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Are you planning to tie the knot this summer? If you already did, then my warmest congratulations to both of you! To make sure that there are no surprises come tax time, I will share with you three summer tax tips that you can do right now.
Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.
So here are the three summer tax tips:
- Report any name change to the Social Security Administration before filing your next year’s tax return. It would cause delayed refund if you changed your name without informing the Social Security office.
- Report any address change to the United States Postal Service, your employers and the IRS to ensure your receive tax-related items.
- Finally, use the withholding calculator by going to https://www.irs.gov/individuals/irs-withholding-calculator to make sure you adjust your withholding appropriately. This is important for families with more than one wage earner, for taxpayers who have more than one job at a time, or for those with children.
So those are the three summer tax tips that you can do right now if you just got married to avoid any tax issues during tax time. Congratulations!
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Last Updated by Tax on 2018-07-31 06:48:58 PM
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Did your kid get a part-time job during the summer? And now you were you wondering if your kid needs to file taxes for next year.
Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.
If your kid has only a W-2, your kid needs to file a return if the total is more than the standard deduction. Starting in 2018, the standard deduction for a dependent child is up to $12,000. That means your kid can make up to $12,000 without paying taxes. That’s almost double from the 2017 numbers.
Here are two other things that you need to consider:
- Have your kid claim “exempt” on the W-4 withholding allowance form so that he does not have to file a tax return if he makes less than $12,000.
- Your kid should still file a return if he or she qualifies for the other credits like earned income credit, additional child tax credit, or refundable American opportunity education credit.
There you have it. That’s the new tax filing requirement for 2018.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Last Updated by Admin on 2018-07-31 06:48:22 PM
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Did you own a home with your spouse when she was still living? And were you planning to sell your home but you were wondering if you can claim the capital gain exemption?
Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.
In order to claim the $500,000 capital gain exemption on the sale of your home, the sale needs to happen within two years from your spouse’s date of death. You also need to meet the three requirements below:
- Either you or your deceased spouse must have owned the property for at least two years before your spouse‘s death.
- The couple must have lived in the home for at least two years prior to the death of the spouse.
- The capital gain exemption must not have been claimed by either spouse in the two years before death.
Example: Joe and Jackie are married and have owned and used their home since January 1, 2000. On January 1, 2018, Jackie passed away. If Joe sells the home before January 1, 2020, he will qualify for the $500,000 capital gain exemption.
Here’s one tax trap that you need to be aware of – this rule will not apply if you decide to remarry before the sale of your home within the two-year period. So watch out!
That’s all I have for today. So make sure that you meet all the tax requirements so you can claim the exemption when you sell your home after your spouse’s death.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Last Updated by Tax on 2018-07-31 06:47:51 PM
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Do you have children or dependents? Do you make above average income and cannot take the tax credit from prior years? If you answered “yes” to both questions, then I got great news for you. With the recently passed new tax law, you might be able to take advantage of the new and improved 2018 child tax credit.
Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.
Here are three things you need to know about the new 2018 child tax credit:
Tax credit is doubled
- Credit went up from $1,000 to $2,000 per kid.
- Your kid must be under 17 at the end of the year to claim the credit.
Income range huge increase
- This credit will now be available to more taxpayers, because of the massive increase in the income range. Here's a quick guide:
Married filing jointly - $400K - $440K
Other filers - $200K - $240K
- So if your income is below the limit, you can take the full credit. But if it falls between the income range, then you can only make claim a partial credit. But if your income exceeded the limit, you cannot take the credit.
Other dependents’ credit
- They also passed a nonrefundable $500 "family credit" for other dependents. Examples are your aging parent or your kid who is 17 years or older.
One thing I want to point out is that - this is a credit, not a tax deduction. While a deduction reduces your income, a credit reduces your tax dollar-for-dollar. So, for example, if you have a tax due of $2,000 for the year, and have a $2,000 child tax credit, your tax bill drops to zero.
To recap, here are the three things you need to know about the 2018 child tax credit: 1. The tax credit doubled, 2. Income range huge increase & 3. Other dependents’ $500 credit.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Last Updated by Admin on 2018-06-07 06:53:35 PM
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Are you thinking of getting a divorce? Before you jump and do anything, I would recommend that you read this blog to know the eight important things about the 2018 alimony tax changes.
Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.
Here are eight things you need to know about the 2018 alimony tax changes:
- Effective date - any divorce agreement executed after 12/31/18.
- New 2018 tax law - alimony payments are no longer deductible and alimony income is no longer included as income.
- Grandfathered payments - any alimony paid based on a divorce agreement in place on or before 12/31/18 remains deductible by the payor spouse and included as income for the recipient spouse
- Modified agreements - the old tax rule still applies unless the agreement expressly states that the new 2018 tax law applies. That means, that the modified agreement will lose its grandfathered payments and status.
- Timing - if you are thinking of filing for a divorce in 2018, it is very important to time the divorce/alimony settlement before 12/31/18.
- State conformity - determine if your resident state agrees with the federal law. For example, in California, they still allow the alimony deduction and inclusion in income.
- Tax strategy - make sure that you account for the federal and state tax effect of the alimony payments or receipts when you are working with your attorney.
- Reason for change - Congress called the alimony deduction a “divorce subsidy”. They argued that divorced couples can benefit more compared to a married couple. So they want to treat alimony as a non-deductible child support. The Joint Committee on Taxation estimates that this tax change will add almost $7 billion in tax revenues over ten years. Wow!
To recap, make sure you remember these eight important things in case you are getting a divorce.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Last Updated by Admin on 2018-05-31 10:26:20 PM
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Are you planning to buy a new home? Are you thinking of refinancing your mortgage? Or taking out a home equity line of credit? If you answered “yes” to all the questions, then it’s important for you to know the new tax law regarding mortgage interest deduction.
Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.
Here are seven things you need to know about the new mortgage interest deduction:
- Effective date - any loan started after 12/15/17.
- New 2018 tax law - you can deduct interest for up to $750,000 in new mortgage debt for your first and second home. Under prior law, you can deduct mortgage interest on $1 million of home debt and $100,000 of home equity debt.
- Couples filing separately - each spouse can claim $375,000 in mortgage interest deductions.
- Grandfathered debt - any mortgage loan you entered before 12/15/17 will allow you to claim interest up to the $1 million ($500K for married couples filing separately) for your first and second home.
- Mortgage refinancing - you can deduct your mortgage interest if you refinance your mortgage debt up to $1 million on or before 12/15/17. But the new loan can’t exceed the amount of the current mortgage being refinanced. Example - If you have a $1 million mortgage and you paid it down to $700,000, then you can refinance it up to $700,000 of debt and continue to deduct interest on it. If you refinance it for $900,000 and you use $200,000 of cash to upgrade your home, then you could also deduct the interest on $900,000. But if you refinance for $900,000 and simply pockets $200,000 of cash, then you could deduct interest only on the $700,000 of refinancing.
- Home equity line of credit (HELOC) debt - interest on a HELOC is only deductible if the loan proceeds are used to make substantial improvements to your home, and the combined total of the first mortgage and home-equity line of credit or second mortgage does not exceed $750,000.
- State conformity - determine if your resident state agrees with the federal law. For example, in California, you can still deduct mortgage interest on $1 million of home debt and $100,000 of home equity line of credit (HELOC) debt.
There you have it. Those are the seven things you need to know about the new mortgage interest deduction.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Last Updated by Admin on 2018-05-31 10:25:59 PM
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Raise your hand if you heard about the new tax law? Now, raise your hand if you understood some of them. For the rest of you, raise your hand, if you have no clue what I’m talking about.
President Trump signed the new tax reform bill into law last year. This is the most significant tax change in more than 30 years. So the million dollar question is: How will this affect you? So today, I’m going to share with you 10 tax changes that you need to know now so you can plan and prepare for 2018. Are you ready?
#1. Lower tax rates
Across the board, all the tax brackets went down by 3% give or take. What does that mean to you? If everything is equal, meaning, your tax situation is the same, then you will get slight tax refund on your return next year.
#2. Standard deduction doubled & elimination of exemptions.
For single filers, the standard deduction increased to $12,000; for married couples filing jointly, it is increased to $24,000. What does that mean to you? It could be a good thing or a bad thing? It’s a good thing if you were filing standard deduction from previous years because you will benefit by the increased deductions.
However, it’s a bad thing if your Form Schedule A itemized deductions is lower than the new standard deduction. Basically you are losing out on some of your deductions which we are going to talk about later.
#3. Medical expenses are still deductible.
They almost took this out. Let’s talk about this. You can only deduct medical expense in excess of 7.5% of your income. So for example, you make a $100,000, 7.5% of $100K is $7,500. That means, if your medical expenses were $8,000, then you can only claim $500 of medical expenses.
My client, who had a kidney operation learned about the limitation, so he asked me: Noel, how can I deduct my kidney operation? I told him: have another surgery? So that’s what you have to do. You need to see if you can bunch major medical expenses into one year to get the medical deductions.
#4. State and property tax $10K limit.
Here’s the good news: you can still deduct your state tax withholding, sales tax and property tax on your return. Here’s the bad news: you will be limited to $10,000 of deductions.
What is your strategy? Well, the state is coming up with a bill. They will create a fund that you can donate money for the benefit of various California agencies. You will get a potential tax credit for CA and an IRS tax deduction.
Example: If you give $100K to this fund, you will get back $100K CA tax credit and also 37K of IRS tax savings (assuming you are in the 37% IRS tax bracket). In essence, you got back $137K by contributing $100K to this fund. It’s in the works. Beware though! IRS might not approve and will contest this.
#5. Mortgage loan $750K limit.
Mortgage interest will be limited to mortgage debt of up to $750,000 ($375,000 for married filing separate). Home equity line of credit cannot be deducted anymore (you need to review your equity line interest rate and compare with your investments to determine if you need to pay it off. Also, try to pay down your mortgage debt if it’s more than $750k and you can also downsize to meet the $750K mortgage debt limit).
#6 Elimination of miscellaneous & moving expense
No deduction is allowed for miscellaneous itemized deductions (these include unreimbursed employee expenses, management fees, tax preparation fees, investment expenses, etc.)(You need to discuss this with your employer and see if you can ask for an expense reimbursement or a salary increase to cover the expenses.
#7 Elimination of alimony deduction
Raise your hand if you know someone that got divorced last year? Now raise your hand, if you know someone will get divorce this year? You know the big difference? Your ex will get more than half.
Alimony payments will no longer be deductible for the spouse who writes the checks. Likewise, it’s not taxable to the one receiving the payments. That means you have to take this into account - non-deductible alimony payments - in case you get divorce and trying to finalize a settlement in the future). Keep in mind though that this tax change will be effective for tax year 2019.
#8 Bunch charitable donations in one year
Since the standard deduction went up, you might not be able to go over the standard deduction. You might feel that you are losing out on the charitable deductions. What do you do? You would give the same amount over a two-year period, but you would bunch them into one year. This will help you itemize your deductions so you don’t lose your tax benefits.
#9 Lower corporate tax rate.
Raise your hand if you have a C-corporation. The corporate tax (C-corporations) will go down from 35% to 21%. They now have a flat tax rate of 21%. What is the only issue? If your net income is usually less $50K, under the old law, you will only pay 15%, under the new law, you will pay 21%. That means you are paying more taxes. What is the solution? You need to look at the other business structure and see if you will come out ahead.
#10 Lower pass-through entities business tax rate
Pass-through entities like S-corporations, LLC, and partnerships – who report their business income on the owner’s personal tax returns, and a sole proprietor, will have a 20% deduction. The 20% deduction would not be allowed if you are in a service business unless your taxable income is less than $315K for married and $157.5K if you are single.
Last Updated by Admin on 2018-02-05 09:07:36 PM
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If you are going to use your car for business, charity, and medical appointments during 2018, please be aware that the standard mileage rates for computing the deductible costs have changed.
Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.
Effective January 1, 2018, here are the rates to use to calculate reimbursements and deductions for the year:
- Business. The rate is 54.5¢ per mile for business miles driven (up from 53.5 cents in 2017)
- Charitable. For charitable services, it remains at 14¢
- Medical. The rate for medical mileage is 18¢ per mile (up from 17 cents in 2017)
Keep in mind that the mileage expenses for moving expenses and job-related mileage deductions for employees were eliminated effective January 1, 2018. For tax planning purposes, talk to your employer and see if you can get a reimbursement for both of these expenses. If not possible, ask for a raise to at least cover all or at least part of your expenses.
That is all for now.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Last Updated by Admin on 2018-01-24 07:01:02 PM
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Are you following the most recent tax proposal development? If not, no worries - I will give you the most up-to-date development.
Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.
Both the House bill and the Senate measure calls for the elimination of most itemized deductions (that is Form 1040 Schedule A Itemized deductions). And in case they finalized the tax proposal this month, it won’t take effect until the 2018 tax year. However, we still need to plan since it could affect some of your 2017 year-end tax moves.
Here are six itemized deduction-related moves that you need to do now:
- Pay your state taxes. If you live in a state that tax salary & wage income, you need to pay your state taxes as much as you can this year while they're still deductible. A great way to do this is to make your final state estimated tax payments before the year-end.
- Pay your real estate taxes early. The House bill is allowing up to $10,000 of real estate tax deduction. If your property tax bill is higher than that, then pay it in December instead of early next year, to avoid losing some deductions.
- Prepay your January mortgage. The increased standard deduction amounts could make your mortgage interest deductions irrelevant. So by prepaying your January mortgage in December, it will increase your deductible mortgage interest for 2017.
- Bunch medical expenses. If you had a challenging year as far as your or family members' health, this is the year to make sure you don't waste any expenses. So, in addition to year-end doctor and dental visits, make sure you don't overlook other possible medical deductions. And if you are scheduled for a major surgery next year, I would recommend doing it before year-end.
- Bunch miscellaneous expenses. If you are an employee, make sure you deduct all unreimbursed expenses that you incur while performing your job. Also, don’t forget to deduct such things as job search costs, investment related costs, safety deposit box, accountant fees or tax preparation software costs.
- Donate to your favorite charities. If your other itemized deductions are gone and the standard deduction amount is increased, you might not have enough in donations to file a Schedule A form. So consider increasing or doubling up your donations this year when you can still claim the deductions.
So those are the six itemized deduction-related moves that you need to do now in order to maximize your deductions this year before the tax law changes.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Last Updated by Tax on 2017-12-06 12:55:13 AM
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Have you ever visited the IRS website? I have to tell you, I was pretty impressed with the online tax features. And as the tax filing season approaches, the IRS encourage you to visit IRS.gov first for tax tools and online resources to address any of your issues before calling.
Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.
Here are the top seven online reasons to visit the IRS website
- Check your refund status. You can go to irs.gov/refunds so you can check your refund status 24/7.
- Get your transcript. You can access various transcript types online. You may also ask the IRS to mail a tax return transcript to you by requesting it online or by calling 800-908-9946. Please allow 5 to 10 days for delivery. Go to https://www.irs.gov/individuals/get-transcript
- Make a direct payment. You can make tax payments directly from your checking or savings account. You can also view your account balance if taxes are owed. Go to https://www.irs.gov/payments
- Online Payment Agreements. You can pay your taxes by easily setting up a monthly payment plan. Go to https://www.irs.gov/payments/online-payment-agreement-application
- Answers to Tax Law Questions. The Interactive Tax Assistant takes you through a series of questions and provides the answers. Go to https://www.irs.gov/help/ita
- Forms, Instructions and Publications. You can download and view popular tax forms, publications and instructions anytime. Increasingly popular eBooks are available as well. Go to https://www.irs.gov/forms-instructions
- Where’s My Amended Return. Taxpayers can track the status of an amended return. Go to https://www.irs.gov/filing/wheres-my-amended-return
So I encourage you to try it and check out my top seven reasons why you need to visit the IRS website this upcoming tax season.
