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Now Is a Great Time for Some Tax Planning

July 10, 2014 Leave a comment

This year’s tax deadline may have come and gone, but it’s never too early to start planning for next year or to think about setting up a smart record-keeping system. With that in mind, here are seven things you can do now to make next April 15 easier.

1. Adjust your withholding. Why wait another year for a big refund? Now is as good a time as any to review your withholding and make adjustments for next year, especially if you’d prefer more money in each paycheck this year. If you owed money at tax time, perhaps you’d like next year’s tax payment to be smaller.

Give us a call if you need assistance in adjusting your withholding.

2. Take action when life events occur. Life events include the birth of a child, a change in marital status or buying a home, and can affect the amount of taxes you owe. When such events occur during the year, you may need to change the amount of tax taken out of your pay by filing a new Form W-4, Employee’s Withholding Allowance Certificate, with your employer. If you receive advance payments of the premium tax credit it is important that you report changes in circumstances, such as changes in your income or family size, to your Health Insurance Marketplace. Please don’t hesitate to call us if you need help with this.

3. Store your return in a safe place. Put your 2013 tax return and supporting documents somewhere secure so you’ll know exactly where to find them if you receive an IRS notice and need to refer to your return. Or, if you need a copy of your return when you apply for a home loan or financial aid. If it is easy to find, you can also use it as a helpful guide for next year’s tax return.

4. Organize your record-keeping. Establish a central location where everyone in your household can put tax-related records all year long. Anything from a shoe box to a file cabinet works. Just be consistent to avoid a scramble for misplaced mileage logs or charity receipts come tax time.

5. Review your paycheck. Make sure your employer is properly withholding and reporting retirement account contributions, health insurance payments, charitable payroll deductions and other items. These payroll adjustments can make a big difference on your bottom line. Fixing an error in your paycheck now gets you back on track before it becomes a huge hassle.

6. Consult a tax professional early. If you are planning to use a tax professional to help you strategize, plan and make financial decisions throughout the year, then contact us now. You’ll have more time when you’re not up against a deadline or anxious for a refund.

7. Prepare to itemize deductions. If your expenses typically fall just below the amount to make itemizing advantageous, a bit of planning to bundle deductions into 2014 may pay off. An early or extra mortgage payment, pre-deadline property tax payments, planned donations or strategically paid medical bills could equal some tax savings.

If you need help with tax planning for 2014, we can help you prepare an approach that works best for you. Each household’s financial circumstances are different so it’s important to fully consider your specific situation and goals before making any financial decisions.

Feel free to contact us any time you have questions or concerns. We can help you stay abreast of tax law changes throughout the year–not just at tax time.

Categories: business, Consulting, Taxes

Make Your 2013 IRA Contribution Now

March 27, 2014 Leave a comment

If you haven’t contributed funds to an Individual Retirement Arrangement (IRA) for tax year 2013, or if you’ve put in less than the maximum allowed, you still have time to do so. You can contribute to either a traditional or Roth IRA until the April 15 due date for filing your tax return for 2013, not including extensions.

Be sure to tell the IRA trustee that the contribution is for 2013. Otherwise, the trustee may report the contribution as being for 2014 when they get your funds.

Generally, you can contribute up to $5,500 of your earnings for 2013 (up to $6,500 if you are age 50 or older in 2013). You can fund a traditional IRA, a Roth IRA (if you qualify), or both, but your total contributions cannot be more than these amounts.

Note: IRA contribution limits remain at $5,500 ($6,500 if age 50 or older) in 2013.

Traditional IRA: You may be able to take a tax deduction for the contributions to a traditional IRA, depending on your income and whether you or your spouse, if filing jointly, are covered by an employer’s pension plan.

Roth IRA: You cannot deduct Roth IRA contributions, but the earnings on a Roth IRA may be tax-free if you meet the conditions for a qualified distribution.

Each year, the IRS announces the cost of living adjustments and limitation for retirement savings plans.

Saving for retirement should be part of everyone’s financial plan and it’s important to review your retirement goals every year in order to maximize savings. If you need help with your retirement plans, give us a call. We’re happy to help.

Check Out These Tax Breaks

March 13, 2014 Leave a comment

Confused about which credits and deductions you can claim on your 2013 tax return? You’re not alone. Here are six tax breaks that you won’t want to overlook.

1. State Sales and Income Taxes

Thanks to the fiscal cliff deal last January, the sales tax deduction, which originally expired at the end of 2011, was reinstated in 2013 (retroactive to 2012). As such, taxpayers filing their 2013 returns can still deduct either state income tax paid or state sales tax paid, whichever is greater.

