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Non-Qualified Stock Options Demand Tax Planning Attention

Posted by Admin Posted on July 19 2017

Your compensation may take several forms, including salary, fringe benefits and bonuses. If you work for a corporation, you might also receive stock-based compensation, such as stock options. These come in two varieties: nonqualified (NQSOs) and incentive (ISOs). With both NQSOs and ISOs, if the stock appreciates beyond your exercise price, you can buy shares at a price below what they’re trading for. The tax consequences of these types of compensation can be complex. So smart tax planning is critical. Let’s take a closer look at the tax treatment of NQSOs, and how it differs from that of the perhaps better known ISOs. Compensation income NQSOs create compensation income — taxed at ordinary-income rates — on the “bargain element” (the difference between the stock’s fair market value and the exercise price) when exercised. This is regardless of whether the stock is held or sold immediately. ISOs, on the other hand, generally don’t create compensation income taxed at ordinary rates unless you sell the stock from the exercise without holding it for more than a year, in a “disqualified disposition.” If the stock from an ISO exercise is held more than one year, then generally your lower long-term capital gains tax rate applies when you sell the stock. Also, NQSO exercises don’t create an alternative minimum tax (AMT) preference item that can trigger AMT liability. ISO exercises can trigger AMT unless the stock is sold in a disqualified disposition (though it’s possible the AMT could be repealed under tax reform legislation). More tax consequences to consider When you exercise NQSOs, you may need to make estimated tax payments or increase withholding to fully cover the tax. Otherwise you might face underpayment penalties. Also keep in mind that an exercise could trigger or increase exposure to top tax rates, the additional 0.9% Medicare tax and the 3.8% net investment income tax (NIIT). These two taxes might be repealed or reduced as part of Affordable Care Act repeal and replace legislation or tax reform legislation, possibly retroactive to January 1 of this year. But that’s still uncertain. Have tax questions about NQSOs or other stock-based compensation? Let us know — we’d be happy to answer them. © 2017  http://www.jbskcpas.com/contact

Own a vacation home? Adjusting rental vs. personal use might save taxes

Posted by Admin Posted on July 11 2017

Now that we’ve hit midsummer, if you own a vacation home that you both rent out and use personally, it’s a good time to review the potential tax consequences:

If you rent it out for less than 15 days: You don’t have to report the income. But expenses associated with the rental (such as advertising and cleaning) won’t be deductible.

If you rent it out for 15 days or more: You must report the income. But what expenses you can deduct depends on how the home is classified for tax purposes, based on the amount of personal vs. rental use:

  • Rental property. If you (or your immediate family) use the home for 14 days or less, or under 10% of the days you rent out the property, whichever is greater, the IRS will classify the home as a rental property. You can deduct rental expenses, including losses, subject to the real estate activity rules. You can’t deduct any interest that’s attributable to your personal use of the home, but you can take the personal portion of property tax as an itemized deduction.
  • Nonrental property. If you (or your immediate family) use the home for more than 14 days or 10% of the days you rent out the property, whichever is greater, the IRS will classify the home as a personal residence, but you will still have to report the rental income. You can deduct rental expenses only to the extent of your rental income. Any excess can be carried forward to offset rental income in future years. You also can take an itemized deduction for the personal portion of both mortgage interest and property tax.

Look at the use of your vacation home year-to-date to project how it will be classified for tax purposes. Adjusting the number of days you rent it out and/or use it personally between now and year end might allow the home to be classified in a more beneficial way.

For assistance, please contact us. We’d be pleased to help.

© 2017

Summer is a Good Time to Start Your 2017 Tax Planning and Organize Your Tax Records

Posted by Admin Posted on July 06 2017

You may be tempted to forget all about taxes during summertime, when “the livin’ is easy,” as the Gershwin song goes. But if you start your tax planning now, you may avoid an unpleasant tax surprise when you file next year. Summer is also a good time to set up a storage system for your tax records. Here are some tips: Take action when life changes occur. Some life events (such as marriage, divorce, or the birth of a child) can change the amount of tax you owe. When they happen, you may need to change the amount of tax withheld from your pay. To do that, file a new Form W-4 with your employer. If you make estimated payments, those may need to be changed as well. Keep records accessible but safe. Put your 2016 tax return and supporting records together in a place where you can easily find them if you need them, such as if you’re ever audited by the IRS. You also may need a copy of your tax return if you apply for a home loan or financial aid. Although accessibility is important, so is safety. A good storage medium for hard copies of important personal documents like tax returns is a fire-, water- and impact-resistant security cabinet or safe. You may want to maintain a duplicate set of records in another location, such as a bank safety deposit box. You can also store copies of records electronically. Simply scan your documents and save them to an external storage device (which you can keep in your home safe or bank safety deposit box). If opting for a cloud-based backup system, choose your provider carefully to ensure its security measures are as stringent as possible. Stay organized. Make tax time easier by putting records you’ll need when you file in the same place during the year. That way you won’t have to search for misplaced records next February or March. Some examples include substantiation of charitable donations, receipts from work-related travel not reimbursed by your employer, and documentation of medical expenses not reimbursable by insurance or paid through a tax-advantaged account. For more information on summertime tax planning or organizing your tax-related information, contact us. © 2017 

Claiming A Federal Tax Deduction for Moving Cost

Posted by Admin Posted on July 06 2017

Summer is a popular time to move, whether it’s so the kids don’t have to change schools mid-school-year, to avoid having to move in bad weather or simply because it can be an easier time to sell a home. Unfortunately, moving can be expensive. The good news is that you might be eligible for a federal tax deduction for your moving costs. Pass the tests The first requirement is that the move be work-related. You don’t have to be an employee; the self-employed can also be eligible for the moving expense deduction. The second is a distance test. The new main job location must be at least 50 miles farther from your former home than your former main job location was from that home. So a work-related move from city to suburb or from town to neighboring town probably won’t qualify, even if not moving would increase your commute significantly. Finally, there’s a time test. You must work full time at the new job location for at least 39 weeks during the first year. If you’re self-employed, you must meet that test plus work full time for at least 78 weeks during the first 24 months at the new job location. (Certain limited exceptions apply.) What’s deductible So which expenses can be written off? Generally, you can deduct transportation and lodging expenses for yourself and household members while moving. In addition, you can likely deduct the cost of packing and transporting your household goods and other personal property. And you may be able to deduct the expense of storing and insuring these items while in transit. Costs related to connecting or disconnecting utilities are usually deductible, too. But don’t expect to write off everything. Meal costs during move-related travel aren’t deductible. Nor is any part of the purchase price of a new home or expenses incurred selling your old one. And, if your employer later reimburses you for any of the moving costs you’ve deducted, you may have to include the reimbursement as income on your tax return. Questions about whether your moving expenses are deductible? Or what you can deduct? Contact us. © 2017

Are Income Taxes Taking A Bite Out of Your Trusts?

Posted by Admin Posted on July 06 2017

If your estate plan includes one or more trusts, review them in light of income taxes. For trusts, the income threshold is very low for triggering the: Top income tax rate of 39.6%, Top long-term capital gains rate of 20%, and Net investment income tax (NIIT) of 3.8%. The threshold is only $12,500 for 2017. 3 ways to soften the blow Three strategies can help you soften the blow of higher taxes on trust income: 1. Use grantor trusts. An intentionally defective grantor trust (IDGT) is designed so that you, the grantor, are treated as the trust’s owner for income tax purposes — even though your contributions to the trust are considered “completed gifts” for estate- and gift-tax purposes. IDGTs offer significant advantages. The trust’s income is taxed to you, so the trust itself avoids taxation. This allows trust assets to grow tax-free, leaving more for your beneficiaries. And it reduces the size of your estate. Further, as the owner, you can sell assets to the trust or engage in other transactions without tax consequences. Keep in mind that, if your personal income exceeds the applicable thresholds for your filing status, using an IDGT won’t avoid the tax rates described above. Still, the other benefits of these trusts make them attractive. 2. Change your investment strategy. Despite the advantages of grantor trusts, nongrantor trusts are sometimes desirable or necessary. At some point, for example, you may decide to convert a grantor trust to a nongrantor trust to relieve yourself of the burden of paying the trust’s taxes. Also, grantor trusts become nongrantor trusts after the grantor’s death. One strategy for easing the tax burden on nongrantor trusts is for the trustee to shift investments into tax-exempt or tax-deferred investments. 3. Distribute income. Generally, nongrantor trusts are subject to tax only to the extent they accumulate taxable income. When a trust makes distributions to a beneficiary, it passes along ordinary income (and, in some cases, capital gains), which are taxed at the beneficiary’s marginal rate. Thus, one strategy for minimizing taxes on trust income is to distribute the income to beneficiaries in lower tax brackets. The trustee might also consider distributing appreciated assets, rather than cash, to take advantage of a beneficiary’s lower capital gains rate. Of course, this strategy may conflict with a trust’s purposes, such as providing incentives to beneficiaries, preserving assets for future generations and shielding assets from beneficiaries’ creditors. If you’re concerned about income taxes on your trusts, contact us. We can review your estate plan to uncover opportunities to reduce your family’s tax burden. © 2017

Pay Attention to the Details when Selling Investments

Posted by Admin Posted on July 06 2017

The tax consequences of the sale of an investment, as well as your net return, can be affected by a variety of factors. You’re probably focused on factors such as how much you paid for the investment vs. how much you’re selling it for, whether you held the investment long-term (more than one year) and the tax rate that will apply. But there are additional details you should pay attention to. If you don’t, the tax consequences of a sale may be different from what you expect. Here are a few details to consider when selling an investment: Which shares you’re selling. If you bought the same security at different times and prices and want to sell high-tax-basis shares to reduce gain or increase a loss to offset other gains, be sure to specifically identify which block of shares is being sold. Trade date vs. settlement date. When it gets close to year end, keep in mind that the trade date, not the settlement date, of publicly traded securities determines the year in which you recognize the gain or loss. Transaction costs. While transaction costs, such as broker fees, aren’t taxes, like taxes they can have a significant impact on your net returns, especially over time, because they also reduce the amount of money you have available to invest. If you have questions about the potential tax impact of an investment sale you’re considering — or all of the details you should keep in mind to minimize it — please contact us. © 2017

Donating a vehicle might not provide tax deduction you expect

Posted by Admin Posted on June 05 2017




All charitable donations aren’t created equal — some provide larger deductions than others. And it isn’t necessarily just how much or even what you donate that matters. How the charity uses your donation might also affect your deduction.

Take vehicle donations, for example. If you donate your vehicle, the value of your deduction can vary greatly depending on what the charity does with it.

Determining your deduction

You can deduct the vehicle’s fair market value (FMV) if the charity:

  • Uses the vehicle for a significant charitable purpose (such as delivering meals-on-wheels to the elderly),
  • Sells the vehicle for substantially less than FMV in furtherance of a charitable purpose (such as a sale to a low-income person needing transportation), or
  • Makes “material improvements” to the vehicle.

But in most other circumstances, if the charity sells the vehicle, your deduction is limited to the amount of the sales proceeds.

Getting proper substantiation

You also must obtain proper substantiation from the charity, including a written acknowledgment that:

  • Certifies whether the charity sold the vehicle or retained it for use for a charitable purpose,
  •  Includes your name and tax identification number and the vehicle identification number, and
  • Reports, if applicable, details concerning the sale of the vehicle within 30 days of the sale.

For more information on these and other rules that apply to vehicle donation deductions — or deductions for other charitable gifts — please contact us.

© 2017

A "Back Door" Roth IRA can benefit higher-income taxpayers

Posted by Admin Posted on June 05 2017



A potential downside of tax-deferred saving through a traditional retirement plan is that you’ll have to pay taxes when you make withdrawals at retirement. Roth plans, on the other hand, allow tax-free distributions; the tradeoff is that contributions to these plans don’t reduce your current-year taxable income.

Unfortunately, your employer might not offer a Roth 401(k) or another Roth option, and modified adjusted gross income (MAGI)-based phaseouts may reduce or eliminate your ability to contribute to a Roth IRA. Fortunately, there is a solution: the “back door” Roth IRA.

Are you phased out?

The 2017 contribution limit for all IRAs combined is $5,500 (plus an additional $1,000 catch-up contribution if you’ll be age 50 or older by December 31). You can make a partial contribution if your MAGI falls within the applicable phaseout range, but no contribution if it exceeds the top of the range:

  • For married taxpayers filing jointly: $186,000–$196,000.
  • For single and head-of-household taxpayers: $118,000–$133,000.

(Note: Married taxpayers filing separately are subject to much lower phaseout ranges.)

Using the back door

If the income-based phaseout prevents you from making Roth IRA contributions and you don’t already have a traditional IRA, a “back door” IRA might be right for you.

How does it work? You set up a traditional account and make a nondeductible contribution to it. You then wait until the transaction clears and convert the traditional account to a Roth account. The only tax due will be on any growth in the account between the time you made the contribution and the date of conversion, which should be little, if any, assuming you’re able to make the conversion quickly.

More limited tax benefit in some cases

If you do already have a traditional IRA, the back-door Roth IRA strategy is still available but there will be more tax liability on the conversion. A portion of the amount you convert to a Roth IRA will be considered attributable to deductible contributions and thus be taxable. It doesn’t matter if you set up a new traditional IRA for the nondeductible contributions; all of your traditional IRAs will be treated as one for tax purposes.

Roth IRAs have other benefits and downsides you need to factor into your decision, and additional rules apply to IRA conversions. Please contact us for assistance in determining whether a backdoor Roth IRA is right for you.

© 2017

Real estate investor vs. professional: Why it matters

Posted by Admin Posted on June 05 2017




Income and losses from investment real estate or rental property are passive by definition — unless you’re a real estate professional. Why does this matter? Passive income may be subject to the 3.8% net investment income tax (NIIT), and passive losses generally are deductible only against passive income, with the excess being carried forward.

Of course the NIIT is part of the Affordable Care Act (ACA) and might be eliminated under ACA repeal and replace legislation or tax reform legislation. But if/when such legislation will be passed and signed into law is uncertain. Even if the NIIT is eliminated, the passive loss issue will still be an important one for many taxpayers investing in real estate.

“Professional” requirements

To qualify as a real estate professional, you must annually perform:

  • More than 50% of your personal services in real property trades or businesses in which you materially participate, and
  • More than 750 hours of service in these businesses.

Each year stands on its own, and there are other nuances. (Special rules for spouses may help you meet the 750-hour test.)

Tax strategies

If you’re concerned you’ll fail either test and be subject to the 3.8% NIIT or stuck with passive losses, consider doing one of the following:

Increasing your involvement in the real estate activity. If you can pass the real estate professional tests, the activity no longer will be subject to passive activity rules.

Looking at other activities. If you have passive losses from your real estate investment, consider investing in another income-producing trade or business that will be passive to you. That way, you’ll have passive income that can absorb some or all of your passive losses.

Disposing of the activity. This generally allows you to deduct all passive losses — including any loss on disposition (subject to basis and capital loss limitations). But, again, the rules are complex.

Also be aware that the IRS frequently challenges claims of real estate professional status — and is often successful. One situation where the IRS commonly prevails is when the taxpayer didn’t keep adequate records of time spent on real estate activities.

If you’re not sure whether you qualify as a real estate professional, please contact us. We can help you make this determination and guide you on how to properly document your hours.

© 2017 

Want to Help Your Child (Or Grandchild) Buy a Home? Don't Wait!

Posted by Admin Posted on May 15 2017

Mortgage interest rates are still at low levels, but they likely will increase as the Fed continues to raise rates. So if you’ve been thinking about helping your child — or grandchild — buy a home, consider acting soon. There also are some favorable tax factors that will help:

0% capital gains rate. If the child is in the 10% or 15% income tax bracket, instead of giving cash to help fund a down payment, consider giving long-term appreciated assets such as stock or mutual fund shares. The child can sell the assets without incurring any federal income taxes on the gain, and you can save the taxes you’d owe if you sold the assets yourself.

As long as the assets are worth $14,000 or less (when combined with any other 2017 gifts to the child), there will be no federal gift tax consequences — thanks to the annual gift tax exclusion. Married couples can give twice that amount tax-free if they split the gift. And if you don’t mind using up some of your lifetime exemption ($5.49 million for 2017), you can give even more. Plus, there’s the possibility that the gift and estate taxes could be repealed. If that were to happen, there’d be no limit on how much you could give tax-free (for federal purposes).

Low federal interest rates. Another tax-friendly option is lending funds to the child. Now is a good time for taking this step, too. Currently, Applicable Federal Rates — the rates that can be charged on intrafamily loans without causing unwanted tax consequences — are still quite low by historical standards. But these rates have begun to rise and are also expected to continue to increase this year. So lending money to a loved one for a home purchase sooner rather than later might be a good idea.

If you choose the loan option, it’s important to put a loan agreement in writing and actually collect payment (including interest) on the loan. Otherwise the IRS could deem the loan to actually be a taxable gift. Keep in mind that you’ll have to report the interest as income. But if the interest rate is low, the tax impact should be minimal.

If you have questions about these or other tax-efficient ways to help your child or grandchild buy a home, please contact us.

© 2017

Turning Next Year's Tax Refund into Cash in your Pocket Now

Posted by Admin Posted on May 15 2017

Each year, millions of taxpayers claim an income tax refund. To be sure, receiving a payment from the IRS for a few thousand dollars can be a pleasant influx of cash. But it means you were essentially giving the government an interest-free loan for close to a year, which isn’t the best use of your money.

Fortunately, there is a way to begin collecting your 2017 refund now: You can review the amounts you’re having withheld and/or what estimated tax payments you’re making, and adjust them to keep more money in your pocket during the year.

Reasons to modify amounts

It’s particularly important to check your withholding and/or estimated tax payments if:

  • You received an especially large 2016 refund,
  • You’ve gotten married or divorced or added a dependent,
  • You’ve purchased a home,
  • You’ve started or lost a job, or
  • Your investment income has changed significantly.

Even if you haven’t encountered any major life changes during the past year, changes in the tax law may affect withholding levels, making it worthwhile to double-check your withholding or estimated tax payments.

Making a change

You can modify your withholding at any time during the year, or even several times within a year. To do so, you simply submit a new Form W-4 to your employer. Changes typically will go into effect several weeks after the new Form W-4 is submitted. For estimated tax payments, you can make adjustments each time quarterly payments are due.

While reducing withholdings or estimated tax payments will, indeed, put more money in your pocket now, you also need to be careful that you don’t reduce them too much. If you don’t pay enough tax during the year, you could end up owing interest and penalties when you file your return, even if you pay your outstanding tax liability by the April 2018 deadline.

If you’d like help determining what your withholding or estimated tax payments should be for the rest of the year, please contact us.

© 2017

Now's a Great Time to Purge Old Tax Records

Posted by Admin Posted on May 15 2017

Whether you filed your 2016 tax return by the April 18 deadline or you filed for an extension, you may be overwhelmed by the amount of documentation involved. While you need to hold on to all of your 2016 tax records for now, it’s a great time to take a look at your records for previous tax years to see what you can purge.

Consider the statute of limitations

At minimum, keep tax records for as long as the IRS has the ability to audit your return or assess additional taxes, which generally is three years after you file your return. This means you likely can shred and toss — or electronically purge — most records related to tax returns for 2013 and earlier years (2012 and earlier if you filed for an extension for 2013).

In some cases, the statute of limitations extends beyond three years. If you understate your adjusted gross income by more than 25%, for example, the limitations period jumps to six years. And there is no statute of limitations if you fail to file a tax return or file a fraudulent one.

Keep some documents longer

You’ll need to hang on to certain records beyond the statute of limitations:

Tax returns. Keep them forever, so you can prove to the IRS that you actually filed.

W-2 forms. Consider holding them until you begin receiving Social Security benefits. Why? In case a question arises regarding your work record or earnings for a particular year.

Records related to real estate or investments. Keep these as long as you own the asset, plus three years after you sell it and report the sale on your tax return (or six years if you’re concerned about the six-year statute of limitations).

This is only a sampling of retention guidelines for tax-related documents. If you have questions about other documents, please contact us.

© 2017

Individual Tax Calendar: Key Deadlines for the Remainder of 2017

Posted by Admin Posted on May 15 2017




While April 15 (April 18 this year) is the main tax deadline on most individual taxpayers’ minds, there are others through the rest of the year that are important to be aware of. To help you make sure you don’t miss any important 2017 deadlines, here’s a look at when some key tax-related forms, payments and other actions are due. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you.

Please review the calendar and let us know if you have any questions about the deadlines or would like assistance in meeting them.  

June 15

  • File a 2016 individual income tax return (Form 1040) or file for a four-month extension (Form 4868), and pay any tax and interest due, if you live outside the United States.
  • Pay the second installment of 2017 estimated taxes, if not paying income tax through withholding (Form 1040-ES).

September 15  

  • Pay the third installment of 2017 estimated taxes, if not paying income tax through withholding (Form 1040-ES).

October 2   

  • If you’re the trustee of a trust or the executor of an estate, file an income tax return for the 2016 calendar year (Form 1041) and pay any tax, interest and penalties due, if an automatic five-and-a-half month extension was filed.

October 16   

  • File a 2016 income tax return (Form 1040, Form 1040A or Form 1040EZ) and pay any tax, interest and penalties due, if an automatic six-month extension was filed (or if an automatic four-month extension was filed by a taxpayer living outside the United States).
  • Make contributions for 2016 to certain retirement plans or establish a SEP for 2016, if an automatic six-month extension was filed.
  • File a 2016 gift tax return (Form 709) and pay any tax, interest and penalties due, if an automatic six-month extension was filed.

December 31  

  • Make 2017 contributions to certain employer-sponsored retirement plans.
  • Make 2017 annual exclusion gifts (up to $14,000 per recipient).
  • Incur various expenses that potentially can be claimed as itemized deductions on your 2017 tax return. Examples include charitable donations, medical expenses, property tax payments and expenses eligible for the miscellaneous itemized deduction.

© 2017

Savings Tax with Home-Reated Deductions and Exclusions

Posted by Admin Posted on May 15 2017




Currently, home ownership comes with many tax-saving opportunities. Consider both deductions and exclusions when you’re filing your 2016 return and tax planning for 2017:

Property tax deduction. Property tax is generally fully deductible — unless you’re subject to the alternative minimum tax (AMT).

Mortgage interest deduction. You generally can deduct interest on up to a combined total of $1 million of mortgage debt incurred to purchase, build or improve your principal residence and a second residence. Points paid related to your principal residence also may be deductible.

Home equity debt interest deduction. Interest on home equity debt used for any purpose (debt limit of $100,000) may be deductible. But keep in mind that, if home equity debt isn’t used for home improvements, the interest isn’t deductible for AMT purposes.

Mortgage insurance premium deduction. This break expired December 31, 2016, but Congress might extend it.

Home office deduction. If your home office use meets certain tests, you generally can deduct a portion of your mortgage interest, property taxes, insurance, utilities and certain other expenses, and the depreciation allocable to the space. Or you may be able to use a simplified method for claiming the deduction.

Rental income exclusion. If you rent out all or a portion of your principal residence or second home for less than 15 days, you don’t have to report the income. But expenses directly associated with the rental, such as advertising and cleaning, won’t be deductible.

Home sale gain exclusion. When you sell your principal residence, you can exclude up to $250,000 ($500,000 for married couples filing jointly) of gain if you meet certain tests. Be aware that gain allocable to a period of “nonqualified” use generally isn’t excludable.

Debt forgiveness exclusion. This break for homeowners who received debt forgiveness in a foreclosure, short sale or mortgage workout for a principal residence expired December 31, 2016, but Congress might extend it.

The debt forgiveness exclusion and mortgage insurance premium deduction aren’t the only home-related breaks that might not be available in the future. There have been proposals to eliminate other breaks, such as the property tax deduction, as part of tax reform.

Whether such changes will be signed into law and, if so, when they’d go into effect is uncertain. Also keep in mind that additional rules and limits apply to these breaks. So contact us for information on the latest tax reform developments or which home-related breaks you’re eligible to claim.

© 2017

Victims of a Disaster, Fire or Theft May be able to Claim a Casualty Loss Deduction

Posted by Admin Posted on May 15 2017



If you suffered damage to your home or personal property last year, you may be able to deduct these “casualty” losses on your 2016 federal income tax return. A casualty is a sudden, unexpected or unusual event, such as a natural disaster (hurricane, tornado, flood, earthquake, etc.), fire, accident, theft or vandalism. A casualty loss doesn’t include losses from normal wear and tear or progressive deterioration from age or termite damage.

Here are some things you should know about deducting casualty losses:

When to deduct. Generally, you must deduct a casualty loss on your return for the year it occurred. However, if you have a loss from a federally declared disaster area, you may have the option to deduct the loss on an amended return for the immediately preceding tax year.

Amount of loss. Your loss is generally the lesser of 1) your adjusted basis in the property before the casualty (typically, the amount you paid for it), or 2) the decrease in fair market value of the property as a result of the casualty. This amount must be reduced by any insurance or other reimbursement you received or expect to receive. (If the property was insured, you must have filed a timely claim for reimbursement of your loss.)

$100 rule. After you’ve figured your casualty loss on personal-use property, you must reduce that loss by $100. This reduction applies to each casualty loss event during the year. It doesn’t matter how many pieces of property are involved in an event.

10% rule. You must reduce the total of all your casualty or theft losses on personal-use property for the year by 10% of your adjusted gross income (AGI). In other words, you can deduct these losses only to the extent they exceed 10% of your AGI.

Have questions about deducting casualty losses? Contact us!

© 2017

Who can - and who should - take the American Opportunity Credit

Posted by Admin Posted on Mar 21 2017

 

Who can — and who should — take the American Opportunity credit?

If you have a child in college, you may be eligible to claim the American Opportunity credit on your 2016 income tax return. If, however, your income is too high, you won’t qualify for the credit — but your child might. There’s one potential downside: If your dependent child claims the credit, you must forgo your dependency exemption for him or her. And the child can’t take the exemption.

The limits

The maximum American Opportunity credit, per student, is $2,500 per year for the first four years of postsecondary education. It equals 100% of the first $2,000 of qualified expenses, plus 25% of the next $2,000 of such expenses.

The ability to claim the American Opportunity credit begins to phase out when modified adjusted gross income (MAGI) enters the applicable phaseout range ($160,000–$180,000 for joint filers, $80,000–$90,000 for other filers). It’s completely eliminated when MAGI exceeds the top of the range.

Running the numbers

If your American Opportunity credit is partially or fully phased out, it’s a good idea to assess whether there’d be a tax benefit for the family overall if your child claimed the credit. As noted, this would come at the price of your having to forgo your dependency exemption for the child. So it’s important to run the numbers.

Dependency exemptions are also subject to a phaseout, so you might lose the benefit of your exemption regardless of whether your child claims the credit. The 2016 adjusted gross income (AGI) thresholds for the exemption phaseout are $259,400 (singles), $285,350 (heads of households), $311,300 (married filing jointly) and $155,650 (married filing separately).

If your exemption is fully phased out, there likely is no downside to your child taking the credit. If your exemption isn’t fully phased out, compare the tax savings your child would receive from the credit with the savings you’d receive from the exemption to determine which break will provide the greater overall savings for your family.

We can help you run the numbers and can provide more information about qualifying for the American Opportunity credit.

© 2017 

 

Tangible property safe harbors help maximize deductions

Posted by Admin Posted on Mar 03 2017

If last year your business made repairs to tangible property, such as buildings, machinery, equipment or vehicles, you may be eligible for a valuable deduction on your 2016 income tax return. But you must make sure they were truly “repairs,” and not actually “improvements.”

Why? Costs incurred to improve tangible property must be depreciated over a period of years. But costs incurred on incidental repairs and maintenance can be expensed and immediately deducted.

What’s an “improvement”?

In general, a cost that results in an improvement to a building structure or any of its building systems (for example, the plumbing or electrical system) or to other tangible property must be capitalized. An improvement occurs if there was a betterment, restoration or adaptation of the unit of property.

Under the “betterment test,” you generally must capitalize amounts paid for work that is reasonably expected to materially increase the productivity, efficiency, strength, quality or output of a unit of property or that is a material addition to a unit of property.

Under the “restoration test,” you generally must capitalize amounts paid to replace a part (or combination of parts) that is a major component or a significant portion of the physical structure of a unit of property.

Under the “adaptation test,” you generally must capitalize amounts paid to adapt a unit of property to a new or different use — one that isn’t consistent with your ordinary use of the unit of property at the time you originally placed it in service.

2 safe harbors

Distinguishing between repairs and improvements can be difficult, but a couple of IRS safe harbors can help:

1. Routine maintenance safe harbor. Recurring activities dedicated to keeping property in efficient operating condition can be expensed. These are activities that your business reasonably expects to perform more than once during the property’s “class life,” as defined by the IRS.

Amounts incurred for activities outside the safe harbor don’t necessarily have to be capitalized, though. These amounts are subject to analysis under the general rules for improvements.

2. Small business safe harbor. For buildings that initially cost $1 million or less, qualified small businesses may elect to deduct the lesser of $10,000 or 2% of the unadjusted basis of the property for repairs, maintenance, improvements and similar activities each year. A qualified small business is generally one with gross receipts of $10 million or less.

There is also a de minimis safe harbor as well as an exemption for materials and supplies up to a certain threshold. Contact us for details on these safe harbors and exemptions and other ways to maximize your tangible property deductions.© 2017

 

Deduct all of the mileage you are entitled to —- but not more

Posted by Admin Posted on Feb 21 2017

Rather than keeping track of the actual cost of operating a vehicle, employees and self-employed taxpayers can use a standard mileage rate to compute their deduction related to using a vehicle for business. But you might also be able to deduct miles driven for other purposes, including medical, moving and charitable purposes.

What are the deduction rates?

The rates vary depending on the purpose and the year:

Business: 54 cents (2016), 53.5 cents (2017)

Medical: 19 cents (2016), 17 cents (2017)

Moving: 19 cents (2016), 17 cents (2017)

Charitable: 14 cents (2016 and 2017)

The business standard mileage rate is considerably higher than the medical, moving and charitable rates because the business rate contains a depreciation component. No depreciation is allowed for the medical, moving or charitable use of a vehicle.

In addition to deductions based on the standard mileage rate, you may deduct related parking fees and tolls.

What other limits apply?

The rules surrounding the various mileage deductions are complex. Some are subject to floors and some require you to meet specific tests in order to qualify.