Last Updated by Admin on 2017-11-29 08:14:57 PM
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Noel: What do the Irvine Company, McDonalds and our lovely President have in common?
Audience: They don’t pay taxes.
Noel: (laughing) Great. (Laughing) They’re a billion dollar real estate investors. And you might be wondering, how in the world were they able to do that?
Noel (cont’d): Simple.
Noel (cont’d): They took advantage of the most powerful real estate tax strategies.
Noel (cont’d): They use the powerful tax code to zero their taxes.
Noel (cont’d): As you can see, IRS is their friend. Is IRS your friend?
Audience: No!
Noel: No? Well, then in the next few minutes you’ll discover 5 ultimate tax secrets to zero down your taxes.
Noel (cont’d): It’s called (picks up piece of paper from table) – the LDDER Approach. That if you apply (puts paper down on table) you will zero your taxes.
Noel (cont’d): So you can pay zero and become
Noel (cont’d): the hero.
Noel: Are you guys ready -
Audience: Yes.
Noel: To become the hero?
Audience: Yes.
Female voice: Always.
Noel: Let’s do it. The first L (picks up paper from table) stands for like-kind exchange. Raise your hand if you’re familiar with like-kind exchange.
Noel: Great! (puts paper on table). A like-kind exchange allows you to postpone your taxes by exchanging up to a higher price property. It’s a way to consolidate your real estate portfolio…
Noel (cont’d): Or to – to minimize your taxes by building up your portfolio. It’s a two-step process.
Noel (cont’d): One – you got to sell the property. Number two, you have to re-invest the cash proceeds.
Noel (cont’d): I have a client. His name is Rich. He started with one triplex twenty years ago.
Noel (cont’d): Guess what he ended up with right now?
Noel (cont’d): Apartment buildings.
Noel (cont’d): He started with a triplex. Now it’s worth I think ten million dollars.
Audience: Wow!
Noel: Here’s a strategy that you may not be familiar with. Once he passed away,
Noel (cont’d): and that property transferred to his survivors – which might be the kids – his starting number which he bought way back, I think like half a million dollars. The starting numbers of the beneficiaries – or the kids – is not half a million dollars.
Noel: Its ten million dollars. So, if the kids decided to sell the property the next day for ten million dollars, guess – what’s the tax for the kids?
Audience: Zero?
Noel: Zero (makes symbol of 0 with his hand). What is the strategy called? It’s called the 3D. It’s defer – defer – and die. Remember that.
Noel: (laughing) Very powerful concept! The next one, the D (picks up paper) – stands for depreciation. (puts paper down) Depreciation allows – it’s a deductible expense for the wear and tear of the property. What is the plus? It’s a paper loss. There’s no money coming out of your pocket. I have - I have a client, Rich, I met 15 years ago. He went to my office and he said, “Noel, can you review my taxes?” And I said, “What do you have?” He said, “I only got like 2 rental properties.” And I was thinking, ‘Aah, that’s gonna be easy.’ I sat down and look at the schedule E form line one, gross rents - one million dollars. I said, “Whoa, what do you have?” “Well, I’ve got two apartment buildings.” It just gets better. One million dollars gross rent. Rental expenses, eight hundred thousand dollars.
What’s the rental income?
Noel (cont’d): Two hundred thousand dollars – on his pocket – doesn’t fit over here (demonstrates his pants pockets). But, he’s got two hundred thousand dollars cash in his pocket. Now, here’s the kicker. I told you about depreciation, right? His depreciation was two hundred fifty thousand dollars. What’s his loss showing on the return? Fifty thousand dollar loss! I was looking at him and said, “You’re putting two hundred thousand dollars in your pocket? And you’re showing 50K of losses.” And, I was thinking, ‘Man, this is too good to be true.’ But, it was there.
Noel (cont’d): So, take advantage of that depreciation to maximize if you have rental properties. (End of Part 1)
Last Updated by Admin on 2017-10-04 08:46:41 PM
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Noel: Raise your hand if you know Uncle Sam.
Audience: (Silent)
Female: Personally?
Noel: (Laughs)
Audience: (Laughs)
Noel: Great! Now raise your hand if you know Uncle Sam is not really your uncle?
Audience: (Laughs)
Noel: Great. You see, a real uncle usually gives you money, this particular uncle takes away your money.
Audience: (Laughs)
Noel: So, today I will discuss with you, three tricky tax expenses. It’s called the 3 M’s.
I will show you how Uncle Sam takes away your money and I will also show you how to get it back. Are you guys ready?
Audience: Yep. Yes.
Noel: Let’s do it.
Mortgage Interest
The first M stands for, mortgage interest.
I had a client. His name is Johnny. I gotta tell you he’s very extreme when it comes to minimizing his taxes. I was reviewing his return and guess what I saw on the mortgage interest? $50,000 of mortgage interest.
I ask him, “Why is this too high?” He said, “Well, I put zero down so I can get a huge mortgage interest deduction. Noel, it’s called, tax strategy.” I said, “Johnny, let me tell you something.”
This is what I told him.
See, this fifty thousand? That’s your mortgage interest. If I multiply that by 30 percent, which is your tax rate, your tax savings is $15,000. That’s the good part.
Here’s the bad part. The difference between the 50,000 that came out less the tax savings of 15,000 is how much? 35,000.
I ask him, “Do you know where that goes?” He said, “No.” It goes down the drain. That’s where it goes.
Audience: (Laughing.)
Noel: And, I told him that imagine you had it for ten years. So, you multiply $35,000 times 10, that’s $350,000 that you paid for nothing. It’s non-deductible expenses. So he said, “Really? Oh, I’m looking at it differently.” I said, “Yeah.” So, he said, “What can I do? That’s a lot of money.”
I said three things. Number one, do a by weekly payment instead of paying once-a-month – do every two weeks. He said, “Why?” Cause you want to shave off 4-6 years off the mortgage payoff.
Number two is, why don’t you try to convert it to 15-year fixed. Why? You will save a tons of mortgage interest. You’ll probably shave – it’s gonna be close – 15 years – half.
And, then number three, If you have the chance, convert a fixed loan to a line of credit. Why? If you convert a fixed loan to a line of credit – a line of credit is like a credit card expense. If you pay it down, they will base the interest off the balance. The sooner you can pay that off, the sooner you can be debt free.
Medical Expenses
Noel: Number two – the second M– medical expenses.
Alright, medical expenses – have a 10 percent income limitation. That means you can only deduct 10 percent – in excess of 10 percent of your income.
So, let me give you an example. Johnny, for example, makes $100,000 and I multiply by 10 percent. So, his limit is $10,000. If his medical expenses is $11,000, how much can he deduct on his return?
Audience: $1,000?
Noel: One thousand dollars – it’s in excess. So, as you can see the first 10 percent is like a non-deductible expense.
So, guess – guess what happened to Johnny? Johnny had a kidney surgery but he cannot deduct his expenses so he asks, “Noel, what can we do? I want to deduct these medical expenses.” I said, “I don’t know. Have another surgery?”
Audience: (Laughing)
Noel: He looked at me and said, “Okay.”
Audience: (Laughing.)
Noel: Here are three things that you can do to have – have medical expense deduction.
Number one, you have to bunch the expenses together in one tax year. So, if you have a major surgery, plan accordingly and do it in one year.
Number two and number three is about reducing your income. One way to do that is to maximize your 401K or retirement plan and, number two, if you have a sideline business maximize the expense.
Miscellaneous Expenses
Noel: Third M – miscellaneous expenses.
This, miscellaneous expenses, can be broken down into three parts. The first part is what they call, unreimbursed employee expenses. So, if you’re a salesperson, commission people, you can deduct a lot of unreimbursed employee expenses.
The other one is, other expenses, and the other one that I want to talk about later is toastmaster’s expenses, okay? There’s a limit though. There’s a 2 percent income limit. It means that you can only deduct in excess of 2 percent of your income.
So, let me go back again to Johnny. A hundred thousand dollars times 2 percent is two grand. The first two grand you cannot deduct. The only thing you can deduct is above it.
So, if it’s a reimbursed medical expenses – I mean, a reimbursed employee expenses, is $2,001. How much can he deduct? One dollar. I told him the rules.
He got pissed off…
Audience: (Muffled laughter)
Noel: He said, “What can we do?” I said, “Well, the way we can probably do this is, to work on this.
Have you guys seen this before? Who’s doing their taxes? Raise your hand.
There you go. Are you guys familiar with this? This, my friend got 50 deductions.
If you’re not familiar with this, I can e-mail this to you.
Audience: (Inaudible, muffled. Some light laughter.)
Noel: Is that something of interest?
Audience: (Inaudible, in agreeance)
Noel: Okay. So, here’s how we break it down. I already told you about the reimbursement employee expenses. Anything that’s necessary for your job performance or to do your job is deductible if it’s on unreimbursed.
The other one is other expenses. There’s a lot a bunch here. What I want to talk about is toastmaster’s expenses. Very important if you’re not deducting.
If this is something – here’s the rule – that’s the minimum rule. If this is something to improve your skills for your job, it’s deductible. So, from work to here and back, you should be deducting it.
Female: Mileage.
Noel: Yes, mileage. It’s huge. Here’s another thing. If you’re attending conference,
conventions, if you go to Vancouver…
Audience: (Light laughter.)
Noel: You can deduct it.
Female: Really?
Noel: As long as you can document it. How? Travel expenses got to be more than 50 percent of your time. So, if you went to Vancouver for more than 50 percent, meaning you did a lot of – you know – starting Wednesday – to that – it’s all business, it’s all deductible. You just have to document it. Got it?
Alright. (Still holding paper.) This – so, I’ll e-mail you everything. That’s all I have.
So, in closing, the 3 Ms is a perfect example of how Uncle Sam takes away your money. Mortgage interest, medical expenses and miscellaneous expenses. Try to apply what I told you today so you can take more money back.
So, here’s the last thing I have to say - behind every successful man stands a woman and Uncle Sam.
Audience: (Laughing.)
Noel: One takes the credit, the other takes the cash.
Audience: (Laughing/ clapping.)
Noel: If you like to learn more, click the link lowermytaxnow.com, and subscribe to my
weekly blog. Until then, this is Noel Dalmacio, your ultimate CPA of Lower My Tax Now.
Last Updated by Admin on 2017-10-04 08:48:55 PM
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Did you own an existing home that you bought less than two years ago? And because of some unforeseen situations, you are force to sell it. Worse, now you are worried about the potential tax that you will be paying on the sale.
Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.
In order to claim the $500,000 capital gain exemption on the sale of your home, you need to use and own it for two out of the last 5 years. Now, if you did not meet the 2-year rule when you sold your home, you can use the “reduced exemption” rules in order to avoid paying taxes.
A reduced exemption is available if the reason why you sold your home was due to:
- Change of employment
- Health
- Death
- Loss of job
- Divorce
- Multiple births
- Others
The reduced exemption is calculated by dividing the total number of months you owned and used it over twenty four months. Here’s an example: Donald owned and used a property in Washington, DC for 12 months. Due to job relocation (he will go back to New York) he sold his property. Because the move was job-related, he qualifies for the reduced exemption.
Ratio
12 months (Number of months owned/used) = 50%
24 months
Exclusion
$500K (capital gain exemption) x 50% = $250,000
Donald can exclude up to $250,000 of gain on the house he bought in Washington DC.
So make sure that you apply the “reduced exemption” rule in case you sell your home for less than two years.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Last Updated by Admin on 2017-09-14 09:17:23 PM
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Do you have an existing student loan that you want to pay-off? There is one strategy that you might want to use to pull this off.
Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.
Due to the lower interest rate, consolidating your student loan debt by using a mortgage refinance is one of your best options. However, before pursuing this option, here are the pros and cons that you need to consider:
Pros
- Take advantage of lower interest rate – if your student loan interest rate is higher than your mortgage rate, then you can save money.
- Lower monthly payments – by consolidating and having a lower interest rate and longer term, your monthly payment will be lower.
- Tax deductibility of the mortgage payment if structured as home equity loan. Equity loan up to $100K is tax deductible no matter how you used the proceeds for.
Cons
- You are converting an unsecured debt (student loan) into a secured debt (mortgage) once you consolidate it via mortgage refinance. If you cannot pay for your home, you are putting your home at risk of foreclosure.
- Pay more interest if you consolidate. If your student loan has 10 or 15 years, you will be extending your payment period to another 15 or 20 years. That means you will be paying more interest over time.
- Incur refinance closing costs. Need to account for additional closing costs when analyzing the benefit of consolidation.
So if you decide to do this, please carefully consider the pros and cons before consolidating your student loans with your mortgage refinance.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Last Updated by Admin on 2017-09-14 09:17:43 PM
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Do you have an existing business or were issued a 1099 but you decided to ignore it and not report or file any tax returns?
Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.
The Franchise Tax Board (FTB) sent letters to over 41,000 California businesses that have not filed their 2015 CA income tax return. Business non-filers have 30 days to file a tax return or show why they are not required to file.
If you disregard the letter you will be assessed penalties, fees and interest based on income and other information reported to the FTB. The FTB receives information from the IRS, EDD, BOE, financial institutions, cities, and other businesses and matches the information against its own tax record to identify potential non-filer corporations, LLCS & sole proprietors.
The FTB may also estimate your income if you hold a license. They will base it on the average income of someone with that license. For example, if you have a real estate license, the FTB will assess tax based on what they believe a real estate sales person earns. That’s messed up, right?
For first-time non-filers, the FTB will send you a “request to file” letter. If you don’t respond within 30 days, the FTB will sent a notice of proposed assessment with tax, a late filing penalty and interest but no demand penalty or filing enforcement fee.
For repeat non-filers, the FTB will send you a “demand to file” letter. If you don’t respond within 30 days, the FTB will sent a notice of proposed assessment with tax, a late filing penalty, demand penalty and a filing enforcement fee.
Now let me tell you this, all these penalties and interest, they quickly add up. So what do you need to do? If you received one of these notices, you can request more time to respond to get more information by calling 866-204-7902 or go to FTB’S website at www.ftb.gov.
Normally, most of these penalties are available for reasonable cause exemption so you can waive the penalties. However, reasonable cause exemption is almost impossible to get in California since California does not conform to the IRS first-time penalty abatement program.
Also, the FTB also said that just because you do not understand that you have a California filing requirement is not a ground for reasonable cause exemption.
So here’s my tax tip to you, if ever you receive an FTB letter, please do not ignore the letter. It would not magically disappear or go away. Trust me on this! So make sure you address it ASAP in order to minimize any potential interest and penalties.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Last Updated by Admin on 2017-09-14 09:18:25 PM
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Here’s a tax question I got from one of my clients: “I’m paying almost 10% CA income tax. If I buy a second home in Nevada, can I claim Nevada as my resident state?”
Great question!
Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.
You know what she’s trying to do right? She wants to avoid paying the CA tax and take advantage of Nevada’s “0” state tax! I don’t blame her! So, what’s the answer to her question? Well, I will answer it with my two favorite words: “it depends”. Here are few things you need to consider if you want to be a resident of a tax-free state:
Document it – you need to show that you spend more than half a year in the state that you consider your permanent home. You need to keep a diary or a log showing the number of days you spend in each state.
Prove it – in order to prove your new state residency, you need to do the following: change your driver’s license & car registration, register to vote, apply for a library card, find a new doctor in the new area, file a Declaration of Domicile (intent to live), open a local bank account, shop locally, get a hunting or fishing license, cut ties with the old resident state.
There you have it. So try to document and prove it if you want to become a resident of a tax-free state.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Last Updated by Admin on 2017-08-23 06:07:40 PM
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Are you planning to rent out your home this summer? You see, summertime is the time of the year when people usually want to rent out their property. But before you jump and do it, there are some tax issues that you need to be aware of.
Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.