If you bought a big ticket item like a car or boat in 2013, it might be more advantageous to deduct the sales tax, but don’t forget to figure any state income taxes withheld from your paycheck just in case. If you’re self-employed you can include the state income paid from your estimated payments. In addition, if you owed taxes when filing your 2012 tax return in 2013, you can include the amount when you itemize your state taxes this year on your 2013 return.

2. Child and Dependent Care Tax Credit

Most parents realize that there is a tax credit for daycare when their child is young, but they might not realize that once a child starts school, the same credit can be used for before and after school care, as well as day camps during school vacations. This child and dependent care tax credit can also be taken by anyone who pays a home health aide to care for a spouse or other dependent–such as an elderly parent–who is physically or mentally unable to care for him or herself. The credit is worth a maximum of $1,050 or 35percent of $3,000 of eligible expenses per dependent.

3. Job Search Expenses

Job search expenses are 100percent deductible, whether you are gainfully employed or not currently working–as long as you are looking for a position in your current profession. Expenses include fees paid to join professional organizations, as well as employment placement agencies that you used during your job search. Travel to interviews is also deductible (as long as it was not paid by your prospective employer) as is paper, envelopes, and costs associated with resumes or portfolios. The catch is that you can only deduct expenses greater than 2percent of your adjusted gross income (AGI).

4. Student Loan Interest Paid by Parents

Typically, a taxpayer is only able to deduct interest on mortgages and student loans if he or she is liable for the debt; however, if a parent pays back their child’s student loans the money is treated by the IRS as if the child paid it. As long as the child is not claimed as a dependent, he or she can deduct up to $2,500 in student loan interest paid by the parent. The deduction can be claimed even if the child does not itemize.

5. Medical Expenses

Most people know that medical expenses are deductible as long as they are more than 10 percent of AGI for tax year 2013. What they often don’t realize is what medical expenses can be deducted, such as medical miles (24 cents per mile) driven to and from appointments and travel (airline fares or hotel rooms) for out of town medical treatment.

Other deductible medical expenses that taxpayers might not be aware of include: health insurance premiums, prescription drugs, co-pays, and dental premiums and treatment. Long-term care insurance (deductible dollar amounts vary depending on age) is also deductible, as are prescription glasses and contacts, counseling, therapy, hearing aids and batteries, dentures, oxygen, walkers, and wheelchairs.

If you’re self-employed, you may be able to deduct medical, dental, or long term care insurance. Even better, you can deduct 100 percent of the premium. In addition, if you pay health insurance premiums for an adult child under age 27, you may be able to deduct them as well.

6. Bad Debt

If you’ve ever loaned money to a friend, but were never repaid, you may qualify for a non-business bad debt tax deduction of up to $3,000 per year. To qualify however, the debt must be totally worthless, in that there is no reasonable expectation of payment.

Non-business bad debt is deducted as a short-term capital loss, subject to the capital loss limitations. You may take the deduction only in the year the debt becomes worthless. You do not have to wait until a debt is due to determine whether it is worthless. Any amount you are not able to deduct can be carried forward to reduce future tax liability.

Are you getting all of the tax credits and deductions that you are entitled to? Maybe you are…but maybe you’re not. Why take a chance? Make an appointment with us today and we’ll make sure you get all of the tax breaks you deserve.

Another Option for the Home Office Deduction 2013 Taxes

February 17, 2014 Leave a comment

Starting with their 2013 tax return, taxpayers who claim deductions for business use of a home (“the home office deduction”) now have another option. Taxpayers claiming the home office deduction are generally required to fill out a 43-line form (Form 8829) often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions.

Taxpayers claiming the optional deduction will complete a significantly simplified form. The new optional deduction is capped at $1,500 per year based on $5 per square foot for up to 300 square feet. Give us a call if you’d like more information on the simplified home office deduction for 2013.

 

Give To Your Favorite Cause Before Year End – Some Useful Tips

December 4, 2013 Leave a comment
Gifts

Gifts (Photo credit: Guudmorning!)

As the end of 2013 approaches, donors are likely thinking about their
favorite charity or ministry and what they may be able to do in the way
of support.

I know I am.  I am always encouraged when I think
about the important mission of these organizations and how lives are
being changed as a result of what they are doing.  After all, that is
why we give.  We give because we are taking part in something bigger
than we are.  We give because we believe in the mission of these great
organizations.  We give because we believe in the power of giving to
transform lives, maybe even our own.