For example, miles driven for health-care-related purposes are deductible as part of the medical expense deduction. But medical expenses generally are deductible only to the extent they exceed 10% of your adjusted gross income. (For 2016, the deduction threshold is 7.5% for qualifying seniors.)

And while miles driven related to moving can be deductible, the move must be work-related. In addition, among other requirements, the distance from your old residence to the new job must be at least 50 miles more than the distance from your old residence to your old job.

Other considerations

There are also substantiation requirements, which include tracking miles driven. And, in some cases, you might be better off deducting actual expenses rather than using the mileage rates.

So contact us to help ensure you deduct all the mileage you’re entitled to on your 2016 tax return — but not more. You don’t want to risk back taxes and penalties later.

And if you drove potentially eligible miles in 2016 but can’t deduct them because you didn’t track them, start tracking your miles now so you can potentially take advantage of the deduction when you file your 2017 return next year.

© 2017

Do you need to file a 2016 gift tax return by April 18?

Posted by Admin Posted on Feb 18 2017

Last year you may have made significant gifts to your children, grandchildren or other heirs as part of your estate planning strategy. Or perhaps you just wanted to provide loved ones with some helpful financial support. Regardless of the reason for making a gift, it’s important to know under what circumstances you’re required to file a gift tax return.

Some transfers require a return even if you don’t owe tax. And sometimes it’s desirable to file a return even if it isn’t required.

When filing is required

Generally, you’ll need to file a gift tax return for 2016 if, during the tax year, you made gifts:

 

  • That exceeded the $14,000-per-recipient gift tax annual exclusion (other than to your U.S. citizen spouse),
  • That exceeded the $148,000 annual exclusion for gifts to a noncitizen spouse,
  • That you wish to split with your spouse to take advantage of your combined $28,000 annual exclusions,
  • To a Section 529 college savings plan for your child, grandchild or other loved one and wish to accelerate up to five years’ worth of annual exclusions ($70,000) into 2016,
  • Of future interests — such as remainder interests in a trust — regardless of the amount, or
  •  

When filing isn’t required

No return is required if your gifts for the year consist solely of annual exclusion gifts, present interest gifts to a U.S. citizen spouse, qualifying educational or medical expenses paid directly to a school or health care provider, and political or charitable contributions.

If you transferred hard-to-value property, such as artwork or interests in a family-owned business, consider filing a gift tax return even if you’re not required to. Adequate disclosure of the transfer in a return triggers the statute of limitations, generally preventing the IRS from challenging your valuation more than three years after you file.

Meeting the deadline

The gift tax return deadline is the same as the income tax filing deadline. For 2016 returns, it’s April 18, 2017 (or October 16 if you file for an extension). If you owe gift tax, the payment deadline is also April 18, regardless of whether you file for an extension.

Have questions about gift tax and the filing requirements? Contact us to learn more.

© 2017

 

What you need to know about the tax treatment of ISOs

Posted by Admin Posted on Feb 10 2017

Incentive stock options allow you to buy company stock in the future at a fixed price equal to or greater than the stock’s fair market value on the grant date. If the stock appreciates, you can buy shares at a price below what they’re then trading for. However, complex tax rules apply to this type of compensation.

Current tax treatment

ISOs must comply with many rules but receive tax-favored treatment:

  • You owe no tax when ISOs are granted.
  • You owe no regular income tax when you exercise ISOs, but there could be alternative minimum tax (AMT) consequences.
  • If you sell the stock after holding the shares at least one year from the exercise date and two years from the grant date, you pay tax on the sale at your long-term capital gains rate. You also may owe the 3.8% net investment income tax (NIIT).
  • If you sell the stock before long-term capital gains treatment applies, a “disqualifying disposition” occurs and any gain is taxed as compensation at ordinary-income rates.

So if you were granted ISOs in 2016, there likely isn’t any impact on your 2016 income tax return. But if in 2016 you exercised ISOs or you sold stock you’d acquired via exercising ISOs, then it could affect your 2016 tax liability. And it’s important to properly report the exercise or sale on your return to avoid potential interest and penalties for underpayment of tax.

Future exercises and stock sales

If you receive ISOs in 2017 or already hold ISOs that you haven’t yet exercised, plan carefully when to exercise them. Waiting to exercise ISOs until just before the expiration date (when the stock value may be the highest, assuming the stock is appreciating) may make sense. But exercising ISOs earlier can be advantageous in some situations.

Once you’ve exercised ISOs, the question is whether to immediately sell the shares received or to hold on to them long enough to garner long-term capital gains treatment. The latter strategy often is beneficial from a tax perspective, but there’s also market risk to consider. For example, it may be better to sell the stock in a disqualifying disposition and pay the higher ordinary-income rate if it would avoid AMT on potentially disappearing appreciation.

The timing of the sale of stock acquired via an exercise could also positively or negatively affect your liability for higher ordinary-income tax rates, the top long-term capital gains rate and the NIIT.

Planning ahead

Keep in mind that the NIIT is part of the Affordable Care Act (ACA), and lawmakers in Washington are starting to take steps to repeal or replace the ACA. So the NIIT may not be a factor in the future. In addition, tax law changes are expected later this year that might include elimination of the AMT and could reduce ordinary and long-term capital gains rates for some taxpayers. When changes might go into effect and exactly what they’ll be is still uncertain.

If you’ve received ISOs, contact us. We can help you ensure you’re reporting everything properly on your 2016 return and evaluate the risks and crunch the numbers to determine the best strategy for you going forward.        © 2017

 

The "manufacturers' deduction" is not just for manufacturers

Posted by Admin Posted on Feb 01 2017

The Section 199 deduction is intended to encourage domestic manufacturing. In fact, it’s often referred to as the “manufacturers’ deduction.” But this potentially valuable tax break can be used by many other types of businesses besides manufacturing companies.

Sec. 199 deduction 101

The Sec. 199 deduction, also called the “domestic production activities deduction,” is 9% of the lesser of qualified production activities income or taxable income. The deduction is also limited to 50% of W-2 wages paid by the taxpayer that are allocable to domestic production gross receipts.

Yes, the deduction is available to traditional manufacturers. But businesses engaged in activities such as construction, engineering, architecture, computer software production and agricultural processing also may be eligible.

The deduction isn’t allowed in determining net self-employment earnings and generally can’t reduce net income below zero. But it can be used against the alternative minimum tax.

How income is calculated

To determine a company’s Sec. 199 deduction, its qualified production activities income must be calculated. This is the amount of domestic production gross receipts (DPGR) exceeding the cost of goods sold and other expenses allocable to that DPGR. Most companies will need to allocate receipts between those that qualify as DPGR and those that don’t — unless less than 5% of receipts aren’t attributable to DPGR.

DPGR can come from a number of activities, including the construction of real property in the United States, as well as engineering or architectural services performed stateside to construct real property. It also can result from the lease, rental, licensing or sale of qualifying production property, such as:

             Tangible personal property (for example, machinery and office equipment),

             Computer software, and

             Master copies of sound recordings.

The property must have been manufactured, produced, grown or extracted in whole or “significantly” within the United States. While each situation is assessed on its merits, the IRS has said that, if the labor and overhead incurred in the United States accounted for at least 20% of the total cost of goods sold, the activity typically qualifies.

Contact us to learn whether this potentially powerful deduction could reduce your business’s tax liability when you file your 2016 return.     © 2017

The investment interest expense deduction: Less beneficial than you might think

Posted by Admin Posted on Jan 26 2017

 

The investment interest expense deduction: Less beneficial than you might think

Investment interest — interest on debt used to buy assets held for investment, such as margin debt used to buy securities — generally is deductible for both regular tax and alternative minimum tax purposes. But special rules apply that can make this itemized deduction less beneficial than you might think.

Limits on the deduction

First, you can’t deduct interest you incurred to produce tax-exempt income. For example, if you borrow money to invest in municipal bonds, which are exempt from federal income tax, you can’t deduct the interest.

Second, and perhaps more significant, your investment interest deduction is limited to your net investment income, which, for the purposes of this deduction, generally includes taxable interest, nonqualified dividends and net short-term capital gains, reduced by other investment expenses. In other words, long-term capital gains and qualified dividends aren’t included.

However, any disallowed interest is carried forward. You can then deduct the disallowed interest in a later year if you have excess net investment income.

Changing the tax treatment

You may elect to treat net long-term capital gains or qualified dividends as investment income in order to deduct more of your investment interest. But if you do, that portion of the long-term capital gain or dividend will be taxed at ordinary-income rates.

If you’re wondering whether you can claim the investment interest expense deduction on your 2016 return, please contact us. We can run the numbers to calculate your potential deduction or to determine whether you could benefit from treating gains or dividends differently to maximize your deduction.

© 2017

Deduction for state and local sales tax benefits some, but not all, taxpayers

Posted by Admin Posted on Jan 18 2017

 

Deduction for state and local sales tax benefits some, but not all, taxpayers

The break allowing taxpayers to take an itemized deduction for state and local sales taxes in lieu of state and local income taxes was made “permanent” a little over a year ago. This break can be valuable to those residing in states with no or low income taxes or who purchase major items, such as a car or boat.

Your 2016 tax return:    How do you determine whether you can save more by deducting sales tax on your 2016 return? Compare your potential deduction for state and local income tax to your potential deduction for state and local sales tax.

Don’t worry — you don’t have to have receipts documenting all of the sales tax you actually paid during the year to take full advantage of the deduction. Your deduction can be determined by using an IRS sales tax calculator that will base the deduction on your income and the sales tax rates in your locale plus the tax you actually paid on certain major purchases (for which you will need substantiation).

2017 and beyond:    If you’re considering making a large purchase in 2017, you shouldn’t necessarily count on the sales tax deduction being available on your 2017 return. When the PATH Act made the break “permanent” in late 2015, that just meant that there’s no scheduled expiration date for it. Congress could pass legislation to eliminate the break (or reduce its benefit) at any time.

Recent Republican proposals have included elimination of many itemized deductions, and the new President has proposed putting a cap on itemized deductions. Which proposals will make it into tax legislation in 2017 and when various provisions will be signed into law and go into effect is still uncertain.

Questions about the sales tax deduction or other breaks that might help you save taxes on your 2016 tax return? Or about the impact of possible tax law changes on your 2017 tax planning? Contact us — we can help you maximize your 2016 savings and effectively plan for 2017.             © 2017

 

Help prevent tax identity theft by filing early

Posted by Admin Posted on Jan 11 2017

Do you start thinking about filing your tax return when it gets close to the April deadline? You might even want to file for an extension so you don’t have to send your return in until October. But filing early can help protect you from tax identity theft, a growing scam in which thieves file bogus returns using victims’ Social Security numbers. Tax ID theft can cause big headaches and delay legitimate refunds. But if you file first, it will be the return filed by a potential thief that will be rejected, not yours. The IRS begins accepting 2016 returns on Jan. 23.

2017 Q1 Tax Calendar: Key deadlines for businesses and other employers

Posted by Admin Posted on Jan 03 2017

 

2017 Q1 tax calendar:
Key deadlines for businesses and other employers

Here are some of the key tax-related deadlines affecting businesses and other employers during the first quarter of 2017. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

January 31

 

  • File 2016 Forms W-2, “Wage and Tax Statement,” with the Social Security Administration and provide copies to your employees.
  • File 2016 Forms 1099-MISC, “Miscellaneous Income,” reporting nonemployee compensation payments in Box 7 with the IRS, and provide copies to recipients.
  • File Form 941, “Employer’s Quarterly Federal Tax Return,” to report Medicare, Social Security and income taxes withheld in the fourth quarter of 2016. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until February 10 to file the return. Employers that have an estimated annual employment tax liability of $1,000 or less may be eligible to file Form 944,“Employer’s Annual Federal Tax Return.”
  • File Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return,” for 2016. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it’s more than $500, you must deposit it. However, if you deposited the tax for the year in full and on time, you have until February 10 to file the return.

 

  • February 28

File 2016 Forms 1099-MISC with the IRS and provide copies to recipients. (Note that Forms 1099-MISC reporting nonemployee compensation in Box 7 must be filed by January 31, beginning with 2016 forms filed in 2017.)

 

March 15

If a calendar-year partnership or S corporation, file or extend your 2016 tax return. If the return isn’t extended, this is also the last day to make 2016 contributions to pension and profit-sharing plans.

© 2016

 

Few changes to retirement plan contribution limits for 2017

Posted by Admin Posted on Jan 03 2017

Few changes to retirement plan contribution limits for 2017

Retirement plan contribution limits are indexed for inflation, but with inflation remaining low, most of the limits remain unchanged for 2017. The only limit that has increased from the 2016 level is for contributions to defined contribution plans, which has gone up by $1,000.

Type of limit

2017 limit

Elective deferrals to 401(k), 403(b), 457(b)(2) and 457(c)(1) plans

$18,000

Contributions to defined contribution plans

$54,000

Contributions to SIMPLEs

$12,500

Contributions to IRAs

$5,500

Catch-up contributions to 401(k), 403(b), 457(b)(2) and 457(c)(1) plans

$6,000

Catch-up contributions to SIMPLEs

$3,000

Catch-up contributions to IRAs

$1,000

 

Nevertheless, if you’re not already maxing out your contributions, you still have an opportunity to save more in 2017. And if you turn age 50 in 2017, you can begin to take advantage of catch-up contributions.

 

However, keep in mind that additional factors may affect how much you’re allowed to contribute (or how much your employer can contribute on your behalf). For example, income-based limits may reduce or eliminate your ability to make Roth IRA contributions or to make deductible traditional IRA contributions. If you have questions about how much you can contribute to tax-advantaged retirement plans in 2017, check with us.

 

© 2016

 

 

 

Finding the right tax-advantaged account to fund your health care expenses

Posted by Admin Posted on June 14 2016

With health care costs continuing to climb, tax-friendly ways to pay for these expenses are more attractive than ever. Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs) and Health Reimbursement Accounts (HRAs) all provide opportunities for tax-advantaged funding of health care expenses. But what’s the difference between these three accounts? Here’s an overview:

HSA. If you’re covered by a qualified high-deductible health plan (HDHP), you can contribute pretax income to an employer-sponsored HSA — or make deductible contributions to an HSA you set up yourself — up to $3,350 for self-only coverage and $6,750 for family coverage for 2016. Plus, if you’re age 55 or older, you may contribute an additional $1,000.

You own the account, which can bear interest or be invested, growing tax-deferred similar to an IRA. Withdrawals for qualified medical expenses are tax-free, and you can carry over a balance from year to year.

FSA. Regardless of whether you have an HDHP, you can redirect pretax income to an employer-sponsored FSA up to an employer-determined limit — not to exceed $2,550 in 2016. The plan pays or reimburses you for qualified medical expenses.

What you don’t use by the plan year’s end, you generally lose — though your plan might allow you to roll over up to $500 to the next year. Or it might give you a 2 1/2-month grace period to incur expenses to use up the previous year’s contribution. If you have an HSA, your FSA is limited to funding certain “permitted” expenses.

HRA. An HRA is an employer-sponsored account that reimburses you for medical expenses. Unlike an HSA, no HDHP is required. Unlike an FSA, any unused portion typically can be carried forward to the next year. And there’s no government-set limit on HRA contributions. But only your employer can contribute to an HRA; employees aren’t allowed to contribute.

Questions? We’d be happy to answer them — or discuss other ways to save taxes in relation to your health care expenses.

© 2016

Stock market volatility can cut tax on a Roth IRA conversion

Posted by Admin Posted on June 01 2016

This year’s stock market volatility can be unnerving, but if you have a traditional IRA, this volatility may provide a valuable opportunity: It can allow you to convert your traditional IRA to a Roth IRA at a lower tax cost.

Traditional IRAs

Contributions to a traditional IRA may be deductible, depending on your modified adjusted gross income (MAGI) and whether you participate in a qualified retirement plan, such as a 401(k). Funds in the account can grow tax-deferred.

On the downside, you generally must pay income tax on withdrawals, and, with only a few exceptions, you’ll face a penalty if you withdraw funds before age 59½ — and an even larger penalty if you don’t take your required minimum distributions (RMDs) after age 70½.

Roth IRAs

Roth IRA contributions, on the other hand, are never deductible. But withdrawals — including earnings — are tax-free as long as you’re age 59½ or older and the account has been open at least five years. In addition, you’re allowed to withdraw contributions at any time tax- and penalty-free.

There are also estate planning advantages to a Roth IRA. No RMD rules apply, so you can leave funds growing tax-free for as long as you wish. Then distributions to whoever inherits your Roth IRA will be income-tax-free as well.

The ability to contribute to a Roth IRA, however, is subject to limits based on your MAGI. Fortunately, anyone is eligible to convert a traditional IRA to a Roth. The catch? You’ll have to pay income tax on the amount you convert.

Saving tax

This is where the “benefit” of stock market volatility comes in. If your traditional IRA has lost value, converting to a Roth now rather than later will minimize your tax hit. Plus, you’ll avoid tax on future appreciation when the market stabilizes.

Of course, there are more ins and outs of IRAs that need to be considered before executing a Roth IRA conversion. If your interest is piqued, discuss with us whether a conversion is right for you.

© 2016

How many employees does your business have for ACA purposes?

Posted by Admin Posted on May 31 2016

It seems like a simple question: How many full-time workers does your business employ? But, when it comes to the Affordable Care Act (ACA), the answer can be complicated.

The number of workers you employ determines whether your organization is an applicable large employer (ALE). Just because your business isn’t an ALE one year doesn’t mean it won’t be the next year.

50 is the magic number

Your business is an ALE if you had an average of 50 or more full time employees — including full-time equivalent employees — during the prior calendar year. Therefore, you’ll count the number of full time employees you have during 2016 to determine if you’re an ALE for 2017.

Under the law, an ALE:

  • Is subject to the employer shared responsibility provisions with their potential penalties, and
  • Must comply with certain information reporting requirements.

Calculating full-timers

A full-timer is generally an employee who works on average at least 30 hours per week, or at least 130 hours in a calendar month.

A full-time equivalent involves more than one employee, each of whom individually isn’t a full-timer, but who, in combination, are equivalent to a full-time employee.

Seasonal workers

If you’re hiring employees for summer positions, you may wonder how to count them. There’s an exception for workers who perform labor or services on a seasonal basis. An employer isn’t considered an ALE if its workforce exceeds 50 or more full-time employees in a calendar year because it employed seasonal workers for 120 days or less.

However, while the IRS states that retail workers employed exclusively for the holiday season are considered seasonal workers, the situation isn’t so clear cut when it comes to summer help. It depends on a number of factors.

We can help

Contact us for help calculating your full-time employees, including how to handle summer hires. We can help ensure your business complies with the ACA.

© 2016

How summer day camp can save you taxes

Posted by Admin Posted on May 17 2016

Although the kids might still be in school for a few more weeks, summer day camp is rapidly approaching for many families. If yours is among them, did you know that sending your child to day camp might make you eligible for a tax credit?

The power of tax credits

Day camp (but not overnight camp) is a qualified expense under the child and dependent care credit, which is worth 20% of qualifying expenses (more if your adjusted gross income is less than $43,000), subject to a cap. For 2016, the maximum expenses allowed for the credit are $3,000 for one qualifying child and $6,000 for two or more.

Remember that tax credits are particularly valuable because they reduce your tax liability dollar-for-dollar — $1 of tax credit saves you $1 of taxes. This differs from deductions, which simply reduce the amount of income subject to tax. For example, if you’re in the 28% tax bracket, $1 of deduction saves you only $0.28 of taxes. So it’s important to take maximum advantage of the tax credits available to you.

Rules to be aware of

A qualifying child is generally a dependent under age 13. (There’s no age limit if the dependent child is unable physically or mentally to care for him- or herself.) Special rules apply if the child’s parents are divorced or separated or if the parents live apart.

Eligible costs for care must be work-related, which means that the child care is needed so that you can work or, if you’re currently unemployed, look for work. However, if your employer offers a child and dependent care Flexible Spending Account (FSA) that you participate in, you can’t use expenses paid from or reimbursed by the FSA to claim the credit.

Are you eligible?

These are only some of the rules that apply to the child and dependent care credit. So please contact us to determine whether you’re eligible.

© 2016

Putting your home on the market? Understand the tax consequences of a sale

Posted by Admin Posted on May 10 2016

As the school year draws to a close and the days lengthen, you may be one of the many homeowners who are getting ready to put their home on the market. After all, in many locales, summer is the best time of year to sell a home. But it’s important to think not only about the potential profit (or loss) from a sale, but also about the tax consequences.

Gains

If you’re selling your principal residence, you can exclude up to $250,000 ($500,000 for joint filers) of gain — as long as you meet certain tests. Gain that qualifies for exclusion also is excluded from the 3.8% net investment income tax.

To support an accurate tax basis, be sure to maintain thorough records, including information on your original cost and subsequent improvements, reduced by any casualty losses and depreciation claimed based on business use. Keep in mind that gain that’s allocable to a period of “nonqualified” use generally isn’t excludable.

Losses

A loss on the sale of your principal residence generally isn’t deductible. But if part of your home is rented out or used exclusively for your business, the loss attributable to that portion may be deductible.

Second homes

If you’re selling a second home, be aware that it won’t be eligible for the gain exclusion. But if it qualifies as a rental property, it can be considered a business asset, and you may be able to defer tax on any gains through an installment sale or a Section 1031 exchange. Or you may be able to deduct a loss.

Learn more

If you’re considering putting your home on the market, please contact us to learn more about the potential tax consequences of a sale.

© 2016

QSB stock offers 2 valuable tax benefits

Posted by Admin Posted on May 03 2016

By investing in qualified small business (QSB) stock, you can diversify your portfolio and enjoy two valuable tax benefits:

1. Tax-free gain rollovers. If within 60 days of selling QSB stock you buy other QSB stock with the proceeds, you can defer the tax on your gain until you dispose of the new stock. The rolled-over gain reduces your basis in the new stock. For determining long-term capital gains treatment, the new stock’s holding period includes the holding period of the stock you sold.

2. Exclusion of gain. Generally, taxpayers selling QSB stock are allowed to exclude up to 50% of their gain if they’ve held the stock for more than five years. But, depending on the acquisition date, the exclusion may be greater: The exclusion is 75% for stock acquired after Feb. 17, 2009, and before Sept. 28, 2010, and 100% for stock acquired on or after Sept. 28, 2010. The acquisition deadline for the 100% gain exclusion had been Dec. 31, 2014, but Congress has made this exclusion permanent.

The taxable portion of any QSB gain will be subject to the lesser of your ordinary-income rate or 28%, rather than the normal long-term gains rate. Thus, if the 28% rate and the 50% exclusion apply, the effective rate on the QSB gain will be 14% (28% × 50%).

Keep in mind that these tax benefits are subject to additional requirements and limits. For example, to be a QSB, a business must be engaged in an active trade or business and must not have assets that exceed $50 million.

Consult us for more details before buying or selling QSB stock. And be sure to consider the nontax factors as well, such as your risk tolerance, time horizon and overall investment goals.

© 2016

Unexpected retirement plan disqualification can trigger serious tax problems

Posted by Admin Posted on Apr 26 2016

It’s not unusual for the IRS to conduct audits of qualified employee benefit plans, including 401(k)s. Plan sponsors are expected to stay in compliance with numerous, frequently changing federal laws and regulations.

For example, have you identified all employees eligible for your 401(k) plan and given them the opportunity to make deferral elections? Are employee contributions limited to the amounts allowed under tax law for the calendar year? Does your 401(k) plan pass nondiscrimination tests? Traditional 401(k) plans must be regularly tested to ensure that the contributions don’t discriminate in favor of highly compensated employees.

If the IRS uncovers compliance errors and the plan sponsor doesn’t fix them, the plan could be disqualified.

What happens if qualified status is lost?

Tax law and administrative details that may seem trivial or irrelevant may actually be critical to maintaining a plan’s qualified status. If a plan loses its tax-exempt status, each participant is taxed on the value of his or her vested benefits as of the disqualification date. That can result in large (and completely unexpected) tax liabilities for participants.

In addition, contributions and earnings that occur after the disqualification date aren’t tax-free. They must be included in participants’ taxable incomes. The employer’s tax deductions for plan contributions are also at risk. There are also penalties and fees that can be devastating to a business.

Finally, withdrawals made after the disqualification date cannot be rolled over into other tax-favored retirement plans or accounts (such as IRAs).

Voluntary corrections

The good news is that 401(k) plan errors can often be voluntarily corrected. We can help determine if changes should be made to your company’s qualified plan to achieve and maintain compliance. Contact us for more information.

© 2016

Why it’s time to start tax planning for 2016

Posted by Admin Posted on Apr 19 2016

Now that the April 18 income tax filing deadline has passed, it may be tempting to set aside any thought of taxes until year end is approaching. But don’t succumb. For maximum tax savings, now is the time to start tax planning for 2016.

More opportunities

A tremendous number of variables affect your overall tax liability for the year. Starting to look at these variables early in the year can give you more opportunities to reduce your 2016 tax bill.

For example, the timing of income and deductible expenses can affect both the rate you pay and when you pay. By regularly reviewing your year-to-date income, expenses and potential tax, you may be able to time income and expenses in a way that reduces, or at least defers, your tax liability.

In other words, tax planning shouldn’t be just a year-end activity.

More certainty

In recent years, planning early has been a challenge because there were a lot of expired tax breaks where it was uncertain whether they’d be extended for the year. But the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) extended a wide variety of tax breaks through 2016, or, in some cases, later. It also made many breaks permanent.

For example, the PATH Act made permanent the deduction for state and local sales taxes in lieu of state and local income taxes and tax-free IRA distributions to charities for account holders age 70½ or older. So you don’t have to wait and see whether these breaks will be available for the year like you did in 2014 and 2015.

Getting started

To get started on your 2016 tax planning, contact us. We can discuss what strategies you should be implementing now and throughout the year to minimize your tax liability.

© 2016

What 2015 tax records can you toss once you’ve filed your return?

Posted by Admin Posted on Apr 13 2016

The short answer is: none. You need to hold on to all of your 2015 tax records for now. But this is a great time to take a look at your records for previous tax years and determine what you can purge.

The 3-year rule

At minimum, keep tax records for as long as the IRS has the ability to audit your return or assess additional taxes, which generally is three years after you file your return. This means you likely can shred and toss most records related to tax returns for 2012 and earlier years.

What to keep longer

You’ll need to hang on to certain records beyond the statute of limitations:

  • Keep tax returns themselves forever, so you can prove to the IRS that you actually filed. (There’s no statute of limitations for an audit if you didn’t file a return.)
  • For W-2 forms, consider holding them until you begin receiving Social Security benefits. Why? In case a question arises regarding your work record or earnings for a particular year.
  • For records related to real estate or investments, keep documents as long as you own the asset, plus three years after you sell it and report the sale on your tax return.

Just a starting point

This is only a sampling of retention guidelines for tax-related documents. If you have questions about other documents, please contact us.

© 2016

Filing for an extension isn’t without perils

Posted by Admin Posted on Apr 06 2016

Yes, the federal income tax filing deadline is slightly later than usual this year — April 18 — but it’s now nearly upon us. So, if you haven’t filed your return yet, you may be thinking about an extension.

Extension deadlines

Filing for an extension allows you to delay filing your return until the applicable extension deadline:

  • Individuals — October 17, 2016
  • Trusts and estates — September 15, 2016

The perils

While filing for an extension can provide relief from April 18 deadline stress, it’s important to consider the perils:

  • If you expect to owe tax, keep in mind that, to avoid potential interest and penalties, you still must (with a few exceptions) pay any tax due by April 18.
  • If you expect a refund, remember that you’re simply extending the amount of time your money is in the government’s pockets rather than your own.

A tax-smart move?

Filing for an extension can still be tax-smart if you’re missing critical documents or you face unexpected life events that prevent you from devoting sufficient time to your return right now. Please contact us if you need help or have questions about avoiding interest and penalties.

© 2016

Entrepreneurs: What can you deduct and when?

Posted by Admin Posted on Mar 29 2016

Starting a new business is an exciting time. But before you even open the doors, you generally have to spend a lot of money. You may have to train workers and pay for rent, utilities, marketing and more.

Entrepreneurs are often unaware that many expenses incurred by start-ups can’t be deducted right away.

How expenses are handled on your tax return

When planning a new enterprise, remember these key points:

  • Start-up costs include those incurred or paid while creating an active trade or business — or investigating the creation or acquisition of one. Organizational costs include the costs of creating a corporation or partnership.
  • Under the federal tax code, taxpayers can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs. The $5,000 deduction is reduced dollar-for-dollar by the amount by which your total start-up or organizational costs exceed $50,000. Any remaining costs must be amortized over 180 months on a straight-line basis.
  • No deductions or amortization write-offs are allowed until the year when “active conduct” of your new business commences. That usually means the year when the enterprise has all the pieces in place to begin earning revenue. To determine if a taxpayer meets this test, the IRS and courts will generally ask: Did the taxpayer undertake the activity intending to earn a profit? Was the taxpayer regularly and actively involved? Has the activity actually begun?

An important decision

Time may be of the essence if you have start-up expenses that you’d like to deduct this year. You need to decide whether to take the elections described above. Recordkeeping is important. Contact us about your business start-up plans. We can help with the tax and other aspects of your new venture.

© 2016

Tips for deducting losses from a disaster, fire or theft

Posted by Admin Posted on Mar 22 2016

If you suffer damage to your home or personal property, you may be able to deduct these “casualty” losses on your federal income tax return. A casualty is a sudden, unexpected or unusual event, such as a natural disaster (hurricane, tornado, flood, earthquake, etc.), fire, accident, theft or vandalism. A casualty loss doesn’t include losses from normal wear and tear or progressive deterioration from age or termite damage.

Here are some things you should know about deducting casualty losses:

When to deduct. Generally, you must deduct a casualty loss in the year it occurred. However, if you have a loss from a federally declared disaster area, you may have the option to deduct the loss on an amended return for the immediately preceding tax year.

Amount of loss. Your loss is generally the lesser of 1) your adjusted basis in the property before the casualty (typically, the amount you paid for it), or 2) the decrease in fair market value of the property as a result of the casualty. This amount must be reduced by any insurance or other reimbursement you received or expect to receive. (If the property was insured, you must have filed a timely claim for reimbursement of your loss.)

$100 rule. After you’ve figured your casualty loss on personal-use property, you must reduce that loss by $100. This reduction applies to each casualty loss event during the year. It doesn’t matter how many pieces of property are involved in an event.