Here are some tax issues you need to be aware of when you rent out your primary or vacation home:
- If you use your vacation home solely for personal use, then it’s treated like a second home and the mortgage interest, real estate taxes, points & private mortgage insurance (PMI) will be tax deductible.
- Now if you decide to rent it out, it becomes a little bit tricky. Here are 3 tax scenarios that can play out once you start renting it out:
- Tax-Free Income Property
The first one is called tax-free income property. If you rented the vacation home for 14 days or less during the year, you don't have to report the income. You get tax-free income! You can generally deduct mortgage interest, real estate taxes, points & private mortgage insurance but you can't deduct any other rental expenses.
- Rental property
The second one is called rental property. If you use the vacation home personally for LESS than the greater of 14 days or 10% of the time the home is rented, all rental expenses are deductible.
Example: You stayed in your vacation home 18 days last year. It was rented at fair market value for 190 days. In this example, your personal use was less than the 10% limit (19 days). Therefore, your rental deductions are tax deductible.
- “Expenses claimed limited to income” property
The third one is called “Expenses claimed limited to income” property. If you use the property personally for MORE than the greater of 14 days or 10% of the number of days it's rented, the rules change. Your rental deductions are limited to the amount of your rental income. However, the personal-use portion of taxes and mortgage are still tax deductible on your return.
Example: You stayed in your vacation home 20 days last year. It was rented at fair market value for 190 days. In this example, your personal use exceeded the 10% limit (19 days). Therefore, your rental deductions are limited to the rental income you received.
TAX STRATEGY - If you rent your home to your business for 14 days or less, your business can deduct the payment as business expense. However, the rental income you received will be tax-free! Best of both worlds!
There you have it. Make sure you review and listen to this video blog to make sure you understand the tax issues before renting your property out. If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Last Updated by Admin on 2017-07-27 12:09:19 AM
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I got this tax question from a client recently: “Should I include my kid’s’s name on my home?”
Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.
You see, you might think it’s a good idea to include your kid’s name on the title of your home in case something happens to you. However, that might be a bad idea. Here are five reasons why:
No gain exemption
You are allowed to exclude up to $250,000 of gain on the sale of your home ($500,000 if you are married). However, the exclusion is only available if you owned and used it for at least two out of the last five years. So if your kid does not live in your home for that time period, the portion of his/her gain will be fully taxable.
Home equity risk
If your kid got title to your home as a full or partial owner, a creditor may file a lien on the property for any of your kid’s debts. Worse, your home could be lost if your kid is involve in an accident or a lawsuit.
No control
If you transfer the full title to your kid, your kid will now have 100% control re: your home. If your kid decides to sell the property or take out a loan against your home, you cannot do anything about it.
Medicaid issues
Under some scenarios, if you gift your home to your kid, it could be considered a gift for Medicaid purposes. That means, if you kid subsequently sells your home, you might not qualify for Medicaid benefits in the event of a major long-term health problems.
Gift tax return requirement
If your kid received more than $14,000 of equity in your home as a gift, you need to file a gift tax return. However, regarding the gift tax payable, you can use up your $5.5 million lifetime exemption in order not to pay any gift taxes.
So the question right now is: “What is the LowerMyTaxNow strategy?” If the purpose of the title transfer is for your kid to easily get the home at your death or so your kid can manage your affairs, then I would recommend setting up a living trust, along with powers of attorney, so your kid can manage your financial affairs.
If the reason is to help your kid buy his or her first home, a better way is to lend your kid the money with an IRS-approved interest rate (low and reasonable), and set up a program to give annual gifts in the form of principal forgiveness.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Last Updated by Tax on 2017-06-07 06:03:32 PM
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Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.
Have you ever wondered why President Trump does not want to release his tax returns. He claims that you, “don’t care at all” even though he is the first president in more than 40 years not to release his returns. So you might be thinking, what gives? That is a great question! And on this blog, I will discuss the top three reasons why he won’t release his returns. Ready?
- Paid “zero” taxes
He reported a billion dollar loss in the 1990s that could have offset all his income for up to 18 years. Being a real estate investor, it gave him the opportunity to apply powerful tax breaks such as depreciation and like-kind exchanges so he can delay, minimize or zero out his taxes. He proudly declared that not paying taxes makes him smart.
- Potential conflict of interest
With more than 500 businesses according to his financial disclosure form, it will be hard to zero in if there is a conflict of interest in regards to his own financial interest versus the nation’s’ interest without reviewing his tax returns and the supporting documentations. Trump’s tax returns might reveal how much he owes to foreign investors like Russia — and how much his connection undermines American national interests.
- Proposed tax plan benefit
In reviewing his proposed tax plan, you would start to wonder, how much will he personally benefit? There are three parts of his tax plan that would be a financial windfall for Trump. Here goes:
- Eliminate alternative minimum tax (AMT) – this prevents rich people from taking advantage of excessive tax breaks. Without the AMT, Trump would have paid just a 3% tax rate in 2005, instead he paid $31 million in AMT taxes.
- Business tax rate will drop from 35% to 15%. This is called the “Trump Loophole” since he will save millions of dollars annually from his 500+ business entities.
- Eliminate estate tax permanently – that means his family and heirs will be billion dollars richer if the estate tax is eliminated.
There you have it. Those are the top three reasons why I think President Trump would not release his tax returns.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Last Updated by Tax on 2017-05-24 07:22:20 PM
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Did you see the news re: the proposed tax plan? You might be thinking, what does this really mean? And how is this going to affect me?
Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.
The White House presented the new tax plan last Wednesday. And compared to what I’ve discussed last November, 2016, there were not a lot of surprises. Now, the thing with a proposal is, they have a lot of work to do, before it becomes final. Because as of right now, we don't know if this is going to pass or if it passes when it will be a law. So with that in mind, I would not tell you about the highlights but would tell you instead the winners and losers with the proposed tax plan. Here goes:
Winners
- * Businesses with high tax rates - from 35% corporate income tax to 15%
- * High-income earners – income around $470K then your tax rate will drop from 39.6% to 35%
- * People with creative CPAs – this might open up a tax loophole since taxpayers might want to be structured as an S-corporation
- or LLC instead of employees.
- * Multimillionaires who want “0” estate tax – this would take care of your taxes, if your estate is more than $5.5 million or $11
- million for couples.
- * People who are subject to AMT – the one who will benefit the most are high-income earners that have deductions subject to
- AMT adjustments (meaning you need to add back your deductions because you are not getting any tax benefits for AMT
- purposes).
- * Donald Trump – surprise, surprise! All the items that I just mentioned just now will have a huge impact on Donald Trump’s
- taxes.
Losers
- * Upper-middle-income people with high state tax rate – because the state tax that you are paying will not be tax deductible.
- * Non-profit and charitable organizations – with the new proposal, the charitable deductions will be limited.
- * Taxpayers – national revenue would decrease by $6.2 trillion over a decade. That means a large increase in the national debt
- or huge decrease in federal spending.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Last Updated by Tax on 2017-04-28 07:56:24 PM
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Have you filed your 2013 tax returns yet? If you have not filed yet - STOP, and make sure you listen to this so you don’t lose your refund.
Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.
According to the IRS, if you are one of the nearly one million taxpayers who failed to file a return for 2013, then you are in danger of losing your refund. Tax law provides a three-year period limit beginning from the tax due date to claim a refund when no return is filed. That means, since your 2013 tax return due date was April 15, 2014, you are given up to three years from the due date, to file on or before the April tax deadline – April 18 of this year – or the chance to claim the refund is gone for good.
Now here’s the twist, for a refund - there’s a three-year limit, but if you owe money – there’s no time limit until you file your taxes. So what’s the LowerMyTaxNow tax strategy? File your 2013 tax returns before April 18.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Last Updated by Admin on 2017-04-12 05:31:17 PM
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Do you know someone who got victimized by a tax scam? I got to tell you, for the victim, it’s pretty scary! Since by the time you figured out that something is not right, the IRS imposter already cleaned your wallet! So how can you avoid it?
Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.
Fake IRS phone call is one of the most common scams. You need to be careful of phone calls or voicemail messages from someone who claims to be from the IRS. Often these criminals will say that you owe money and they will demand immediate payment. Other times, they will lie to you and say you have a refund. They will ask for your bank information over the phone.
So in order for you not to fall for these scams, here are some tips that you can use:
IRS will NOT:
- Call you demanding that you pay them right now. IRS usually correspond via mail.
- Demand payment without giving you the chance to ask question or appeal the amount you owed.
- Ask for your debit or credit card numbers over the phone.
- Require you to pay your taxes with a prepaid debit card.
- Threaten to contact your local police to arrest you for non-payment of taxes.
- Threaten you with lawsuit.
If you don’t owe or think you don’t owe any tax, you should:
- Contact the Treasury Inspector General for Tax Administration or TIGTA. You can go to www.treasury.gov/tigta and use the TIGTA’s “IRS Impersonation Scam Reporting” web page to report the incident.
- Report what happened to the Federal Trade Commission. Use the “FTC Complaint Assistant” on FTC.gov. Please add "IRS Telephone Scam" to the comments of your report.
To summarize, tax scams usually reach it’s peak during tax season. So, in order for you not to fall for these scams, please review and use the tips that I’ve discussed so you can avoid being a victim.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Last Updated by Admin on 2017-03-22 05:56:47 PM
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Did you get married, divorced or adopted a child last year? If yes, please make sure you do this important step, before filing your taxes.
Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.
If you or your dependent had a name change last year, please notify the Social Security Administration (SSA) before you file your taxes with the IRS. If the name on your tax return does not match the SSA records, the IRS is likely to notify you about the mismatch. How does that affect you? Well, your expected refund could be delayed. So if you had a name change due to marriage, divorce, or child adoption, please file Form SS-5 with the SSA to update your information.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Last Updated by Admin on 2017-03-15 07:05:54 PM
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Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.
The Consumer Financial Protection Bureau has created two new forms for borrowers applying for a mortgage loan. The new forms, Loan Estimate and Closing Disclosure, replaced the HUD-1 statements. The new forms have been in use since October 3, 2015.
The Loan Estimate must be given within three business days from the date you submit your loan application. It was designed to help borrowers understand the key features, costs and risks of the mortgage loan. On the other hand, the Closing Disclosure must be provided at least three business days before the loan closing date. It was created to help borrowers understand all the transaction costs of the loan. Part 1 of the Closing Disclosure looks the same as the Loan Estimate. The purpose of that is to make it easy for you to review if the estimated costs changed compared to the final closing costs.
So if ever you did any purchase, sale or refinance for this year. Make sure you provide your CPA or tax preparer the Closing Disclosure form that would show the purchase/sales price of the property and the related closing costs.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Last Updated by Admin on 2017-03-03 12:54:31 AM
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Have you ever filed your taxes and after you received your refund, you got an additional tax documents in the mail?
Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.
If that ever happened to you, here are your two options:
- 1. File an amended return - if you received an additional W-2s, 1099s or K-1s (a K-1 shows your income portion from either an S-corporation, partnership, LLC or trust), then you need to amend your returns to report the additional income. Ignoring and not reporting the forms might result in increased additional interest and penalties.
- 2. Ignore the forms - if you received a form that shows a minimal income (interest or dividend income or losses on K-1s, then I would recommend ignoring the forms. Since amending the return would result in tax preparation fees, you need to determine if it makes sense to amend your returns.
There you have it! Now you know how to address it, if ever you receive a tax documents after filing your taxes.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Last Updated by Admin on 2017-02-22 07:06:17 PM
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Have you ever worked as an independent contractor and you were not given a 1099 form to report your income? What do you do? Do you report it or ignore it?
Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.
If that ever happened to you, my recommendation is to report your 1099 income. It does not matter if the one that hired you did not issue you a 1099, it’s still your responsibility to report the income. You might be thinking: “But the IRS did not receive a copy of the 1099, that means, I got tax-free income! No need to report it!”
Unfortunately, here are the tax traps that you need to consider:
- Longer audit periods - if you did not report more than 25% of your income, the IRS have 6 years to audit your returns instead of 3 years.
- Multiple-year audits - if you get audited, there is a potential that the IRS will go back three years or six years, if applicable to determine that you did not omit any income.
- Interest & Penalty assessment - you will be assessed various interest and penalties based on the amount that you omitted. For every dollar that you saved from omitting the income, the IRS wants around $1.70 or more.
To summarize, not reporting your income can expose you to longer audit periods, multiple-year audits and penalty assessments. So please, report your income.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Last Updated by Admin on 2017-02-15 07:17:35 PM
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Are you starting or planning a new business this year? If yes, make sure you consider these five items into account.
Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.
- Business plan. You need to outline who will own the business and what the legal structure will be, your qualifications to run the business, the competitive market you face, the products or services you will sell, and how you intend to advertise to prospective customers. Also, how much cash will you need to start up and where will those funds come from? These are important questions that you need to answer and address before starting your business. Keep this in mind: no answer, no business!
- Legal form. You can form a corporation, or operate as an LLC, a partnership, or a sole proprietorship. However, you need to consider both tax and non-tax reasons for selecting a given business structure. These means, you need to know your priority. Do you want to maximize tax deductions? Is the priority legal protection? Are you going to sell the business to a competitor in the next few years? Do you want to minimize your estate tax? Are you going to go public? So make sure you know the goal in mind.
- Location. If your business will consist only of online sales, then your corporate office can be wherever you are. However, if your business needs foot traffic to thrive, you'll need to research rents and other costs such as utilities, as well as zoning and traffic restrictions.
- Taxes. You'll have to work with the IRS, state tax agencies, and local governments to obtain permits and business licenses.
- Advisors. You need to create a business financial team that includes a banker, an insurance agent, an attorney, and yours truly, your favorite accountant. So make sure you involve your advisors early and frequently.
To recap, starting a new business can be very challenging, but by considering these five items, you can put yourself on the path of an aspiring business owner. Good luck!
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Last Updated by Admin on 2017-02-08 06:22:39 PM
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Do the following three items apply to you?
- Are you claiming your dependent children?
- Did you pay for any education expenses?
- Did your family income situation change and it’s lower than $50K?
If yes, then IRS would want to know and want to have more information.
Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.
When you are claiming your children for tax credit purposes, you may be asked how long your children lived with you over the past year, or whether they lived with an ex-spouse, relatives or other guardian.
Now for education purposes, which can give you up to $2,500 of tax credit, you are now required to provide Form 1098-T from the college or university. You will also need receipts for related expenses. No Form 1098-T, no tax credit.
Lastly, if your family income drastically changed and it’s under $50K and as a result, you were entitled to earned income credit (EIC), you may be asked additional questions regarding your dependents’ social security numbers and dates of birth. Why? Because these two items were the major source of what the IRS calls "improper payments or refunds."
IRS estimates that of the $66 billion in EIC funds paid in 2015, nearly a quarter or $16.5 billion were collected by filers who didn't qualify to receive them. As a result, the IRS is requiring tax preparers aka “yours truly” to ask more questions.
So starting this year, if we don’t document the compliance with these new requirements, I could face fines of up to $510 per return. What?
To summarize, if I asked you more questions than usual or if I requested for additional documents, be aware that it's just a new requirement to claim the above credits.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Last Updated by Admin on 2017-02-01 11:08:14 PM
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Are you aware that the IRS did a major overhaul in regards to determining repair versus improvements?
Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.
Since there were a lot of changes, I will just talk about one specific topic for now and the rest will be in my next video blogs. Okay? So, last November 2015, the IRS issued a notice increasing the amount of repair that you can expense out from $500 to $2,500 for tax years beginning 2016.
That is great news! However, I recommend that you have an accounting capitalization policy in place to document the $2,500 that you will expense out. This accounting policy needs to be in place at the beginning of every tax year.