So, after dwelling on the good stuff it is then time to consider how to give.  Should I give cash?  Should I donate stock?  Should I do something else?

Having served in some nonprofits, I know we were always thankful for unrestricted
gifts in whatever form they came to us.  This might be your first
consideration and I would recommend making your gifts unrestricted so
that the organization can put it to use in the best way possible.

Next, if your cash position is good you will certainly want to share the wealth.   Here are a few reminders about cash gifts–

  • Make sure you are donating to a qualified organization if you want a tax deduction.
  • Make sure to get an official receipt for your gift, especially if it is over $250.
  • For tax purposes, cash donations generally have a deductible limit of 50% of your AGI.
  • You must make your gift before the end of the year or make sure it is postmarked December 31 if mailed.

If you want to make stock gifts at the end of 2012, this is a positive
time to do so.  The stock market has performed well over the past couple
of years and you may have stocks that you feel have appreciated
significantly.  Also, the fiscal cliff that has been the focus of the
post-election likely will see income tax rates and capital gains tax
rates rise after 2012.  With this in thought, making a stock gift seems
like the right and prudent thing to do.  Here are some reminders about
making stock gifts–

  • You can take a tax deduction for the fair market value of the stock at the time of the gift.
  • For tax purposes, stock gifts and other capital gain property gifts are limited to 30% of your AGI.
  • Make sure to give the stock directly to the charity (don’t sell it yourself and then give the cash).

Of course, make sure you consult your professional advisor as you plan your year-end giving.

No matter what your situation, you have the ability to make a difference
through your giving to nonprofits.  Keep that in mind as you move
forward into this holiday season.

Year End Tax Planning – Charitable Contributions

November 17, 2013 Leave a comment

 

Property, as well as money, can be donated to a charity. You can generally take a deduction for the fair market value of the property; however, for certain property, the deduction is limited to your cost basis. While you can also donate your services to charity, you may not deduct the value of these services. You may also be able to deduct charity-related travel expenses and some out-of-pocket expenses, however.

 

Keep in mind that a written record of charitable contribution is required in order to qualify for a deduction. A donor may not claim a deduction for any contribution of cash, a check or other monetary gift unless the donor maintains a record of the contribution in the form of either a bank record (such as a cancelled check) or written communication from the charity (such as a receipt or a letter) showing the name of the charity, the date of the contribution, and the amount of the contribution.

 

Tip: Contributions of appreciated property (i.e. stock) provide an additional benefit because you avoid paying capital gains on any profit.

Year End Tax Planning Tips – More Tips

November 12, 2013 Leave a comment

Accelerating Income and Deductions

Accelerating income into 2013 is an especially good idea for taxpayers who anticipate being in a higher tax bracket next year or whose earnings are close to threshold amounts ($200,000 for single filers and $250,000 for married filing jointly) that make them liable for additional Medicare tax or NIIT (see below).

Here are several examples of what a taxpayer might do to accelerate deductions:

  • Pay a state estimated tax installment in December instead of at the January due date. However, make sure the payment is based on a reasonable estimate of your state tax.
  • Pay your entire property tax bill, including installments due in year 2014, by year-end. This does not apply to mortgage escrow accounts.
  • Try to bunch “threshold” expenses, such as medical and dental expenses (10% of AGI starting in 2013) and miscellaneous itemized deductions. For example, you might pay medical bills and dues and subscriptions in whichever year they would do you the most tax good.

    Threshold expenses are deductible only to the extent they exceed a certain percentage of adjusted gross income (AGI). By bunching these expenses into one year, rather than spreading them out over two years, you have a better chance of exceeding the thresholds, thereby maximizing your deduction.

In cases where tax benefits are phased out over a certain adjusted gross income (AGI) amount, a strategy of accelerating income and deductions might allow you to claim larger deductions, credits, and other tax breaks for 2013, depending on your situation.

The latter benefits include Roth IRA contributions, conversions of regular IRAs to Roth IRAs, child credits, higher education tax credits and deductions for student loan interest.

Caution: Taxpayers close to threshold amounts for the Net Investment Income Tax (3.8% of net investment income) should pay close attention to “one-time” income spikes such as those associated with Roth conversions, sale of a home or other large assets that may be subject to tax.

If you know you have a set amount of income coming in this year that is not covered by withholding taxes, increasing your withholding before year-end can avoid or reduce any estimated tax penalty that might otherwise be due.

On the other hand, the penalty could be avoided by covering the extra tax in your final estimated tax payment and computing the penalty using the annualized income method.