10% rule. You must reduce the total of all your casualty or theft losses on personal-use property for the year by 10% of your adjusted gross income (AGI). In other words, you can deduct these losses only to the extent they exceed 10% of your AGI.

Have questions about deducting casualty losses? Contact us!

© 2016

3 income-tax-smart gifting strategies

Posted by Admin Posted on Mar 16 2016

If your 2015 tax liability is higher than you’d hoped and you’re ready to transfer some assets to your loved ones, now may be the time to get started. Giving away assets will, of course, help reduce the size of your taxable estate. But with income-tax-smart gifting strategies, it also can reduce your incometax liability — and perhaps your family’s tax liability overall:

1. Gift appreciated or dividend-producing assets to loved ones eligible for the 0% rate. The 0% rate applies to both long-term gain and qualified dividends that would be taxed at 10% or 15% based on the taxpayer’s ordinary-income rate.

2. Gift appreciated or dividend-producing assets to loved ones in lower tax brackets. Even if no one in your family is eligible for the 0% rate, transferring assets to loved ones in a lower income tax bracket than you can still save taxes overall for your family. This strategy can be even more powerful if you’d be subject to the 3.8% net investment income tax on dividends from the assets or if you sold the assets.

3. Don’t gift assets that have declined in value. Instead, sell the assets so you can take the tax loss. Then gift the sale proceeds.

If you’re considering making gifts to someone who’ll be under age 24 on December 31, make sure he or she won’t be subject to the “kiddie tax.” And if your estate is large enough that gift and estate taxes are a concern, you need to think about those taxes, too. To learn more about tax-smart gifting, contact us.

© 2016

Make a 2015 contribution to an IRA before time runs out

Posted by Admin Posted on Mar 08 2016

Tax-advantaged retirement plans allow your money to grow tax-deferred — or, in the case of Roth accounts, tax-free. But annual contributions are limited by tax law, and any unused limit can’t be carried forward to make larger contributions in future years. So it’s a good idea to use up as much of your annual limits as possible. Have you maxed out your 2015 limits?

April 18 deadline

While it’s too late to add to your 2015 401(k) contributions, there’s still time to make 2015 IRA contributions. The deadline is April 18, 2016. The limit for total contributions to all IRAs generally is $5,500 ($6,500 if you were age 50 or older on December 31, 2015).

A traditional IRA contribution also might provide some savings on your 2015 tax bill. If you and your spouse don’t participate in an employer-sponsored plan such as a 401(k) — or you do but your income doesn’t exceed certain limits — your traditional IRA contribution is fully deductible on your 2015 tax return.

Evaluate your options

If you don’t qualify for a deductible traditional IRA contribution, see if you qualify to make a Roth IRA contribution. If you exceed the applicable income-based limits, a nondeductible traditional IRA contribution may even make sense. Neither of these options will reduce your 2015 tax liability, but they still provide valuable opportunities for tax-deferred or tax-free growth.

We can help you determine which type of contributions you’re eligible for and what makes sense for you.

© 2016

2 benefits-related tax credits just for small businesses

Posted by Admin Posted on Mar 01 2016

Tax credits reduce tax liability dollar-for-dollar, making them particularly valuable. Two valuable credits are especially for small businesses that offer certain employee benefits. Can you claim one — or both — of them on your 2015 return?

Retirement plan credit

Small employers (generally those with 100 or fewer employees) that create a retirement plan may be eligible for a $500 credit per year for three years. The credit is limited to 50% of qualified startup costs.

Of course, you generally can deduct contributions you make to your employees’ accounts under the plan. And your employees enjoy the benefit of tax-advantaged retirement saving.

Small-business health care credit

The maximum credit is 50% of group health coverage premiums paid by the employer, provided it contributes at least 50% of the total premium or of a benchmark premium. For 2015, the full credit is available for employers with 10 or fewer full-time equivalent employees (FTEs) and average annual wages of $25,000 or less per employee. Partial credits are available on a sliding scale to businesses with fewer than 25 FTEs and average annual wages of less than $52,000.

To qualify for the credit, online enrollment in the Small Business Health Options Program (SHOP) generally is required. In addition, the credit can be taken for only two years, and they must be consecutive. (Credits taken before 2014 don’t count, however.)

Take all the credits you’re entitled to

If you’re not sure whether you’re eligible for these credits, we can help. We can also advise you on what other tax credits you might be eligible for when you file your 2015 return.

© 2016

What’s your charitable donation deduction?

Posted by Admin Posted on Feb 23 2016

When it comes to deducting charitable gifts, all donations are not created equal. As you file your 2015 return and plan your charitable giving for 2016, it’s important to keep in mind the available deduction:

Cash. This includes not just actual cash but gifts made by check, credit card or payroll deduction. You may deduct 100%.

Ordinary-income property. Examples include stocks and bonds held one year or less, inventory, and property subject to depreciation recapture. You generally may deduct only the lesser of fair market value or your tax basis.

Long-term capital gains property. You may deduct the current fair market value of appreciated stocks and bonds held more than one year.

Tangible personal property. Your deduction depends on the situation:

  • If the property isn’t related to the charity’s tax-exempt function (such as an antique donated for a charity auction), your deduction is limited to your basis.
  • If the property is related to the charity’s tax-exempt function (such as an antique donated to a museum for its collection), you can deduct the fair market value.

Vehicle. Unless it’s being used by the charity, you generally may deduct only the amount the charity receives when it sells the vehicle.

Use of property. Examples include use of a vacation home and a loan of artwork. Generally, you receive no deduction because it isn’t considered a completed gift.

Services. You may deduct only your out-of-pocket expenses, not the fair market value of your services. You can deduct 14 cents per charitable mile driven.

Finally, be aware that your annual charitable donation deductions may be reduced if they exceed certain income-based limits. If you receive some benefit from the charity, your deduction must be reduced by the benefit’s value. Various substantiation requirements also apply. If you have questions about how much you can deduct, let us know.

© 2016

How to max out education-related tax breaks

Posted by Admin Posted on Feb 16 2016

If there was a college student in your family last year, you may be eligible for some valuable tax breaks on your 2015 return. To max out your education-related breaks, you need to see which ones you’re eligible for and then claim the one(s) that will provide the greatest benefit. In most cases you can take only one break per student, and, for some breaks, only one per tax return.

Credits vs. deductions

Tax credits can be especially valuable because they reduce taxes dollar-for-dollar; deductions reduce only the amount of income that’s taxed. A couple of credits are available for higher education expenses:

  1. The American Opportunity credit — up to $2,500 per year per student for qualifying expenses for the first four years of postsecondary education.
  2. The Lifetime Learning credit — up to $2,000 per tax return for postsecondary education expenses, even beyond the first four years.

But income-based phaseouts apply to these credits.

If you’re eligible for the American Opportunity credit, it will likely provide the most tax savings. If you’re not, the Lifetime Learning credit isn’t necessarily the best alternative.

Despite the dollar-for-dollar tax savings credits offer, you might be better off deducting up to $4,000 of qualified higher education tuition and fees. Because it’s an above-the-line deduction, it reduces your adjusted gross income, which could provide additional tax benefits. But income-based limits also apply to the tuition and fees deduction.

How much can your family save?

Keep in mind that, if you don’t qualify for breaks for your child’s higher education expenses because your income is too high, your child might. Many additional rules and limits apply to the credits and deduction, however. To learn which breaks your family might be eligible for on your 2015 tax returns — and which will provide the greatest tax savings — please contact us.

© 2016

Deduct home office expenses — if you’re eligible

Posted by Admin Posted on Feb 09 2016

Today it’s becoming more common to work from home. But just because you have a home office space doesn’t mean you can deduct expenses associated with it.

Eligibility requirements

If you’re an employee, your use of your home office must be for your employer’s convenience, not just your own. If you’re self-employed, generally your home office must be your principal place of business, though there are exceptions.

Whether you’re an employee or self-employed, the space must be used regularly (not just occasionally) and exclusively for business purposes. If, for example, your home office is also a guest bedroom or your children do their homework there, you can’t deduct the expenses associated with that space.

A valuable break

If you are eligible, the home office deduction can be a valuable tax break. You may be able to deduct a portion of your mortgage interest, property taxes, insurance, utilities and certain other expenses, as well as the depreciation allocable to the office space.

Or you can take the simpler “safe harbor” deduction in lieu of calculating, allocating and substantiating actual expenses. The safe harbor deduction is capped at $1,500 per year, based on $5 per square foot up to a maximum of 300 square feet.

More considerations

For employees, home office expenses are a miscellaneous itemized deduction. This means you’ll enjoy a tax benefit only if these expenses plus your other miscellaneous itemized expenses exceed 2% of your adjusted gross income (AGI).

If, however, you’re self-employed, you can deduct eligible home office expenses against your self-employment income.

Finally, be aware that we’ve covered only a few of the rules and limits here. If you think you may be eligible for the home office deduction, contact us for more information.

© 2016

Extension means businesses can take bonus depreciation on their 2015 returns – but should they?

Posted by Admin Posted on Feb 03 2016

Bonus depreciation allows businesses to recover the costs of depreciable property more quickly by claiming additional first-year depreciation for qualified assets. The Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) extended 50% bonus depreciation through 2017.

The break had expired December 31, 2014, for most assets. So the PATH Act may give you a tax-saving opportunity for 2015 you wouldn’t otherwise have had. Many businesses will benefit from claiming this break on their 2015 returns. But you might save more tax in the long run if you forgo it.

What assets are eligible

For 2015, new tangible property with a recovery period of 20 years or less (such as office furniture and equipment) qualifies for bonus depreciation. So does off-the-shelf computer software, water utility property and qualified leasehold-improvement property.

Acquiring the property in 2015 isn’t enough, however. You must also have placed the property in service in 2015.

Should you or shouldn’t you?

If you’re eligible for bonus depreciation and you expect to be in the same or a lower tax bracket in future years, taking bonus depreciation (to the extent you’ve exhausted any Section 179 expensing available to you) is likely a good tax strategy. It will defer tax, which generally is beneficial.

But if your business is growing and you expect to be in a higher tax bracket in the near future, you may be better off forgoing bonus depreciation. Why? Even though you’ll pay more tax for 2015, you’ll preserve larger depreciation deductions on the property for future years, when they may be more powerful — deductions save more tax when you’re in a higher bracket.

We can help

If you’re unsure whether you should take bonus depreciation on your 2015 return — or you have questions about other depreciation-related breaks, such as Sec. 179 expensing — contact us.

© 2016

File early to avoid tax identity theft

Posted by Admin Posted on Jan 26 2016

If you’re like many Americans, you may not start thinking about filing your tax return until the April 15deadline (this year, April 18) is just a few weeks — or perhaps even just a few days — away. But there’s another date you should keep in mind: January 19. That’s the date the IRS began accepting 2015 returns, and filing as close to that date as possible could protect you from tax identity theft.

How filing early helps

In this increasingly common scam, thieves use victims’ personal information to file fraudulent tax returns electronically and claim bogus refunds. When the real taxpayers file, they’re notified that they’re attempting to file duplicate returns.

Tax identity theft can cause major headaches to straighten out and significantly delay legitimate refunds. But if you file first, it will be the thief who’s filing the duplicate return, not you.

Another key date

Of course you need to have your W-2s and 1099s to file. So another key date to be aware of is February 1 — the deadline for employers to issue 2015 W-2s to employees and, generally, for businesses to issue 1099s to recipients of any 2015 interest, dividend or reportable miscellaneous income payments.

An added bonus

Let us know if you have questions about tax identity theft or would like help filing your 2015 return early. An added bonus of filing early, if you’ll be getting a refund, is enjoying that refund sooner.

© 2016

Why investing in small-business stock may make more tax sense than ever

Posted by Admin Posted on Jan 20 2016

By purchasing stock in certain small businesses, you can not only diversify your portfolio but also enjoy preferential tax treatment. And under a provision of the tax extenders act signed into law this past December (the PATH Act), such stock is now even more attractive from a tax perspective.

100% exclusion from gain

The PATH Act makes permanent the exclusion of 100% of the gain on the sale or exchange of qualified small business (QSB) stock acquired and held for more than five years. The 100% exclusion is available for QSB stock acquired after September 27, 2010. (Smaller exclusions are available for QSB stock acquired earlier.)

The act also permanently extends the rule that eliminates QSB stock gain as a preference item for alternative minimum tax (AMT) purposes.

What stock qualifies?

A QSB is generally a domestic C corporation that has gross assets of no more than $50 million at any time (including when the stock is issued) and uses at least 80% of its assets in an active trade or business.

Many factors to consider

Of course tax consequences are only one of the many factors that should be considered before making an investment. Also, keep in mind that the tax benefits discussed here are subject to additional requirements and limits. Consult us for more details.

© 2016

Could you save more by deducting state and local sales taxes?

Posted by Admin Posted on Jan 13 2016

For the last several years, taxpayers have been allowed to take an itemized deduction for state and local sales taxes in lieu of state and local income taxes. This break can be valuable to those residing in states with no or low income taxes or who purchase major items, such as a car or boat. But it had expired December 31, 2014. Now the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) has made the break permanent.

So see if you can save more by deducting sales tax on your 2015 return. Don’t worry — you don’t have to have receipts documenting all of the sales tax you actually paid during the year to take full advantage of the deduction. Your deduction can be determined by using an IRS sales tax calculator that will base the deduction on your income and the sales tax rates in your locale plus the tax you actually paid on certain major purchases.

Questions about this or other PATH Act breaks that might help you save taxes on your 2015 tax return? Contact us — we can help you identify which tax breaks will provide you the maximum benefit.

© 2016

2 extended credits can save businesses taxes on their 2015 returns

Posted by Admin Posted on Jan 07 2016

The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) extended a wide variety of tax breaks, in some cases making them permanent. Extended breaks include many tax credits — which are particularly valuable because they reduce taxes dollar-for-dollar (compared to deductions, for example, which reduce only the amount of income that’s taxed).

Here are two extended credits that can save businesses taxes on their 2015 returns: 

1. The research credit. This credit (also commonly referred to as the “research and development” or “research and experimentation” credit) has been made permanent. It rewards businesses that increase their investments in research. The credit, generally equal to a portion of qualified research expenses, is complicated to calculate, but the tax savings can be substantial.

2. The Work Opportunity credit. This credit has been extended through 2019. It’s available for hiring from certain disadvantaged groups, such as food stamp recipients, ex-felons and veterans who’ve been unemployed for four weeks or more. The maximum credit ranges from $2,400 for most groups to $9,600 for disabled veterans who’ve been unemployed for six months or more.

Want to know if you might qualify for either of these credits? Or what other breaks extended by the PATH Act could save taxes on your 2015 return? Contact us!

© 2016

No changes to retirement plan contributions for 2016

Posted by Admin Posted on Jan 04 2016

Retirement plan contribution limits are indexed for inflation, but with inflation remaining low, the limits remain unchanged for 2016:

Type of limit

2016 limit

Elective deferrals to 401(k), 403(b), 457(b)(2) and 457(c)(1) plans

$18,000

Contributions to defined contribution plans

$53,000

Contributions to SIMPLEs

$12,500

Contributions to IRAs

$5,500

Catch-up contributions to 401(k), 403(b), 457(b)(2) and 457(c)(1) plans

$6,000

Catch-up contributions to SIMPLEs

$3,000

Catch-up contributions to IRAs

$1,000

Nevertheless, if you’re not already maxing out your contributions, you still have an opportunity to save more in 2016. And if you turn age 50 in 2016, you can begin to take advantage of catch-up contributions.

However, keep in mind that additional factors may affect how much you’re allowed to contribute (or how much your employer can contribute on your behalf). For example, income-based limits may reduce or eliminate your ability to make Roth IRA contributions or to make deductible traditional IRA contributions. If you have questions about how much you can contribute to tax-advantaged retirement plans in 2016, check with us.

© 2015

Congress passes “extenders” legislation reviving expired tax breaks for 2015

Posted by Admin Posted on Dec 29 2015

Many valuable tax breaks expired December 31, 2014. For them to be available for 2015, Congress had to pass legislation extending them — which it now has done, with the Protecting Americans from Tax Hikes Act of 2015 (PATH Act), signed into law by the President on December 18. The PATH Act not only revives expired breaks for 2015 but also makes many breaks permanent, generally extends the rest through either 2016 or 2019, and enhances some breaks.

Here is a sampling of extended breaks that may benefit you or your business:

  • The deduction for state and local sales taxes in lieu of state and local income taxes (extended permanently),
  • Tax-free IRA distributions to charities (extended permanently),
  • Bonus depreciation (extended through 2019, but with reduced benefits for 2018 and 2019),
  • Enhanced Section 179 expensing (extended permanently and further enhanced beginning in 2016),
  • Accelerated depreciation for qualified leasehold-improvement, restaurant and retail improvement property (extended permanently),
  • The research tax credit (extended permanently and enhanced beginning in 2016),
  • The Work Opportunity credit (extended through 2019 and enhanced beginning in 2016), and
  • Various energy-related tax incentives (extended through 2016).

 

Please contact us for more information on these and other breaks under the PATH Act. Keep in mind that, for you to take maximum advantage of certain extended breaks on your 2015 tax return, quick action may be required.

© 2015

7 last-minute tax-saving tips

Posted by Admin Posted on Dec 17 2015

The year is quickly drawing to a close, but there’s still time to take steps to reduce your 2015 tax liability — you just must act by December 31:

  1. Pay your 2015 property tax bill that’s due in early 2016.
  2. Make your January 1 mortgage payment.
  3. Incur deductible medical expenses (if your deductible medical expenses for the year already exceed the applicable floor).
  4. Pay tuition for academic periods that will begin in January, February or March of 2016 (if it will make you eligible for a tax credit).
  5. Donate to your favorite charities.
  6. Sell investments at a loss to offset capital gains you’ve recognized this year.
  7. Ask your employer if your bonus can be deferred until January.

 

Keep in mind, however, that in certain situations these strategies might not make sense. For example, if you’ll be subject to the alternative minimum tax this year or be in a higher tax bracket next year, taking some of these steps could have undesirable results.

If you’re unsure whether these steps are right for you, consult us before taking action.

© 2015

Avoid a 50% penalty: Take retirement plan RMDs by December 31

Posted by Admin Posted on Dec 16 2015

After you reach age 70½, you must take annual required minimum distributions (RMDs) from your IRAs (except Roth IRAs) and, generally, from your defined contribution plans (such as 401(k) plans). You also could be required to take RMDs if you inherited a retirement plan (including Roth IRAs).

If you don’t comply — which usually requires taking the RMD by December 31 — you can owe a penalty equal to 50% of the amount you should have withdrawn but didn’t.

So, should you withdraw more than the RMD? Taking only RMDs generally is advantageous because of tax-deferred compounding. But a larger distribution in a year your tax bracket is low may save tax.

Be sure, however, to consider the lost future tax-deferred growth and, if applicable, whether the distribution could: 1) cause Social Security payments to become taxable, 2) increase income-based Medicare premiums and prescription drug charges, or 3) affect other tax breaks with income-based limits.

Also keep in mind that, while retirement plan distributions aren’t subject to the additional 0.9% Medicare tax or 3.8% net investment income tax (NIIT), they are included in your modified adjusted gross income (MAGI). That means they could trigger or increase the NIIT, because the thresholds for that tax are based on MAGI.

For more information on RMDs or tax-savings strategies for your retirement plan distributions, please contact us.

© 2015

Don’t miss your opportunity to make 2015 annual exclusion gifts

Posted by Admin Posted on Dec 01 2015

Recently, the IRS released the 2016 annually adjusted amount for the unified gift and estate tax exemption and the generation-skipping transfer (GST) tax exemption: $5.45 million (up from $5.43 million in 2015). But even with the rising exemptions, annual exclusion gifts offer a valuable tax-saving opportunity.

The 2015 gift tax annual exclusion allows you to give up to $14,000 per recipient tax-free — without using up any of your gift and estate or GST tax exemption. (The exclusion remains the same for 2016.)

The gifted assets are removed from your taxable estate, which can be especially advantageous if you expect them to appreciate. That’s because the future appreciation can avoid gift and estate taxes.

But you need to use your 2015 exclusion by December 31. The exclusion doesn’t carry over from year to year. For example, if you and your spouse don’t make annual exclusion gifts to your grandson this year, you can’t add $28,000 to your 2016 exclusions to make a $56,000 tax-free gift to him next year.

Questions about making annual exclusion gifts or other ways to transfer assets to the next generation while saving taxes? Contact us!

© 2015

PTO contribution arrangements can help prevent the year-end vacation-time scramble

Posted by Admin Posted on Nov 25 2015

From the Thanksgiving kick-off of the holiday season through December 31, many businesses find themselves short-staffed as employees take time off to spend with family and friends. But if you limit how many vacation days employees can roll over to the new year, you might find your workplace to be nearly a ghost town as employees scramble to use their time off rather than lose it.

A paid time off (PTO) contribution arrangement may be the solution. It allows employees with unused vacation hours to elect to convert them to retirement plan contributions. If the plan has a 401(k) feature, it can treat these amounts as a pretax benefit, similar to normal employee deferrals. Alternatively, the plan can treat the amounts as employer profit sharing, converting the excess PTO amounts to employer contributions.

A PTO contribution arrangement can be a better option than increasing the number of days employees can roll over. Why? Larger rollover limits can result in employees building up large balances that create a significant liability on your books.

To offer a PTO contribution arrangement, you simply need to amend your plan. However, you must still follow the plan document’s eligibility, vesting, rollover, distribution and loan terms, and additional rules apply.

To learn more about PTO contribution arrangements, including their tax implications, please contact us.

© 2015

Reduce taxes on your investments with these year-end strategies

Posted by Admin Posted on Nov 17 2015

While tax consequences should never drive investment decisions, it’s critical that they be considered — especially by higher-income taxpayers, who may be facing the 39.6% short-term capital gains rate, the 20% long-term capital gains rate and the 3.8% net investment income tax (NIIT).

Holding on to an investment until you’ve owned it more than one year so the gains qualify for long-term treatment may help substantially cut tax on any gain. Here are some other tax-saving strategies:

  • Use unrealized losses to absorb gains.
  • Avoid wash sales.
  • See if a loved one qualifies for the 0% rate (or the 15% rate if your rate is 20%).

 

Many of the strategies that can help you save or defer income tax on your investments can also help you avoid or defer NIIT liability. And because the threshold for the NIIT is based on modified adjusted gross income (MAGI), strategies that reduce your MAGI — such as making retirement plan contributions — can also help you avoid or reduce NIIT liability.

These are only a few of the year-end strategies that may help you reduce taxes on your investments. For more ideas, contact us.

© 2015

 

Know the rules for IRA contributions and required minimum distributions

Posted by Admin Posted on Nov 04 2015

Most of us have retirement savings to help us afford the lifestyle we want when we retire. Some savings are in Individual Retirement Accounts usually managed by the financial institutions of our choice.

What a lot of us don’t know are the contribution and withdrawal rules governing IRA accounts, and the penalties for non-compliance.

For 2015, the maximum you may be able to con­ tribute to a traditional or Roth IRA is:

  • $5,500 ($6,500 if you are age 50 or older), or
  • your taxable compensation for the year


This is the maximum you may contribute to any or all IRAs combined.

If you are age 701⁄2 or older, you may not contribute to a traditional IRA at all. You may contribute to a Roth IRA for as long as you want as long as you continue to receive compensation.

The penalty you pay for contributing more than is allowed is an excise tax of 6% on amounts over the contribution limit.

Other IRA rules may limit or eliminate your ability to contribute to an IRA, including income, filing status and the amount of your taxable compensation. Tax deductions may be limited based on whether you or your spouse has an employer retirement plan if your income is above certain levels.

You must make withdrawals from a traditional IRA by April 1of the year following your 70 1⁄2 birthday; failure to do so requires that you pay a 50% excise tax on the amount you are required to take. You can request a waiver of the tax if you did not take your required withdrawal.

You’re taking the right steps to help secure your retirement future with an IRA, following the rules helps you maximize your retirement savings. 

Information received from Summer 2015 SSA/IRS Reporter 

The 529 savings plan: A tax-smart way to fund college expenses

Posted by Admin Posted on Nov 04 2015

If you’re saving for college, consider a Section 529 plan. Although contributions aren’t deductible for federal purposes, plan assets can grow tax-deferred. (Some states do offer tax incentives for contributing.) However, for Colorado residents, you are eligible for a Colorado deduction to the Colorado 529 plan.  

Distributions used to pay qualified expenses (such as tuition, mandatory fees, books, equipment, supplies and, generally, room and board) are income-tax-free for federal purposes and typically for state purposes as well, thus making the tax deferral a permanent savings.

529 plans offer other benefits as well:

  • They usually offer high contribution limits, and there are no income limits for contributing.
  • There’s generally no beneficiary age limit for contributions or distributions.
  • You can control the account, even after the child is of legal age.
  • You can make tax-free rollovers to another qualifying family member.

 

Finally, 529 plans provide estate planning benefits: A special break for 529 plans allows you to front-load five years’ worth of annual gift tax exclusions and make up to a $70,000 contribution (or $140,000 if you split the gift with your spouse).

The biggest downside may be that your investment options — and when you can change them — are limited. Please contact us for more information on 529 plans and other tax-smart strategies for funding education expenses.

© 2015

What you should consider before taking a 401(k) plan loan

Posted by Admin Posted on Nov 02 2015

Your 401(k) plan may allow you to borrow from the plan. However, you should consider a few things before taking a plan loan.

If you don’t repay the full amount of the loan, including interest, according to the loan’s terms, the unpaid loan amount is a distribution to you from the plan. Your plan may even require you to repay the remaining amount of the loan in full if you stop working for the employer that is sponsoring the plan. Otherwise, the unpaid amount is considered a plan distribution to you.

Generally, you have to include any previously untaxed amount of the distribution in your gross income for the year in which the distribution occurs. You may also have to pay an additional 10 percent tax on the amount of the taxable distribution, unless you:

  • are age 59 1/2 or older, or

  • qualify for another exception to this additional 10 percent tax.

Any unpaid plan loan amount also means you will have less money saved for your retirement. Your 401(k) plan is designed so you can save money while working for your retirement. So, carefully consider all other alternatives before borrowing from your future.

 

Information received from Fall 2015 SSA/IRA Reporter

 

Save tax — or at least defer it — by carefully timing business income and expenses

Posted by Admin Posted on Oct 28 2015

The first step to smart timing is to project your business’s income and expenses for 2015 and 2016. With this information in hand, you can determine the best year-end timing strategy for your business.

If you expect to be in the same or lower tax bracket in 2016, consider:

Deferring income to 2016. If your business uses the cash method of accounting, you can defer billing for your products or services. Or, if you use the accrual method, you can delay shipping products or delivering services.

Accelerating deductible expenses into 2015. If you’re a cash-basis taxpayer, you may make a state estimated tax payment before December 31, so you can deduct it this year rather than next. Both cash- and accrual-basis taxpayers can charge expenses on a credit card and deduct them in the year charged, regardless of when the credit card bill is paid.

If you expect to be in a higher tax bracket in 2016, accelerating income and deferring deductible expenses may save you more tax over the two-year period (though it will increase your 2015 tax liability).

For help projecting your income and expenses or for more ideas on how you can effectively time them, please contact us.

© 2015

2 tax consequences to consider if you’re refinancing a home

Posted by Admin Posted on Oct 27 2015

Now may be a great time to refinance, because mortgage rates are still low but expected to increase. Before deciding to refinance, however, here are a couple of tax consequences to consider:

1. Cash-out refinancing. If you borrow more than you need to cover your outstanding mortgage balance, the tax treatment of the cash-out portion depends on how you use the excess cash. If you use it for home improvements, it’s considered acquisition indebtedness, and the interest is deductible subject to a $1 million debt limit. If you use it for another purpose, such as buying a car or paying college tuition, it’s considered home equity debt, and deductible interest is subject to a $100,000 debt limit.

2. Prepaying interest. “Points” paid when refinancing generally are amortized and deducted ratably over the life of the loan, rather than being immediately deductible. If you’re already amortizing points from a previous refinancing and you refinance with a new lender, you can deduct the unamortized balance in the year you refinance. But if you refinance with the same lender, you must add the unamortized points from the old loan to any points you pay on the new loan and then deduct the total over the life of the new loan.

Is your head spinning? Don’t worry; we can help you understand exactly what the tax consequences of refinancing will be for you. Contact us today!

© 2015

Your exec comp could be subject to the 0.9% additional Medicare tax or the 3.8% NIIT

Posted by Admin Posted on Oct 13 2015

The additional Medicare tax and net investment income tax (NIIT) apply when certain income exceeds the applicable threshold: $250,000 for married filing jointly, $125,000 for married filing separately, and $200,000 for other taxpayers.

The following types of executive compensation could be subject to the 0.9% additional Medicare tax if your earned income exceeds the applicable threshold:

  • Fair market value (FMV) of restricted stock once the stock is no longer subject to risk of forfeiture or it’s sold
  • FMV of restricted stock when it’s awarded if you make a Section 83(b) election
  • Bargain element of nonqualified stock options when exercised
  • Nonqualified deferred compensation once the services have been performed and there’s no longer a substantial risk of forfeiture

 

And the following types of gains from exec comp will be included in net investment income and could be subject to the 3.8% NIIT if your modified adjusted gross income (MAGI) exceeds the applicable threshold:

  • Gain on the sale of restricted stock if you’ve made the Sec. 83(b) election
  • Gain on the sale of stock from an incentive stock option exercise if you meet the holding requirements

 

Concerned about how your exec comp will be taxed? Please contact us. We can help you assess the potential tax impact and implement strategies to reduce it.

© 2015

Gearing up for the ACA’s information reporting requirements

Posted by Admin Posted on Oct 10 2015

Starting in 2016, applicable large employers (ALEs) under the Affordable Care Act (ACA) will have to file Forms 1094-C and 1095-C to provide information to the IRS and plan participants regarding their health care benefits for the previous year. Both the forms and their instructions are now available for ALEs to study and begin preparations for required filings. In addition, organizations that expect to file Forms 1094 and 1095 electronically can peruse two final IRS publications setting out specifications for using the new ACA Information Returns system.