Why am I telling you all of this? Because, in case you get audited, the IRS auditor will be reviewing their 220-page (yes, 220 pages!) repair audit tax guide and will be looking for your policy to determine the following:
- Was it in writing
- Was it in effect beginning of the year
- Was the policy changed to reflect the expense amount from $500 to $2,500
To recap, make sure you have the accounting policy in place to audit-proof the expense items that you are claiming.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Last Updated by Admin on 2017-01-25 10:22:18 PM
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Due to recent law change, the due dates for some of the business and information returns have changed.
Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.
Here’s what you need to know.
For C-corporations, the new due date will be April 15 (three and one-half months after the end of the taxable year). However, C-corporations with tax years ending on June 30 will continue to have a due date of September 15.
For partnership & LLC returns, the new due date will be March 15. Partnership returns will be allowed a six-month extension. So the extension due date will be September 15.
For S-corporations, the due date continues to be March 15. S-corporations may also request a six-month extension with the same extension due date of September 15.
Lastly, for FBAR (Form 114) re: foreign asset reporting, the new due date will be April 15 and you will be allowed to request a six-month extension up to October 15. However, you need to request an extension since it’s not automatic.
I bet you are thinking right now: “Why did they make these changes?” Honestly, the IRS got good intentions why they are changing the due dates. The goal is to line up with the business tax reality. Partnership & LLC returns were changed from April 15 to March 15 to give you time to prepare your personal returns. And that’s the same reason why the S-corporations continue to have a March 15 due date. On the other hand, for C-corporations, which are normally for bigger companies, they moved it forward to April 15 to give them additional time to prepare their returns.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Last Updated by Tax on 2017-01-25 10:20:00 PM
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Happy New Year! Well, with new year comes with new rules.
Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.
As you begin preparing your final payroll tax returns for 2016, take into account earlier due dates for two common reporting forms.
Forms W-2 for 2016 are due January 31st. The January 31 deadline applies to forms given to employees, as well as those submitted to the Social Security Administration. IRS late penalties will range from $50 - $530. Ouch! While CA will charge $50 per return. So watch out!
Forms 1099-MISC with non-employee compensation in Box 7 are due January 31st. The January 31 due dates applies to forms given to the recipients, as well as paper and electronic copies filed with the IRS. Please note that this due date applies only to 1099s that report amounts in box 7. The due dates (end of February) remain unchanged for the other boxes. Now, if you don’t have the proper information of the recipients, make sure you provide them a copy of the W-9 Request for Taxpayer Identification Number so they can fill it out and return it to you ASAP.
Why? Well, there is a $260 per return federal penalty for failure to file the 1099s. If filed within 30 days of the due date, the federal penalty is reduced to $50 per return. To make it worse, California conforms to these due dates. And they have their own applicable penalties. For 1099s it’s $100 for failure to file, $30 if filed within 30 days of the due date.
So watch out! Make sure you file the W-2s and 1099-Misc with non-employee compensation by January 31st to avoid incurring penalties.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Last Updated by Tax on 2017-01-04 11:50:18 PM
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Imagine your rich parent or relative gives you a real estate property, vacant lot or stocks. And then a number of years later, your parent or relative dies and you decide to sell the gift. Your tax preparer says you'll need to calculate capital gains on the sale, and asks for your basis to offset it with the sale. So here’s the question: “What's your basis?”
Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.
Basis is the amount of capital investment in the property which is commonly called the purchase costs. So when you sell a property or stocks received as a gift, the general rule is that your basis is the donor's cost basis or purchase costs. So if you sell it for a gain, you need to use the donor’s basis or costs. But if you sell at a loss, your cost is the lower of the donor's basis or the fair market value on the date you received the gift.
But without cost records, you have no way of proving the donor's basis and no way of saving yourself tax dollars.
So what do you do? So next time, when you receive a gift, explain why you need the cost basis to make the conversation less awkward. No one likes to pay unnecessary taxes. So I recommend having the same conversation about the cost of valuable gifts you received in prior-years. That’s very important!
Now conversely, if you're the gift-giver or the one giving the gifts, offer the additional gift of presenting the cost records to your recipient at the same time. Otherwise, you may end up giving an unintended gift to the IRS in the form of…unnecessary taxes.
There you have it. So next time, when you receive a valuable gift like a property, vacant lot or stocks, ask and inquire about the cost records so that at the time of sale, you will avoid unnecessary taxes.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Last Updated by Admin on 2016-12-02 09:45:21 PM
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A tax client asked me: “Should I convert my IRA or retirement plan into a Roth IRA? That is a great question! However, as with any tax questions, it is impossible to have a definite answer when deciding whether to convert a traditional IRA or retirement plan into a Roth IRA.
Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.
You will generally benefit from the Roth IRA conversion if ALL of the following applies to you:
- You don’t need to take withdrawals from your Roth IRA for at least 15 to 20 years;
- Your future tax rate when you take out withdrawals is the same or greater than the rate during the conversion and
- You can pay the tax on the conversion with non-retirement funds
If you meet all the criteria, congratulations! This is one powerful tax strategy that if you apply correctly, will definitely, build you tax-free wealth!
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Last Updated by Admin on 2016-11-16 06:53:55 PM
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Have you ever done a home-based business before? And you were required to fill-out form W-9 to provide your name and social security number so you can be issued a 1099 during tax time.
Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.
Here’s a LowerMyTaxNow strategy on how to properly structure your tax ID when starting a business.
I would recommend applying for a separate tax ID number with your preferred business name. Make it a generic name so you can use it for your existing or any future businesses. Fill-out form SS-4 and you can go to irs.gov for both the forms and instructions.
I know what you are thinking. Your million dollar question is: “why?” Answer: identity theft. The sole purpose of doing this is to prevent any identity theft in the future. You want to avoid providing your social security number as much as possible.
There you go! That is my LowerMyTaxNow strategy that you can use when you start a home-based business.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Last Updated by Admin on 2016-09-16 08:38:18 PM
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Have you ever received an IRA distribution with the intention of “rolling it over” or depositing it into another IRA account but you missed the 60-day rollover rule?
Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.
Under this rule, you're required to complete the rollover within 60 days of receiving the distribution. If you miss the deadline, tough luck, you have to report the distribution as income and perhaps pay a penalty. Ouch!
In the past, you had to request a special statement from the IRS to avoid that outcome. Now, the IRS says you may qualify for a waiver if you meet one out of eleven allowable reasons. Here we go:
1. Error was committed by your financial institution
2. Distribution check was misplaced and never cashed
3. Distribution was deposited into an account that you thought was an existing retirement plan
4. Your principal residence was severely damaged
5. A family member died
6. You or a family member was seriously ill
7. You went to jail
8. Restrictions were imposed by a foreign country
9. Postal error occurred
10. Distribution was due to IRS levy and then the proceeds was returned by the IRS
11. The party making the distribution delayed providing information that delayed the rollover
There you have it! So next time, if you missed the IRA 60-day rollover rule, please look into the eleven allowable reasons to get relief.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Last Updated by Admin on 2016-09-08 09:36:38 PM
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Are you aware that there is a tax code that can potentially “0” your taxes?
If you are a real estate investor and working in a real estate business, you are in a unique position to take advantage of this powerful tax strategy that could potentially “0” your taxes. It’s called the “real estate professional” designation.
Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.
Under this law, if you are a real estate professional, you can fully deduct rental losses against your W-2, business income and other income without limitation. What does that mean? It means, if you understand the tax rules and apply it correctly, you can potentially “0” your taxes.
REQUIREMENTS:
1. 50% test – You must spend more than half (51%) of your working hours in a real property trade or business like purchase, rental, management or sales.
2. 750-hour test – You must spend 751 hours in real property trade or business
3. You must be at least a 5% owner of real property trade or business
4. The 50% test and 750-hour test must be met by only one spouse in the case of married taxpayers
5. You must materially participate in the management operations of your own rental real estate. Married couples can combine their hours to meet the material participation hours.
To recap, a “real estate professional” designation is one of the most powerful tools that you can use in order to legally zero out your taxes! So make sure you understand the rules and keep good records.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Last Updated by Admin on 2016-09-01 06:07:55 PM
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Do you know someone that recently passed away? Do you know that after your death, the distribution of retirement accounts, life insurance policies, annuities, and bank and investments accounts are guided by beneficiary designations. If those designations are outdated, unspecific, or wrong, your assets may not be distributed the way you would like.
Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.
Here are three items to consider:
Be specific and stay current. When you name a beneficiary, your assets can pass directly to that person or entity without going through a legal process called probate. So make sure you update the designations for life events such as divorce, remarriage, births, deaths, job changes, and retirement account conversions. Likewise, keep your beneficiary designation forms in a safe location, and maintain current copies with your financial institution, attorney, or advisor.
Think about unexpected outcomes. You have to be alert for the effect of taxes. For example, if the money in your accounts is distributed directly to your heirs, they may be stuck with a large unexpected tax bill. If you are wealthy, estate tax may also play a role. In 2016, the estate tax exclusion is $5.45 million and the top estate tax rate is 40%. Another concern: If one of your designated beneficiaries is disabled, government benefits may be reduced or eliminated by the transfer of assets. You may want to consult an attorney to establish a special needs trust to ensure your loved one is not adversely affected.
Name contingent beneficiaries. If your primary beneficiary dies, having a backup, or contingent, selection will ensure that your assets are properly distributed. In some cases, a primary beneficiary may choose to disclaim, or waive, the right to the assets. In that case, contingent beneficiaries can step up to primary position.
Beneficiary designations are an important part of estate planning and the items we have discussed will ensure that your wishes and intentions will be followed.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Last Updated by Tax on 2016-08-24 05:46:31 PM
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When you go out and eat, put gas in your car or pay for your business expenses, I’m going to assume that you are either using a credit card or a debit card. In your mind, you might think they are the same. But there are differences that you need to be aware of.
Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.
Here are some differences that you need to be aware of:
- Cash availability and fees
With a credit card, the money is not immediately taken out from your bank account. And as long as you pay back the credit card company within the allowed period, you won't be charged interest on the money owed. And you don't want to make a late payment – interest can build up quickly on credit cards.
In contrast, debit cards are linked to your personal bank account, so you're using your own money and the charges are automatically deducted from your account. However, you might be charged extra fees on top of interest for any overdrafts.
- Personal finance and budgeting
Earl Wilson said that there are three kinds of people: “The haves, the have-nots and the have-not paid what they bought.” You don’t want to be in the last group!
With credit cards, you might tend to overspend since you have available cash in a form of a personal loan. On the other hand, because you don't carry a balance on the debit card, you're more likely to stick with your budget and not overspend.
- Consumer liability protection
Federal laws protect you in the event you need to dispute credit card charges and usually cap your liability at $50. Debit cards offer fewer protections than credit cards, including a sliding scale of liability depending on when you notify your financial institution.
Which card is best for you? The answer is generally a mix of the two is a good compromise. You can use a credit card wisely to bolster your credit, while still paying for everyday purchases with a debit card.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.co
Last Updated by Admin on 2016-08-17 05:43:08 PM
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Can you deduct a work-related education costs?
I got this question from one of my clients. So as an accountant, I will answer you with my favorite words: “It depends.”
Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.
So, are you planning to go back to school to get an advanced degree or just to brush up on your work skills? The answer to those questions, will determine if you might be able to deduct what you pay for tuition, books, and other supplies.
So, if you're self-employed or an employee, you may be able to claim a deduction if the training is necessary to maintain your skills or is required by your employer.
However, just remember that even when the education meets those two tests, if you're qualified to work in a new trade or business when you've completed the course, your expenses are personal and nondeductible. That's true even if you do not get a job in the new trade or business.
Work-related education expenses are an itemized deduction when you're an employee and a business expense when you're self-employed. You may also be eligible for other tax benefits, such as the lifetime learning credit.
So next time you plan on going back to school, just make sure you understand issues re: work-related education.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Last Updated by Admin on 2016-08-10 05:49:49 PM
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Are you working for someone or are you working for yourself?
In regards to retirement plans, there are some things you need to be aware of so you can take advantage of the situation.
Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.
Here are three things you need to consider:
- Maximize employer matching. If your employer offers a 401(k) plan, try to put in at least the contribution amount in order to receive the maximize amount your company will match. Consider this free money! This also applies to self-employed. You can set-up a profit-sharing plan that will allow you to contribute up to 25% of your salary. This is tax deductible to the business but not taxable to the employee. It’s a win-win!
- Try to catch-up. If you're age 50 or older, you are allowed to make extra contributions to your retirement plans. These "catch-up" contributions depend on the type of retirement plan. Here is the list of catch-up items: IRA - $1,000, Simple - $3,000, and 401-K & 403-b - $6,000.
- Maximize total contribution limit. The total limit for 2016 is $53,000. So if you are an employee, try to take advantage of any of your company’s retirement plans. Now, if you are the employer, try to structure different plans in order to maximize your contributions up to the limit.
There you go! Consider these strategies the next time you look into your retirement plans and I guarantee you…you would say…I lowered my tax now!
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Last Updated by Admin on 2016-08-09 09:28:18 PM
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If you hold foreign bank or financial accounts, or have signature authority over such accounts, and the total value of all your accounts exceeds $10,000 at any time during the calendar year, you may be required to file a Treasury Department report known as the FBAR.
It's easy to overlook this requirement because it's separate from your federal income tax filing, with a different deadline and strict rules."FBAR" refers to Form 114, Report of Foreign Bank and Financial Accounts. Your Form 114 must be filed electronically with the Treasury Department no later than June 30. No filing extension is available. So, please watch out for the filing requirement due date.
Last Updated by Admin on 2016-06-28 08:22:22 PM
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Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.
Do you own a rental property where you have “used up” most or all of your depreciation? You want to sell the old property and buy a new one so you can start benefiting from the depreciation deduction again. You’re thinking: Can I do that? Answer: Absolutely!
Here are 3 tax strategies that you can use:
1. Take advantage of the suspended rental losses – if your income is more than $150K, the IRS will suspend your current rental losses and will be carried over to future tax years indefinitely (exception applies for RE professional). Any carried-over rental losses not used can be claimed if your income will permit or fully expensed during the year you sell the property to offset potential capital gains.
2. Key tax rate – if you are in the 10%-15% tax bracket and you held the rental for more than a year, then you can pay “0” capital gains rate. Yes! You heard that right…zero! The key here is proactive planning. Make sure you postpone some income and increase your deductions in order to be in 10%-15% tax rate.
3. Installment sale – you can spread and report the capital gains over a number of years in order to spread the tax and create a future revenue stream.
To recap, take advantage of the strategies above so you can minimize or spread your taxes and start getting the tax benefits from depreciation deduction again.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.
Last Updated by Admin on 2016-06-22 06:37:15 PM
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Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.
Do you have a rental property that appreciated in value that you want to sell?
You want to pull the trigger but you are afraid of the tax you will be paying on the gain. What can you do?
Millionaire investors used this strategy to build their real estate portfolio. It’s one of the most powerful tax savings strategies available to you. It’s called: 1031 exchange.
A 1031 exchange allows you to postpone your taxes by exchanging up to another higher-priced rental property. It’s a way to consolidate and build your real estate investments without paying taxes. It’s a two-step process: first step, sell your property, second step, reinvest the cash proceeds in a new property.
Here are 6 additional things you need to know about 1031 exchanges:
- Must be investment property (enter in slide) - It’s only for rental, investment or business property.
- 45-day rule (enter in slide) - Replacement property must be identified within 45 days of the sale of the old property. There are no extensions allowed.
- 180-day rule (enter in slide) - It must also be purchased within 180 days of the sale of the old property.
- Qualified intermediary requirement (enter in slide) - To qualify for the tax deferral, you must hire a qualified intermediary (commonly called an exchange accommodator or QI).
- Cash receipt is taxable (enter in slide) – Any cash you received or taken out during the exchange is taxable.