10 Key Facts About Mortgage Debt Forgiveness

September 16, 2013 Leave a comment

Here are 10 key facts from the IRS about mortgage debt forgiveness:

1. Cancelled debt normally results in taxable income. However, you may be able to exclude the cancelled debt from your income if the debt was a mortgage on your main home.

2. To qualify, you must have used the debt to buy, build or substantially improve your principal residence. The residence must also secure the mortgage.

3. The maximum qualified debt that you can exclude under this exception is $2 million. The limit is $1 million for a married person who files a separate tax return.

4. You may be able to exclude from income the amount of mortgage debt reduced through mortgage restructuring. You may also be able to exclude mortgage debt cancelled in a foreclosure.

5. You may also qualify for the exclusion on a refinanced mortgage. This applies only if you used proceeds from the refinancing to buy, build or substantially improve your main home. The exclusion is limited to the amount of the old mortgage principal just before the refinancing.

6. Proceeds of refinanced mortgage debt used for other purposes do not qualify for the exclusion. For example, debt used to pay off credit card debt does not qualify.

7. If you qualify, report the excluded debt on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. Submit the completed form with your federal income tax return.

8. Other types of cancelled debt do not qualify for this special exclusion. This includes debt cancelled on second homes, rental and business property, credit cards or car loans. In some cases, other tax relief provisions may apply, such as debts discharged in certain bankruptcy proceedings. Form 982 provides more details about these provisions.

9. If your lender reduced or cancelled at least $600 of your mortgage debt, they normally send you a statement in January of the following year. Form 1099-C, Cancellation of Debt, shows the amount of cancelled debt and the fair market value of any foreclosed property.

10. Check your Form 1099-C for the cancelled debt amount shown in Box 2, and the value of your home shown in Box 7. Notify the lender immediately of any incorrect information so they can correct the form.

Household Employee and the Nanny Tax

September 12, 2013 Leave a comment
Household staff of the Hughes family, c.1890s

Household staff of the Hughes family, c.1890s (Photo credit: Wikipedia)

If you employ someone to work for you around your house, it is
important to consider the tax implications of this arrangement. While
many people disregard the need to pay taxes on household employees, they
do so at the risk of paying stiff tax penalties down the road.

As you will see, the rules for hiring household help are quite
complex, even for a relatively minor employee, and a mistake can bring
on a tax headache that most of us would prefer to avoid.

Who Is a Household Employee?

Commonly referred to as the “nanny tax”, these rules apply to you
only if (1) you pay someone for household work and (2) that worker is
your employee.

  1. Household work is work that is performed in or around your
    home by baby-sitters, nannies, health aides, private nurses, maids,
    caretakers, yard workers, and similar domestic workers.
  2. A household worker is your employee if you control not only what work is done, but how it is done.

    If the worker is your employee, it does not matter whether the work
    is full-time or part-time, or that you hired the worker through an
    agency or from a list provided by an agency or association. It also does
    not matter whether you pay the worker on an hourly, daily, or weekly
    basis, or by the job.

    If the worker controls how the work is done, the worker is not your
    employee, but is self-employed. A self-employed worker usually provides
    his or her own tools and offers services to the general public in an
    independent business.

    Also, if an agency provides the worker and controls what work is done and how it is done, the worker is not your employee.

Example: You pay Betty to baby-sit
your child and do light housework four days a week in your home. Betty
follows your specific instructions about household and child care
duties. You provide the household equipment and supplies that Betty
needs to do her work. Betty is your household employee.

Example: You pay John to care for
your lawn. John also offers lawn care services to other homeowners in
your neighborhood. He provides his own tools and supplies, and he hires
and pays any helpers he needs. Neither John nor his helpers are your
household employees.

Important Business Articles From Around the Web Today

September 11, 2013 Leave a comment
save your money and one day it'll return the favor

save your money and one day it’ll return the favor (Photo credit: • Brusselssprout_in_Manhattan • Eliane •)

If you are looking for some relevant business reading today, take a look at these articles:

How To Improve Your CashFlow - One Accounting Blog

New GMail Tabs Could Hinder Efforts to Reach Your Customers – AICPA Insights

 

The IRS and Big Data Gone Bad – CPA Trendlines

 

Ten Tips for Construction Business Owners – Reckenen Accountants and Consultants

 

Tracking Everything – Cloud Apps for Small Business – Common Cents

 

The Most Overlooked Leadership Skill – Peter Bregman, Harvard Business Review

 

Its More Important to be Kind Than Clever – Bill Taylor, Harvard Business Review

 

Sign up for important business news that affects you at http://www.cashaccountingcpa.com

 

 

 

 

 

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