Keep in mind that ALEs are employers with 50 or more full-time employees or the equivalent. And even ALEs exempt from the ACA’s shared-responsibility (or “play or pay”) provision for 2015 (that is, ALEs with 50 to 99 full-timers or the equivalent who meet certain eligibility requirements) are still subject to the information reporting requirements in relation to their 2015 health care benefits.

If your company is considered an ALE, please contact us for assistance in navigating the ACA’s complex requirements for avoiding penalties and properly reporting benefits. If you’re not an ALE, we can still help you understand how the ACA affects your small business and determine whether you qualify for a tax credit for providing coverage.

© 2015

Should you “bunch” medical expenses into 2015?

Posted by Admin Posted on Oct 07 2015

Medical expenses that aren’t reimbursable by insurance or paid through a tax-advantaged account (such as a Health Savings Account or Flexible Spending Account) may be deductible — but generally only to the extent that they exceed 10% of your adjusted gross income.

Taxpayers age 65 and older can enjoy a 7.5% floor through 2016. The floor for alternative minimum tax purposes, however, is 10% for all taxpayers.

By “bunching” nonurgent medical procedures and other controllable expenses into alternating years, you may increase your ability to exceed the applicable floor. Controllable expenses might include prescription drugs, eyeglasses and contact lenses, hearing aids, dental work, and elective surgery.

If it’s looking like you’re close to exceeding the floor in 2015, consider accelerating controllable expenses into this year. But if you’re far from exceeding it, to the extent possible (without harming your or your family’s health), you might want to put off medical expenses until next year, in case you have enough expenses in 2016 to exceed the floor.

For more information on how to bunch deductions or exactly what expenses are deductible, please contact us.

© 2015

 

Selling rather than trading in business vehicles can save tax

Posted by Admin Posted on Oct 03 2015

Although a vehicle’s value typically drops fairly rapidly, the tax rules limit the amount of annual depreciation that can be claimed on most cars and light trucks. Thus, when it’s time to replace a vehicle used in business, it’s not unusual for its tax basis to be higher than its value.

If you trade a vehicle in on a new one, the undepreciated basis of the old vehicle simply tacks onto the basis of the new one (even though this extra basis generally doesn’t generate any additional current depreciation because of the annual depreciation limits). However, if you sell the old vehicle rather than trading it in, any excess of basis over the vehicle’s value can be claimed as a deductible loss to the extent of your business use of the vehicle.

For example, if you sell a vehicle with an adjusted basis of $20,000 for $12,000, you’ll get an immediate write-off of $8,000 ($20,000 – $12,000). If you trade in the vehicle rather than selling it, the $20,000 adjusted basis is added to the new vehicle’s depreciable basis and, thanks to the annual depreciation limits, it may be years before any tax deductions are realized.

For more ideas on how to maximize your vehicle-related deductions, contact us.

© 2015

Why you should contribute more to your 401(k) in 2015

Posted by Admin Posted on Oct 02 2015

Contributing to a traditional employer-sponsored defined contribution plan, such as a 401(k), 403(b) or 457 plan, offers many benefits:

  • Contributions are pretax, reducing your modified adjusted gross income (MAGI), which can also help you reduce or avoid exposure to the 3.8% net investment income tax.
  • Plan assets can grow tax-deferred — meaning you pay no income tax until you take distributions.
  • Your employer may match some or all of your contributions pretax.

 

For 2015, you can contribute up to $18,000. If your current contribution rate will leave you short of the limit, consider increasing your contribution rate through the end of the year. Because of tax-deferred compounding, boosting contributions sooner rather than later can have a significant impact on the size of your nest egg at retirement.

If you’ll be age 50 or older by December 31, you can also make “catch-up” contributions (up to $6,000 for 2015). So if you didn’t contribute much when you were younger, this may allow you to partially make up for lost time. Even if you did make significant contributions before age 50, catch-up contributions can still be beneficial, allowing you to further leverage the power of tax-deferred compounding.

Have questions about how much to contribute? Contact us. We’d be pleased to discuss the tax and retirement-saving considerations with you.

© 2015

 

How to determine if you need to worry about estate taxes

Posted by Admin Posted on Sept 15 2015

Here’s a simplified way to project your estate tax exposure. Take the value of your estate, net of any debts. Also subtract any assets that will pass to charity on your death.

Then, if you’re married and your spouse is a U.S. citizen, subtract any assets you’ll pass to him or her. Those assets qualify for the marital deduction and avoid potential estate tax exposure until the surviving spouse dies. The net number represents your taxable estate.

You can transfer up to your available exemption amount at death free of federal estate taxes. So if your taxable estate is equal to or less than the estate tax exemption (for 2015, $5.43 million) reduced by any gift tax exemption you used during your life, no federal estate tax will be due when you die. But if your taxable estate exceeds this amount, it will be subject to estate tax. Many states, however, now impose estate tax at a lower threshold than the federal government does, so you’ll also need to consider the rules in your state.

If you’re not sure whether you’re at risk for the estate tax or if you’d like to learn about gift and estate planning strategies to reduce your potential liability, please contact us.

© 2015

 

Changes coming in 2016 to the Colorado Unemployment Taxable Wage Limit

Posted by Admin Posted on Sept 14 2015

 

Be prepared to see the wage limit increase for Colorado Unemployment Premiums in 2016.

 

Each year, employers must pay annual unemployment premiums for employee wages.  Once the wage limit is reached, no additional unemployment taxes are paid for this employee for the current year. These premiums are paid quarterly to the state.

 

The State of Colorado uses the premiums paid by employers to provide unemployment insurance benefits to unemployed individuals. 

 

According to the State of Colorado, the wage limit will increase to $12,200 in 2016

 

Previous year limits:

$11,800 for 2015

$11,700 for 2014

$11,300 for 2013

 

If you have any questions regarding these changes, please contact us.

 

When will Congress pass “extenders” legislation to revive expired tax breaks for 2015?

Posted by Admin Posted on Sept 09 2015

With Congress returning from its August recess, this is the question on tax-savvy Americans’ minds. Many valuable tax breaks aren’t permanent, so Congress has to pass legislation extending them to keep them in effect. Unfortunately, Congress often waits until the last minute to do so.

For example, Congress didn’t pass 2014 extenders until December 2014, making the legislation retroactive to January 1, 2014 — but not extending the breaks to 2015. So we’re again in a waiting game to see what will happen with extenders legislation. Some believe Congress will act soon, while others think we’ll again be waiting until December.

Here are several expired breaks that may benefit you or your business if extended:

  • The deduction for state and local sales taxes in lieu of state and local income taxes,
  • Tax-free IRA distributions to charities,
  • 100% bonus depreciation,
  • Enhanced Section 179 expensing,
  • Accelerated depreciation for qualified leasehold improvement, restaurant and 
    retail improvement property,
  • The research tax credit,
  • The Work Opportunity tax credit, and
  • Various energy-related tax incentives.

 

Please check back with us for the latest information. Keep in mind that quick action after extenders legislation is passed may be required in order to take maximum advantage of the extended breaks.

© 2015

All income investments aren’t alike when it comes to taxes

Posted by Admin Posted on Sept 01 2015

The tax treatment of investment income varies, and not just based on whether the income is in the form of dividends or interest. Qualified dividends are taxed at the favorable long-term capital gains tax rate (generally 15% or 20%) rather than at the applicable ordinary-income tax rate (which might be as high as 39.6%). Interest income generally is taxed at ordinary-income rates. So stocks that pay qualified dividends may be more attractive tax-wise than other income investments, such as CDs and taxable bonds.

But there are exceptions. For example, some dividends aren’t qualified and therefore are subject to ordinary-income rates, such as certain dividends from:

  • Real estate investment trusts (REITs),
  • Regulated investment companies (RICs),
  • Money market mutual funds, and
  • Certain foreign investments.

 

Also, the tax treatment of bond income varies. For example:

  • Interest on U.S. government bonds is taxable on federal returns but exempt on state and local returns.
  • Interest on state and local government bonds is excludable on federal returns. If the bonds were issued in your home state, interest also might be excludable on your state return.
  • Corporate bond interest is fully taxable for federal and state purposes.

 

While tax treatment shouldn’t drive investment decisions, it’s one factor to consider — especially when it comes to income investments. For help factoring taxes into your investment strategy, contact us.

© 2015

What you need to know before donating collectibles

Posted by Admin Posted on Aug 24 2015

 

If you’re a collector, donating from your collection instead of your bank account or investment portfolio can be tax-smart. When you donate appreciated property rather than selling it, you avoid the capital gains tax you would have incurred on a sale. And long-term gains on collectibles are subject to a higher maximum rate (28%) than long-term gains on most long-term property (15% or 20%, depending on your tax bracket) — so you can save even more taxes.

 

But choose the charity wisely. For you to receive a deduction equal to fair market value rather than your basis in the collectible, the item must be consistent with the charity’s purpose, such as an antique to a historical society.

 

Properly substantiating the donation is also critical, and this may include an appraisal. If you donate works of art with a collective value of $5,000 or more, you’ll need a qualified appraisal, and if the collective value is $20,000 or more, a copy of the appraisal must be attached to your tax return. If an individual item is valued at $20,000 or more, you may also be required to provide a photograph of that item.

 

If you’re considering a donation of artwork or other collectibles, contact us for help ensuring you can maximize your tax deduction.

 

© 2015

 

Teens in your family with summer jobs? Set up IRAs for them!

Posted by Admin Posted on Aug 11 2015

 

Teenagers’ retirement may seem too far off to warrant saving now, but IRAs can be perfect for teens precisely because they’ll likely have many years to let their accounts grow tax-deferred or tax-free.

 

The 2015 contribution limit is the lesser of $5,500 or 100% of earned income. A teen’s traditional IRA contributions typically are deductible, but distributions will be taxed. Roth IRA contributions aren’t deductible, but qualified distributions will be tax-free.

 

Choosing a Roth IRA is typically a no-brainer if a teen doesn’t earn income that exceeds the standard deduction ($6,300 for 2015 for single taxpayers), because he or she will likely gain no benefit from deducting a traditional IRA contribution. Even above that amount, the teen probably is taxed at a low rate, so the Roth will typically still be the better answer.

 

How powerful can an IRA for a teen be? Here’s an example: Both Madison and Noah contribute $5,500 per year to their IRAs through age 66 and earn a 6% rate of return. But Madison starts contributing when she gets her first job at age 16, while Noah waits until age 23, after he’s graduated from college and started his career. Madison’s additional $38,500 of early contributions results in a nest egg at full retirement age of 67 that’s nearly $600,000 larger than Noah’s — $1,698,158 vs. $1,098,669!

 

Contact us for more ideas on helping teens benefit from tax-advantaged saving.

 

© 2015

 

Form 1099 Penalties Increased

Posted by John Burcham Posted on Aug 11 2015

 

Earlier this summer Congress passed the Trade Preference Extension Act of 2015 related to trade negotiations, TPA, etc.  To pay for part of the Act’s provisions, Congress increased the penalties for not filing information returns (Form 1099 series filings).  If you are the owner of a small business or firm, you are required to file Form 1099 if you pay certain vendors or rents during the year.  This change will increase the penalties, doubling them in most cases, for any business that does not file these forms, missed filing one or more 1099s or filed an incorrect Form 1099.  Here’s a sample of the changes:

 

  • Previously the penalty for not filing each 1099 was $100.  Now that penalty is $250 for each form not filed.  Note that there is a separate penalty for not filing the form with the IRS and not sending the form to the vendor for a total of $500 for each Form 1099 not prepared.

  • If the IRS considers the non-reporting intentional, the penalty has been increased from $250 to $500 each form not sent to the IRS or the payee.

 

We suggest you start gathering the information for Form 1099 reporting now.  You can use Form W-9, Request for Taxpayer Identification Number and Certification, to obtain the tax ID number from your vendors.

 

Who should you send a Form 1099-MISC?  Generally you will send a Form 1099-MISC if all of the following apply:

 

  • Paid to a nonemployee

  • Paid for services

  • Paid to an individual, partnership or estate.  Also payments to attorneys that are incorporated should be sent Form 1099-MISC.

  • Payment is $600 or more for the year including payment for incidental parts or materials used by the payee in rendering the service.  (examples are paint supplied by painter, materials supplied by plumber, etc.)

  • Payment was not done with a credit card, debit card, PayPal or gift card.  These are all reported by the bank or processor on Form 1099-K.  If you report them on Form 1099-MISC, they will be double reported. 

 

Other 1099 reporting rules may apply.  Consult the Form 1099-MISC instructions for more details.

 

New filing due dates

Posted by Admin Posted on Aug 10 2015

 

On July 31, President Obama signed into a law a bill that included changes to due dates for certain returns.  These changes will be effective for tax year beginning after December 31, 2015, so it will affect most taxpayers beginning with the 2017 filing season.

 

The biggest change is that Partnership returns will be due March 15th instead of April 15th.  The theory is this will reduce the number of K-1s received just prior to the April 15th individual return due date and lowering the amount of individual returns going on extension.  We do not believe that this will be the case.  Likely it will mean more partnership returns going on extension and will not have a measurable impact on the number of individual returns being extended.  If a partnership is extended, the extension is valid for six months, meaning extended partnership returns will still be due on September 15th.

 

There are no changes to the due dates for individual or S Corp returns.  Individuals are still due April 15th and S Corps are due March 15th.

 

Trust and calendar year Estate income tax returns are still due on April 15th.  However, if an extension is filed, the extended due date will now be September 30th.  Currently, extended Trust and Estate returns are due on September 15th.

 

The due date for calendar returns C Corp returns will now be April 15th.  Currently, they are due on March 15th.  Fiscal year C Corp returns will be due 3 ½ months after their year-end, unless they have a June 30 year-end.  In this case the due date will remain September 15th.

 

The old FBAR reporting, now called FinCen Report 114 currently have a June 30th due date.  Under the new law, they will be due April 15th.  However, they will be eligible for a six-month extension until October 15th.  We assume that the report will automatically extend with the extension of the individual tax return and a separate extension will not be required.
 

 

Exempt organizations (Form 990) will remain due May 15th if they have a calendar year-end.  In the past they had to file an initial 3 month extension request, and a second 3 month extension request.  Under the new law, they will be granted a six month extension when they request and the due date will be November 15th.

 

Employee Benefit Plans (Form 5500) will remain due July 31st.  Currently, with an extension, the due date is October 15th.  Under the new law, they will be granted an additional month extension and the due date will be November 15th.

 

Act soon if you want to help your child buy a home

Posted by Admin Posted on Aug 05 2015

 

Mortgage interest rates are still at historically low levels, but they’re expected to go up by year end. So if you’ve been thinking about helping your child — or grandchild — buy a home, consider acting soon. There also are some favorable tax factors that will help:

 

0% capital gains rate. If the child is in the 10% or 15% tax bracket, instead of giving cash to help fund a down payment, consider giving long-term appreciated assets such as stock or mutual fund shares. The child can sell the assets without incurring any federal income taxes on the gain, and you can save the taxes you’d owe if you sold the assets yourself. As long as the assets are worth $14,000 or less (when combined with any other 2015 gifts to the child), there will be no federal gift tax consequences — thanks to the annual gift tax exclusion.

 

Low federal interest rates. Another tax-friendly option is lending funds to the child. Now is a good time for taking this step, too. Currently, Applicable Federal Rates — the rates that can be charged on intrafamily loans without causing unwanted tax consequences — are very low by historical standards. But these rates are also expected to increase by year end.

 

If you have questions about these or other tax-efficient ways to help your child or grandchild buy a home, please contact us.

 

© 2015

 

How to deduct vehicle expenses related to your business

Posted by Yi Zha Posted on Aug 03 2015

 

If you use your car in your business and you use it only for that purpose, you may deduct its entire cost of operation. However, if you use the car for both business and personal purposes, you may deduct only the cost of its business use.

 

You can generally figure the amount of your deductible car expense by using one of two methods: the standard mileage rate method or the actual expense method. If you qualify to use both methods, you may want to figure your deduction both ways before choosing a method to see which one gives you a larger deduction.

 

Standard mileage rate method: The rate for 2015 is 57.5 cents per mile. If you are self-employed and maintain an eligible office in your home, you can deduct the mileage to and from your client’s or customer’s place of business, as well as between jobs. If you use the standard mileage rate, you can add to your deduction any parking fees and tolls incurred for business purposes. To use the standard mileage rate, you must not have claimed a depreciation deduction for the car using any method other than straight-line, nor have claimed a Section 179 deduction on the car.

 

Actual expense method: Actual expenses include the cost of gas, oil, insurance, repairs, maintenance, tires, washing, and licenses. Depreciation or lease payments are eligible too. You can also deduct the cost of business-related parking fees, tolls and state and local taxes not paid with the acquisition or disposition of the vehicle.

 

Taxpayers who wish to use the standard mileage rate in lieu of actual expenses for computing deductible vehicle expenses must elect to do so in the first year. Switching to the standard mileage rate in a later year is not an option.

 

If you have additional questions regarding the deductible business expenses, please contact us. We’re happy to help you.

 

Tread carefully when determining compensation for S corp. shareholder-employees

Posted by Admin Posted on July 29 2015

 

By distributing profits in the form of dividends rather than salary, an S corporation and its owners can avoid payroll taxes on these amounts. Because of the additional 0.9% Medicare tax on wages in excess of $200,000 ($250,000 for joint filers and $125,000 for married filing separately), the potential tax savings may be even greater than it once would have been. (S corporation dividends paid to shareholder-employees generally won’t be subject to the 3.8% net investment income tax.)

 

But paying little or no salary to S corporation shareholder-employees is risky. The IRS has targeted S corporations, assessing unpaid payroll taxes, penalties and interest against companies whose owners’ salaries are unreasonably low. To avoid such a result, S corporations should establish and document reasonable salaries for each position using compensation surveys, company financial data and other evidence.

 

Do you have questions about compensating S corporation shareholder-employees? Contact us — we can help you determine the mix of salary and dividends that can keep tax liability as low as possible while standing up to IRS scrutiny.

 

© 2015

 

ABLE Act

Posted by Amy Lister Posted on July 27 2015

 

Have you heard about the Stephen Beck, Jr., Achieving a Better Life Experience (ABLE) Act? If you answered no than you are not alone.

 

It is a fairly new piece of legislation that is still in the process of being finalized. Under this newly revised Section 529A of the Internal Revenue Code, states may establish and maintain a new type of tax-favored savings program through which contributions may be made to the account of an eligible disabled individual to meet qualified disability expenses. Each state is responsible for establishing and operating the ABLE program, and with any luck, accounts will be able to be established before the end of 2015. On June 3, 2015, Colorado became the 17th state to enact ABLE.

 

Please follow this link to view a complete summary of the ABLE Act, and a very helpful question and answer section: http://www.ndss.org/Advocacy/Legislative-Agenda/Creating-an-Economic-Future-for-Individuals-with-Down-Syndrome/Achieving-a-Better-of-Life-Experience-ABLE-Act/

 

Continue to check back with JBSK CPAs for updates on Colorado’s progress with implementation, and what it could mean for you.

 

Tax treatment of NQSOs differs from that of their better-known counterpart

Posted by Admin Posted on July 22 2015

 

With nonqualified stock options (NQSOs), if the stock appreciates beyond your exercise price, you can buy shares at a price below what they’re trading for. This is the same as for the perhaps better-known incentive stock options (ISOs).

 

The tax treatment of NQSOs, however, differs from that of ISOs: NQSOs create compensation income — taxed at ordinary-income rates — on the “bargain element” (the difference between the stock’s fair market value and the exercise price) when exercised. This is regardless of whether the stock is held or sold immediately. Also, NQSO exercises don’t create an alternative minimum tax (AMT) preference item that can trigger AMT liability.

 

When you exercise NQSOs, you may need to make estimated tax payments or increase withholding to fully cover the tax. Keep in mind that an exercise could trigger or increase exposure to top tax rates, the additional 0.9% Medicare tax and the 3.8% net investment income tax.

 

Have tax questions about NQSOs or other stock-based compensation? Let us know — we’d be happy to answer them.

 

© 2015

 

How to begin collecting your 2015 tax refund now

Posted by Admin Posted on July 15 2015

If you usually receive a large federal income tax refund, you’re essentially making an interest-free loan to the IRS. Rather than wait until you file your 2015 tax return in 2016, why not begin enjoying your “refund” now by reducing your withholdings or estimated tax payments for the remainder of 2015?

It’s particularly important to review your withholdings, and adjust them if necessary, when you experience a major life event, such as marriage, divorce, birth or adoption of a child, or a layoff suffered by you or your spouse.

If you’d like help determining what your withholding or estimated tax payments should be for the second half of the year, please contact us.

© 2015

 

Tax impact of the Supreme Court's same-sex marriage decision

Posted by Admin Posted on July 07 2015

 

On June 26, the U.S. Supreme Court ruled that same-sex couples have a constitutional right to marry, making same-sex marriage legal in all 50 states. For federal tax purposes, same-sex married couples were already considered married, under the Court’s 2013 decision in United States v. Windsor and subsequent IRS guidance — even if their state of residence didn’t recognize their marriage.

 

From a tax planning perspective, the latest ruling means that, in states where same-sex marriage hadn’t been recognized, same-sex married couples no longer will need to deal with the complications of being treated as married for federal tax purposes but not married for state tax purposes. So their tax and estate planning will be simplified and they can take advantage of state-level tax benefits for married couples. But in some cases, these couples will also be subject to some tax burdens, such as the “marriage penalty.”

 

Same-sex married couples should review their tax planning strategies and estate plans to determine what new opportunities may be available to them and whether there are any new burdens they should plan for. Employers will need to keep a close eye on how these developments will affect their tax obligations in relation to employees who have same-sex spouses. Please contact us if you have questions.

 

© 2015

 

Using your IRA to help your child buy their first home

Posted by Ramin Karimi Posted on July 07 2015

If your child is looking to purchase their first home, you may be able to use your IRA to help them with the down payment. The rules allow a taxpayer to withdraw $10,000 penalty free to purchase a home for the taxpayer or the taxpayer's lineal descendants. The withdrawal is still subject to income tax, but is not subject to the 10% early withdrawal penalty if you are under 59 1/2.

In order to qualify for penalty exemption, the following items must be met:

  • The withdrawal must be used for acquiring a personal residence within 120 days of receiving the distribution.
  • The distribution must be used for the acquisition of a residence of a first-time homebuyer, including the taxpayer or their descendants.
  • The penalty exemption is only available once during your lifetime. If you took money out previously for the purchase of a residence for yourself and you claimed the exemption, you are not eligible for the penalty exclusion.

 

This strategy is primarily directed to those taxpayers that wish to help their child purchase a home, but do not have the liquidity otherwise. If you have the liquidity, it may make more sense to gift your child the money for a down payment as opposed to taking a taxable distribution from your IRA.

Please contact us should you have any questions regarding the proper way to structure the aforementioned transaction.

Tips to make paying your tax bills easier this summer

Posted by Admin Posted on July 06 2015

Ignoring your tax bill from the IRS? Don't. Here are some important tips that will help you avoid extra charges and pay your tax debt.

 

  • Pay online. To pay your taxes in a quick, safe and accurate manner, use an IRS electronic payment method.
  • Apply online to make payments. Apply for an installment agreement if you are not able to pay your tax in full.
  • Check out a direct debit plan. Set up a direct debit installment agreement to cut costs and the hassle of paying.
  • Consider an offer in compromise. You could settle your tax debt with the IRS for less than the maximum amount you owe with an Offer in Compromise.
  • Reply Promptly. Read all notices from the IRS carefully.

 

For a more in depth full list of tips please visit http://www.irs.gov/uac/Six-Tips-to-Help-You-Pay-Your-Tax-Bill-this-Summer or contact us for more information.

Information retrieved from IRS.gov

 

 

Summer Wedding? Here are some important tax tips

Posted by Admin Posted on July 01 2015

 

Planning on getting married this summer? Remember that tax planning is just as important as planning for the perfect day. Here are some tips from the IRS that will make tax time easier next year.

 

  • Change of name. If you change your name, make sure you report it to the SSA.

  • Change tax withholding. You should consider giving your employer a new Form W-4, Employee's Withholding Allowance Certificate.

  • Change in filing Status. If you are married as of December 31st, that is your marital status for the entire year for tax purposes.

 

For more in depth information on this topic please visit http://www.irs.gov/uac/Include-a-Few-Tax-Items-in-Your-Summer-Wedding-Checklist or contact us for additional information.

 

Information retrieved from IRS.gov

 

 

Large employers: Time to start planning for ACA information reporting

Posted by Admin Posted on June 30 2015

 

With the U.S. Supreme Court’s June 25 decision upholding the Affordable Care Act (ACA) yet again, employers subject to the act’s information reporting provision can no longer afford to put off planning in the hope that the requirements might go away.

 

Beginning in 2016, “large” employers as defined by the act (generally employers with 50 or more full-time employees or the equivalent) must file Forms 1094 and 1095 to provide information to the IRS and plan participants about health coverage provided in the previous year (2015).

 

Fortunately, recent IRS guidance helps clarify the reporting requirements. And a new IRS Q&A document addresses more specific issues that may arise while completing the forms.

 

Keep in mind that, while some “midsize” employers (generally employers with 50 to 99 full-time employees or the equivalent) can qualify for an exemption from the play-or-pay provision in 2015 if they meet certain requirements, these employers still will be subject to the information reporting requirements.

 

If your organization is among those required to file Forms 1094 and 1095 and you need help complying with the requirements, please contact us.

 

© 2015

 

Opening the "back door" to a Roth IRA

Posted by Admin Posted on June 24 2015

 

A potential downside of tax-deferred saving through a traditional retirement plan is that you’ll have to pay taxes when you make withdrawals at retirement. Roth plans, on the other hand, allow tax-free distributions; the tradeoff is that contributions to these plans don’t reduce your current-year taxable income.

 

Unfortunately, modified adjusted gross income (MAGI)-based phaseouts may reduce or eliminate your ability to contribute:

 

  • For married taxpayers filing jointly, the 2015 phaseout range is $183,000–$193,000.
  • For single and head-of-household taxpayers, the 2015 phaseout range is $116,000–$131,000.

 

You can make a partial contribution if your MAGI falls within the applicable range, but no contribution if it exceeds the top of the range.

 

If the income-based phaseout prevents you from making Roth IRA contributions and you don’t already have a traditional IRA, a “back door” IRA might be right for you. How does it work? You set up a traditional account and make a nondeductible contribution to it. You then wait until the transaction clears and convert the traditional account to a Roth account. The only tax due will be on any growth in the account between the time you made the contribution and the date of conversion.

 

© 2015

Why the details matter when selling investments

Posted by Admin Posted on June 15 2015

If you don’t pay attention to the details, the tax consequences of a sale may be different from what you expect. For example, if you bought the same security at different times and prices and want to sell high-tax-basis shares to reduce gain or increase a loss to offset other gains, be sure to specifically identify which block of shares is being sold.

 

And when it gets close to year end, keep in mind that the trade date, not the settlement date, of publicly traded securities determines the year in which you recognize the gain or loss.

 

Finally, consider the transaction costs, such as broker fees. While of course such costs aren’t taxes, like taxes they can have a significant impact on your net returns, especially over time, because they also reduce the amount of money you have available to invest.

 

If you have questions about the potential tax impact of an investment sale you’re considering — or all of the details you should keep in mind to minimize it — please contact us.

 

© 2015

 

Watch out for tax consequences when hiring telecommuters outside your state

Posted by Admin Posted on June 02 2015

If you allow employees to telecommute, be sure to consider the potential tax implications. Hiring someone in another state, for example, might create sufficient nexus to expose your company to that state’s income, sales and use, franchise, withholding, or unemployment taxes.

And the employee might be subject to double taxation if both states attempt to tax his or her income — the recent Supreme Court ruling in Comptroller of the State of Maryland v. Wynne addressed a similar issue, although in that case the taxpayers weren’t telecommuters but owners of an S corporation that earned income in other states.

The rules vary by state and also by type of tax — and become even more complicated for international telecommuters. So it’s a good idea to review the rules before you approve a cross-border telecommuting arrangement. If you’re considering hiring employees to telecommute from outside your state, we can help you assess the potential tax impact.

© 2015

Before donating a vehicle, find out the charity’s intent

Posted by Admin Posted on May 26 2015

If you donate your vehicle, the value of your deduction can vary greatly depending on what the charity does with it. You can deduct the vehicle’s fair market value (FMV) if the charity:

  • Uses the vehicle for a significant charitable purpose (such as delivering meals-on-wheels to the elderly),
  • Sells the vehicle for substantially less than FMV in furtherance of a charitable purpose (such as a sale to a low-income person needing transportation), or
  • Makes “material improvements” to the vehicle.

But in most other circumstances, if the charity sells the vehicle, your deduction is limited to the amount of the sales proceeds.

You also must obtain proper substantiation from the charity, including a written acknowledgment that:

  • Certifies whether the charity sold the vehicle or retained it for use for a charitable purpose,
  • Includes your name and tax identification number and the vehicle identification number, and
  • Reports, if applicable, details concerning the sale of the vehicle within 30 days of the sale.

For more information on these and other rules that apply to vehicle donation deductions, please contact us.

© 2015

Expect to be paying elementary or secondary school costs in the future? Consider an ESA

Posted by Admin Posted on May 19 2015

As the school year draws to a close, it’s a good time to think about Coverdell Education Savings Accounts (ESAs) — especially if you have young children.

One major advantage of ESAs over another popular education saving tool, the Section 529 plan, is that tax-free ESA distributions aren’t limited to college expenses; they also can fund elementary and secondary school costs. That means you can use ESA funds to pay for such qualified expenses as tutoring and private school tuition.

Here are some other key ESA benefits:

  • Although contributions aren’t deductible, plan assets can grow tax-deferred.
  • You remain in control of the account — even after the child is of legal age.
  • You can make rollovers to another qualifying family member.

The annual contribution limit is $2,000 per beneficiary. However, the ability to contribute is phased out based on income.

Would you like more information about ESAs or other tax-advantaged ways to fund your child’s — or grandchild’s — education expenses? Contact us!

© 2015

You’re a real estate investor, but are you a “professional”?

Posted by Admin Posted on May 12 2015

Income and losses from investment real estate or rental property are passive by definition — unless you’re a real estate professional. Why is this important? Passive income may be subject to the 3.8% net investment income tax (NIIT), and passive losses are deductible only against passive income, with the excess being carried forward.

To qualify as a real estate professional, you must annually perform:

  • More than 50% of your personal services in real property trades or businesses in which you materially participate, and
  • More than 750 hours of service in these businesses during the year.