- Consider mortgages and other debt (enter in slide) – If you don’t receive cash back but your mortgage balance went down, that will be treated as income. For example, you had a mortgage of $500,000 on the old property, but your mortgage for the new property is only $400,000. You have a $100,000 of taxable income. (show slide)
To recap, a 1031 exchange is a very powerful tool, that if you use wisely, can save you thousands of dollars come tax time.
However, you have to pay strict attention to the rules of qualification. Otherwise, you could find yourself in some trouble with the IRS.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.
Last Updated by Admin on 2016-06-16 12:50:30 AM
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Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow
Did you have a parent, relative or sibling that passed away and they transferred their IRA account to you?
If you inherited an Individual Retirement Account, IRA for short, from someone other than your spouse, you may be surprised to learn you have to take annual distributions.
That's generally the case whether the IRA is a traditional or a Roth account.
The problem sometimes is the brokerage company does not know the tax rules for inherited IRA.
And if you fail to take the distributions as required, you may owe a 50% penalty of the amount you should have taken.
Therefore, to avoid the penalties, make sure you take out timely distributions from the inherited IRAs.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.
Last Updated by Admin on 2016-05-13 01:30:35 PM
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Looking to minimize tax clutter?
Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.
Here are 4 recordkeeping guidelines that will help you do just that while retaining what's important.
- Income tax returns. Keep these at least seven years. Hang on to the back-up documents, such as Forms W-2, mortgage interest statements, year-end brokerage statements, and interest and dividend statements, for the same amount of time.
- Supporting paperwork. Keep cancelled checks, receipts, and expense and travel diaries for a minimum of three years.
- Stock, bond, or mutual fund purchase confirmations. Retain these while you own the investment. You can purge them three years after you sell.
- Real property escrow and title statements. Retain these documents as long as you own the property so you can prove your purchase price when you sell. They can be destroyed three years after the date of the sale.
As you purge your financial clutter, be sure to shred or otherwise destroy the discarded paperwork. These documents often reveal your social security number, bank and brokerage account activity, and other personal information that could lead to the theft of your identity.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Last Updated by Tax on 2016-05-04 10:48:29 AM
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Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.
If you're required to make quarterly estimated tax payments this year, the first one is due as the same date of the tax filing deadline.
Failing to pay estimates, or not paying enough, may lead to penalties. Here are three things you need to consider:
Do you need to make estimates? If you operate your own business, or receive alimony, investment, or other income that's not subject to withholding, you may have to pay the tax due in installments. Each estimated tax installment is a partial prepayment of the total amount you expect to owe for next year. You make the payment yourself, typically four times a year.
How much do you need to pay? To avoid penalties, your estimated payments must equal 90% of your 2016 tax or 100% of the tax on your 2015 return (110% if your adjusted gross income was over $150,000).
Exceptions. There are exceptions to the general rule. For instance, say you anticipate the balance due on your 2016 tax return will be less than $1,000 after subtracting withholding and credits. In this case, you can skip the estimated payments.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Last Updated by Admin on 2016-04-22 04:01:53 PM
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Here’s a tax question, I got from one of my clients:
Should I donate a vacant land that went down in value?
Here are the facts of the case:
Client bought a vacant land in Florida 10 years ago for $35,000. It’s now worth $5K.
She is feeling charitable and would like to give the vacant land to her favorite charity.
So what do we do?
If she donates her vacant lot, she can deduct the land’s $5k market value as charitable deduction. That is good. However, we can do better.
Here’s the LowerMyTaxNow strategy:
Sell your lot to recognize the $30,000 capital loss ($35K cost less $5K market value). You can deduct $3K of capital loss every year or you can offset these losses with any future capital gains.
Afterwards, you can donate the $5K cash to your favorite charity.
Whoolah! Not only you gave the same $5k value to your favorite charity, but you were able to recognize the loss from the sale of the vacant land.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Last Updated by Admin on 2016-03-16 11:43:38 AM
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Here’s a tax question, I got from one of my clients:
If my kid works part-time, do you recommend funding a Roth IRA?
Hey, that is great question! And it deserves a great answer. Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.
If you have a kid who works part-time, encourage your kid to fund a Roth IRA.
You might be thinking, what’s the big deal about a Roth IRA?
We’ll, it’s one of the most powerful retirement vehicle that you can take advantage of.
The contribution is not tax deductible, however, it grows tax-free and when you take out the money at age 60, it’s all tax-free!
What is the income requirement to fund it then?
You only need to have a W-2 or NET business income. Age is irrelevant.
So for 2015 and 2016, your kid can contribute the lesser of: (1) W-2/Net business income or (2) $5,500.
By funding this consistently, your kid can potentially accumulate quite a bit of money by retirement age. However, your kid might not be willing to put in the $5,500 even when they have enough earnings to do so. So just be satisfied if you can convince your child to contribute at least a meaningful amount each year. Remember, if you are so inclined, you can make the Roth IRA contribution for your child.
Here's what can happen if your 15-year-old kid contributes the following amounts:
(Note that it will be worth different values depending on the amounts contributed & annual return)
Annual Contribution Value when child is 60 years old
For 5 Years 3% 5%
$1K $ 28K $84K
$1.5K $ 40K $127K
$2.5K $ 67K $212K
Wow! You get the idea right? With just small annual contributions for five years, Roth IRAs can be worth eye-popping amounts by the time your kid approaches retirement age. That is the power of starting early!
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Last Updated by Admin on 2016-03-09 12:57:57 PM
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Have you been a victim of a tax scam? No? Well, that’s great!
Did you know that during tax time, tax scams usually go up.
Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.
Today, you will learn 3 tax scams that you need to watch out for.
Here goes:
The first one is identity theft.
Scammers will use your social security number and personal information to file your tax return and claim a fraudulent refund.
If you get an IRS notice informing you that more than one return was filed in your name and you received wages from an unknown employer those are the signs that you have been victimized.
If you believe your personal information has been stolen and used for tax purposes, you should immediately contact the IRS Identity Protection Specialized Unit. Go to www.irs.gov and visit the special identity theft page on the IRS website.
The second one is phone scams.
Did someone call your home number and pretended to be an IRS agent and threatened you with police arrest, deportation and license revocation if you don’t pay your outstanding IRS bill? Let me tell you, it happened to my associates and my wife. They freaked out!
Just so you know, IRS usually corresponds through mails only. They do not call for any outstanding bills. And they never ask for credit or debit card information over the telephone and they never requests immediate payment over the telephone and will not take enforcement action.
So when you receive this threatening phone call, please hang up or call IRS immediately.
Lastly, phishing. This is the use of unsolicited email about a bill or refund or fake website appearing to be from the IRS. Please do not click on one claiming to be from the IRS. Remember – IRS NEVER initiates a contact by email requesting your personal and financial information. Report such email immediately to phishing@irs.gov.
There you have it. So for this coming tax season, watch out for these top three scams. Be careful when viewing e-mails or receiving telephone calls because scams can take on many sophisticated forms. Keep your personal information secured by protecting your computers and only provide your Social Security number when absolutely necessary.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly video blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow
Last Updated by Tax on 2016-02-24 02:49:31 PM
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Do you know how some high powered people or celebrities file their taxes?
If you say, filing jointly as married couple, then that is an educated guess.
However, for some they choose to file separately. Why? Let’s find out.
Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Today, you will learn when to file or not to file separately.
Are you ready? Okay.
If you are married, you can elect to file separately at the end of the year.
What are the disadvantages of filing separately?
There’s a lot:
Unfavorable tax rates
You lose various credits
You lose education benefits
Greater chances that your social security will be taxable
IRA’s deductions and contributions phases out at $10,000 of your income
And lastly, your rental losses will be limited to $12,500
So with these disadvantages,
you might be thinking, why do people file separately?
Two reasons: Number one: you might pay less tax by filing separately.
For example, if your spouse has medical expenses or employee unreimbursed expenses,
you might pay less, since these deductions will be limited by the income of your spouse.
Number two: And this is a big one! No joint liability!
If you sign a joint return, you and your spouse is responsible for the payment of the tax.
If you file separately, then you are not responsible for reporting or paying taxes on items related to your spouse.
There you have it.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Last Updated by Tax on 2016-02-19 03:02:53 PM
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Do you have people that you support? Do you know that if you meet certain tests, they may be claimed as your dependent. Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Today, we will talk about how to maximize your dependency deductions.
Here are 3 things you need to know, number 1: Deductions and income limitation.
Each dependent will reduce your income by $4,000 on your 2015 tax return. However, you might lose part of that deduction if you income is more than $309K if you married or more than $258K if you are single filer.
Number 2: Who can be considered a dependent? A dependent is someone you provided more than half of their support; more than 50%. And they are either a qualifying child or a qualifying relative. You need to take advantage of both classifications in order to claim the deduction.
A qualifying child is someone related to you, lived with you, under 19 or a full-time student under 24 or it can be any age if permanently disabled
A qualifying relative is a dependent that either lives with you all year or related to you and they must have income that is less than $4,000.
So you can claim any person not related to you as long as they live with you the entire year and made less than $4,000. While any person related to you like your parents or children does not necessarily be living with you, you just need to provide more than 50% of their support and their income needs to be less than $4,000.
Keep in mind that for your parents that receive social security benefits only, those benefits will be taxed as “0” and would not be considered as income. Make sure you take advantage of both classifications in order to claim the deduction.
Okay. We’re almost on the finish line, here’s number 3: Who can’t be claimed
We’ll, your spouse is never your dependent. In addition, you cannot claim a married person if that person files a joint return with a spouse. Also, a dependent must be a U.S. citizen, resident alien, a resident of Canada or Mexico for part of the year.
Wow! You made it!
For a somewhat simple topic, claiming the deduction for a dependent can be quite complex.
You will want to get it right though, because being able to claim someone as a dependent can lead to other tax benefits, including head of the household filing status, child tax credit, education credits, and the dependent care credit.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly video blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Last Updated by Admin on 2016-02-11 04:14:37 PM
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Guess what? It’s that time of the year again. Nope, I’m not talking about Christmas. I’m talking about one of your favorite things to do: filing your taxes.
Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Today, you will learn three tips to start your tax filing season. Are you ready?
Number 1. Check whether your kids need to file a 2015 tax return. They'll need to file if wages exceeded $6,300, net business income was over $400, and if interest or dividend exceeded $1,050. However, when income includes both wages and investment income, other thresholds apply.
Number 2. Consider whether you'll contribute to a Roth or traditional IRA. Since you have until April 18 to make a 2015 contribution, you can schedule an amount to set aside from each paycheck for the next few months. The maximum contribution for 2015 is the lesser of your earned income or $5,500 ($6,500 when you're age 50 or older). When funding the IRAs make sure you indicate that this is for the 2015 tax year.
Number 3. Do you need to file a gift tax return?
For 2015, you may need to file a return if you gave gifts totaling $14,000 to someone other than your spouse. Some gifts, such as direct payments of medical bills or tuition, are not subject to gift tax. They are due at the same time as your federal income tax return. There you have it. So just make sure you keep in mind these three tips once you start filing your taxes.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Last Updated by Tax on 2016-02-03 04:33:23 PM
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Do you know the number one secret on how to become a millionaire?
Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
The number one secret on how to become a millionaire
is to practice “paying yourself first”.
That means, you pay yourself first by automatically funding a retirement account
and transferring money in your savings account.
That way, before you even have access to your accounts, you already took steps in securing your financial future.
This is a perfect segue to discuss retirement plans.So for 2016, you can contribute $18,000 to your 401(k), plus another $6,000, if your 50 years old or older.
Taking full advantage of allowable contributions and any employer matching is still a good idea. Since contributions you make to your retirement plan reduce your taxable income and also help you build your retirement portfolio.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Last Updated by Admin on 2016-01-27 11:02:47 AM
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Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
While you're gathering information to prepare your 2015 tax return, set aside time for a financial review.
Here are steps to get started.
- Compile a year-end list of your assets and debts and compare the list to last year. Are you gaining or losing ground? What actions can you take to improve your financial situation in 2016? Should you start paying off your credit card debt or adding an extra principal payment on your mortgage payment?
- Review your insurance. Do you have disability insurance to replace take-home pay if you become incapacitated? What about life insurance – will the benefit provide enough cash to pay your family's expenses in the event something happens to you or your spouse? Is your home protected with replacement value property insurance? What about insurance for automobile accidents or lawsuits?
- Update your will and estate plan. What changed during 2015? Did you marry? Divorce? Have a child? Move to a new state? Receive an inheritance? All of these events can affect your planning. This year, you can leave up to $5,450,000 to your heirs with no federal estate tax liability. But that doesn't mean you can ignore estate planning, which includes expressing your wishes for who will make decisions for you in times of emergencies as well as who will receive your assets.
● Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Last Updated by Admin on 2016-01-20 12:48:35 PM
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Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Forms 1099 are due to recipients by February 1, 2016. You may be most familiar with Form 1099-MISC, which you use when your business makes payment over $600 for services to nonemployees. Reportable payments can include fees for services paid to independent contractors, such as consultants, lawyers, cleaning services, landlords and property managers. Generally, you don't report fees paid to corporations, but there are exceptions (payments to lawyers, for example). Lastly, you are required to issue a 1099 to an LLC unless they are tax as a corporation.
If you like to learn more, click the link lowermytaxnow.com and subscribe to my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Last Updated by Admin on 2016-01-14 04:18:54 PM
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Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Guess what? New year…new rates!
The car mileage rates went down from the 2015 rates. Here are the rates that you can use to calculate your 2016 deductions and reimbursements.
For business, the rate is 54 cents per mile. That's down from 57.5 cents in 2015. (What is the IRS thinking?)
For medical and moving, the rate went down from 23 cents to 19 cents per mile.
And lastly, for charitable service miles, it remains at 14 cents per mile.
If you like to learn more, click the link lowermytaxnow.com and subscribe to my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Last Updated by Admin on 2016-01-07 03:19:51 PM
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Do you usually feel charitable during the holidays? Before, you give your check to a charity organization though, you need to do a little bit of a homework.
Hi guys, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Normally, many charities use your donations wisely. Unfortunately, others spend too much of your contribution on fundraising and administrative expenses. Some even misrepresent themselves and ask for your money for phony causes. In today's world, investigating a charity before you make a donation is the smart way of doing it.
Here's a checklist on how you can protect yourself:
- Number 1. You have to request a written documentation about the charity's mission and how your contribution will be spent. You have to ask for proof that your donation is tax deductible. If a charity is reluctant to provide information, think twice about making a gift.
- Number 2. When you receive a phone solicitation, the caller must provide their name, charitable organization name, telephone number and address. If a caller refuses to give you this information, hang up. Report the call to local authorities to help protect others.
- Number 3. Do not provide your credit card number over the phone. Instead, consider mailing your contribution once you've confirmed that the charity is legitimate and that it represents a cause you'd like to support.
- Lastly, number 4. Just because an organization gives you a receipt for your records doesn't mean the organization is tax-exempt or that your contribution is tax-deductible. To find out if an organization is exempt from federal income tax and how much of your contributions to it are tax deductible, visit the IRS website at irs.gov and type in “EO select check”. Once your there, type in the organization’s info.
Asking the right questions and obtaining information about a charity is the only way you can be sure your contribution will be used to benefit the causes and people you want to support.
If you like to learn more, click the link lowermytaxnow.com and subscribe to my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Last Updated by Admin on 2015-12-17 01:10:23 PM
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Hi guys, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
The stock market may not be the right place for all of your money at all times. Here are two situations when cash accounts can be a better solution.
#1. Usually, the stock market is not a good place to invest funds you will need during the next two to three years, such as when you need to pay ongoing living expenses in retirement. In that case, your cash is better invested in money market funds, bank CDs, or bonds with maturities matched to your needs. The plan is to eliminate the risk that you'll be taking withdrawals when the stock market is depressed.
