments are not preferred, one can still manually authorize electronic payments from a bank account or credit card. The online bill payment mode helps streamline bookkeeping activities.
·         Use fewer credit cards
With multiple credit cards, one runs the risk of overlooking payments on time for a few of them, thereby attracting late fees and heavy interest payments, having a negative impact on the credit score. Hold on to the oldest card as it improves the credit score. Fewer credit cards mean a lighter load on the wallet of course.
·         Draw up a durable power of attorney
A durable power of attorney drawn up by a lawyer will permit a trustworthy person to safeguard assets and pay bills in case of sickness and subsequent inability to manage money matters.
Taxes:
·         Keep records organized
Keeping records organized throughout the year can help simplify the preparation of tax returns. Place receipts and other documents in support of income and deductions in a safe box. Using personal finance software is a high-tech way of tracking expenses and income.
·         Direct deposit of refunds
Providing directions on the tax return for refunds to be directly deposited into bank accounts is a good way of receiving the tax refund faster and saving time going to the bank and putting up a check for collection.
·         Hire a Tax Specialist
Unless the return is a straight forward one and easy to do by self, take the help of a specialist such as a CPA or EA to prepare and file it. With a tax specialist on hire, access to year-round tax planning advice is assured, ensuring reduction in taxes and avoidance of costly tax mistakes or penalties.


Bookkeeping tips for small business


Book keeping is an essential part of running a successful business. Successful business owners have adopted a few basic procedures to stay on top of the paperwork.
Have a vision and plan for where you want the business to be in the long run.  Plan for major expenses in advance.  Almost all businesses have a set of supplementary or ancillary costs that often go unnoticed and do not always make it to the budget. For instance, every time a new software or equipment is purchased, although the cost of equipment might figure in the purchase, associated costs such as training, time and maintenance costs involved in the process might have been missed, thus resulting in an underestimation of the actual costs involved.
Some software products import directly into accounting software such as QuickBooks. Utilizing this type of tool will help save time and paper, and help audit-proof bookkeeping records. While transferring data from paper to computer, one can run a dual system for a few months, and when both the systems have the same totals, the paper trail can be dropped.
Create a checklist of all required statutory reports including due dates, type of tax, report, period covered, etc.  Put aside a portion of money throughout the year for taxes, note tax deadlines on the calendar, along with prep time, to make sure payments are actually made when they are due.
Request for statements with a month-end cut-off date, and save time when reconciling records with the bank statement every month. Do not file statements and canceled checks without reviewing them and review statements immediately for unauthorized checks. Maintain separate folders every year for paid invoices and bills, and go for numbering of the folders for all clients for ease of use and reference.
 Save storage space and opt to go paperless with the purchase of a good scanner.  A good scanner costs only around $500 to $600 and is a very affordable solution.
Consistency is the essence of successful business bookkeeping. For most small businesses, the most common bookkeeping errors are also the easiest to fix. Getting a better handle on bookkeeping can help make and keep long-term goals, smooth out the seasonal ups and downs of cash flow and improve business profits.

Guide to college savings plans


September – With schools reopening throughout the country there is never a better time than now to start with a college savings plan for your kids. Starting the savings habit early and wisely makes college a very realistic achievable goal.
The value of college education is immense, but the cost incurred in the process is enough to create a permanent hole in a family's savings purse. The numbers presented before us today are scary – with rising rates of inflation, the cost of higher education has spiraled, and today's kids may face college bills upward of $250,000.  To help families save for rising college costs, states offer 529 college savings plans with tax benefits to enhance savings.
What are 529 college savings plans?
These state-sponsored plans are named after Section 529 of the Internal Revenue Code which gave states permission to offer savings plans exempt from federal taxation.
Each state determines what the lifetime contribution limit or account balance cap will be in its 529 plan, but typically such limits range between $100,000 and $270,000. Investment minimums are low (most plans allow saving as little as $25 a month as long as a minimum of $500 is accumulated within two years of the initial purchase date), and there is no restriction on the contributions every year unless the account is nearing the lifetime cap.
529 plans - good estate planning tools:
ü  One may contribute as much as $65,000 tax-free per beneficiary in a single year without the gift being taxable, but that contribution will be treated as if it were being made in $13,000 installments over the next five years.
ü  Married couples can contribute up to $130,000 per beneficiary in a single year
ü  Ideal for parents, grandparents and friends to reduce size of their taxable estates today and help their cherished ones attend college in future

Most 529 savings plans offer a menu of age-based portfolios, and some also offer a small selection of stock and bond funds. Early on, the portfolio is tilted toward stocks, and as the time for college nears, the weighting shifts toward bonds.
Tax Advantages:
If used for qualified higher education expenses such as college tuition, fees, books, room and board, investment earnings in a 529 plan are tax free. While the taxpayer's contribution is not deductible on his / her federal taxes, the investment will grow tax-deferred and withdrawals will not be subject to federal tax. In addition to federal tax breaks, one gets state-tax deductions on contributions or exemptions on qualified withdrawals.
Flexibility on offer:
One can choose any state's 529 plan regardless of the state of residence, where the beneficiary lives, or where the beneficiary will eventually attend college, and still be eligible to claim the associated federal tax benefits. Only a few states restrict participation to state residents. The money accrued in the savings account can be used to fund higher education at any eligible educational institution in the country.
Starting on savings while a child is still young helps take maximum benefit of compound earnings.
Why choose a 529 college savings plan?
ü  Withdrawals for qualified education expenses exempt from federal taxation
ü  Investment earnings grow tax-free
ü  Can be opened by parents, relatives and friends
ü  Beneficiary can be any age
ü  No restrictions on income levels – anyone can contribute
ü  Assets generally protected from creditors
ü  Option to change account beneficiary