Each year stands on its own, and there are other nuances. If you’re concerned you’ll fail either test and be subject to the 3.8% NIIT or stuck with passive losses, consider increasing your hours so you’ll meet the test. (Special rules for spouses may help.) Also be aware that the IRS has successfully challenged claims of real estate professional status in instances where the taxpayer didn’t keep adequate records of time spent.

If you’re not sure whether you qualify as a real estate professional, please contact us. We can help you make this determination and guide you on how to properly document your hours.

© 2015

Got ISOs? You need to understand their tax treatment

Posted by Admin Posted on Apr 28 2015

Incentive stock options allow you to buy company stock in the future at a fixed price equal to or greater than the stock’s fair market value on the grant date. If the stock appreciates, you can buy shares at a price below what they’re then trading for.

ISOs must comply with many rules but receive tax-favored treatment:

  • You owe no tax when ISOs are granted.
  • You owe no regular income tax when you exercise ISOs.
  • If you sell the stock after holding the shares at least one year from the exercise date and two years from the grant date, you pay tax on the sale at your long-term capital gains rate. You also may owe the 3.8% net investment income tax.
  • If you sell the stock before long-term capital gains treatment applies, a “disqualifying disposition” occurs and any gain is taxed as compensation at ordinary-income rates.

There also might be alternative minimum tax consequences in certain situations. If you’ve received ISOs, contact us. We can help you determine when to exercise them and whether to immediately sell shares received from an exercise or to hold them.

© 2015

Posted by Admin Posted on Apr 21 2015

Now is the time to begin your 2015 tax planning

Posted by Admin Posted on Apr 21 2015

Whether you filed your 2014 income tax return by the April 15 deadline or filed for an extension, you may think that it’s a good time to take a break from thinking about taxes. But doing so could be costly. Now is actually the time you should begin your 2015 tax planning — if you haven’t already.

A tremendous number of variables affect your overall tax liability for the year, and starting to look at these variables early in the year can give you more opportunities to reduce your 2015 tax bill. For example, the timing of income and deductible expenses can affect both the rate you pay and when you pay. By regularly reviewing your year-to-date income, expenses and potential tax, you may be able to time income and expenses in a way that reduces, or at least defers, your tax liability.

In other words, tax planning shouldn’t be just a year end activity. To get started on your 2015 tax planning, contact us. We can discuss what strategies you should be implementing now and throughout the year to minimize your tax liability.

© 2015

Facing an unexpected bill for the additional 0.9% Medicare tax?

Posted by Admin Posted on Apr 14 2015

The additional 0.9% Medicare tax applies to FICA wages and self-employment income exceeding $200,000 per year ($250,000 for married filing jointly and $125,000 for married filing separately). Unfortunately, the withholding rules have been tripping up some taxpayers, causing them to face an unexpected tax bill — plus interest and penalties — when they file their returns.

Employers must withhold the additional tax beginning in the pay period when wages exceed $200,000 for the calendar year — without regard to an employee’s filing status or income from other sources. So if your wages don’t exceed $200,000, your employer won’t withhold the tax — even if you’re liable for it. This might occur because you and your spouse’s combined wages exceed the $250,000 threshold for joint filers or because you have wages from a second job or have self-employment income.

If you expect to be in the same situation in 2015, consider filing a W-4 form to request additional income tax withholding, which can be used to cover the shortfall and avoid interest and penalties. Or you can make estimated tax payments. If you have questions about the additional 0.9% Medicare tax, please contact us.

© 2015

A net operating loss on your 2014 tax return is not all bad news

Posted by Admin Posted on Apr 07 2015

When a company’s deductible expenses exceed its income, generally a net operating loss (NOL) occurs (though of course the specific rules are more complex). If when filing your 2014 income tax return you’ve found that your business had an NOL, there is an upside: tax benefits.

When a business incurs a qualifying NOL, the loss can be carried back up to two years, and then any remaining amount can be carried forward up to 20 years. The carryback can generate an immediate tax refund, boosting cash flow.

However, there is an alternative: The business can elect instead to carry the entire loss forward. If cash flow is fairly strong, carrying the loss forward may be more beneficial, such as if the business’s income increases substantially, pushing it into a higher tax bracket — or if tax rates increase. In both scenarios, the carryforward can save more taxes than the carryback because deductions are more powerful when higher tax rates apply.

In the case of flow-through entities, owners might be able to reap individual tax benefits from the NOL.

Please contact us if you’d like more information on the NOL rules and how you can maximize the tax benefit of an NOL.

© 2015

Still filing a paper return? Be sure to understand the "timely mailed=timely filed" rule

Posted by Admin Posted on Mar 31 2015

The IRS considers a paper return that’s due April 15 to be timely filed if it’s postmarked by midnight on April 15. But dropping your return in a mailbox on the 15th may not be sufficient.

For example, let’s say you mail your return with a payment on April 15, but the envelope gets lost. You don’t figure this out until a couple of months later when you notice that the check still hasn’t cleared. You then refile and send a new check. Despite your efforts to timely file and pay, you’re hit with failure-to-file and failure-to-pay penalties totaling $1,500.

To avoid this risk, use certified or registered mail or one of the private delivery services designated by the IRS to comply with the timely filing rule, such as:

  • FedEx Priority Overnight
  • FedEx Standard Overnight
  • FedEx 2Day
  • UPS Next Day Air Saver
  • UPS 2nd Day Air
  • UPS 2nd Day Air A.M.

Beware: If you use an unauthorized delivery service, your return isn’t “filed” until the IRS receives it. For example, DHL is no longer an authorized delivery service.

If you’re concerned about meeting the April 15 deadline, another option is to file for an extension. We can help you determine if that makes sense for you.

© 2015

Yes, there is still time to make a 2014 IRA contibution!

Posted by Admin Posted on Mar 24 2015

The deadline for 2014 IRA contributions is April 15, 2015. The limit for total contributions to all IRAs generally is $5,500 ($6,500 if you were age 50 or older on Dec. 31, 2014).

If you haven’t already maxed out your 2014 limit, consider making one of these types of contributions by April 15:

1. Deductible traditional. If you and your spouse don’t participate in an employer-sponsored plan such as a 401(k) — or you do but your income doesn’t exceed certain limits — the contribution is fully deductible on your 2014 tax return. Account growth is tax-deferred; distributions are subject to income tax.

2. Roth. The contribution isn’t deductible, but qualified distributions — including growth — are tax-free. Income-based limits may reduce or eliminate your ability to contribute, however.

3. Nondeductible traditional. If your income is too high for you to fully benefit from a deductible traditional or a Roth contribution, you may benefit from a nondeductible contribution to a traditional IRA. The account can still grow tax-deferred, and when you take qualified distributions you’ll be taxed only on the growth. Alternatively, shortly after contributing, you may be able to convert the account to a Roth IRA with minimal tax liability.

Want to know which option best fits your situation? Contact us.

Do you need a file a 2014 Gift Tax Return by april 15?

Posted by Admin Posted on Mar 18 2015

Generally, you’ll need to file a gift tax return for 2014 if, during the tax year, you made gifts:

  • That exceeded the $14,000-per-recipient gift tax annual exclusion (other than to your U.S. citizen spouse),
  • That you wish to split with your spouse to take advantage of your combined $28,000 annual exclusions, or
  • Of future interests — such as remainder interests in a trust — regardless of the amount.

If you transferred hard-to-value property, such as artwork or interests in a family-owned business, consider filing a gift tax return even if you’re not required to. Adequate disclosure of the transfer in a return triggers the statute of limitations, generally preventing the IRS from challenging your valuation more than three years after you file.

There may be other instances where you’ll need to file a gift tax return — or where you won’t need to file one even though a gift exceeds your annual exclusion. Contact us for details.

Taking Advantage of tangible property safe harbors

Posted by Admin Posted on Mar 10 2015

If your business has made repairs to tangible property, such as buildings, machinery, equipment and vehicles, you may be eligible for a deduction on your 2014 income tax return. But you must make sure they were truly “repairs,” and not actually “improvements.”

Why? Costs incurred to improve tangible property must be depreciated over a period of years. But costs incurred on incidental repairs and maintenance can be expensed and immediately deducted. Distinguishing between repairs and improvements can be difficult, but a couple of IRS safe harbors can help:

Routine maintenance safe harbor. Recurring activities dedicated to keeping property in efficient operating condition can be expensed. These are activities that your business reasonably expects to perform more than once during the property’s “class life,” as defined by the IRS.

Small business safe harbor. For buildings that initially cost $1 million or less, qualified small businesses may elect to deduct the lesser of $10,000 or 2% of the unadjusted basis of the property for repairs, maintenance, improvements and similar activities each year. (A qualified small business is generally one with gross receipts of $10 million or less.)

Contact us to ensure that you’re taking all of the repair and maintenance deductions you’re entitled to.

You might benefit from deducting investment interest expense on your 2014 tax return

Posted by Admin Posted on Mar 04 2015

Investment interest — interest on debt used to buy assets held for investment, such as margin debt used to buy securities — generally is deductible for both regular tax and alternative minimum tax purposes. But special rules apply that can make the deduction less beneficial than you might think.

Your investment interest deduction is limited to your net investment income, which, for the purposes of this deduction, generally includes taxable interest, nonqualified dividends and net short-term capital gains, reduced by other investment expenses. In other words, long-term capital gains and qualified dividends aren’t included. However, any disallowed interest is carried forward, and you can deduct it in a later year if you have excess net investment income.

You may elect to treat net long-term capital gains or qualified dividends as investment income in order to deduct more of your investment interest. But if you do, that portion of the long-term capital gain or dividend will be taxed at ordinary-income rates.

If you’re wondering whether you can claim the investment interest expense deduction on your 2014 return, please contact us. We can run the numbers to calculate your potential deduction — or to determine whether you could benefit from treating gains or dividends differently to maximize your deduction.

Review gains and losses now to see if action by Dec. 31 can save 2014 taxes

Posted by Admin Posted on Dec 08 2014

Appreciating investments that don’t generate current income aren’t taxed until sold, deferring tax and perhaps allowing you to time the sale to your tax advantage. Review your year-to-date gains and losses now to see if selling any additional investments by Dec. 31 can reduce your 2014 tax liability.


For example, if you’ve cashed in some big gains during the year, look for unrealized losses in your portfolio and consider selling them to offset your gains. Or if you have net losses, consider selling some appreciated investments, because the losses can absorb the gain. If net losses exceed net gains, you can deduct only $3,000 ($1,500 for married filing separately) of the net losses against ordinary income, though you can carry forward excess losses indefinitely.


If you bought the same investment at different times and prices and want to sell high-tax-basis shares to reduce gain or increase a loss to offset other gains, be sure to specifically identify which block of shares is being sold.


For more ideas on how to reduce taxes on your investments, contact us. We can provide strategies that are right for your situation. But don’t wait — most strategies must be implemented by Dec. 31 to reduce your 2014 tax liability.

Buying a business vehicle before year end may reduce your 2014 tax bill

Posted by Admin Posted on Dec 02 2014

If you’re looking to reduce your 2014 tax bill, you may want to consider purchasing a business vehicle before year end. Business-related purchases of new or used vehicles may be eligible for Section 179 expensing, which allows you to expense, rather than depreciate over a period of years, some or all of the vehicle’s cost.


The normal Sec. 179 expensing limit generally applies to vehicles weighing more than 14,000 pounds. The limit for 2014 is $25,000, and the break begins to phase out dollar-for-dollar when total asset acquisitions for the tax year exceed $200,000. These amounts have dropped significantly from their 2013 levels. But Congress may still revive higher Sec. 179 amounts for 2014.


Even when the normal Sec. 179 expensing limit is higher, a $25,000 limit applies to SUVs weighing more than 6,000 pounds but no more than 14,000 pounds. Vehicles weighing 6,000 pounds or less are subject to the passenger automobile limits. For 2014, the depreciation limit is $3,160.


Many additional rules and limits apply to these breaks. So if you’re considering a business vehicle purchase, contact us to learn what tax benefits you might enjoy if you make the purchase by Dec. 31.

Accelerating deductions to save taxes

Posted by Admin Posted on Nov 18 2014

Smart timing of deductible expenses can reduce your tax liability, and poor timing can unnecessarily increase it. When you don’t expect to be subject to the alternative minimum tax (AMT) in the current year, accelerating deductible expenses into the current year typically is a good idea. Why? Because it will defer tax, which usually is beneficial.


One deductible expense you may be able to control is your property tax payment. You can prepay (by Dec. 31) property taxes that relate to this year but that are due next year, and deduct the payment on your return for this year. But you generally can’t prepay property taxes that relate to next year and deduct the payment on this year’s return.


Don’t forget that the income-based itemized deduction reduction returned last year. Its impact should be taken into account when considering timing strategies.


Not sure whether you should prepay your property tax bill or what other deductions you might be able to accelerate into 2014? Contact us. We can help you determine what steps to take before year end to reduce your 2014 tax bill.

How higher-bracket taxpayers can take advantage of the 0% long-term capital gains rate

Posted by Admin Posted on Nov 08 2014

The long-term capital gains rate is 0% for gain that would be taxed at 10% or 15% based on the taxpayer’s ordinary-income rate. If you have loved ones in the 0% bracket, you may be able to take advantage of it by transferring appreciated assets to them. The recipients can then sell the assets at no federal tax cost.

Before acting, make sure the recipients you’re considering won’t be subject to the “kiddie tax.” This tax applies to children under age 19 as well as to full-time students under age 24 (unless the students provide more than half of their own support from earned income).

For children subject to the kiddie tax, any unearned income beyond $2,000 (for 2014) is taxed at their parents’ marginal rate rather than their own, likely lower, rate. So transferring appreciated assets to them will provide only minimal tax benefits.

It’s also important to consider any gift and generation-skipping transfer (GST) tax consequences. For more information on transfer taxes, the kiddie tax or capital gains planning, please contact us. We can help you find the strategies that will best achieve your goals.

Self-employed? Save more by setting up your own retirement plan

Posted by Admin Posted on Oct 14 2014

If you’re self-employed, you may be able to set up a retirement plan that allows you to make much larger contributions than you could make as an employee. For example, the maximum 2014 employee contribution to a 401(k) plan is $17,500 - $23,000 if you’re age 50 or older. Look at how the limits for these two options available to the self-employed compare:

1. Profit-sharing plan. The 2014 contribution limit is $52,000 - $57,000 if you’re age 50 or older and the plan includes a 401(k) arrangement.

2. Defined benefit plan. This plan sets a future pension benefit and then actuarially calculates the contributions needed to attain that benefit. The maximum future annual benefit toward which 2014 contributions can be made is generally $210,000. Depending on your age, you may be able to contribute more than you could to a profit-sharing plan.

You don’t even have to make your 2014 contributions this year. As long as you set up one of these plans by Dec. 31, 2014, you can make deductible 2014 contributions to it until the 2015 due date of your 2014 tax return. Additional rules and limits apply, so contact us to learn which plan would work better for you.

   

Maximizing depreciation deductions in an uncertain tax environment

Posted by Admin Posted on Oct 01 2014

For assets with a useful life of more than one year, businesses generally must depreciate the cost over a period of years. Special breaks are available in some circumstances, but uncertainty currently surrounds them:

Section 179 expensing. This allows you to deduct, rather than depreciate, the cost of purchasing eligible assets. Currently the expensing limit for 2014 is $25,000, and the break begins to phase out when total asset acquisitions for the year exceed $200,000. These amounts have dropped significantly from their 2013 levels. And the break allowing up to $250,000 of Sec. 179 expensing for qualified leasehold-improvement, restaurant and retail-improvement property expired Dec. 31, 2013.

50% bonus depreciation. This additional first-year depreciation allowance expired Dec. 31, 2013, with a few exceptions.

Accelerated depreciation. This break allowing a shortened recovery period of 15 — rather than 39 — years for qualified leasehold-improvement, restaurant and retail-improvement property expired Dec. 31, 2013.

Many expect Congress to revive some, if not all, of the expired enhancements and breaks after the midterm election in November. So keep an eye on the news. In the meantime, contact us for ideas on how you can maximize your 2014 depreciation deductions.

Is Your Business Ready for Play-or-Pay?

Posted by Admin Posted on Sept 12 2014

If you’re a “large” employer, time is running out to prepare for the Affordable Care Act’s (ACA’s) shared responsibility provision, commonly referred to as “play-or-pay.” It’s scheduled to go into effect in 2015.

Under transitional relief the IRS issued earlier this year, for 2015, large employers generally include those with at least 100 full-time employees or the equivalent, as defined by the ACA. However, the threshold is scheduled to drop to 50 beginning in 2016, and that threshold will apply beginning in 2015 for the ACA’s information-reporting provision.

The play-or-pay provision imposes a penalty on large employers if just one full-time employee receives a premium tax credit. The credit is available to employees who enroll in a qualified health plan through a government-run Health Insurance Marketplace and meet certain income requirements — but only if:

·         They don’t have access to “minimum essential coverage” from their employer, or

·         The employer coverage offered is “unaffordable” or doesn’t provide “minimum value.”

The IRS has issued detailed guidance on what these terms mean and how employers can determine whether they’re a large employer and, if so, whether they’re offering sufficient coverage to avoid the risk of penalties.

If your business could be subject to the play-or-pay provision and you haven’t yet started preparing, do so now. For more information on play-or-pay — or on the information reporting requirements — please contact us.

Back-to-School Tax Credits

Posted by Admin Posted on Sept 03 2014

Are you, your spouse or a dependent heading off to college? If so, here’s a quick tip from the IRS: some of the costs you pay for higher education can save you money at tax time. Here are several important facts you should know about education tax credits:   

  • American Opportunity Tax Credit.  The AOTC can be up to $2,500 annually for an eligible student. This credit applies for the first four years of higher education. Forty percent of the AOTC is refundable. That means that you may be able to get up to $1,000 of the credit as a refund, even if you don’t owe any taxes.
  • Lifetime Learning Credit.  With the LLC, you may be able to claim a tax credit of up to $2,000 on your federal tax return. There is no limit on the number of years you can claim this credit for an eligible student.
  • One credit per student.  You can claim only one type of education credit per student on your federal tax return each year. If more than one student qualifies for a credit in the same year, you can claim a different credit for each student.  For example, you can claim the AOTC for one student and claim the LLC for the other student.
  • Qualified expenses.  You may include qualified expenses to figure your credit.  This may include amounts you pay for tuition, fees and other related expenses for an eligible student. Refer to IRS.gov for more about the additional rules that apply to each credit.
  • Eligible educational institutions.  Eligible schools are those that offer education beyond high school. This includes most colleges and universities. Vocational schools or other postsecondary schools may also qualify.
  • Form 1098-T.  In most cases, you should receive Form 1098-T, Tuition Statement, from your school. This form reports your qualified expenses to the IRS and to you. You may notice that the amount shown on the form is different than the amount you actually paid. That’s because some of your related costs may not appear on Form 1098-T. For example, the cost of your textbooks may not appear on the form, but you still may be able to claim your textbook costs as part of the credit. Remember, you can only claim an education credit for the qualified expenses that you paid in that same tax year.
  • Nonresident alien.  If you are in the U.S. on an F-1 student visa, you usually file your federal tax return as a nonresident alien. You can’t claim an education credit if you were a nonresident alien for any part of the tax year unless you elect to be treated as a resident alien for federal tax purposes. To learn more about these rules see Publication 519, U.S. Tax Guide for Aliens.
  • Income limits. These credits are subject to income limitations and may be reduced or eliminated, based on your income.

For more information, visit the Tax Benefits for Education Information Center on IRS.gov. Also, check Publication 970, Tax Benefits for Education. You can get it on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Tax Aspects of Selling Your Home

Posted by John Burcham Posted on Aug 27 2014

Many people still ask if they sell their home, do they need to buy another one of equal or greater value.  Fortunately, that is the old law and it no longer applies.  The general rule under the new law states that a married couple can exclude up to $500,000 ($250,000 for a single person) of gain on the sale of a residence that was used as the main home for two of the last five years. 

 

You might not need to report the sale on your tax return if the gain is not taxable.   The best part of the law says that the tax on the excluded gain is not just deferred until a later date, the tax is completely forgiven.  Also the new 3.8% net investment income tax does not apply to the excluded gain. 

 

Another area of confusion is that the gain on the sale of your home is the cash you get at closing.  If the home was never depreciated, the gain is calculated by taking the selling price of your home, less the selling expenses, less the cost of your home including improvements.   This may or may not be the cash you receive.  The amount of debt on the property is generally not a factor in determining your gain but it does impact the cash you receive after the loan is paid off.   

 

As usual, there are some exceptions to the general rule.  If you used any portion of your home for business, you may owe taxes.  This would include using a portion of your home as an office in home or renting the property.  

 

If you have a gain and you haven’t lived in the house for two years, you might still be able to exclude some or all of the gain if unusual circumstances forced you to sell the home.  For instance, an unexpected job transfer requiring you to relocate might allow you to utilize a portion of the $500,000 ($250,000) exclusion. 

 

The rules can be tricky and the discussion above is just the basics.  If you have an unusual situation with the sale of your home, you should discuss this with your CPA.  

Installment Sales Offer Both Pluses and Minuses

Posted by Admin Posted on Aug 07 2014

A taxable sale of a business might be structured as an installment sale if the buyer lacks sufficient cash or pays a contingent amount based on the business’s performance. An installment sale also may make sense if the seller wishes to spread the gain over a number of years — which could be especially beneficial if it would allow the seller to stay under the thresholds for triggering the 3.8% net investment income tax or the 20% long-term capital gains rate.

But an installment sale can backfire on the seller. For example:

  • Depreciation recapture must be reported as gain in the year of sale, no matter how much cash the seller receives.
  • If tax rates increase, the overall tax could wind up being more.
Please let us know if you’d like more information on installment sales — or other aspects of tax planning in mergers and acquisitions. Of course, tax consequences are only one of many important considerations.

New IRA Rollover Rule Coming in 2015

Posted by Yi Zha Posted on Aug 04 2014
The IRS recently issued Announcement 2014-15 in which it states that beginning in 2015, taxpayers can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs you own. For more details, please refer to the link below or consult our firm for your tax planning issues. 

http://www.irs.gov/Retirement-Plans/IRA-One-Rollover-Per-Year-Rule

Is a Roth IRA conversion right for you this year?

Posted by Admin Posted on July 30 2014

If you have a traditional IRA, you might benefit from converting some or all of it to a Roth IRA. A conversion can allow you to turn tax-deferred future growth into tax-free growth. It also can provide estate planning advantages: Roth IRAs don't require you to take distributions during your life, so you can let the entire balance grow tax-free over your lifetime for the benefit of your heirs.


There's no income-based limit on who can convert to a Roth IRA. But the converted amount is taxable in the year of the conversion. Whether a conversion makes sense for you depends of factors such as:

  • Your age,
  • Whether the conversion would push you into a higher income tax bracket or trigger the 3.8% net investment income tax,
  • Whether you can afford to pay the tax on the conversion,
  • Your tax bracket now and expected tax bracket in retirements, and
  • Whether you'll need the IRA funds in retirement.

We can run the numbers and help you decide if a conversion is right for you this year. Please contact our office with any questions you might have. 

Documenting Your Charitable Donations

Posted by Admin Posted on July 29 2014

Many people make donations to charities whose work they support, but if you are planning to take a tax deduction for your gift, you must have the proper paperwork. Assembling the right documentation can also be tricky because the requirements vary based on whether the donation is cash and on the value of your gift. If you donate less than $250 in cash, for example, a canceled check, credit card statement or similar record may be sufficient, but if you give more, you will need a written acknowledgment from the charity. An additional tax form--and possibly an appraisal--may be needed for non-cash donations, depending on their value. Of course, the organization itself must also qualify as a charity under IRS rules.


We can offer advice that will make it possible for you to fund the causes you believe in and qualify for the deductions you deserve. We can also help you incorporate charitable giving into your long-term tax and estate planning. Be sure to contact us with all of your questions on charitable giving or any other financial concern.  

Taxpayer Wins in Unusual Tax Court Case

Posted by Ramin Karimi Posted on July 25 2014
A "professional blood donor" emerged victorious in her case against the government in a recent US Tax Court decision. Margaret Green, who has a rare blood type, earned much of her income from blood donations. When she filed her income taxes, she reported her income and expenses on Schedule C as a self-employed individual. Among the items she deducted were travel expenses, and expenses for dietary supplements and food.

The IRS claimed that this was not a valid trade or business. The Tax Court disagreed and sided with Ms. Green. The Court allowed expenditures for high-protein foods and diet supplements to improve the quality of her plasma. They also allowed her travel expenses stating that her body was the "container in which her product was transported to the market", and thus transporting her body to the donation centers was an ordinary and necessary business expense.

However, a few of the taxpayer's deductions were disallowed by the Tax Court. Ms. Green attempted to deduct the cost of her health insurance as a business expense. The Tax Court sided with the IRS stating that the insurance costs could not be deducted as a business expense for a self-employed individual, but rather must be deducted as self-employed health insurance.

Additionally, the taxpayer attempted to take a depletion deduction for the loss of her blood's mineral content. The Court said that blood is not a natural resource in the same vein as oil & gas and no depletion deduction is allowed.

Give and Receive With a Charitable Remainder Trust

Posted by Admin Posted on July 23 2014

Would you like to benefit charity while reducing the size of your taxable estate yet maintain an income stream for yourself? Would you also like to divest yourself of highly appreciated assets and diversify your portfolio with minimal tax consequences? Then consider a CRT. Here’s how it works:

·         When you fund the CRT, you receive a partial income tax deduction and the property is removed from your estate.

·         For a given term, the CRT pays an amount to you annually.

·         At the term’s end, the CRT’s remaining assets pass to charity.

If you fund the CRT with appreciated assets, it can sell them without paying tax on the gain and then invest the proceeds in a variety of stocks and bonds. You’ll owe capital gains tax when you receive CRT payments, but much of the liability will be deferred. Plus, only a portion of each payment will be attributable to capital gains. This also may help you reduce or avoid exposure to the 3.8% net investment income tax and the 20% top long-term capital gains rate.

For more ideas on tax-smart gifts to charity, minimizing estate taxes, maintaining an income stream or diversifying your portfolio tax efficiently, contact us.

What's New for Colorado Taxpayers?

Posted by Amy Lister Posted on July 22 2014

On May 30, 2014, the governor of Colorado signed House Bill 14-1119 enacting an income tax credit for the donation of food to a hunger-relief charitable organization. The credit would apply to Colorado farmers, ranchers, and fruit / vegetable growers. 


Beginning on or after Jan. 1, 2015 through 2019, the newly added C.R.S. 39-22-536 provides an income tax credit for a food contribution to a hunger-relief charitable organization. According to the definitions outlined in C.R.S. 39-22-536(1)(b), a food contribution means a contribution of food usable for human beings, such as livestock, eggs, milk, or an agricultural crop.

The credit is equal to either twenty-five percent, not to exceed five thousand dollars, of the wholesale market price (as defined) or twenty-five percent, not to exceed five thousand dollars, of the most recent sale price (as defined) of the food contribution. C.R.S. 39-22-536(2)(a).

A food bank is required to issue to the taxpayer a certificate that indicates the name of the hunger-relief organization that accepted the contribution, the quantity of the contribution, and the method used to determine the price of the contribution. The certificate shall also include a statement that certifies the contribution is related to the organization's purpose related to its tax-exempt status and that no money, other property, or services were received in exchange for the contribution. The taxpayer will need to include this certificate with their income tax return. 

Please contact our office if you would like more information on how this credit might be beneficial to you in the upcoming year. 

Are You Subject to this New Tax?

Posted by Admin Posted on July 17 2014

You may find a little less in your tax refund this year if you are subject to the new 3.8% net investment income tax that went into effect at the beginning of 2013. It applies to married couples filing jointly with modified adjusted gross income (MAGI) over $250,000 and single people with MAGI above $200,000 (trusts and estates are also affected). It kicks in if you have net investment income, which includes interest, dividends, capital gains and rental and royalty income, among other items.


If this income raised your tax bite for 2013, then it's not too late to begin planning strategies to minimize this and other taxes for 2014. Be sure to contact us to talk about your best tax and financial options for the coming year. 

2 Tax Pitfalls of Mutual Funds

Posted by Admin Posted on July 16 2014

Investing in mutual funds is an easy way to diversify a portfolio, which is one reason why they're commonly found in retirement plans such as IRAs and 401(k)s. But if you hold such funds in taxable accounts, or are considering such investments, beware of these two tax pitfalls:

1. Mutual funds with high turnover rates can create income that's taxed at ordinary-income rates. Choosing funds that provide primarily long-term gains can save you more tax dollars because of the lower long-term rates.

2. Earnings on mutual funds are typically reinvested, and unless you keep track of these additions and increase your basis accordingly, you may report more gain than required when you sell the fund. (Since 2012, brokerage firms have been required to track -- and report to the IRS -- your cost basis in mutual funds acquired during the tax year.)


If your mutual fund investments aren't limited to your tax-advantaged retirement accounts, we'd be pleased to help you assess the potential tax impact and suggest ways to minimize your tax liability. 

Social Security to Resume Benefits Statement Mailings

Posted by Mark Miller Posted on July 11 2014

CHICAGO (Reuters) - Paper Social Security benefits statements, which used to be mailed out every year and then fell victim to budget cuts, are going to make a partial comeback.


Starting this September, the Social Security Administration (SSA) will resume mailings at five-year intervals to workers who have not signed up to view their statements online, an agency spokesman told Reuters. The statements will be sent to workers at ages 25, 30, 35, 40, 45, 50, 55, and 60, he said, adding the agency would continue to promote use of the online statements.


The SSA stopped mailing most paper statements in 2011 in response to budget pressures, and saved the SSA $70 million annually - about 50 cents per mailed statement. But the decision has been a sore point with some critics, who argue the statement provides a valuable annual reminder to workers of what they can expect to get back from payroll taxes in the future.


The annual statement includes an estimate of monthly benefits at various claiming ages, and for disability claims. It explains how benefits are calculated, and displays the worker's history of income subject to Social Security tax.


The SSA budget is funded mainly by the same payroll tax revenue used for paying benefits but Congress, which approves the agency's budget, has approved less than the agency's request in 14 of the past 16 years. In fiscal 2012, for example, SSA operated with $11.4 billion, just 88 percent of the amount requested.