#2. Maintain your emergency fund – three to six months of current living expenses – has only one purpose: to provide the cash you might need for unforeseen events like job loss, illness, or major unexpected repairs. These are situations when you can't afford to wait until the market recovers to get your funds.
However, cash savings has some drawbacks like losing your purchasing power during inflation. And historically, the stock market has provided better returns over long time periods. But those returns come at the price of volatility. If you need to withdraw your savings during a market downturn, you might NOT recover your investment. Wherever you choose to invest your other savings, consider keeping some of the funds you will need in the short-term in less volatile, old-fashioned cash investments.
If you like to learn more, click the link lowermytaxnow.com and subscribe to my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Last Updated by Admin on 2015-12-03 10:21:41 AM
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Hi guys, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
This year you can give up to $14,000 to as many persons as you want without any gift tax liability. If you're married and your spouse joins in the gift, you can, as a couple, elect to give $28,000 to each person with no gift tax liability. Once December 31st, has come and gone, your 2015 gift tax exclusion is also gone. If you plan to make gifts this year, remember that your gifts must be completed by then.
If you like to learn more, click the link lowermytaxnow.com and subscribe to my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Last Updated by Admin on 2015-11-18 10:58:47 AM
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Need money to pay bills? Raiding your 401(k) is not a good idea
Hi guys, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
When you're short of cash, raiding your 401(k) plan is NOT a good idea. Here are two reasons why.
Penalties and taxes. If you're under 59½ years old, you'll be hit with a 10% early withdrawal penalty. There are some exceptions to the rule, but the money you take out will be taxed at your regular tax rate.
Lost opportunity. If your 401(k) earns an annual return of 5% over the next 30 years, an account balance with $50,000 could grow to over $215,000. A withdrawal taken and spent today will cost you that growth.
Bottom line: You got to find other ways to pay your bills, even if that means contributing less to your 401(k) in the short term. While it's wise to take advantage of the company 401-K matching, you might consider reducing contributions that exceed the matching amount.
You might be thinking, what about 401-K loans? A 401(k) loan also has drawbacks. Again, money that's not in your account won't grow. So if you lose your job, you'll have to repay the the loan balance or you’ll have to report it as taxable distribution with 10% tax penalty.
If you like to learn more, click the link lowermytaxnow.com and subscribe to my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Last Updated by Admin on 2015-11-11 11:09:43 AM
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Hi guys, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Can your wage income tax withholding cover your income taxes liability before the end of the year? If not, here are your 3 options:
- Make estimated tax payments. The only downside is that you might be subject to penalties for underpayment of quarterly estimated taxes – meaning you may owe a penalty when your quarterly estimated tax payments (plus withholding) total less than 25% of your required annual payment.
- The better option is, you can increase your wage income tax withholding before the end of the year. What is the advantage of doing that? You are not subject to any underpayment penalties because IRS looks at wage income tax withholding as paid equally throughout the year.
- And lastly, here’s the best option, look if you can either maximize your 401-K deductions, company pre-tax benefits or prepay some expenses that is deductible for this year. That way, your taxes will be reduced and will hopefully result in a tax refund next year.
If you like to learn more, click the link lowermytaxnow.com and subscribe to my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Last Updated by Admin on 2015-11-04 10:49:41 AM
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Hi guys, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Whether you should take social security retirement benefits at the earliest possible date or defer benefits until reaching normal retirement age (or even age 70), depends on several factors. For example, you'll want to consider your overall health and life expectancy, your plans to earn income before reaching normal retirement age, anticipated returns on your other investments, and, surprisingly, your guess about the future of the social security program. As you can tell, the decision isn't one-size-fits-all.
For instance, say your savings won't cover ongoing expenses and you need to rely on social security income to make ends meet. In that case, deferring social security benefits may not be an option for you.
But if your financial situation offers more flexibility, deferring your benefits can be an advantage. For each year you delay (up to age 70), the payouts increase. In addition, if you plan to earn significant income between age 62 and your normal retirement age (65-67, depending on the year you were born), putting off your social security benefits may make sense. That's because any benefits in excess of specified limits ($15,720 in 2015) will be reduced. You'll lose $1 of benefits for every $2 in earnings above the limits. Note that you won't lose any social security benefits (regardless of earnings) once you reach full retirement age.
On the other hand, let's say you've accumulated a healthy balance in your 401(k) and expect that account to generate a good annual return. Under this scenario, you might be better off leaving your retirement savings alone and taking your social security benefits early to cover living expenses.
Or perhaps your family has a history of health problems and you don't realistically expect to live into your 80s. Again, taking social security benefits at age 62 might be a good choice.
If you like to learn more, click the link lowermytaxnow.com and subscribe to my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Last Updated by Admin on 2015-10-29 10:54:07 AM
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Hi guys, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Today, we’re going to talk about carryovers on your prior return that can affect year-end planning.
As the year-end is coming to a close, remember to check your prior tax return for carryover items that can affect your year-end planning. Here are four items to look out for:
- Capital loss carryover. If your capital losses were more than your capital gains last year, you may be able to carryover any unused loss to future years. You can apply the loss against this year’s capital gains as well as up to $3,000 of other income – a benefit to remember when you're rebalancing your portfolio over the next few months.
Here’s a tip: Keep track of your capital loss carryforward for alternative minimum tax planning and projections. In some cases, this amount can be different from the carryforward calculated for your regular income tax.
- Passive loss carryover. If you are selling a rental property, did you know that you can release the suspended rental losses for that particular rental? So make sure your unused rental losses were carried forward correctly every year since this usually happens when you change tax preparers.
- Charitable contribution carryover. Was your charitable donation deduction limited from prior years due to low income or business losses? If so, you may have a carryover that you can use if you're going to itemize on this year’s taxes.
Here’s a tip: Take this carryover into account when planning this year’s donations so you don't lose the benefit of older unused amounts. Why is that important? Because charitable contribution carryforwards only have a five-year life.
And the last one:
- Net operating loss carryover. If your business had a loss last year, you had to make an election to carry the entire loss forward to the current year. Otherwise, the general rule of carrying the net operating loss back two years applies, with the remainder carried forward 20 years.
If you like to learn more, click the link lowermytaxnow.com and subscribe to my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Last Updated by Admin on 2015-10-22 04:26:27 PM
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Hi guys, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Today, we’re going to talk about IRS worker classification criteria
Since independent contractor or 1099 payments are not subject to payroll taxes, there is a temptation to classify some employees as independent contractors when they should not be. The IRS uses certain criteria to help determine who should be classified as an employee subject to payroll taxes and eligible for employee benefits. Here's a partial list –
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Who controls when, where, and how the work is to be done?
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Who sets the working schedule?
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Is the payment by the hour or by the job?
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Whose tools will be used to accomplish the work?
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Does the contractor provide services to the general public?
Your answers to those questions, will help determine if you are an independent contractor or an employee.
If you like to learn more, click the link lowermytaxnow.com and subscribe to my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Last Updated by Admin on 2015-09-30 07:19:15 PM
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Is your file cabinet overflowing? Do you hesitate to purge tax information because you're not sure what to keep and what to discard? Here's a quick guide to help you cut through the clutter.
Hi guys, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
- 1. Expenses. Support for deductions includes charitable donation acknowledgments, receipts for employee business expenses, and automobile mileage logs. Retain these at least seven years after claiming this on the return.
- 2. Income. The same seven-year rule also applies to common tax forms such as 1099s showing interest, dividends, and capital gains from banks or brokerages, and Schedule K-1s from partnerships and S corporations. The IRS recommends holding on to your W-2s until you start collecting social security.
- Tip: You can shred interim income reports once you've compared the totals to annual forms.
- 3. Retirement accounts. You may have to calculate the taxable portion of distributions, so keep records showing your contributions until you've recovered your basis.
- 4. Tax returns. The statute of limitations is usually three years but can be six years if underreported income is involved. In cases of fraud or when no return is filed, the IRS has an indefinite time period for assessing additional tax.
As a general rule, keep federal and state returns a minimum of seven years.
If you like to learn more, click the link lowermytaxnow.com and subscribe to my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Last Updated by Admin on 2015-09-16 11:01:58 AM
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Hi guys, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Did you ever have an error in your return? Do you know you can amend it to report the correct amounts? On this segment, I will give you some tips for amending returns:
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Use Form 1040X. You must file a paper amended return; this form can't be e-filed.
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File an amended return to correct errors or change your original filing.
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Don't file an amended return to correct math errors or to attach forms you forgot to attach originally. The IRS will mail a request for the forms and will automatically correct math errors.
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You generally have three years from the original filing date to file an amended return.
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If you're filing for multiple years, you must file a separate Form 1040X for each year.
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If you're due a refund from your original filing, wait until you've received the original refund before you file Form 1040X for an additional refund.
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If you owe more tax with Form 1040X, pay it as soon as possible to avoid added interest and penalties.
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You can track the status of your filed Form 1040X with the IRS's "Where's My Amended Return?" tool at www.irs.gov
If you like to learn more, click the link lowermytaxnow.com and subscribe to my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Last Updated by Admin on 2015-09-10 01:28:57 PM
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Hi guys, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
If you are in a position to give, making annual gifts can be an excellent strategy for reducing both your estate and income tax liability. Planning and doing your gift-giving before year-end is especially smart if you are giving real estate property. You will then remove more income from your 2015 tax return. The annual tax-free limit for 2015 gifts is $14,000 to as many individuals as you like.
If you like to learn more, click the link lowermytaxnow.com and subscribe to my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Last Updated by Admin on 2015-09-02 03:58:16 PM
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Hi guys, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Here’s a midyear tax planning tip for you Take time this summer, to review, your investment portfolio, for potential tax savings. Here are some tax strategies you might want to incorporate:
1) Sell stocks that you bought and went down in value to offset your capital gains.
2) You can donate appreciated stock that you have owned for more than a year to charity. By doing this, you can avoid capital gains altogether – plus you will get a deduction for the stock's fair market value. Sweet!
3) You can buy investments that pay tax-free income, such as municipal bonds.
If you like to learn more, click the link lowermytaxnow.com and subscribe to my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Last Updated by Admin on 2015-08-26 11:17:38 AM
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Hi guys, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Do you have any summer job tax tip? Yes I do! If your child has a summer job, consider opening an IRA for your kid. If he has W-2 or earned income he can contribute to a regular or a Roth IRA. The regular IRA is tax deductible. However, since your child might have minimal income, the IRA deduction will result in smaller tax savings. Conversely, the Roth IRA is not tax deductible. However, the advantage of a Roth over a regular IRA is that withdrawals in retirement will be tax-free. That’s huge! We’re talking about tax-free income. Lastly, the contribution limit for both kinds of IRA for 2015 is the lesser of your child’s W-2/Earned income or $5,500.
If you like to learn more, click the link lowermytaxnow.com and subscribe to my weekly blog.
Until then. This is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com - See more at: http://www.lowermytaxnow.com/summer-job-tax
Last Updated by Admin on 2015-08-19 11:44:48 AM
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Hi guys, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Did you convert all or part of a retirement account to a Roth IRA during 2014?
And do you now wish you hadn't?
Here's some good news: You have until October 15, 2015, to change your mind, even if you already filed your federal income tax return. The tax term that we use for undoing the conversion and switching your funds back to a traditional IRA from a Roth is "recharacterization." You can recharacterize any amount of your original conversion, no matter your income, and for any reason. When you recharacterize the entire conversion amount, you put yourself back in the position you were in originally. Why would you want to do that? Here are some tax situations that might warrant the “redo” You might be in higher tax bracket than what you anticipated and reconverting will reduce your income. Your investments didn't do as well as you anticipated and the value in your account has declined. Leaving the money in the new Roth means you pay tax on the original amount you converted. If you do a “redo” you will save tax dollars.
If you like to learn more, click the link lowermytaxnow.com and subscribe to my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Last Updated by Admin on 2015-08-19 11:45:51 AM
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A tax-deferred exchange is a tax planning technique which should be considered by any taxpayer that is relocating or disposing of property. Often referred to as a "tax-free exchange," the tax-deferred exchange allows you to exchange certain business or investment property for other "like-kind" business or investment property and pay no income taxes currently. Your tax liability is deferred until you later dispose of the property for which you traded. Exchanges require careful planning and professional assistance.
Last Updated by Tax on 2015-08-05 12:13:47 PM
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Hi guys, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
How to safeguard records before a disaster strikes?
There's never a good time to plan for a disaster. There's never a better time either. So why wait? Instead of having to reconstruct personal and business records in the aftermath of an unexpected calamity, safeguarding documents before you suffer a loss will make it easier to claim casualty deductions and other tax breaks.
Here's an overview of some of the paperwork to include in your disaster preparedness plan and why you'll need it.
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Purchase and acquisition information. The amount of a casualty loss is generally the lesser of your adjusted basis or the reduction in your property's fair market value due to the casualty. With the exception of gifts, inheritances, and certain other property, adjusted basis typically equals what you paid for your assets plus improvements, reduced by depreciation or other reductions.
Tip: Make duplicates of titles, mortgages, closing papers, and receipts or scan them into digital form. Store the originals and the copies in separate locations, preferably in fire- and water-proof containers.
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Prior-year tax returns. When your loss occurs in a presidentially declared federal disaster area, you can amend an already filed prior-year federal return to claim the deduction and the resulting tax refund.
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Detailed inventory. As a general rule, you're required to reduce the amount of your personal property casualty losses by $100. In addition, losses must exceed 10% of your adjusted gross income (except in federal disaster areas). A list of your possessions, supplemented by photographs or a video, is essential for maximizing your deduction. So please make sure you have all these paperwork to streamline the process in case of any casualty.
If you like to learn more, click the link lowermytaxnow.com and subscribe to my weeklyblog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Last Updated by Admin on 2015-08-19 11:46:54 AM
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Hi guys, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Guess what? Summer is here and let me share 7 summer tax-savings that you can apply right now:
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Rent out your vacation home. If you own a second home, rent it out this summer when you're not using it. You can offset the rental income with rental-related expenses, leaving you with little or “0” tax liability.
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Harvest capital gains or losses. Review your semi-annual investment portfolio to spot investments with built-in capital gains or losses that can offset transactions you made beginning of the year. You can deduct up to $3,000 of excess capital losses against your ordinary income.
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Hire your kids. Does your child need a summer job? Hire him to work in the family business. The wages earned will be taxed using your child's lower tax bracket. In addition, he can contribute to a ROTH IRA.
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Send the kids to camp. Are you a working parent of under-age-13 children? If yes, you may be able to claim a tax credit for the cost of day camp. Just remember, overnight camps don't qualify.
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Combine pleasure with business. When you travel out of town for business reasons, you can deduct the full cost of your airfare, even if you spend time sightseeing while you're away. Expenses for side trips aren't deductible.
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Entertain business customers. Generally, you can deduct 50% of the cost of entertaining customers before or after a substantial business discussion. This includes golf outings or an evening of dinner and drinks.
And the last one:
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Host a staff get-together. The usual 50% limit on entertainment deductions doesn't apply to summer barbecues and picnics if the entire staff is invited. In that case, you can write off 100% of the cost.
If you like to learn more, click the link lowermytaxnow.com and subscribe to my weeklyblog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Last Updated by Admin on 2015-07-22 11:35:50 AM
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Hi guys, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
How do you maximize tax breaks for your vacation home?
If you own a vacation home, a boat or an RV that you also rent out to others, keep track of the rental use during the year to maximize your tax breaks.
Here are some tax strategies you need to consider:
Number 1. Receive tax-free income. Yes! You heard it right!
If you rented it out for 14 days or less during the year, you don't have to report the income. You get tax-free income!
You can generally deduct mortgage interest and real estate taxes, but you can't deduct any other rental expenses. Hey, tax-free income is still great stuff!
Number 2 - Limit your personal use so you can deduct all your rental expenses.
If you limit your personal use to NOT more than 14 days or 10% of the time the home is rented, all rental expenses are deductible.
However, conversely, number 3* If you use the property personally for more than 14 days or 10% of the number of days it's rented, the rules change. Your rental deductions (except for taxes and mortgage interest) are limited to the amount of your rental income.
So here’s an example: You stayed in your vacation home 20 days last year. It was rented at fair market value for 190 days. In this example, your personal use exceeded the 10% limit (19 days). Therefore, your rental deductions are limited to the rental income you received.
Number 4. Convert the property as your primary home, and the gain when you sell may be tax-free. If you use your vacation home as your principal residence for two out of the five years before you sell it, you may exclude up to $250,000 of gain ($500,000 for married couples) from your income. However, you will have to pay tax on gain to the extent of certain depreciation you previously taken after May 6 , 1997 and you might need to allocate the gain on sale between the primary home and the rental.
The rules are a little bit complex, but a basic understanding of the rules and good recordkeeping will help you get the best tax breaks from your vacation home.
If you like to learn more, click the link lowermytaxnow.com and subscribe to my weeklyblog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Last Updated by Admin on 2015-07-15 05:24:57 PM
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How you classify your workers – as "independent contractors" or "employees" – matters a great deal to the IRS. The IRS is aware that employers prefer to treat workers as independent contractors to avoid paying fringe benefits and payroll taxes. The IRS estimates that 80% of workers who are classified as independent contractors are actually employees. About 100 new auditors have been hired with the specific task of investigating misclassifications, and the government is estimating that the crackdown will generate at least $7 billion in revenue over the next ten years. For guidance in classifying your workers, contact our office.
Last Updated by Admin on 2015-07-08 10:42:24 AM
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The IRS website contains useful information on how to avoid becoming a victim of identity theft, plus steps to take if you do become a victim.
Here are the warning signs that you may have had your identity stolen:
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The IRS notifies you that more than one tax return was filed using your social security number.
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You're notified that you owe additional tax or you've had collection actions taken against you for a year you did not file a tax return.
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IRS records indicate you received wages from an employer unknown to you.
If you become a victim, the IRS recommends that you take the following steps:
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File a police report.
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File a complaint with the FTC.
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Contact one of the three credit bureaus to place a fraud alert on your account.
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Close any financial accounts opened without your permission.
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Respond immediately to any IRS notice, according to the instructions given.
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Complete IRS Form 14039 "Identity Theft Affidavit."
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Continue to pay your taxes and file your tax return, even if by paper.
Last Updated by Tax on 2015-07-01 01:21:12 PM
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Are mutual funds part of your portfolio? As you begin your mid-summer investment review in preparation for year-end, think about how your funds can affect your federal income taxes.
Here are two things to consider.
Dividend income. The dividends you receive from mutual funds held in nonretirement accounts are included in the calculation of net investment income. When your 2015 modified adjusted gross income exceeds $250,000 ($200,000 when you're single), a portion of your net investment income will be taxed at a rate of 3.8% over and above your ordinary tax liability.
Planning tip. The tax form the mutual fund company sends you at the beginning of 2016 may classify some dividends as "qualified" – meaning they meet the requirements for a lower tax rate. However, you have to own the mutual fund shares for more than 60 days to get the lower rate on your federal return.
Capital gains. Mutual funds generally distribute short-term and long-term capital gains from in-fund sales to shareholders. Even if you reinvest the distributions in additional shares instead of opting for cash, the gain remains taxable to you.
Short-term distributions, for sales of fund investments held one year or less, are taxable at your ordinary income tax rate. The tax rate for long-term capital gains may be as high as 20%, depending on your adjusted gross income.
You might also have a capital gain or loss when you sell shares of a mutual fund. That's true even if you "exchange" one fund for another and receive no proceeds.
Planning tip. You have options for calculating the cost of mutual fund shares you sell during the year. Remember to include reinvested distributions in your basis.
Please call for more information. We're happy to help you manage your investments with an eye toward tax savings.
Last Updated by Tax on 2015-06-24 10:34:01 AM
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Don't ignore your opportunity to save on taxes just because it's summertime. Here are some summertime tips to keep your tax plans going.
If you are a sole proprietor with children, you might consider putting them on the payroll during the summer months. Wages paid to your children under age 18 are not subject to social security and Medicare taxes. What's more, their earnings are not subject to federal unemployment tax until they turn 21.
If employing your children is not an option, you might still be able to score a deduction by sending them to summer camp. Day camp expenses for kids under 13 can provide a tax credit of up to 35%. Just remember, overnight camps do not qualify, and child-care must be necessary to allow the parents to work.
Summer is also a common time for home selling and moving, so be on the lookout for deductions related to these activities. Carefully file away all home sale or purchase papers for next year's tax filing. If your move is job-related, there is the potential for additional deductions if you meet the 50 miles or more test.
Perhaps your sights are set instead on some leisure travel. Tacking on a few fun days before or after a business trip might be a tax (and cost) efficient way to pay for a vacation – if you follow all the rules. Travel that is primarily for charitable work might also qualify you for a tax deduction.
And finally, no matter what your summer plans are, this is always a good time for a general tax check-up to ensure your withholdings and estimated tax payments are on target. For assistance with any of these issues, contact our office.
Last Updated by Tax on 2015-06-17 10:40:14 AM
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Summertime tax tip
If you itemize your deductions, you can deduct the mortgage interest and property taxes paid for your vacation home. A boat or RV can qualify as a vacation home if it has sleeping quarters, cooking facilities, and a bathroom. If a retreat also serves as rental property, you can control your tax deductions by changing the number of days you use it for vacation.
IRS announces 2016 HSA limits
The 2016 inflation-adjusted amounts for health savings accounts (HSAs) have been released by the IRS. Individuals will be allowed to contribute up to $3,350, and contributions for family coverage will be limited to $6,750. As before, an individual aged 55 or older may contribute an additional $1,000. For 2016, a "high-deductible health plan" is one with an annual deductible of not less than $1,300 for individual coverage and $2,600 for family coverage.
Check the "support" test to maintain dependent deductions
Keep your college student qualified as your dependent by meeting the "support" test. Generally, your child cannot provide over one-half of his or her own support during the year. Add up funds your child will have received from work, student loans, and other sources of income. Do you need to increase your level of support during the rest of the year in order to claim the exemption?
Last Updated by Admin on 2015-06-04 12:35:54 PM
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Estate planning is not just a task for the wealthy. Even though federal tax implications kick in only if your estate exceeds $5,430,000, there are other issues that make estate planning important for most individuals.
Start your estate planning by meeting with an attorney and your accountant. They can instruct you in the essentials of estate tax law and the requirements for establishing an estate plan. A key part of estate planning is compiling the documents that will accomplish your goals.
A basic estate plan should include the following documents:
Your will, which should name the guardian you choose for your minor children and an executor (personal representative) to carry out your instructions.
A listing of your assets. Include your home and other properties, pension and retirement accounts (401(k) & IRAs), investments (noting the cost basis), automobiles, jewelry, and any other assets.
Life insurance information such as your insurer, your policy number, the amount of insurance, and the location of your policies.
Financial and business records, including real estate deeds, tax returns and related support papers, your social security number, investment statements, and stock and bond certificates.
Funeral instructions, including your burial wishes and people to be notified upon your death.
Medical information and a list of your doctors.
Durable power of attorney, designating the individual(s) you select to act on your behalf if you're incapacitated.
Health care proxy naming the individual(s) you want to make health care decisions for you if you aren't capable.
Keep your original documents in a fireproof safe or with your attorney. Put your list of documents and the copies in a binder at home and tell your executor where the documents are located. If you would like assistance with your estate planning, please contact our office.
Last Updated by Admin on 2015-05-28 11:17:56 AM
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The advantage of filing a joint tax return is well known – you generally save money compared to filing separately. However, there is at least one potential disadvantage. Both spouses are jointly and severally liable for the entire income tax bill, including interest and penalties, even if one earned most or all the income.
This issue most commonly arises when there are unpaid taxes from joint filing years, and a couple later separates or divorces. The IRS can pursue either spouse for the full amount. If you're the easiest one to find, or if you have liquid assets, you can end up paying the entire bill.
When this happens, the only relief is the so-called innocent spouse rule. If you can prove that you had no reason to suspect tax shortfalls and you did not personally benefit from unreported income, or that you signed joint returns only under duress, you may get off the hook. Unfortunately, this is easier said than done. The IRS and the courts have been notoriously stingy in allowing innocent spouse relief.
What can you do to head off trouble? First, consider the obvious. If your family spends much more money than the income shown on your tax returns, warning lights should go on. If you don't understand all the tax and financial issues in the joint return, ask questions. In certain circumstances, you may even want to consider hiring your own tax professional to advise you before signing.
If you are headed toward separation or divorce, it may be best to file separately. You may pay a little more tax, but that's better than leaving yourself liable for the tax sins of someone who is no longer on your side. Don't file jointly unless you're sure that all income has been reported on the return and that the taxes have actually been paid.
Last Updated by Admin on 2015-05-20 10:51:46 AM
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Persuading your working children to make retirement contributions may not be easy, but investments in Roth IRAs may be the wisest possible use of their earnings. The nature of Roth IRAs, coupled with the effects of long-term compounding, can create exceptional returns on such early investments.
Although contributions to Roth IRAs are not deductible, earnings within the accounts (such as interest or dividends) are not taxed and qualified withdrawals are completely tax-free. Tax-free compounding can result in sizable accumulation in a Roth. For example, if a 15-year-old contributes $2,500 for each of four years, and the account earns 5% annually, the fund will be worth about $85,000 when the child reaches age sixty.
It's generally best to leave IRA funds untouched until retirement, but if necessary, your child's contributions to a Roth IRA (excluding the earnings) can be withdrawn at any time without triggering taxes or penalties. This flexibility provides an advantage over a traditional IRA, where most withdrawals before the owner reaches age 59½ will be taxed and penalized.
The owner's ability to deduct contributions is the one advantage a traditional IRA offers over a Roth IRA. However, this feature is relatively insignificant for most young earners. The first $6,300 of a child's 2015 income will be entirely sheltered by the standard deduction, and any earnings above $6,300 are likely to be taxed at very low rates.
This year, most working people can contribute up to the lesser of their earned income or $5,500 to a Roth IRA. Although Roth eligibility is phased out for individuals with income above certain ceilings (e.g., $116,000 to $131,000 for a single person in 2015), a working child's revenue rarely will approach such thresholds.
If you'd like to learn more about the benefits of setting up Roth IRAs for your children, contact us for assistance.
Last Updated by Admin on 2015-05-13 12:53:19 PM
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20 million qualify for ACA penalty exemption
According to a Brookings Institution paper on the Affordable Care Act, an estimated 20 million taxpayers who had no health insurance in 2014 will qualify for an exemption from the penalty for failing to have insurance. It's not known how many of those who qualify for the exemption will actually claim it. To check the available penalty exemptions, visit the IRS web site at www.irs.gov
New myRA program now available
A new simplified Roth IRA is the newest retirement plan. The account is called a myRA (short for "my retirement account"). It's funded by having your employer make direct paycheck deposits to your account. The contributions to your myRA are invested in government-guaranteed Treasury securities. A myRA isn't connected to your employer; it belongs entirely to you and can be moved to any new employer that offers direct deposit capability. The annual contribution limits that apply to regular Roth IRAs apply to myRAs. To find out more about myRAs, contact our office.
IRS tax audits cut by budget issues
The IRS reports that its enforcement budget has been cut by $254 million, a 5% reduction from the previous year. As a result, the Agency expects to cut the number of individual and business audits it conducts. In 2014 the IRS audited 0.86 percent of individual taxpayers and 26% of large corporations. Though audit statistics show a decline in examinations, the IRS contacts many more taxpayers with questions about their returns. Once statistics include these taxpayer contacts, the 2014 return examination rate is closer to 4% or one in every 25 returns filed.
Your 401(k) and a job change
If you change jobs this year, don't forget about your 401(k) in your old employer's retirement plan. You may be tempted to cash out the balance in the account, but remember that distributions from such accounts are generally taxable. Instead, ask your plan administrator to make a direct rollover to your IRA or another qualified plan. If you're under age 59½, this decision also avoids the additional 10% penalty on early distributions. An added benefit: Your retirement money can continue to grow tax-deferred.
Last Updated by Admin on 2015-05-06 04:54:46 PM
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To many people, an income tax refund might be one of the largest single cash receipts for the entire year. Avoid the temptation to spend your refund on consumption items. There are several places you can invest the refund to enhance your long-term financial goals. You can pay off current debt, invest in the stock market, make home improvements, or invest in a pension plan for retirement.
Let's assume you will be getting a $5,000 tax refund. The best return on your investment may well be to pay off current amounts you owe that have high interest rates. If you are carrying a credit card balance at 15% interest, a reduction in the balance is the equivalent of earning a 15% return on your money. Your $5,000 payment will save you $750 in interest expense over the next year. This is an outstanding return when compared to most other investments. If you leave the $5,000 balance on the credit card and make only the minimum monthly payment, you can pay up to twice that amount in interest, depending on your interest rate.
A second choice might be to pay down the principal balance on your home mortgage. A $5,000 reduction in a 4% thirty-year loan will save $11,000 in interest expense over the life of the loan.
Consider putting the cash into your retirement program. Only one out of five Americans can retire with adequate resources to live independently. $5,000 invested at a 6% compounding return will be worth $28,000 in thirty years. Your retirement fund could grow to almost $450,000 if you invest $5,000 each year for thirty years at a 6% compounding return. Have you ever heard anyone say that they retired with too much money?
Last Updated by Admin on 2015-04-23 12:25:59 PM
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Can’t file by April 15th? Get an Extension
If you can't file your 2014 tax return by the April 15 deadline, file for an extension to get until October 15, 2015, to file. You can request the extension on paper, by phone, or online. You don't need to explain why you need more time, but be aware that an extension doesn't give you more time to pay taxes you owe. To avoid penalty and interest charges, taxes must be paid by April 15.
Gift Tax filing requirement
If you made gifts in 2014, check this tax filing requirement. Here's another filing deadline that might apply to you: April 15 is the due date for filing 2014 gift tax returns. If you made gifts last year in excess of the $14,000 annual limit to any one individual, you may need to report the transaction to the IRS. If you and your spouse agree to "gift-splitting," you could give up to $28,000 to any one individual with no gift tax liability. However, gift-splitting requires that each of you file a gift tax return.
Last Updated by Admin on 2015-04-08 10:14:30 AM
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Did you give contributions to qualified charities during 2014? Be sure to get a receipt. Tax rules are strict when it comes to substantiating your contributions. In order to take a deduction, you must generally have a written contemporaneous receipt from a qualified charity. "Contemporaneous" means you must receive an acknowledgment of your contribution by the earlier of the date on which you actually file your return for the year of the contribution, or the due date (including extensions) of the return.
Last Updated by Admin on 2015-04-01 12:10:44 PM
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One very common form of tax fraud involves the scam artist stealing your social security number and filing a false return in your name in order to get your tax refund.
The Federal Trade Commission is urging people to file their tax returns as early as possible "to get ahead of scammers" who may try to steal social security numbers and use them to get a fraudulent refund.
Likewise, the FTC's Bureau of Consumer Protection is advising consumers about a tax scam that has resulted in an "explosion of complaints about callers who claim to be IRS agents – but are not." These IRS impersonation scams count on people's lack of knowledge about how the IRS contacts taxpayers. The IRS never calls a taxpayer about unpaid taxes or penalties; the initial contact is made by a mailed letter. If you get a call purporting to be from the IRS telling you to send money for unpaid taxes, hang up and report the scam to the FTC and the Treasury Inspector General for Tax Administration at www.tigta.gov.