The cuts have led to sharp reductions in SSA customer service. Nationwide, staff is down 62,000 from a peak of 70,000 in the 1900s. 


So far, only 10 million American wage earners - just 6 percent of all workers - have signed up at the site. (www.1.usa.gov/1d3xvuZ). Critics note that many of the workers who will be most reliant on Social Security in retirement are least likely to have Internet access, including low-income and non-English speaking minorities.


The partial restoration of mailed statements was made possible by an improved budget outlook. The SSA's fiscal 2014 budget was boosted to $11.7 billion and President Barack Obama's fiscal 2015 budget request is $12 billion. 


"It's a step in the right direction," said Nancy Altman, co-director of Strengthen Social Security, an advocacy group. "But the mailings shouldn't be limited to workers who haven't signed up (for) online accounts. Just because people have signed up, it does not mean that they revisit it to check their earnings statements."


Information retrieved from Reuters.com

Household Employee Rules

Posted by John Burcham Posted on July 09 2014

It is very easy to have a household employee without even realizing you have become an employer.  Maybe you hire a nanny during the summer months to watch your kids in your home while you are at work or maybe one of your elderly parents needs a caregiver during the day.  These are typical situations where you could fall under the household employee rules.   These rules do not cover the plumber or electrician you hire to make repairs to your home since these people are generally independent contractors. 


If you pay someone more than $1,900 for the year or more than $1,000 per quarter for working in your home, the household employee rules may apply.  Once the household employer rules apply, you become an employer and the wages paid become subject to all the same payroll taxes and payroll reporting applicable to any business. 

 

The federal payroll taxes and most federal payroll tax reporting can be done on your personal income tax return.  You may need to increase your withholding or pay estimated taxes during the year to avoid penalties.  The federal payroll tax reporting is done on Schedule H included in your Form 1040 personal income tax return and the payroll taxes you owe are added to the balance due with your return.  However, you still need to issue Form W-2 to your employee and file that form with the Social Security Administration.  You also need to collect certain information from the employee for withholding and residency requirements and file several reports when they are first hired.   Don’t forget to check with your homeowners insurance agent to see if the employee is covered.


The State of Colorado has not adopted any simplified reporting for household employees like the IRS.  Therefore, you will need to file quarterly reports and pay Colorado withheld taxes and unemployment taxes throughout the year.  


The key to avoiding problems is recognizing you have hired an employee and treating them as an employee from the start.  Call your CPA to discuss this issue if you think it might apply to you.  Don’t wait until next April 15 to find out if you have a problem. For assistance with your household employees, contact our office and find out how we can help you today. 

Why You Need to Know the Value of Your Assets

Posted by Admin Posted on July 07 2014

With the gift and estate tax exemptions currently at $5.34 million, you might think that estate valuations are less important. But even if you believe that your estate’s value is under the exemption amount, it’s still important to know the value of your assets.

First, your estate might be worth more than you think. For example, if you own an insurance policy on your life, the death benefit will be included in your estate, which may be enough to trigger estate tax liability.

Second, obtaining a qualified appraisal can limit the IRS’s ability to revalue your assets. If you make gifts that exceed the $14,000 annual gift tax exclusion, you’ll need to file a gift tax return, even if the gift is within your lifetime exemption. Generally, the IRS has three years to audit gift tax returns and challenge reported values for gifted assets. But that period doesn’t begin until the gift has been “adequately disclosed.”

For assets that are difficult to value — such as closely held business interests or real estate — the best way to satisfy the adequate-disclosure requirements and avoid an IRS challenge is to include a qualified professional appraisal with your return.

Please contact us for more information on properly valuing your assets. We can help you comply with IRS requirements and keep taxes to a minimum.

New 1023-EZ Form Makes Applying to be Tax-Exempt Easier; Most Charities Qualify

Posted by Admin Posted on July 03 2014
Yesterday, the Internal revenue Service introduced a new, shorter application form to help small charities apply for 501(c)(3) tax-exempt status more easily. The new Form 1023-EZ, available now on IRS.gov, is three pages long, compared with the standard 26-page Form 1023. Most small organizations, including as many as 70 percent of all applicants, qualify to use the new streamlined form. Most organizations with gross receipts of $50,000 or less and assets of $250,000 or less are eligible. 

The change will allow the IRS to speed the approval process for smaller groups and free up resources to review applications from larger, more complex organizations while reducing the application backlog. 

The new 1023-EZ form must be filed on www.pay.gov, accompanied by a $400 user fee. Payments can be made directly from your bank account or by credit/debit card. The instructions include an eligibility checklist that organizations must complete before filing the form. Contact our office for more information about how your charity can apply to be tax exempt. 


Information gathered from IRS.gov

Home Mortgage Deduction

Posted by Yi Zha Posted on July 01 2014
Generally, home mortgage interest is any interest you pay on a loan secured by your home (main home or a second home).

In most cases, you can deduct all of your home mortgage interest. How much you can deduct depends on the date of the mortgage, the amount of the mortgage, and how you use the mortgage proceeds. 

Interest paid on refinances, home equity loans (HELOAN) and home equity lines of credit (HELOC) are tax-deductible as well. However, restrictions apply on homeowners who raise their mortgage debt beyond their property's fair market value. HELOAN and HELOC interest expense is not deductible for AMT unless the loan is used to purchase, build or improve the home.

The Internal Revenue Service (IRS) imposes a $1 million loan size cap to home acquisition debt and $100,000 to home equity loan. Loans for more than these limits are disallowed from this tax deduction.

The term "points" is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points. When discount points are paid in conjunction with a purchase, the cost may be deducted in full in the year in which they were paid, dollar-for-dollar. With respect to a refinance, discount points are not fully tax-deductible in the year in which they are paid, but are typically amortized over the life of the loan.

For more information on home mortgage deduction, please contact our office. 

If You've Put Your Home on the Market, You Need to Know the Consequences of a Sale

Posted by Admin Posted on June 30 2014
Summer is a common time to put a home on the market. If you're among those who are following this trend, it's important to be aware of the tax consequences. 

If you're selling your principal residence, you can exclude up to $250,000 ($500,000 for joint filers) of gain -- as long as you meet certain tests. Gain that qualifies for exclusion also is excluded from the Affordable Care Act's 3.8% net investment income tax. 

A loss on the sale of your principal residence generally isn't deductible. But if part of your home is rented out or used exclusively for your business, the loss attributed to that portion may be deductible.

If you're selling a second home, be aware that it won't be eligible for the gain exclusion. But if it qualifies as a rental property, it can be considered a business asset, and you may be able to defer tax on any gains through an installment sale or a Section 1031 exchange. Or you may be able to deduct a loss. 

If you have a home on the market, please contact us to learn more about the potential tax consequences of a sale.  

Health Care Benefits and the Affordable Care Act

Posted by Amy Seger Posted on June 26 2014
The Affordable Care Act (otherwise known as the "ACA" or "Obamacara") has brought many changes to health care benefits to be offered by employers. The more publicized items, including providing mandatory coverage or penalties, insurance exchanges, full time versus part-time employees relate to "large employers". large employers are those with more than 50 full time equivalent employees. 

While this is significant, many small businesses may only have a few employees and those may be family members. There is a lesser known provision in the law that does not allow employers to limit benefits without a $100/day penalty per employee. This law is not only for large employers, it applies to all employers, even those with only one employee. 

The practical application for some of our clients is that they have been offering to pay a fixed amount of an employee's health insurance premium or reimburse medical expenses.

Example: Employer offers to reimburse his new employee $100 per month to purchase health insurance when employee provides proof of paying the insurance. This is not allowed under the ACA and will subject the Employer  to a $100 per day employee penalty for as long as the arrangement is in place. 

Example: Employer offers to reimburse employees (2) for medical co-pays or deductibles that are incurred under a group plan up to $500 per year. This is not allowed under the ACA and will subject the Employer to a $100 per day per employee penalty ($200 per day) for as long as the arrangement is in place.

For more information regarding the Affordable Care Act or questions you may have, contact our office at (303) 651-3626.

Don't Be Taken in by Phony IRS Requests

Posted by Admin Posted on June 24 2014
The phone rings. The caller says they are from the Internal Revenue Service and they claim you owe taxes and must submit payment through a wire transfer or prepaid debit card. Or you receive an email supposedly from the IRS asking you to share your bank account, credit card or Social Security number. What should you do?

The sad truth is that many scammers pretend to be IRS agents as part of identity theft or other criminal activity. If you receive a surprising or suspicious communication purportedly from the IRS, we would urge you to call us immediately. We can help you identify a bogus request for information and work with you to respond to a legitimate IRS contact. You can also call the IRS directly at 800-829-1040 to verify any communication you receive. 

Consider the Sec. 83(b) Election to Save Tax on Restricted Stock Awards

Posted by Admin Posted on June 23 2014

Restricted stock is stock that’s granted subject to a substantial risk of forfeiture. Income recognition is normally deferred until the stock is no longer subject to that risk or you sell it. You then pay taxes on the stock’s fair market value at your ordinary-income rate.

But you can instead make a Section 83(b) election to recognize ordinary income when you receive the stock. This election, which you must make within 30 days after receiving the stock, can be beneficial if the stock is likely to appreciate significantly. Why? Because it allows you to convert future appreciation from ordinary income to long-term capital gains income and defer it until the stock is sold.

There are some potential disadvantages, however:

·         You must prepay tax in the current year — which also could push you into a higher income tax bracket or trigger or increase the additional 0.9% Medicare tax.

·         Any taxes you pay because of the election can’t be refunded if you eventually forfeit the stock or sell it at a decreased value.

If you’ve recently been awarded restricted stock or expect to be awarded such stock this year, work with us to determine whether the Sec. 83(b) election is appropriate for you.

Recent Tax Developments

Posted by Ramin Karimi Posted on June 20 2014

Are you aware of the recent tax developments that have occurred in the past few months? Below are some of the important tax changes that could affect you.  


IRA Rollovers to be limited

The Tax Court has held that a taxpayer may only do one IRA rollover in any 1-year period. This contradicts the IRS' long-standing position that the rollover limits are determined on each separate IRA.The IRS has decided that it will take the position on rollovers after December 31, 2015.

This rule will not apply to trustee-to-trustee transfers where the taxpayer never has access to the funds. There are not subject to the limit.


Popular expired tax breaks may be revived

A number of popular tax breaks expired at the end of 2013. For individuals, these expired item include:

  • the deduction for state and local sales taxes,
  • the deduction for qualified tuition and related expenses,
  • tax-free distributions for IRAs for charitable purposes, and
  • the deduction for mortgage insurance premiums
Legislation has started to extend these benefits through 2015.

For businesses, the following items that expired in 2013 may be reinstated for 2014 and 2015:

  • Increased Section 179 expensing limits,
  • Bonus Depreciation, and
  • 15-year depreciation for qualified leasehold, restaurant, and retail improvements

Postponements on the employer mandate to provide health insurance

The employer mandate imposed on large employers (employing at least fifty full-time equivalent employees (FTEs)) a requirement to provide employees insurance or be subject to penalty. The mandate was supposed to begin in 2014, but it has been delayed until 2015. Additionally, for those deemed to be mid-sized (50-99 FTEs), the mandate has been postponed to 2016 in some instances. 


Small estates get more time to make portability election

The estate of a decedent who is survived by a spouse may make a portability election. It allows the surviving spouse to apply the decedent's unused exclusion amount to the surviving spouse's own transfers during life and death. In general, the election must be made within nine months of the decedent's death on the estate tax return. Because many estates below the filing threshold did not file, the IRS provided a simplified method to elect portability. For decedents dying after 12/30/10 and before 12/31/13, and were a US citizen or resident at their death, they now have until 12/31/14 to file an estate tax return to make the election.


Contact our office for more information on recent tax developments and learn how we can help you.

Prepare for Isolated Emergencies: 10 Steps

Posted by Trevor Mickelson Posted on June 18 2014

No matter where your organization is located, you cannot escape weather-related events.


You have likely planned your disaster recovery strategy for this threat, but other business interruptions can be equally damaging and often come with no advance warning--such as power outages, a vehicle crashing into your building, a hacked computer system, fire, an infestation, or a burst pipe.

Also, during such isolated events, your company may be the only organization affected--meaning little or no municipal or governmental support. As a result, clients and employees may be less understanding than they would be if the problem affected an entire region. 

Therefore, it's equally as important to prepare for isolated events as it is to prepare for natural disasters.

Agility Recovery, the Small Business Administration's partner, suggests these 10 steps to preparedness:

1. Assess internal and external risks

Discuss, "What if this happened to us? How would it affect our business, and how would we need to react?"

2. Analyze your critical business functions

For each internal function, discuss your recovery options for keeping it up and running during a disaster, or quickly and efficiently bringing it back online after a forced shutdown. 

3. Prepare your supply chain

Query your vendors and partners about their emergency response plans, and how they plan to maintain their service to your organization should a crisis occur.

4. Prepare your employees

Your employees are your most important asset, and should be involved in all aspects of emergency planning.

Prepare them for likely events: practice your work-from-home strategy and cross-train.

5. Back up your data

Ensure your strategy takes into account the three highest priorities when backing up your data: access, redundancy, and security.

Backups should be available to you at all times no matter your location or means of access. 

6. Create a crisis communication plan

Have two to three alternate communication methods in place, and regularly test and train employees on the use of these tools.

7. Assemble an emergency kit or 'GO' bag

Include items you would need to run your business if you had to vacate your office quickly or if your facility was without power, such as water, Internet access, and so on.

8. Review your insurance coverage

Review your insurance policy annually to make sure all of your employees, office locations, and physical assets are adequately covered.

9. Plan for an alternate location

Whether your plan calls for a fully stocked mobile facility, or for relocation to a nearby site, it's imperative to discuss your strategy for how you would restore service to your members if your facility were to be compromised. 

10. Test your plan

Conduct exercises on everything from getting backup servers up and running to how long it takes to evacuate your facility.

Through testing, you will be able to determine what works and may need adjusting.

Bonus - Is your Organization ready for a disaster?

Click Here for your No Cost Risk Assessment Thanks to JBSK CPAs and Agility Recovery. 

What You'll Learn:

  • How to identify threats particular to your organization.
  • Where to focus your mitigation effort.
  • The importance of planning for all types of disaster. 

For more details on these ten steps, and other valuable planning resources, please reach out to Trevor Mickelson 720-490-4531 or Trevor.Mickelson@AgilityRecovery.com

Did You Miss The Tax Deadline?

Posted by Admin Posted on June 16 2014

Did you miss the tax filing deadline on April 15? If so, don't worry. Here are some tips to help you. 


  • Make sure to file your taxes and pay as soon as you can. When you owe taxes, it is important to file and pay as soon as possible in order to minimize both interest and penalty charges that you may incur. If you are due a refund, there are no penalty charges for filing a late return. If you are unable to pay your taxes all at once, it is important to pay as much as you can when you first file your tax return. Paying the remaining balance soon after filing is crucial to stop further penalties and interest. If you need more time to pay your taxes, you can apply to use the IRS Online Payment Agreement Tool.
  • You may have a refund waiting. If you know you are due a refund, make sure to file as soon as possible, even if you are not required to do so. You can lose the right to your refund if you do not file your return within three years.

For more information or help with filing your taxes, please contact us or visit IRS.gov.


Information retrieved from irs.gov

How Will The End of Popular Credits and Deductions Affect Your Business?

Posted by Admin Posted on June 10 2014

Did you know that bonus 50% first-year depreciation will no longer be available to your business in 2014 and beyond? And that the Section 179 expensing limit, which allows you to deduct qualified costs immediately instead of expensing them over time, will tumble to $25,000 from $500,000, where it's been for the last four years? These are just a few of the changes that businesses should prepare for this year. While many tax rules are permanent, others are written to expire at some point in the future. Some are extended and given new deadlines, but a significant number of popular "extenders" terminated at the end of 2013, including both business credits and deductions. There are discussions in Congress about extending these and other credits and deductions, but it is unlikely that any legislation will be enacted prior to the November elections.


How will the end of these and other credits or deductions affect you? And what other tax law changes could have an impact on you company finances? Contact our office to find out the answers. We can offer the advice and planning recommendations you need to minimize your tax bill and enhance your business's financial situation. 

Involuntary Conversions: Electing to Defer Gain

Posted by Amy Lister Posted on June 09 2014

How do you treat an insurance payment you received for a property loss? An answer often heard in the accounting community is - it depends. 


If the insurance proceeds exceed your basis, then you might have a gain from the payment. In many cases though, there is an election available so you can defer all or part of the tax on the gain under the "involuntary conversion" rules.

What is an involuntary conversion? Property loss caused by destruction, theft, seizure, or condemnation. An involuntary conversion in which you can defer gain recognition are theft, damage resulting from an "act of God" or the government's taking of your property for public use.

When lost property is converted into cash or into other property which isn't similar or related in use; the gain is recognized. However, if you replace involuntary converted property with property that is similar or related in use within a specified time, you can elect to defer the gain. To qualify to elect deferral, the replacement property must generally be purchased within two years of the close of the tax year in which the gain was realized. Even if you elect gain deferral, you have to recognize gain to the extent the replacement property costs less than the amount you received as compensation. Also, you must reduce your basis in the new property by the amount of gain deferred. 

These rules apply to personal property as well as property used in your trade or business or held for investment purposes. These special deferral rules do not apply to losses. Losses might be deductible as casualty losses, subject to the limitations and special rules that apply to casualty losses. 

Please contact our office if you would like more information on gain deferral related to involuntary conversions, or how casualty losses are deducted. 

Summer Day Camp May Save You Taxes

Posted by Admin Posted on June 05 2014

The passing of Memorial Day marks the beginning of summer in the minds of many Americans. Although the kids might still be in school for another week or two, summer day camp is rapidly approaching for many families. If yours is among them, did you know that sending your child to day camp might make you eligible for a tax break?

Day camp is a qualified expense under the child and dependent care credit, which is worth 20% of qualifying expenses (more if your adjusted gross income is less than $43,000), subject to a cap. For 2014, the maximum expenses allowed for the credit are $3,000 for one qualifying child and $6,000 for two or more.

Be aware, however, that overnight camp costs don’t qualify for the credit.

Additional rules apply, so please contact us to determine whether you’re eligible.

Applying for Tax-Exempt Status

Posted by Admin Posted on May 20 2014
Are you interested in applying for your business or organization to become tax-exempt? The IRS provides easily accessible information and resources, including information on all of the necessary forms for applying and maintaining a tax-exempt business.

Applying to be tax exempt most importantly requires you to have a tax exempt purpose. This can range from being a charity, serving for social good, or even being a veteran's or political organization. The list of organizations that are eligible to be tax-exempt does not stop here, and the full list can be found on IRS.gov. If your company serves a tax exempt purpose, you must fill out either IRS Form 1023 or Form 1024, depending on if you are in search of exemption under section 501(c)(3) or 501(a), respectively. 501(c)(3) is for public charities, and 501(a) is for membership groups such as veteran's or political organizations. If your organization has existed for less than three years, you must provide current and proposed financial statements, and if it has been in existence for three or more years, you must provide three years of historical financials. Various fees and possible other forms may need to be submitted with this, and you can easily find out what you need to do with the IRS's step-by-step guide to applying. When you submit the completed application to the IRS, it will be reviewed and returned. All necessary documents and forms can be found on IRS.gov.

Once you have gained tax-exempt status, or if you already have a tax-exempt business, the IRS provides many tools to make sure that you maintain this status by filling out the proper annual paperwork and making sure your company's actions stay aligned with tax-exempt purposes. www.stayexempt.irs.gov provides many tutorials on not only the necessary annual paperwork, but also what to do in various scenarios, such as dealing with unrelated business income or employment issues.

If you have any further questions about applying to become tax-exempt, or maintaining your tax-exempt status, do not hesitate to contact us. 


Information gathered from IRS.gov

Employers: Have You Amended Your FSA Plan?

Posted by Admin Posted on May 19 2014
Health care Flexible Spending Accounts (FSAs) allow employees to redirect pretax income for an employer-sponsored plan that pays, or reimburses them for, qualified medical expenses not covered by insurance. A maximum employee contribution limit of $2,500 went into effect in 2013. (Employers can set a lower limit, however, and there will continue to be no limit on employer contributions to FSAs).

Employers that haven't yet done so must amend their plans and summary plan descriptions to reflect the $2,500 limit (or a lower one, if they wish) by Dec. 31, 2014. 

While you're making those amendments, you may want to consider another amendment: allowing a $500 rollover.

Generally, an employee loses any FSA amount that hasn't been used by the plan year's end. But last year the IRS issued guidance permitting employers to amend their FSA plans to allow up to $500 to be rolled over to the next year. However, if your plan was previously amended to allow a 21/2 month grade period for incurring expenses to use up the previous year's contribution, you cannot add the rollover provision unless you eliminate the grace period provision.

Questions about amending your FSA plan -- or adding FSAs to your benefits offering? Then contact us; we'd be pleased to answer these and other questions related to taxes and employee benefits.

Tax Breaks for Small Businesses

Posted by Admin Posted on May 14 2014

This week, May 12-16, is National Small Business Week, celebrating America's wonderful entrepreneurs and small business owners. If you are the owner of a small business, it is critical to be able to keep your finances in order to grow as a business. Don't forget about the many tax-saving opportunities that exist for you as the owner of a small business:

- Home Office Deduction: Beginning this year, the IRS has created a simpler option for calculating the deduction you can receive if your business is centralized from your home. Instead of keeping up with specific home office expenses, you can now use a standard rate per foot. This rate is $5 per square foot, for up to 300 square feet.

- Auto Expenses: The 2014 standard mileage rates for a car or truck are 56 cents per business mile that you have driven. You can also keep track of your actual driving expenses, which may take more time, but could possibly save you more money.

- Books and Legal Fees: Because they are considered a cost of doing business, legal and tax assistance on your business books are fully deductible. Also, fees paid to lawyers and tax professionals can generally be deducted from the year that they are applicable to.

- Business Travel Expenses: Even if a trip is for both pleasure and business, you can still deduct the business part of your expenses. Expenses deducted can include meals and lodging, travel, business calls, and other necessary expenses related to your business travel.

On Thursday, May 15, the IRS will be hosting a webinar for small businesses about avoiding common filing mistakes. To register, visit the Webinars for Small Businesses page on the IRS.gov website.


Information from IRS.gov and Nolo.com

Don't Lose Tax Benefits When Combining Business Travel with Vacation Pleasure

Posted by Admin Posted on May 13 2014

 Are you thinking about turning a business trip into a family vacation this summer? This can be a great way to fund a portion of your vacation costs. But if you're not careful, you could lose the tax benefits of business travel.


Generally, if the primary purpose of your trip is business, then the expenses directly attributable to business will be deductible (or excludable from your taxable income if your employer is paying the expenses or reimbursing you through an accountable plan). Reasonable and necessary travel expenses generally include:

- Air, taxi, and rail fares
- Baggage handling
- Car use or rental,
- Lodging
- Meals, and
- Tips.

Expenses associated with taking extra days for sightseeing, relaxation, or other personal activities generally aren't deductible. Nor is the cost of your spouse or children travelling with you. During your trip it's critical to carefully document your business vs. personal expenses. Also keep in mind that special limitations apply to foreign travel, luxury water travel and certain convention expenses.

For more information on how to maximize your tax savings when combining business travel with a vacation, please contact us. In some cases you may be able to deduct expenses that you might not think would be deductible. 

Be Aware of Recent Computer Security Issues

Posted by Sandra Towry Posted on May 12 2014
The last several weeks have been filled with security issues both in papers, on the internet, and through the air waves. We have heard about security issues from a worm called HeartBleed* to the "zero-day" Microsoft Internet Explorer bug** (Microsoft has issued a security update to correct their security breach. If you use a Microsoft-based computer, be sure to install this). These two vulnerabilities are different, but they still put computers, laptops, and mobile device information at risk. 

Whether open source vulnerability or a typo, we all pay for the time we lose in closing in on correcting these issues or waiting for them to be fixed. The first step, AS ALWAYS, is to keep your operating system and internet browser updated. If, at this time, you do not have your operating system and browser set to do automatic updates, you may want to set them to do so. Also, make sure you have a good anti-virus program installed and keep it up to date. Even though an anti-virus program is not set up to stop you from viewing a corrupt website, it will help to prevent hackers from getting into your computer via these corrupt sites.

There are other browsers, such as Mozilla Firefox, Google Chrome, Safari, and Opera which are not as widely used as Internet Explorer. Remember all internet browsers have vulnerabilities if you, as a user, do not take precautions in your viewing habits. Those within the above list are not affected by this current Microsoft bug that affects Internet Explorer. Due diligence is the best way to keep a virus off your computer and to keep your secured information safe when at your computer. If you haven't updated your computer and changed your passwords, it is a good idea to do so to make sure that your private information and accounts stay private.



* HeartBleed is a worm or piece of malicious code, and is a simple programming error written unintentionally by coding bug fixes and new features for a security protocol called OpenSSL (sites using OpenSSL are distinguishable by the lock symbol that will appear on the left hand side of the website's domain name). The code was adopted into the development of a version of software and the erroneous code was released onto internet sites, basically a typo that left a gaping security hole in the OpenSSL. Because it is open source, about two-thirds of the Internet rely on it. 

** The Internet Explorer Bug leaves all versions of Internet Explorer 6 through 11 open to potential attacks. The "Zero-Day" exploit of Internet Explorer is generally referred to a vulnerability that is discovered and used by attackers before a company has had a chance to fix it. The exploit allows attackers to run any code they want after a victim visits the infected web page. It is also a "drive-by" exploit, in that all you haveto do is visit an infected page to be put in danger. No clicking or download is needed to be infected.

Softening the Blow of Higher Taxes on Trust Income

Posted by Admin Posted on Apr 30 2014

This year, trusts are subject to the 39.6% ordinary-income rate and the 20% capital gains rate to the extent their taxable income exceeds $12,150. And the 3.8% net investment income tax applies to undistributed net investment income to the extent that a trust's adjusted gross income exceeds $12,150.


Three strategies can help you soften the blow of higher taxes on trust income:

1. Use grantor trusts. An intentionally defective grantor trust (IDGT) is designed so that the trust's income is taxed to you, the grantor, and the trust itself avoids taxation. But if your personal income exceeds the thresholds that apply to you (based on your filing status) for these taxes, using an IDGT won't avoid the tax increases.

2. Change your investment strategy. Nongrantor trusts are sometimes desirable or necessary. One strategy for easing the tax burden is for the trustee to shift investments into tax-exempt or tax-deferred investments.

3. Distribute income. When a trust makes distributions to a beneficiary, it passes along ordinary income (and, in some cases, capital gains), which is taxed at the beneficiary's marginal rate. Thus, one strategy for avoiding higher taxes is to distribute trust income to beneficiaries in lower tax brackets.

Some of these strategies may, however, conflict with a trust's purpose. We can review your trusts and help you determine the best solution to achieve your goals. 

Tax Season May be Over, but Tax Scams are Not

Posted by Admin Posted on Apr 25 2014
While tax season has come to a close, tax scams are still occurring, and are something that you should be aware of. The latest scam is an email phishing scam, which asks you to "Update your IRS e-file". The email looks like it is from the IRS, but links you to a fake website that is meant to look like the IRS website. The email may contain a mention of 'USA.gov' and 'IRSgov', but never actually mentions the IRS' actual website, IRS.gov. 

While you may not think about it when clicking on an email like this, be careful, and do not respond to the email or click on the link. The IRS will never contact you via email, text message, or a social media website. 

This is the latest tax scam, but others are still occurring and are something to keep in mind. Aggressive phone calls claiming to be the IRS and threatening deportation, arrest, or your driver's license being revoked may be intimidating, but do not give out any personal information over the phone in this situation. If you are worried that you may owe taxes or fees, hang up and call the IRS at 1.800.829.1040. This will allow you to securely check if you owe any taxes, and prevent you from giving personal information to scammers. Other emails, such as ones stating that "your reported 2013 income is flagged for review due to a document processing error... contact the Taxpayer Advocate Service for resolution assistance" are also fake, because the IRS will not initiate any kind of contact via email.

If you receive an email or phone call that you believe to be a scam, please forward it to the IRS at phishing@irs.gov. Even though tax season may be over, this does not mean that scams will immediately stop, and it is important to protect your personal information from theft. 

Information retrieved from irs.gov

What Tax Records Can You Toss?

Posted by Admin Posted on Apr 23 2014

Your 2013 tax return is filed, and you may now be wondering which records you can toss -- the short answer is none. You need to hold on to all of your 2013 tax records for now. But this is a great time to look at your records for previous tax years and determine what you can purge.


At a minimum, keep tax records for as long as the IRS has the ability to audit your return or assess additional taxes, which generally is three years after you file your return. At JBSK, we recommend that you hold onto them for at least 6 years, just to be safe. This will allow you to reference them if an issue is to arrive.

But you'll need to hang on to certain records beyond the statute of limitations:
  • Keep tax returns themselves forever, so you can prove to the IRS that you actually filed. (There's no statute of limitations for an audit if you didn't file a return.)
  • For W-2 forms, consider holding them until you begin receiving Social Security benefits. Why? In case a question arises regarding your work record or earnings for a particular year.
  • For records related to real estate or investments, keep documents as long as you own the asset, plus three years after you sell it and report the sale on your tax return.

This is only a sampling of retention guidelines for tax related documents. If you have questions about other documents, please contact us. Always remember, if you're not sure whether to keep a document or not, it is always worth it to hold onto it, and can save you a lot of trouble if an issue arises.

The Importance of Financial Planning

Posted by Admin Posted on Apr 21 2014

Now that tax season has ended, it may be clear to you how organized you were for this year's returns. If you felt slightly unorganized, or even if you were on top of things, there are many benefits to having a solid financial plan. According to a study done by Financial Finesse, an employee financial education provider, employees are becoming more proactive about their financial planning and are making sure to focus on and improve security in their long-term financials.If you have yet to get a grip on your financial plan, or are interested in improving it for the future, here are some tips for establishing a useful financial plan:

  • Create a monthly budget to include your expenses, savings, and investments. This budget will help to guide your monthly spending, and might stop you from making unnecessary impulse buys. By organizing your short-term budgeting, it will be easier to focus on the long-term goals that you have.
  • Establish long-term financial goals. Are you saving for children's college funds, looking to buy a new house in the next 10 years, or just generally saving for retirement? Once these have been established, you can more easily understand how much you need to save to make your long-term goals reachable.
  • Knowledge leads to security. Having a strong understanding of your financial goals and budgets will allow you to be more knowledgeable about your current finances, and will allow you to understand when (and if) you have room to go over-budget. You will also be comforted with knowing that there is financial security in the case of an accident or emergency.
  • Make the most of any employee benefits you are receiving. Make sure that you understand exactly what your employee benefits cover, because sometimes you can get more out of them than what you think. If your 401(k) provides for employer matching, it is beneficial to contribute as much as you can, so that you can get the most out of it from your employer. Every company handles their retirement plans differently, so talk to your employer for details, or contact us with questions.

Financial planning is critical to make the most of your wealth in the future, and to ensure for a comfortable retirement. While it may not seem very important now, the earlier you develop a solid financial plan the better. Feel free to contact us with any questions, or to receive guidance on how to strengthen your financial future.

Information gathered from AccountingToday, Bankrate.com, and Captivate-Tips

IRS Gives Colorado Flood Victims More Time When Filing

Posted by Admin Posted on Apr 16 2014
If you were a victim of the flooding in Colorado in September 2013, the IRS has automatically given an extension for deciding when to claim losses associated with the disaster. This extension means that you now have until October 15th to decide whether to claim losses on your 2012 or 2013 returns. Claiming losses on a 2012 vs. a 2013 return could lead to greater tax savings for some, depending on individual income factors. This extra time is granted regardless of whether you requested for a tax-filing extension this year. 

Are you eligible for this extension? Eligible tax-payers are those that suffered uninsured losses from the storms, flooding, and mudslides in the 20 federally-established disaster area counties in September 2013. The counties that are eligible are Adams, Arapahoe, Boulder, Broomfield, Clear Creek, Crowley, Denver, El Paso, Fremont, Gilpin, Jefferson, Lake, Larimer, Lincoln, Logan, Morgan, Pueblo, Sedgwick, Washington, and Weld.

While this extension can be very helpful, if you are to miss it, you will then only be able to claim losses on an original or amended 2013 return -- 2012 return is no longer an option. Be aware of the October 15th deadline so that you can file on whichever year will lead to greater tax savings for you. Not sure which year that would be? Feel free to contact us with any questions.

Further information can be found on IRS.gov under Notice 2014-20. Information taken from IRS Newswire

Did You File for a Tax Extension?

Posted by Admin Posted on Apr 16 2014
If you were worried about filing your taxes completely before the deadline, you may have filed for a tax extension. However, do you know exactly what that means? A tax extension is filed by filling out Form 4868 either electronically or on paper, and will extend the deadline six months, to October 15. Tax extensions can give you more time to fill out all of the proper forms, give you a chance to organize your returns, and take the stress away if you find yourself cutting it close to the deadline. Below are some common questions about tax extensions, and the answers to these questions that you may be having after filing for an extension. 


Q: Will I be penalized for filing for an extension?
A: No. Unless you owe money to the IRS, you will not be penalized in anyway for pushing back the April 15 deadline. However, if you do owe money, large penalties come with not paying this by April 15. There is an additional 5% charge per month past April, and a 3% annual interest rate. So if you do owe money, and thought you were in the clear by filing for an extension, it is important to get that payment in immediately.

Q: Will a tax extension increase the chance that I will be audited?
A: No.While you may associate these two things with each other, extending your filing date will not increase your chances of getting audited at all. In fact, while it is not known exactly how the auditing system actually works, some CPAs believe that extending your taxes actually reduce your chances of getting audited. Do not count on this, but it does go to show that an extension will not increase your chance of being audited.

Q: Does the IRS frown upon filing a tax extension?
A: No, not in the least. The IRS offers this extension in hopes that taxes will be filed properly and completely, which is what they are looking for. If filing for an extension means that you will be able to get your taxes in with all of the correct information, this is much better than filing messy, incomplete taxes by April 15. 


Overall, there are no downsides to filing a tax extension. If you are worried about getting everything filed properly, it is worth it to file for an extension, because there are much heavier penalties for misfiling or forgetting to file your taxes completely. If you have filed for an extension this year and have any questions, feel free to contact us. If you already filed your 2013 returns, but were stressed and overwhelmed to turn them in on time, keep these tax extension tips in mind in the future. 

Information retrieved from the IRS, USA Today, and FileLater.com

The Movement Towards E-Filing

Posted by Admin Posted on Apr 14 2014
As of April 4, the Internal Revenue Service has received about 90.3 million returns through e-file, which is about 90.4% of the 99.85 million returns that have been received. This means that only about 9.6% of returns are still being filed on paper, due to the many benefits of e-filing. E-filing leads to an all around faster processing time of your return, shortening the entire return process from eight weeks to 21 days and allowing you to check the status of your return on the IRS website by using their "Where's My Refund?" tool. 

For tax preparers, the IRS requires e-file if you are preparing more than 100 returns annually. While there are still some tax forms that cannot be submitted electronically, the ability to e-file reduces the amount of paper used annually and allows the IRS to be more efficient and provide you with a quicker turnaround time. The IRS encourages e-filing, because it is the quickest and safest way to file your returns. 

Below is a table taken from the Internal Revenue Service website with the most updated filing season statistics. With tax season coming to a close, make sure that you have filed your 2013 tax return or have followed the necessary steps to file for a tax extension. 

2014 FILING SEASON STATISTICS

Cumulative statistics comparing 4/05/13 and 4/04/14

Individual Income Tax Returns:

2013

2014

% Change

Total Receipts

99,131,000

99,850,000

.7

Total Processed

93,103,000

98,170,000

5.4

 

 

 

 

E-filing Receipts:

 

 

 

TOTAL           

88,638,000

90,306,000

1.9

Tax Professionals

54,673,000

54,295,000

-0.7

Self-prepared

33,964,000

36,011,000

6.0

 

 

 

 

Web Usage:

 

 

 

Visits to IRS.gov

261,597,162

235,961,315

-9.8

 

 

 

 

Total Refunds:

 

 

 

Number

77,849,000

78,769,000

1.2

Amount

$214.487

billion

$219.936

billion

2.5

Average refund

$2,755

$2,792

1.3

 

 

 

 

Direct Deposit Refunds:

 

 

 

Number

65,020,000

65,326,000

0.5

Amount

$190.752

billion

$190.934

billion

0.1

Average refund

$2,934

$2,923

-0.4

Table from http://www.irs.gov/uac/Newsroom/Filing-Season-Statistics-for-Week-Ending-April-4,-2014

Don't Inadvertently Miss Filing Deadlines

Posted by Admin Posted on Apr 11 2014
If you still file a paper return, it's important to know the IRS's "timely mailed = timely filed" rule: If your tax return is due April 15, it's considered timely filed if it's postmarked by midnight on April 15. But just because you drop your return in a mailbox on the 15th doesn't mean you're safe.

Consider this example: On April 15, Susan mails her federal tax return with a payment. The post office loses the envelope and, by the time Susan realizes what has happened and refiles, two months have gone by. She's hit with failure-to-file and failure-to-pay penalties totaling $1,000.

To avoid this risk, use certified or registered mail. Alternatively, you can use one of the private delivery schedules designated by the IRS to comply with the timely filing rule, such as DHL Same Day service. FedEx and UPS also offer a variety of options that pass muster with the IRS. But beware: If you use an unauthorized delivery service -- such as FedEx Express Saver or UPS Ground -- your document isn't "filed" until the IRS receives it. 

If you haven't filed your return yet and are concerned about meeting the deadline, another option is to file for an extension. Doing so has both pluses and minuses, depending on your situation. Please contact us if you have questions about what you should do to avoid penalties for failing to file or pay. 

Goodbye to Some Old Friends, and What About Making a New One?

Posted by Sandra Towry Posted on Apr 09 2014

As we say goodbye to Windows XP and Office 2003, we continue to search for that next workhorse. As of April 2014, both Windows XP and Office 2013 will be discontinued. As we look to that new operating system (OS) our natural selection would be Windows 7, however mainstream support for Windows 7 ends January 2015. Does this make for a long term strategy?

What does Windows 8 have to offer? The information out there has not been kind to Windows 8. Windows 8 does require some training, but it is a short learning curve if you are familiar with the Windows desktop and/or Windows 7. You should understand a couple of points:
  • To access the key features of the OS, move the mouse to the corners (the new version will eliminate this)
  • The desktop mode is still available
  • Being sure your mouse drivers are up to date will aid in making the most of Windows 8
  • Most applications that run on Windows 7 will run on Windows 8
Upgrade Process: 
The upgrade from Windows XP to Windows 7 will wipe all of your applications and personal files, so make sure to backup all your files to an external hard drive. It might be time to buy new applications, although if any of your old programs don't work, Windows 7 Professional and Ultimate versions come with an XP Mode. This is a fully functional version of XP that runs within Windows 7, making it possible to run otherwise incompatible software.
If you'd prefer to upgrade to Windows 8, that  is certainly the easier option. It can be installed in place over the top of Windows XP SP3 and, although you'll lose your applications, your personal files will be retained. You don't even need to get your hands on an installation disc beforehand, but be sure to have discs for your application software available.

The Support Issue:
Of course, with support for Windows XP ending in April 2014, that should act as a reminder that all of these operating systems have a shelf life. It's worth bearing in mind that official consumer support for Windows 7 - which includes warranty claims and free tech support - will end as soon as January 2015, although Microsoft's extended support - which includes the all-important stream of free security updates - will continue until at least 2020.

After reviewing this information it may not be enough to sway your decision if you want to stick with Windows 7, but it's worth knowing.

Can I Claim My Elderly Parent as a Dependent?

Posted by Admin Posted on Apr 02 2014
For you to deduct up to $3,900 on your 2013 tax return under the adult-dependent exemption, in most cases the parent must have less gross income for the tax year than the exemption amount. Generally Social Security is excluded, but payments from dividends, interest and retirement plans are included.

In addition, you must have contributed more than 50% of your parent's financial support. If the parent lived with you, the amount of support you claim under the 50% test can include the fair market rental value of part of your residence.

If you shared care-giving duties with a sibling and your combined support exceeded 50%, the exemption can be claimed even though no one individually provided more than 50%. However, only one of you can claim the exemption.

The adult-dependent exemption is just one tax break that you may be able to employ to ease the financial burden of caring for an elderly parent. Contact us for more information on qualifying for this break or others. 

It's Not Too Late to Make a 2013 Contribution to an IRA

Posted by Admin Posted on Mar 31 2014
Tax-advantaged retirement plans allow your money to grow tax-deferred -- or, in the case of Roth accounts, tax-free. But annual contributions are limited by tax law, and any unused limit can't be carried forward to make larger contributions in future years. So it's a good idea to use up as much of your annual limits as possible.

Have you maxed out your 2013 limits? While it's too late to add to your 2013 401(k) contributions, there's still time to make 2013 IRA contributions. The deadline is April 15, 2014. The limit for total contributions to all IRAs generally is $5,500 ($6,500 if you were age 50 or older on Dec. 31, 2013).

A traditional IRA contribution also might provide some savings on your 2013 tax bill. If you and your spouse don't participate in an employer-sponsored plan such as a 401(k) -- or you do but your income doesn't exceed certain limits -- your traditional IRA contribution is fully deductible on your 2013 tax return.

If you don't qualify for a deductible traditional IRA contribution, consider making a Roth IRA or nondeductible traditional IRA contribution. We can help you determine what makes sense for you.

Your 2013 Return May Be Your Last Chance for 2 Depreciation-Related Breaks

Posted by Admin Posted on Mar 19 2014
If you purchased qualifying assets by Dec. 31, 2013, you may be able to take advantage of these depreciation-related breaks on your 2013 tax return:
  1. Bonus Depreciation. This additional first-year depreciation allowance is, generally 50%. Among the assets that qualify are new tangible property with a recovery period of 20 years or less and off-the-shelf computer software. With only a few exceptions, bonus depreciation isn't available for assets purchased after Dec. 31, 2013.
  2. Enhanced Section 179 Expensing. This election allows a 100% deduction for the cost of acquiring qualified assets -- including both new and used assets -- up to $500,000, but this limit is phased out dollar for dollar if purchases exceed $2 million for the year. For assets purchased in 2014, the expensing and purchase limits have dropped to $25,000 and $200,000, respectively. 
Even though this may be your last chance to take full advantage of these breaks, keep in mind that the larger 2013 deductions may not necessarily prove beneficial over the long term. Taking these deductions now means forgoing deductions that could otherwise be taken later, over a period of years under normal depreciation schedules. In some situations, future deductions could be more valuable, such as if you move into a higher marginal tax bracket.

Let us know if you have questions about the depreciation strategy that's best for your business.

2013 Higher Education Breaks May Save Your Family Taxes

Posted by Admin Posted on Mar 17 2014
Tax credits can be especially valuable because they reduce taxes dollar-for-dollar; deductions reduce only the amount of income that's taxed. A couple of credits are available for higher education expenses:
  1. The American Opportunity credit -- up to $2,500 per year per student for qualifying expenses for the first four years of postsecondary education.
  2. The Lifetime Learning credit -- up to $2,000 per tax return for postsecondary education expenses, even beyond the first four years
But income-based phaseouts apply to these credits. If your income is too high to qualify, you might be eligible to deduct up to $4,000 of qualified higher education tuition and fees. The deduction is limited to $2,000 for taxpayers with incomes exceeding certain limits and is unavailable to taxpayers with higher incomes.

If you don't qualify for breaks for your child's higher education expenses because your income is too high, your child might. Many additional rules and limits apply to the credits and deduction, however. To learn which breaks your family might be eligible for on your 2013 tax returns -- and which will provide the greatest tax savings -- please contact us.

Colorado Enterprise Zone Credits

Posted by Khala Ongdi Posted on Mar 12 2014
The Colorado Enterprise Zone (EZ) program was created by the Colorado Legislature on July 1, 1986 as an incentive for businesses to invest and operate in areas of Colorado that have high unemployment rates, low per capita income, and/or a stagnant population growth rate. Currently there are 19 designated Enterprise Zones - please visit www.advancecolorado.com/ezadministrators for a complete list.

Businesses that operate in these economically distressed areas of the state may be eligible for several significant state income tax credits. As of January 1, 2012 businesses are required to apply for an annual pre-certification by the zone administrator prior to commencing any business activity that may generate the enterprise zone credit. Once the tax year has ended businesses must certify that the activities were performed in order to claim the enterprise zone credits on the state income tax return. Both the pre-certification and certification can be filed online.

The enterprise zone credits include the following:
  • Investment tax credit - 3% of eligible investment
  • Commercial vehicle investment tax credit - 1.5% of commercial vehicle purchases
  • Job training tax credit - 12% of qualified training expenses
  • Health insurance credit - $1,000 per covered employee
  • R&D increase tax credit - 3% of increased R&D expenses
  • Vacant building rehabilitation tax credit - 25% of rehabilitation expenses
Furthermore, certain rural areas are designated by the state as an Enhanced Rural Enterprise Zone that offers additional new jobs credits ($2,000 per job) and new agricultural processing job credits ($500 per new job). Please refer to www.advancecolorado.com/erez for a complete list of Enhanced Rural Enterprise Zones.

If you feel your business may be located in an Enterprise Zone, please do not hesitate to contact us so that we can discuss the credits that may be applicable to you in further detail.

The Code Sec. 199 Domestic Production Activities Deducion (DPAD)

Posted by Amy Lister Posted on Mar 05 2014
The domestic production activities deduction (DPAD) is available to all taxpayers - individuals, C corporations, farming cooperatives, estates, trusts, and their beneficiaries. The deduction can be passed through to partners and the owners of S corporations, it is not allowed to partnerships or the S corporations themselves.

The DPAD equals 9% of the net income from eligible activities. However, the amount of the deduction may not exceed taxable income or, in the case of individuals, the taxpayer's adjusted gross income. In addition, the amount of the DPAD can't exceed 50% of the W2 wages paid to employees that are allocable to the activities eligible for the deduction.

As noted above, the DPAD equals a percentage of the net income from eligible activities. Among the more common eligible activities are:
  • The manufacture, production, or growth of tangible personal property in the U.S.
  • The construction of real property in the U.S.
  • The performance of engineering or architectural services in the U.S. in connection with real property construction projects in the U.S.
Thee is a lot more to the DPAD - for example, determining whether your particular business activities are eligible for the deduction, how to compute the net income from activities that are eligible, and how to determine the amount of the deduction when you've got income from both eligible and ineligible activities. If you would like to discuss whether the DPAD applies to you, and if so, how best to take advantage of it, please do not hesitate to contact our firm. 

Reduction of Tax Breaks for Assets in 2014

Posted by Yi Zha Posted on Mar 03 2014
Here's a reminder for tax years beginning in calendar year 2014 and beyond. In the absence of extending legislation, one major tax break for assets used in business is scheduled to be drastically reduced.

Previously, your business could deduct up to $500,000 of qualified property (section 179 property) placed in service in 2013, subject to a phase-out for total purchases above $2 million.

For tax years (whether calendar or fiscal) beginning in 2014, the above benefits are drastically reduced. Thus, the dollar limit is currently $25,000 and the beginning-of-phase-out level would be $200,000. Additionally, computer software and limited types of building improvements and buildings would no longer qualify as section 179 property.

In addition to Section 179 deductions, your business could claim a 50% bonus depreciation deduction for qualified new (not used) property placed in service in calendar year 2013. However, 50% bonus depreciation ended for property placed in service after Dec. 31, 2013.

Many believe that these limits will be increased later this year but for now, this is the law. We will keep you posted on any changes. 

Could Deducting State and Local Sales Taxes Save You More?

Posted by Admin Posted on Feb 26 2014
For the last several years, taxpayers have been allowed to take an itemized deduction for state and local sales taxes in lieu of state and local income taxes. Although this break hasn't yet been extended to 2014, it is available for 2013.

It can be valuable if you reside in a state with no or low income taxes or if you purchase major items, such as a car or boat. So see if you can save more by deducting sales tax on your 2013 return. And if you're contemplating a major purchase, keep an eye on Congress to see if the break will be revived for 2014. You may want to factor the deduction's availability into your purchase decision.

For help determining whether deducting sales tax makes sense for you -- and for the latest information on the status of the deduction for 2014 -- please contact us. 

What Is A Tax Extension?

Posted by Admin Posted on Feb 24 2014
An extension is a form filed with the IRS to request additional time to file your tax return. The extension period is six months, which extends the due date for submitting your final returns from April 15 to October 15. Extending your return allows both you and us more time to prepare your tax return to ensure filing of an accurate tax return. In many cases, you may still be waiting for additional information (e.g., Schedule K-1, corrected 1099s, etc.) to complete your return. We may suggest that we extend your tax return due to the volume or complexity of transactions on your return, or late information received. There are some key points to know about extending your tax return:
  • Extending your tax return will NOT increase your likelihood of being audited by the IRS. It is better to file an extension rather than to file an incomplete return.
  • Extending a tax return can be less expensive and easier than rushing now, and possibly needing to amend your return later.
  • While an extension provides additional time to file, it does not provide additional time to pay. Penalties may be assessed if sufficient payment is not remitted with the extension
  • If you already know you will be waiting until the last minute for one or two documents, you may be able to minimize the chance of having to file an extension by providing all other available documents to your CPA as soon as you receive them.
Keep this information in mind when looking at your timeline, and call us with any questions.


Copyright © 2013 American Institute of CPAs. All rights reserved. 

How Do New Estate Tax Rules Affect You?

Posted by Admin Posted on Feb 21 2014
You may have heard that there are new rules on estate taxes as a result of the new tax law enacted in early 2013. Effective Jan. 1, 2013, the top tax rate on estates rose to 40% from 35%, but no tax will be imposed on the first $5.25 million of an estate (adjusted for inflation to $5.34M in 2014). While this sounds high, and you may think that the estate tax doesn't affect you or your family, you may be surprised. Estate planning should definitely be a priority.

Contact us to discuss all your questions about estate planning and the steps you can take to minimize the potential estate tax burden to your beneficiaries. 

How Do Taxes Affect Your Financial Picture?

Posted by Admin Posted on Feb 19 2014
Do you know how much you're paying in taxes? You may have a sense of what you spend on income taxes, but have you also considered the taxes you pay on utilities, gasoline, cigarettes and alcohol, hotel stays and numerous other items? The CPA profession's Total Tax Insights calculator (www.totaltaxinsights.org) can put these numbers in perspective, enabling you to make better informed financial decisions.

Take a few minutes to drop in your numbers, and if your results raise questions about your financial planning choices, we can help. If you'd like to get started, don't hesitate to contact us with all your questions.

Does the Investment Income Tax Apply to You?

Posted by Admin Posted on Feb 17 2014
As of Jan. 1, 2013, there is a 3.8% net investment income tax on some categories of passive investment income for individuals, trusts and estates that exceed certain income thresholds. As a result, it is in your best interest to identify these income sources and adopt strategies to lower your modified adjusted gross income or your net investment income to avoid the surtax.

If you think the new tax may apply to you, we can explain your choices and help you pick the best strategy to mitigate your tax bill. 

There's Still Time to Get Substantiation for 2013 Donations

Posted by Admin Posted on Feb 14 2014
To support a charitable deduction, you need to comply with IRS substantiation requirements. This generally includes obtaining a contemporaneous written acknowledgment from the charity stating the amount of the donation, whether you received any goods or services in consideration for the donation, and the value of an such goods or services.

"Contemporaneous" means the earlier of 1) the date you file your tax return, or 2) the extended due date of your return. So if you made a donation in 2013 but haven't yet received substantiation from the charity, it's not too late - as long as you haven't filed your 2013 return. Contact the charity and request a written acknowledgement. 

And don't take the substantiation requirements lightly. In one U.S. Tax Court case, the taxpayers substantiated a donation deduction with canceled checks and a written acknowledgment. The IRS denied the deduction, however, because the acknowledgment failed to state whether the taxpayers received goods or services in consideration for their donation. The taxpayers obtained a second acknowledgment including the required statement, but the Tax Court didn't accept it because it wasn't contemporaneous.

Additional substantiation requirements apply to some types of donations. We can help ensure you meet them so you can enjoy the deductions you're expecting. 

A Simplified Home Office Deduction

Posted by Admin Posted on Feb 10 2014
Do you work at home or have a home-based business? If so, you should be aware that the IRS has created a simpler option for calculating the deduction for the business use of your home. The new option makes recordkeeping easier because, instead of maintaining records of specific home office expenses, you can use a standard rate per square foot. The rate is $5 per square foot (up to a maximum of 300 sq. feet or $1,500) for qualifying business use space in place of taking a pro rata percentage of items such as mortgage interest, taxes and repairs.

Keep in mind there are good and bad aspects to this "simpler" method. The new method gives you back your full interest and tax deduction on schedule A, but you will lose your depreciation and loss carryover deductions. Of course, you must still use your home office regularly and exclusively for business. This may be a welcome relief for some taxpayers, but it might not be the best choice for others. Is it the right choice for you? Please contact us for answers to all your financial questions.

Smart Disaster Planning Steps

Posted by Admin Posted on Feb 05 2014

Too often natural disasters strike and serve as reminders that it’s important for both individuals and businesses to protect themselves against the potential financial consequences of such events. A few smart steps we recommend include making electronic backups of important records, including your insurance policies, tax returns, bank and credit card account information, and vital records.  It is critical that you store this backup in a separate location that will be easy to access if your area suffers damage.  You should also take the time to take pictures or videos of your home or business and store them separately in case you need to make an insurance claim.

If you run a business, you must consider how you will get up and running again after a disaster. It’s a good idea to develop contingency plans that will enable employees to work from home or elsewhere if your location is damaged or inaccessible. Both businesses and families should consider using phone trees or other methods to maintain contact in an emergency. Review your contact and contingency plans every year to be sure they are up to date.

Want further advice on protecting your family’s or business’s financial well-being in case of a disaster? We can help. Contact us today with all your financial questions.

The End of the Line for Some Popular Credits and Deductions

Posted by Admin Posted on Feb 03 2014

Did you know that while many tax rules are permanent, others are written to expire at some point in the future? These expiring items are often granted a temporary extension, but a significant number of popular “extenders” terminated at the end of 2013, including both credits and deductions. A number of credits for qualified energy home improvements and appliance purchases will no longer be available, along with the credit against health insurance premiums previously granted to certain taxpayers. Teachers will no longer be able to take the $250 deduction for out of pocket classroom supply purchases, and the deduction for qualified tuition and related expenses is set to disappear.

 

How will the end of these and other credits or deductions affect you? And what other tax law changes could have an impact on your finances? Contact our office to find out the answers. We can offer the advice and planning recommendations you need to minimize your tax bite and enhance your overall financial situation. 

File Early to Reduce Your Risk of Tax Return Fraud

Posted by Admin Posted on Jan 31 2014

With the well-publicized security breach at major retailer Target recently, identity theft is likely on your mind. And stolen credit isn’t your only risk.

In an increasingly common scam, identity thieves use victims’ personal information to file fraudulent tax returns electronically and claim bogus refunds. When the real taxpayers file their returns, they’re notified that they’re attempting to file duplicate returns. It can take months to straighten things out, causing all sorts of headaches and delaying legitimate refunds.

You can reduce your likelihood of becoming a victim by filing your return as soon as possible after you receive your W-2 and 1099s. If you file first, it will be the thief who’s filing the duplicate return, not you.

Also, if you did shop at Target during the security breach, be sure to check your bank and credit card accounts frequently, and consider signing up for the free year of credit monitoring the retailer is offering potential victims.

If you’d like to file your tax return early this year, please contact us. We’d be happy to help. Also let us know if you have questions about protecting yourself from tax return fraud and identity theft.

How Will the End of Some Popular Credits and Deductions Affect Your Business?

Posted by Admin Posted on Jan 27 2014

 

Did you know that bonus 50% first-year depreciation will no longer be available to your business in 2014 and beyond? And that the Section 179 expensing limit, which allows you to deduct qualified costs immediately instead of expensing them over time, will tumble to $25,000 from $500,000, where it’s been for the last four years? These are just a few of the changes that businesses should prepare for this year. While many tax rules are permanent, others are written to expire at some point in the future. Some are extended and given new deadlines, but a significant number of popular “extenders” terminated at the end of 2013, including both business credits and deductions.

 

How will the end of these and other credits or deductions affect you? And what other tax law changes could have an impact on your company finances? Contact our office to find out the answers. We can offer the advice and planning recommendations you need to minimize your tax bill and enhance your business’s financial situation.

Are you meeting the ACAs additional Medicare tax withholding requirements?

Posted by Admin Posted on Jan 22 2014

Under the Affordable Care Act (ACA), beginning in 2013, taxpayers with FICA wages over $200,000 per year ($250,000 for joint filers and $125,000 for married filing separately) had to pay an additional 0.9% Medicare tax on the excess earnings.

Unlike regular Medicare taxes, the additional Medicare tax doesn’t include a corresponding employer portion. But employers are obligated to withhold the additional tax to the extent that an employee’s wages exceed $200,000 in a calendar year. The $200,000 amount doesn’t include the employee’s income from any other sources or take into account his or her tax filing status.

In November 2013, the IRS released final regulations regarding the additional Medicare tax and the employer withholding requirements. The only substantial change from the proposed regulations is that employers no longer have access to relief from payment liability for any additional Medicare tax that was required to be withheld but that they didn’t withhold — unless the employer can provide evidence that the employee in question has paid the tax.

Please let us know if you have questions about the requirements. We’d be happy to answer them and help you ensure you’re in compliance with these as well as other ACA requirements.

© 2014

Time For An Estate Plan Checkup!

Posted by Admin Posted on Jan 20 2014

Now that we’re in the new year, it’s time for an estate plan checkup. Why? First, various exclusion, exemption and deduction amounts are adjusted for inflation and can change from year to year, so it’s a good idea to see if they warrant any updates to your estate plan:

 

2013

2014


Lifetime gift and estate tax exemption
 

$5.25 million

$5.34 million


Generation-skipping transfer tax exemption
 

$5.25 million

$5.34 million


Annual gift tax exclusion
 

$14,000

$14,000


Marital deduction for gifts to noncitizen spouse
 

$143,000

$145,000

But inflation adjustments aren’t the only reason for an estate plan checkup. You should also review your plan whenever there are significant changes in your family, such as births, deaths, marriages or divorces. And your estate plan also merits a look if your financial situation has changed significantly.

If you want to find out if your estate plan needs updating — or if you don’t have an estate plan and would like to put one in place — please contact us. We can help you ensure you have a plan that will achieve your goals.

8 Recent Tax Developments To Be Aware Of

Posted by Admin Posted on Jan 15 2014

The following is a summary of the most important tax developments that have occurred in the past three months that may affect you, your family, your investments, and your livelihood. Please call us for more information about any of these developments and what steps you should implement to take advantage of favorable developments and to minimize the impact of those that are unfavorable.

1) Delayed start date for 2014 tax filing season. In October 2013, the IRS said that the start date of the 2014 tax filing season would be delayed past the original Jan. 21, 2014 start date because of the government shutdown. However, at that time, it did not provide a specific delayed start date. It has now done so. Late in 2013, the IRS announced that the start date for the 2014 tax season would be Jan. 31, 2014. But it stressed that the Apr. 15, 2014 due date is not extended. Those unable to meet the deadline can apply for an automatic six-month extension, the IRS noted.

2) Guidance on the new 3.8% surtax on net investment income. The IRS has issued final and proposed regulations on the new 3.8% surtax on net investment income (NII) that first went into effect in 2013. The surtax is 3.8% of the lesser of: (1) NII, or (2) the excess of modified adjusted gross income (MAGI) over an unindexed threshold amount ($250,000 for joint filers or surviving spouses, $125,000 for a married individual filing a separate return, and $200,000 in any other case). The final regulations are voluminous and clarify many aspects of this new tax. They explain, among other items, how NII is calculated, the individuals and entities subject to or excepted from the tax, and the deductions taken into account in figuring the tax. The proposed regulations (upon which taxpayers may rely) provide guidance on the computation of NII with respect to a number of specialized provisions and situations including various payments to partners and former partners.

3) Guidance on the new additional Medicare tax. The IRS has issued final regulations on the new additional 0.9% Medicare (hospital insurance, or HI) tax that first applies for tax years beginning after 2012. This tax applies to individuals receiving wages with respect to employment in excess of $200,000 ($250,000 for married couples filing jointly and $125,000 for married couples filing separately). Likewise, the Medicare tax on self-employment income for any tax year beginning after Dec. 31, 2012 is increased by an additional 0.9% on self-employment income which exceeds the same thresholds as apply for employees. The regulations cover many aspects of this new tax including the employer's withholding requirement, reporting the tax on new Form 8959, and payment of the tax by self-employed individuals who also have employment income, among other items.

4) "Use-it-or-lose-it" rule relaxed for health FSAs. Last fall, the IRS modified the "use-or-lose" rule for health flexible spending arrangements (health FSAs) in order to allow, at the plan sponsor's option, participating employees to carry over up to $500 of unused amounts remaining at year-end. Previously, any amounts that weren't used by year-end would be forfeited. The IRS emphasized that the plan sponsor can specify a lower amount as the permissible maximum carryover amount, or it can decide to not allow any carryover at all.

5) IRA's ownership of taxpayer's business resulted in disastrous tax consequences. Harsh tax consequences resulted where an individual taxpayer had his IRA own the shares of his business, a limited liability company (LLC). Agreeing with the IRS, the Tax Court held that the LLC's payment of compensation to the taxpayer for his services to the LLC was a prohibited transaction under the rules governing IRAs. As a result, the IRA was retroactively disqualified and its assets were deemed distributed to the taxpayer and taxed to him as ordinary income. One purpose of the prohibited transaction rules is to prevent taxpayers from using their IRA to engage in transactions for their own account that could place plan assets and income at risk of loss before retirement. The taxpayer argued that he did not engage in a prohibited transaction when he caused the LLC to pay him compensation because the amounts it paid to him did not consist of plan income or assets of his IRA but merely the income or assets of a company in which his IRA had invested. However, the Court disagreed, finding that in causing the LLC to pay him compensation, the taxpayer engaged in the transfer of plan income or assets for his own benefit, in violation of the rules.

6) Standard mileage rates down. The optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) has decreased by 0.5¢ to 56¢ per mile for business travel after 2013. The rate for using a car to get medical care or in connection with a move that qualifies for the moving expense also has decreased by 0.5¢ to 23.5¢ per mile for 2014.

7) Bankruptcy protection for inherited IRAs. The Supreme Court has agreed to decide whether bankruptcy protection applies to inherited IRAs. There is a conflict among some lower courts as to whether a debtor's inherited IRA may qualify for an exemption under the bankruptcy laws. Some courts have held that the exemption for retirement funds does not apply to inherited accounts because they are not held for retirement. Other courts disagree, finding that the exemption applies because the funds were originally for retirement of the person from whom they were inherited. Those concerned that the Supreme Court may hold against the exemption may want to explore using trust arrangements for IRA funds to achieve asset protection.

8) Increased fees for installment agreements and offers in compromise. The IRS has issued final regulations increasing fees for an installment agreement (an agreement with the IRS to pay taxes in installments) and an offer in compromise (an offer to the IRS to settle one's tax debt for less than what the IRS says is owed). Specifically, effective Jan. 1, 2014, the fee for entering into an agreement to pay taxes in installments has increased from $105 to $120, and the fee for processing an offer in compromise has increased from $150 to $186. However, low-income taxpayers and taxpayers making offers based solely on doubt as to liability will continue to pay no fee.

 

Additional 0.9% Medicare Tax

Posted by Julie Bechtel Posted on July 30 2013

The additional Medicare tax imposes an additional 0.9% tax on FICA wages, Railroad Retirement Act compensation, and self-employment income above certain threshold amounts: $250,000 for married taxpayers filing jointly, $125,000 for married taxpayers filing separately, and $200,000 for single taxpayers.  The threshold must be exceeded before the tax is imposed and there is no corresponding amount owed by the employer.  The tax is effective for wages received for any tax year starting after December 31, 2012.  All wages subject to Medicare tax (1.45% for the employee) are subject to the additional Medicare tax.

The employer must withhold additional Medicare tax from wages it pays to an individual in excess of $200,000 in a calendar year regardless of the individual's filing status or wages paid by another employer.  Individuals cannot request additional income tax withholding specifically for the additional Medicare tax, but can use a Form W-4 to request additional income tax withholding.  If estimated taxes are paid there is no way to specifically apply payments to additional Medicare tax.

Individuals will owe additional Medicare tax on wages, compensation, and/or self-employment income, plus spouse's income if married filing jointly, on any income that exceeds the threshold for the individual's filing status (MFJ=$250,000.)  Noncash fringe benefits are also subject to the additional Medicare tax.  An individual's liability for additional Medicare tax will be calculated on their individual Form 1040.

Are you correctly reporting all new hires?

Posted by Amy Lister Posted on July 30 2013

Are you reporting all new hires correctly?

 

The Colorado Department of Labor and Employment has announced new employment eligibility verification requirements for Colorado employers effective October 1, 2012.

 

The employment verification law in Colorado is in addition to the federal Form I-9 requirements. There are two main requirements associated with this new Colorado law, both of which must occur within 20 days of hire: (1) an affirmation requirement (see the document - "Colorado Affirmation Form Instructions"), and (2) a requirement to make and retain copies of the employee identity and employment authorization documentation that was presented for completion of the Form I-9.

 

The Affirmation of Legal Work Status, copies of the employee's identity and employment authorization documentation, and the federal Form I-9 should all be kept in the employee's employment file for the term of their employment. There is no need to file any of these documents to the State of Colorado, or the IRS.

 

Federal law also requires Colorado employers to submit data to the State Directory of New Hires. This reporting must also take place within 20 of hire or by the first regularly scheduled payroll following the date of hire. Information about the employee, such as: name, address, social security number, and date of hire must be reported. Information about the employer should also be included, such as: employer name, payroll address, and federal identification number. Colorado employers can either fax the information to 303-297-2595 or mail it to: Colorado State Directory of New Hires, PO Box 2920, Denver, CO 80201-2920.

Automobile Business Expense Substantiation

Posted by Amy Lister Posted on July 30 2013

When operating and maintaining your car while traveling on business, you should keep records of all the expenses you have. You can use a log, diary, notebook, or any other written record to keep track of your expenses. Your records must show details of the following elements:

·         Amount

o   the cost of the car and any improvements

o   the date you started using it for business

o   the beginning mileage and ending mileage associated with each trip

o   the total mileage on the vehicle for the year

·         Time

o   the date of the use of the car

·         Place or Description

o   your business destination

·         Business Purpose

o   business purpose for the expense


It is necessary to keep records as long as they may be needed for the administration of any provision of the Internal Revenue Code. Generally, this means you must keep records that support your deduction for 3 years from the date you file the income tax return on which the deduction is claimed. You must keep records of the business use of your car for each year of the recovery period. The recovery period is generally 6 years under MACRS. Please consult your tax advisor to determine your particular recovery period.

Form 1099-MISC Reporting Requirements

Posted by Amy Lister Posted on July 30 2013

Are you engaged in a trade or business? Do you operate for gain or profit? If so, then you could be required to file an information return with the Internal Revenue Service. The Form 1099-MISC reporting rules apply to any business (whether a sole proprietorship, partnership, or corporation) that makes a reportable payment in the course of its trade or business.

 

So what is a reportable payment? Generally, payments of $600 or more made in the course of a trade or business to service providers who are not employees must be reported. Form 1099-MISC is used to report these payments. An independent contractor (service providers who are not employees) includes:

 

·         landlords

·         accountants

·         lawyers

·         contractors

·         subcontractors

·         repairmen, etc.

 

Anyone who provides your trade or business a service. Payments required to be reported include (but is not limited to) rents, fees, commissions, prizes, awards, or other forms of compensation for services.

 

There are some payments that do not have to be reported on Form 1099-MISC. For example: payments made to a corporation (there are exceptions), payments for merchandise, wages to employees, business travel allowances paid to employees, etc. For a complete list of exceptions see the 2013 Instructions for Form 1099-MISC by clicking here.

 

If you are required to file an information return (Form 1099-MISC) with the IRS then you need to request a correct taxpayer identification number (TIN) from your service providers. Form W-9 Request for Taxpayer Identification Number and Certification can be used for this purpose. For a copy of Form W-9, click here.

Landlord or Tenant - Leasehold Improvements and Favorable Depreciation Treatment

Posted by Julie Bechtel Posted on July 30 2013

Favorable depreciation and expensing rules for qualified leasehold improvements

Whether you are a landlord or a tenant, some of the leasehold improvements that you make qualify for favorable depreciation and property expensing rules that don't apply to most other building improvements. Specifically, improvements that are "qualified leasehold improvement property" (described below) and placed in service before Jan. 1, 2014 (Jan 1, 2015 for certain projects) are generally eligible for 50% bonus depreciation.

Also, "qualified leasehold improvement property," if placed in service before Jan. 1, 2014, can be depreciated
over a 15-year period, meaning that the 50% of the cost of the property that isn't deducted as bonus depreciation is deducted in the placed-in-service-year and over the next 14 years.

Further note that in lieu of claiming some or all of the depreciation allowed for "qualified leasehold improvement property," you might be able to elect to expense (i.e., deduct in the placed-in-service year) up to $250,000 of the cost of "qualified leasehold improvement property" placed in service in tax years that begin before 2014. Eligibility for the expensing election depends on the size and nature of your other investments in business property.


These special rules are a dramatic departure from the general rule that deductions for the cost of nonresidential
buildings, or improvements to the buildings, are allowed over a 39-year period.
 

Many, but not all, improvements made under a lease meet the requirements for being "qualified leasehold improvement  property." These requirements include, but aren't limited to:

  • the improvements do not enlarge the building 

    the improvements are not attributable to internal structural framework

    the improvements are not placed in service three years or sooner after the building was first placed in service

    the
    improvements must be pursuant to a signed lease
     

Please contact us to help you determine whether any improvements that you have in mind meet the requirements for qualified leasehold improvements.

 

 

Tax Notes - April 16

Posted by Amy Lister Posted on July 30 2013

You don't have to be a manufacturer to take the "manufacturers' deduction"

The manufacturers' deduction, also called the "Section 199" or "domestic production activities deduction," is 9% of the lesser of qualified production activities income or taxable income. The deduction is also limited to 50% of W-2 wages paid by the taxpayer that are allocable to domestic production gross receipts.

Yes, the deduction is available to traditional manufacturers. But businesses engaged in activities such as construction, engineering, architecture, computer software production and agricultural processing also may be eligible.

The deduction isn't allowed in determining net self-employment earnings and generally can't reduce net income below zero. But it can be used against the AMT.

Contact us to learn whether this potentially powerful deduction could reduce your business's tax liability.


The revived research credit can still reduce your 2012 tax bill

For many years, the research credit (also commonly referred to as the "research and development" or "research and experimentation" credit) has provided an incentive for businesses to increase their investments in research. But the credit expired at the end of 2011.

The American Taxpayer Relief Act of 2012 (ATRA) extends the credit to 2012 and 2013. You can use the credit for virtually any research that benefits your business. Wages for researchers, the cost of research supplies and the cost of computer licensing for research purposes are all expenses that may qualify for the credit.

The credit is generally equal to a portion of qualified research expenses. It's complicated to calculate, but the tax savings can be substantial. If you think you may qualify, please contact us for assistance. There's still time to claim the credit for 2012.


Tax Notes - April 30

Posted by Amy Lister Posted on July 30 2013

April 15 has passed, now what?

With the 2012 tax filing season behind us, it's time to start thinking seriously about 2013 tax planning especially if you're a higher-income taxpayer, because you might be subject to one or more significant tax increases this year:

  • Taxpayers with FICA wages and self-employment income exceeding $200,000 for singles and $250,000 for joint filers face an additional 0.9% Medicare tax on the excess.
  • Taxpayers with modified adjusted gross income exceeding $200,000 for singles and $250,000 for joint filers may face a new 3.8% Medicare tax on some or all of their net investment income.
  • Taxpayers with taxable income in excess of $400,000 for singles and $450,000 for joint filers face the return of the 39.6% marginal income tax rate, and of the 20% long-term capital gains rate on long-term capital gains and qualified dividends.

Contact us to learn whether you're likely to be hit with these tax hikes and what strategies you can implement to minimize the impact.


Portability doesn't preclude the need for marital transfers and trusts

Exemption portability, made permanent by the American Taxpayer Relief Act of 2012, provides significant estate planning flexibility to married couples if sufficient planning hasn't been done before the first spouse's death. How does it work? If one spouse dies and part (or all) of his or her estate tax exemption is unused at death, the estate can elect to permit the surviving spouse to use the deceased spouse's remaining estate tax exemption.

But making lifetime asset transfers and setting up trusts can provide benefits that exemption portability doesn't offer. For example, portability doesn't protect future growth on assets from estate tax like applying the exemption to a credit shelter trust does. Also, the portability provision doesn't apply to the GST tax exemption, and some states don't recognize exemption portability.

Have questions about the best estate planning strategies for your situation? Contact us, we'd be pleased to help.

Tax Notes - December 10

Posted by Amy Lister Posted on July 30 2013

Time is running out for tax-free treatment of home mortgage debt forgiveness

Income tax generally applies to all forms of income, including cancellation-of-debt (COD) income. Think of it this way: If a creditor forgives a debt, you avoid the expense of making the payments, which increases your net income.

 

Debt forgiveness isn't the only way to generate a tax liability, though. You can have COD income if a creditor reduces the interest rate or gives you more time to pay. Calculating the amount of income can be complex, but essentially, by making it easier for you to repay the debt, the creditor confers a taxable economic benefit. You can also have COD income in connection with a mortgage foreclosure, including a short sale or deed in lieu of foreclosure.

 

Under the Mortgage Forgiveness Debt Relief Act of 2007, homeowners can exclude from their taxable income up to $2 million in COD income ($1 million for married taxpayers filing separately) in connection with qualified principal residence indebtedness (QPRI). But the exclusion is available only for debts forgiven (via foreclosure or restructuring) through 2012.

 

QPRI means debt used to buy, construct or substantially improve your principal residence, and it extends to the refinance of such debt. Relief isn't available for a second home, nor is it available for a home equity loan or cash-out refinancing to the extent the proceeds are used for purposes other than home improvement (such as paying off credit cards).

 

If you exclude COD income under this provision and continue to own your home, you must reduce your tax basis in the home by the amount of the exclusion. This may increase your taxable gains when you sell the home. Nevertheless, the exclusion likely will be beneficial because COD income is taxed at ordinary-income rates, rather than the lower long-term capital gains rates. Plus, it's generally better to defer tax when possible.

 

So if you're considering a mortgage foreclosure or restructuring in relation to your home, you may want to act before year end to take advantage of the COD income exclusion while it's available.



Why you may want to incur medical expenses before year end


Currently, if your eligible medical expenses exceed 7.5% of your adjusted gross income (AGI), you can deduct the excess amount. But in 2013, the 2010 health care act increases this "floor" to 10% for taxpayers under age 65.

 

Eligible expenses can include health insurance premiums, medical and dental services and prescription drugs. Expenses that are reimbursed (or reimbursable) by insurance or paid through a tax-advantaged health care account (such as a Flexible Spending Account or a Health Savings Account) aren't eligible.

 

To potentially be able to deduct more health care costs, consider "bunching" nonurgent medical procedures and other controllable expenses into alternating years. For example, if your year-to-date medical expenses already exceed 7.5% of your projected 2012 AGI and you're anticipating elective surgery or major dental work in early 2013, you could instead schedule it for this year. Or you could stock up on prescription meds (to the extent allowed) and buy new contact lenses or glasses before year end.

 

Bunching expenses into 2012 may be especially beneficial because of the scheduled floor increase. But keep in mind that, for alternative minimum tax purposes, the 10% floor already applies. Also, if tax rates go up in 2013 as scheduled, your deductions might be more powerful then. Finally, be aware that the floor increase could be repealed by Congress.



The 2012 gift tax annual exclusion: Use it or lose it


The 2012 gift tax annual exclusion allows you to give up to $13,000 per recipient tax-free without using up any of your lifetime gift tax exemption. If you and your spouse ?split? the gift, you can give $26,000 per recipient. The exclusion is scheduled to increase to $14,000 ($28,000 for split gifts) in 2013.

 

The gifted assets are removed from your taxable estate, which can be especially advantageous if you expect them to appreciate. That?s because the future appreciation can avoid gift and estate taxes.

 

But you need to use your 2012 exclusion by Dec. 31 or you?ll lose it. The exclusion doesn?t carry from one year to the next. For example, if you don?t make an annual exclusion gift to your grandson this year, you can?t add $13,000 to your 2013 exclusion to make a $27,000 tax-free gift to him next year.

 

We can help you determine how to make the most of your 2012 gift tax annual exclusion.



Consider the tax implications if you?re awarded restricted stock


In recent years, restricted stock has become a popular form of incentive compensation for executives and other key employees. If you?re awarded restricted stock ? stock that?s granted subject to a substantial risk of forfeiture ? it?s important to understand the tax implications.

 

Income recognition is normally deferred until the stock is no longer subject to that risk or you sell it. You then pay taxes based on the stock?s fair market value (FMV) when the restriction lapses and at your ordinary-income rate.

 

But you can instead make a Section 83(b) election to recognize ordinary income when you receive the stock. This election, which you must make within 30 days after receiving the stock, can be beneficial if the income at the grant date is negligible or the stock is likely to appreciate significantly before income would otherwise be recognized. Why? Because the election allows you to convert future appreciation from ordinary income to long-term capital gains income and defer it until the stock is sold.

 

There are some disadvantages of a Sec. 83(b) election:

 

1. You must prepay tax in the current year. But if a company is in the earlier stages of development, this may be a small liability.

 

2. Any taxes you pay because of the election can?t be refunded if you eventually forfeit the stock or its value decreases. But you?d have a capital loss when you forfeited or sold the stock.

 

If you?re awarded restricted stock before the end of 2012 and it?s looking like your tax rate will go up in the future, the benefits of a Sec. 83(b) election may be more likely to outweigh the potential disadvantages.



Need to hire? Consider veterans


Veterans provide a valuable labor pool, full of highly trained, hard-working team players with strong leadership skills. There's also a tax incentive: The VOW to Hire Heroes Act of 2011 extended the Work Opportunity credit through 2012 for employers that hire qualified veterans. It also expanded the credit by:

 

  • Doubling the maximum credit ? to $9,600 ? for disabled veterans who've been unemployed for six months or more in the preceding year,
  • Adding a credit of up to $5,600 for hiring nondisabled veterans who've been unemployed for six months or more in the preceding year, and
  • Adding a credit of up to $2,400 for hiring nondisabled veterans who've been unemployed for four weeks or more, but less than six months, in the preceding year.

 

To be eligible for the credit, you must take certain actions before and shortly after you hire a qualified veteran. We can help you determine what you need to do.

 


With election results in, what?s next for tax law changes?

 

President Obama has been reelected, the Senate will remain in the hands of the Democrats (but without a filibuster-proof supermajority) and the House will continue to be controlled by the Republicans. In other words, the political makeup of Washington will be about the same in 2013 as it is now. As a result, it?s still very uncertain what will happen with tax law changes.

 

When it comes to tax law, Congress and the president have much to address, including tax breaks that expired at the end of 2011 as well as the rates and breaks that are scheduled to expire at the end of this year.

 

It?s still unclear what Congress will try to accomplish in the lame duck session ? and what they?ll punt to next year. (In terms of the latter, tax law changes could be made retroactive.)

 

The lack of change in the political makeup of Washington could make it very difficult to pass tax legislation, considering how far apart the parties are on what should be done. Yet now that both parties know the outcome of the Nov. 6 elections, they may be more willing to compromise.

 

Whatever happens, it could have an impact on your yearend tax planning. So keep an eye on Congress before implementing year end strategies.

Tax Notes - December 19

Posted by Amy Lister Posted on July 30 2013

2 reasons to sell highly appreciated assets before year end

If you own highly appreciated assets you?ve held long term, it may make sense to recognize gains now rather than risk paying tax at a higher rate next year:

1. The 15% long-term capital gains rate is scheduled to return to 20%.

2. Higher-income taxpayers will be subject to a new 3.8% Medicare tax on some or all of their net investment income.

As Congress and the President negotiate on how to address the fiscal cliff, it?s still unclear whether the 15% rate will be extended ? especially for higher-income taxpayers.

Because a final deal in Washington may not be reached until the very end of the year ? or even after Jan. 1 ? you can?t necessarily afford to take a wait-and-see attitude. And the new 3.8% Medicare tax will go into effect regardless of what happens with the fiscal cliff. If you have questions about the potential tax impact on your investments, please contact us.


Why businesses should consider purchasing vehicles before year end

Business-related purchases of new or used vehicles may be eligible for Section 179 expensing, and business-related purchases of new vehicles may be eligible for bonus depreciation. But Sec. 179 expensing limits are scheduled to go down in 2013, and bonus depreciation is scheduled to disappear. So you might benefit from purchasing business vehicles before year end.

For 2012, the $139,000 Sec. 179 expensing limit generally applies to vehicles weighing more than 14,000 pounds. The limit is $25,000 for SUVs weighing more than 6,000 pounds but no more than 14,000 pounds.

Vehicles weighing 6,000 pounds or less are subject to the passenger automobile limits. For 2012, the depreciation limit is $3,160, but it's increased by $8,000 for vehicles eligible for bonus depreciation.

Many rules and limits apply to these breaks. So if you're considering a business vehicle purchase, contact us to learn what tax benefits you might enjoy if you make the purchase by Dec. 31.


Tax Notes - February 12

Posted by Amy Lister Posted on July 30 2013

2012 return filing on hold for many taxpayers

While the many revived breaks under the American Taxpayer Relief Act of 2012 (ATRA) are good news for taxpayers, they would have been better news had they been signed into law earlier.

Because many breaks were retroactively extended back to Jan. 1, 2012, numerous IRS forms have to be updated accordingly. But the IRS couldn?t get started until after the changes were signed into law Jan. 2, 2013. And this means many taxpayers will have to wait to file their 2012 returns.

Both individual and business taxpayers are affected. Forms that need to be updated include those for:

  • Qualified adoption expenses
  • The general business credit
  • The Work Opportunity credit
  • The research credit
  • Empowerment Zone and Renewal Community credits
  • New Markets credits
  • Various energy-related tax breaks for individuals and businesses
Some of these forms might not be updated until March. Please contact us if you have questions about when you can file your 2012 tax return.

Tax Notes - February 21

Posted by Amy Lister Posted on July 30 2013

You might save more by deducting state and local sales taxes

For the last several years, taxpayers have been allowed to take an itemized deduction for state and local sales taxes in lieu of state and local income taxes. This break can be valuable to those residing in states with no or low income taxes or who purchase major items, such as a car or boat. But this break had expired Dec. 31, 2011.

Now the American Taxpayer Relief Act of 2012 has extended it for 2012 and 2013. So see if you can save more by deducting sales tax on your 2012 return. And if you?re contemplating a major purchase, you may want to make it in 2013 to ensure the sales tax deduction is available

Tax Notes - February 26

Posted by Amy Lister Posted on July 30 2013

Lower FSA contribution limit may make HSAs more attractive

Previously, employers could set whatever limit they wanted on employee contributions to Flexible Spending Accounts (FSAs) for health care. But starting this year, the maximum limit is $2,500.

If you?re concerned about a lower limit and aren?t contributing to a Health Savings Account (HSA), look into whether you?re eligible ? you must be covered by a qualified high-deductible health plan. As with FSA withdrawals, HSA withdrawals for qualified medical expenses are tax-free. But the HSA contribution limits are higher: $3,250 for self-only coverage and $6,450 for family coverage, plus an additional $1,000 for taxpayers age 55 or older.

HSAs also may be more beneficial because they can bear interest or be invested and can grow tax-deferred similar to an IRA. Additionally, you can carry over a balance from year to year. If you have an HSA, however, your FSA is limited to funding certain ?permitted? expenses.

An HSA also can provide a way to do some post-Dec. 31 tax planning: You have until the April filing deadline to make your contribution. Please contact us to learn whether you could benefit from an HSA.

Tax Notes - February 6

Posted by Amy Lister Posted on July 30 2013

Can recently enhanced Sec. 179 expensing reduce your 2012 taxes?

Section 179 expensing allows businesses a 100% deduction for the cost of qualifying asset purchases. Its 2012 benefits were recently enhanced by the American Taxpayer Relief Act of 2012 (ATRA).

Sec. 179 expensing is subject to an annual limit, which is phased out if purchases exceed a designated threshold. So if total purchases are large enough, a business might not be eligible for any Sec. 179 expensing.

Before ATRA, the expensing limit for 2012 was $139,000, with a $560,000 phaseout threshold. The act increases these amounts to $500,000 and $2 million, respectively (the same amounts that applied in 2010 and 2011).

These increases mean not only that many smaller businesses can enjoy a larger tax benefit, but also that some larger businesses that previously wouldn?t have been eligible because their asset purchases were too high may now qualify.

The limits had been scheduled to drop to $25,000 and $200,000, respectively, in 2013, but ATRA also extends the higher amounts through 2013.

Many rules apply, so please contact us to learn if you qualify on your 2012 return ? or discuss whether you should plan purchases this year to benefit from the break on your 2013 return.

Tax Notes - January 15

Posted by Amy Lister Posted on July 30 2013

Newly revived ?charitable IRA rollovers?: Time is running out for 2012 tax savings

The American Taxpayer Relief Act of 2012 (ATRA) revives for 2012 and 2013 the opportunity to make tax-free IRA distributions (up to $100,000 per year) for charitable purposes. If you?re age 70½ or older, you can make a direct contribution from your IRA to a qualified charitable organization without owing any income tax on the distribution. This ?charitable IRA rollover? can be used to satisfy required minimum distributions.

To help taxpayers take advantage of the 2012 revival, ATRA allows a charitable rollover made in January 2013 to be treated for tax purposes as if it had been made Dec. 31, 2012. And if you took an IRA distribution in December 2012 and contribute it to charity in January 2013, the ?direct contribution? requirement is waived; you can contribute the distribution to a qualified charity in January 2013 and treat it as a 2012 direct contribution, provided the other requirements are met.

Tax Notes - January 23

Posted by Amy Lister Posted on July 30 2013

IRS makes deducting home office expenses easier

On Jan. 15, the IRS announced a new simplified home office deduction, which is available beginning with 2013 income tax returns (not the 2012 returns generally due April 15, 2013).

Normally, if your home office qualifies, you can deduct a portion of your mortgage interest, property taxes, insurance, utilities and certain other expenses. Further, you can take a deduction for the depreciation allocable to the portion of your home used for the office. You can also deduct direct expenses, such as a business-only phone line and office supplies. However, the deduction generally requires completion of a 43-line form (Form 8829), often along with complex calculations.

The new simplified deduction is $5 per square foot for up to 300 square feet of home office space. So the maximum annual deduction is $1,500. If you choose this option, you can?t deduct depreciation for this portion of your home. But you can take itemized deductions for otherwise allowable mortgage interest and property taxes without allocating them between personal and business use.

Please contact us to determine whether you?re eligible for the home office deduction.

Tax Notes - January 29

Posted by Amy Lister Posted on July 30 2013

Making the most of 2012 education credits

The American Opportunity credit (up to $2,500 per year per student for qualifying expenses for the first four years of postsecondary education) and the Lifetime Learning credit (up to $2,000 per tax return for postsecondary education expenses beyond the first four years) reduce taxes dollar-for-dollar. Both a credit and a tax-free Section 529 plan or Coverdell Education Savings Account distribution can be taken as long as expenses paid with the distribution aren?t used to claim the credit.

But income-based phaseouts apply to these credits. If you don?t qualify because your income is too high, your child might. However, you must forgo your dependency exemption ($3,800 for 2012) for the child ? and the child can?t take the exemption.

If your family incurred postsecondary education expenses in 2012, please contact us to determine how you can make the most of these credits.

Tax Notes - June 24th

Posted by Amy Lister Posted on July 30 2013

Work Opportunity credit for certain 2013 new hires can save you tax

If you're considering expanding your staff, hiring from certain disadvantaged groups before the end of 2013 can save you tax. The American Taxpayer Relief Act of 2012 extended the Work Opportunity credit for hires from most eligible groups through 2013.

Examples of eligible groups include food stamp recipients, ex-felons and nondisabled veterans who've been unemployed for four weeks or more, but less than six months. For these groups, the credit generally equals 40% of the first $6,000 of wages paid to qualifying employees, for a maximum credit of $2,400. A larger credit of up to $4,800 is generally available for hiring disabled veterans.

If you're hiring veterans who've been unemployed for six months or more in the preceding year, the maximum credits are even greater:

  • $5,600 for nondisabled veterans, and
  • $9,600 for disabled veterans

Please contact us for more information on how to qualify for the credit.

 

Tax Notes - May 15th

Posted by Amy Lister Posted on July 30 2013

Be prepared for the health care act's "play or pay" provision

The Patient Protection and Affordable Care Act of 2010's shared responsibility provision, commonly referred to as "play or pay," is scheduled to take effect Jan. 1, 2014. It doesn't require employers to provide health care coverage, but it in some cases imposes penalties on larger employers that don't offer coverage or that provide coverage that is "unaffordable" or that doesn't provide "minimum value."

A large employer is one with at least 50 full-time employees, or a combination of full-time and part-time employees that's "equivalent" to at least 50 full-time employees. The nondeductible penalties generally are $2,000 per full-time employee.

Although the shared responsibility provisions don't take effect until 2014, employers will use information about the workers they employ in 2013 to determine whether they're subject to the provisions and face the potential for penalties in 2014. The rules are complex, so contact us today to learn whether you might be subject to penalties and what steps you can take to avoid, or at least minimize, them.

Tax Notes - May 20th

Posted by Amy Lister Posted on July 30 2013

Why 2013 may be the year to make that car or boat purchase you've been thinking about

For the last several years, taxpayers have been allowed to take an itemized deduction for state and local sales taxes in lieu of state and local income taxes. The American Taxpayer Relief Act of 2012 has extended this break - but only through 2013.

The break can be valuable to those residing in states with no or low income tax rates. But wherever you live, it can be a powerful tax saver if you purchase a major item, such as a car or boat.

With tax reform being discussed and the federal deficit continuing to be a major issue, it's hard to predict whether the deduction will be extended again. If you're contemplating a major purchase, you may want to make it in 2013 to ensure the sales tax deduction is available.

Welcome to Our Blog!

Posted by Admin Posted on July 30 2013
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