Last Updated by Admin on 2015-03-25 12:11:45 PM
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Budgets, like diets, are short lived for most of us. You do a proper job of planning by looking over the past and determining where you need to make changes to meet your goals. And, you live by your plan for a few days, maybe even a few weeks. But, then all the detail of keeping track of what comes and goes gets to be more than you are willing to put up with.
If you can plan a budget and live with it, more power to you. This should put you with the 5% of people who can retire without financial assistance from family or the government.
For those of us who can't live with the detail of tracking budget numbers, here is a simple way to make sure you don't retire totally broke. Take a fixed percentage of every dollar that comes into the household and set it aside for retirement investing. Say, for example, that you decide to save 10% of your $100,000 income. Here are some rough numbers for those aged 35 who would like to retire in 30 years. $10,000 invested each year will accumulate to $697,000 in 30 years at a 5% annual return. The earlier you start, the greater the retirement benefits. If you started at age 25, the accumulated value at age 65 would be over $1,268,000.
You may think it is impossible to save 10% of your current income. Let's assume that you lose your current job. The next job you find pays 10% less than your current job. The chances are that you will figure out where to cut the spending to make it work. So, why not discipline yourself and your family in order to make your current income provide both a current living and an investment in your retirement.
Last Updated by Admin on 2015-02-25 10:18:39 AM
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If you didn't have health insurance in 2014 or the insurance you had did not meet minimum requirements, you may have to pay a penalty on your 2014 federal income tax return - unless you qualify for an exemption. Exemptions include unaffordable coverage when premiums would have exceeded 8% of your household income, a coverage gap of three months or less, and general hardship. You can claim some exemptions directly on your tax return. However, for certain others, be aware you may need to complete an application on the government insurance marketplace website.
Last Updated by Admin on 2015-02-18 11:23:54 AM
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The Treasury Inspector General for Taxpayer Administration (TIGTA) is warning taxpayers about one particular category of tax scams that has proven to be very widespread, very aggressive, and very relentless. Callers claim to be IRS employees, and they tell their intended victims that they owe taxes that must be paid immediately using a prepaid debit card or wire transfer. The fake IRS agents threaten those who refuse to pay with arrest, deportation, or loss of a business or driver's license. The scammers have been operating in every state in the country.
Here are some practices used by the scammers that taxpayers should watch out for:
* Use of automated robocall machine.
* Caller gives fake IRS badge numbers.
* Caller knows last four digits of victim's social security number.
* Caller ID is changed to appear as if the IRS is the caller.
* A fake IRS e-mail is sent supporting the scammer's claims.
* Follow-up calls are made claiming to be from the police department or motor vehicle licensing office, with caller ID again supporting the claim.
If you receive one of these fake calls, complete the "IRS Impersonation Scam Form" on TIGTA's website, or call TIGTA at 800-366-4484.
Last Updated by Admin on 2015-02-11 11:19:09 AM
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Electronic refunds limited to three per account
The IRS announces that, as part of its efforts to curb fraud and identity theft, it will no longer directly deposit more than three electronic refunds to a single financial account or prepaid debit card. Taxpayers who exceed the limit will receive an IRS notice and a paper refund.
The IRS also warns that direct deposit must be made only to accounts bearing the taxpayer's name.
IRS service will be affected by ACA and budget cuts.
IRS Commissioner John Koskinen has informed taxpayers that the Agency's level of service to taxpayers is likely to decline, thanks to increased workloads resulting from the Affordable Care Act and cuts to the IRS's 2015 budget. Taxpayers can expect longer waits in IRS responses to both written inquiries and phone calls. Refunds may also be delayed this year. The IRS will also have fewer resources to conduct audits, which may lead to lower revenue collection.
Last Updated by Admin on 2015-02-04 10:59:02 AM
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Catastrophes, thefts, natural disasters, accidents, fires – they happen. If such misfortunes strike, a well-researched and up-to-date homeowner's insurance policy can keep your family's finances afloat during trying times. Proceeds from a homeowner's policy can provide necessary funds to replace your house and belongings. A good policy can also protect against unexpected liabilities. If you're considering a new homeowner's policy (or already have one), watch out for some common pitfalls, including the following:
Inadequate policy limits. Some homeowners try to lower their premiums by purchasing a policy that doesn't fund their home's replacement value. That's often a big mistake. If the cost to replace your home has risen over the years and policy limits haven't kept pace, you could end up footing the bill for much of the replacement cost (or selling your property at fire sale prices).
Personal property not documented. If you need to file a claim, an insurance carrier will want solid evidence that you owned the items being claimed. It's a good idea to take pictures or videos of all your household goods, and keep receipts of all expensive purchases. Place copies of the pictures and receipts in a safe deposit box and at home in a fireproof safe. You might even send copies to an out-of-town friend or relative. Being able to provide clear evidence of your personal belongings will simplify the claims process and help ensure that you get paid.
Valuables not covered. Check your policy to ensure that expensive jewelry, antiques, and other valuables are included. If not, consider adding a rider to the policy that specifically lists such items.
Deductible too low. Generally, the higher the deductible, the lower the premium. True, in the event a claim needs to be filed, you'll pay a bigger chunk of the repair or replacement cost with a high deductible. On the other hand, with a high deductible you'll generally pay lower premiums each year.
By doing careful research and avoiding some common mistakes, your homeowner's insurance policy will be affordable and still provide solid protection should disaster strike.
Last Updated by Admin on 2015-01-28 11:26:34 AM
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February 2 is deadline for 1099 reporting. Form 1099s must be filed by businesses each year. This year the deadline for filing falls on February 2, though electronic filers have until March 31 to file. The most common form for businesses is probably Form 1099-MISC, used to report miscellaneous payments to nonemployees. This includes fees for services paid to independent contractors, such as consultants, lawyers, cleaning services, and others. Generally, you don't report fees paid to corporations, but there are exceptions (payments to lawyers, for example).
Check your tax withholding for 2015. Withholding too much tax from your wages isn't a smart financial move. Review how much you're having withheld in 2015 to see if it matches the actual tax liability you expect to have. If an adjustment is needed, file a new Form W-4 with your employer.
Make retirement plan contributions early. With retirement plan contributions, it's the early bird who maximizes tax-deferred earnings. Make your contributions as early in the year as you can. For 2015, you can contribute the following:
IRA - $5,500 ($6,500 if you're 50 or older)
401(k) - $18,000 ($24,000 if you're 50 or older)
SIMPLE IRA -$12,500 ($15,500 if you're 50 or older).
Last Updated by Admin on 2015-01-21 10:39:18 AM
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Who have you designated as beneficiaries for your insurance policies and retirement accounts? If you can't remember, you're not alone. But it's worth checking. If you make the wrong decision, it could affect who inherits those assets. In some cases, it could also change the taxes your beneficiaries will pay and the value they'll receive. Here are some key facts about beneficiary designations.
What are they?
When you designate a beneficiary for an account, you are naming the person you want to inherit that account.
Your designation determines who will inherit the assets in the account, regardless of what your will might say. Generally, the assets will bypass probate and go straight to the person or institution you named.
You can designate a person or group of persons, a charity, a trust, or your estate. You may also want to designate a secondary or backup beneficiary in case the primary is no longer living.
Why are they important?
It's important to keep beneficiary designations up to date because they determine who will inherit the assets in your accounts. Changing your will won't change the beneficiaries.
There can be tax implications too. With a traditional IRA, your choice of beneficiary can affect how quickly withdrawals must be made and taxes paid. That can change the value of the IRA to your beneficiary.
How do you update them?
First, find copies of all your current designations. Contact your insurance company and plan trustees if you can't locate the documents.
Review them and decide what changes you'd like to make. Make an appointment to go over the changes with your tax or estate planning advisor.
Send your updated designations to the account trustees. Make sure you receive confirmations and keep copies in your records.
Last Updated by Admin on 2015-01-15 10:32:45 AM
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In its final session of the year, Congress extended a long list of tax breaks that had expired, retroactive to the beginning of 2014. But the reprieve is only temporary. The extensions granted in the Tax Increase Prevention Act of 2014 remain in effect through December 31, 2014. For these tax breaks to survive beyond that point, they must be renewed by Congress in 2015.
Although certain extended tax breaks are industry-specific, others will appeal to a wide cross-section of individuals and businesses. Here are some of the most popular items.
The new law retains an optional deduction for state and local sales taxes in lieu of deducting state and local income taxes. This is especially beneficial for residents of states with no income tax.
The maximum $500,000 Section 179 deduction for qualified business property, which had dropped to $25,000, is reinstated for 2014. The deduction is phased out above a $2 million threshold.
A 50% bonus depreciation for qualified business property is revived. The deduction may be claimed in conjunction with Section 179.
Parents may be able to claim a tuition-and-fees deduction for qualified expenses. The amount of the deduction is linked to adjusted gross income.
An individual age 70½ and over could transfer up to $100,000 tax-free from an IRA to a charity in 2014. The transfer counts as a required minimum distribution (RMD).
Homeowners can exclude tax on mortgage debt cancellation or forgiveness of up to $2 million. This tax break is only available for a principal residence.
The new law preserves bigger tax benefits for mass transit passes. Employees may receive up to $250 per month tax-free as opposed to only $130 per month.
A taxpayer is generally entitled to credit of 10% of the cost of energy-saving improvements installed in the home, subject to a $500 lifetime limit.
Educators can deduct up to $250 of their out-of-pocket expenses. This deduction is claimed "above the line" so it is available to nonitemizers.
The remaining extenders range from enhanced deductions for donating land for conservation purposes to business tax credits for research expenses and hiring veterans.
Finally, the new law authorizes tax-free accounts for disabled individuals who use the money for qualified expenses like housing and transportation. Another provision in the law provides greater investment flexibility for Section 529 accounts used to pay for college.
Last Updated by Admin on 2015-01-07 10:36:41 AM
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If you're living beyond your means, you could be courting financial disaster. Here are some indicators that you need to get your credit card usage under control.
* Your income's dwindling but your credit card balances keep growing. Lost your job but can't seem to reign in those charge cards? Don't be surprised when the bill collectors come calling.
* You pay only minimum balances. Still paying off last year's Valentine's Day dinner? Bad spending habits?
* You practice the credit card shuffle. You take out a cash advance on one credit card to pay off another, then apply for another card when the first comes due. Practiced regularly, shuffling credit cards is a losing game. At some point you need enough income to cover your expenses. Eventually, the house of credit comes tumbling down.
* You're working overtime to cover expenses. Say you work for an airplane manufacturer that's building a new line of jets. To increase production, the company asks you to work longer hours. Bigger paychecks become routine and the cash starts flowing. So you take out installment loans to buy a new car or boat or house on the beach. But what happens when the production line slows down and the overtime pay dries up? The car payments, boat payments, and second home payments keep chugging along. And suddenly you're struggling to make the payments.
* You routinely charge everyday expenses. Do you use credit cards to pay for groceries, gas, and fast food? Unless you're disciplined and pay off the charges every month, your credit card balances can grow exponentially.
* The utility company calls. When the local water company threatens to discontinue service because you're behind on the payments, it may be time to seek financial help.
* You're refused credit. These days, even people with good credit may find it hard to obtain loans. But if your credit score is in the don't-call-us-we'll-call-you category, you may have a debt problem.
The best time to seek professional advice is well before your financial boat capsizes. If you'd like help, give us a call.
Last Updated by Admin on 2014-12-17 10:39:13 AM
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Many small business owners pay too little attention to their financial statements. This is due in part to not understanding just what the statements have to offer. In fact, many may not be able to tell you the difference between a Balance Sheet and an Income Statement.
Think of them this way. The Balance Sheet is like a still picture. It shows where your company is at on a specific date, at month-end, or at year-end. It is a listing of your assets and debts on a given date. So Balance Sheets that are a year apart show your financial position at the end of year one versus the end of year two. Showing how you got from position one to position two is the job of the Income Statement.
Suppose I took a photo of you sitting behind your desk on December 31, 2013. And on December 31, 2014, I took a photo of you sitting on the other side of your desk. We know for a fact that you have moved from one side to the other. What we don't know is how you got there. Did you just jump over the desk or did you run all the way around the building to do it? The Income Statement tells us how you did it. It shows how many sales and how much expense was involved to accomplish the move.
To see why a third kind of financial statement called a Funds Flow Statement is useful, follow this case. A printer has started a new printing business. He invested $20,000 of his own cash and borrowed $50,000 from the bank to buy new equipment. After a year of operation, he has managed to pay off the bank loan. He now owns the equipment free and clear. When he is told his net profit is $50,000, he can't believe it. He might tell you that he took nothing out of the business and lived off his wife's wages for the year. And since there is no cash in the bank, just where is the profit? The Funds Flow Statement will show the income as a "source of funds" and the increase in equipment is an "application of funds." The Funds Statement is even more useful when you have several assets to which funds can be applied and several sources of funds such as bank loans, vendor payables, and business profit or loss.
Don't be afraid to ask your accountant questions about your financial statements. The more questions you get answered, the more useful you will find your financial statements. Accounting is sort of a foreign language. Learn to speak a little of it.
Last Updated by Admin on 2014-12-10 11:02:15 AM
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Some itemized deductions are limited by a percentage of your gross income. An example is miscellaneous deductions. These provide a benefit only if your total outlay for costs such as investment fees and unreimbursed employee business expenses exceed 2% of your adjusted gross income.
If you consistently lose out on these deductions, check now to determine if pulling some of January's expenses into December will help.
Keep an eye on your exposure to the alternative minimum tax whenever you plan a strategy for making the most of deductions. Some expenses aren't deductible under those rules.
Last Updated by Admin on 2014-11-19 10:31:40 AM
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Don't forget to take your RMD
Did you celebrate your 70½th birthday in 2014? Do you have a traditional or rollover IRA? If both answers are yes, the deadline for taking the initial required minimum distribution from your retirement account is April 1, 2015.
Required minimum distributions are the smallest amount you can withdraw from your account to avoid penalties, and your 70½th birthday is the triggering start date. That's defined as six months after your 70th birthday.
As an example, if your actual birthday was in July 2014, you'll turn 70½ in January 2015. That means you don't have to take a minimum distribution for 2014. Instead, you're required to take your first minimum distribution no later than April 1, 2016. After the first distribution, you must complete each annual withdrawal by December 31.
Note that you may want to take your initial distribution by December 31 (instead of the following April) to avoid two withdrawals in a single year.
Last Updated by Admin on 2014-11-12 10:07:31 AM
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The IRS is facing budget cuts that will result in fewer audits and other enforcement activities. The IRS reports that it will do 140,000 fewer correspondence audits in 2014 than it did in 2013. The individual audit rate for 2014 is expected to drop to 0.80%, a decline from the 0.96% rate in 2013. That translates to one audit for every 120 tax returns filed in 2014. The audit rates for partnerships, S corporations, and corporations are falling as well.
Last Updated by Admin on 2014-11-05 11:19:40 AM
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If you requested a six-month extension to file your 2013 income tax return, you face a major deadline on October 15. That's the final date for filing your 2013 return; the IRS generally does not give filing extensions beyond that date.
October 15 is also the deadline for undoing a 2013 conversion of a regular IRA to a Roth IRA. If you did a conversion to a Roth last year, you can switch it back to a regular IRA without penalty if you do so by October 15.
Need details or filing assistance? Contact our office.
Last Updated by Admin on 2014-10-01 10:52:15 AM
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How well do you know your customers? Which ones are the most profitable? Which ones take most of your time? It's worth taking the time to find out. If your business is like most, the 80-20 rule applies. That is, 80% of your profits come from 20% of your customers.
If you can identify that top 20%, you can work hard to make sure this group remains satisfied customers. Sometimes all it takes is an appreciative phone call or a little special attention. Also, by understanding what makes this group profitable, you can work to bring other customers into that category.
Keep in mind that it's not always profits alone that make a good customer. Other factors, such as frequency of orders, reliability of the business, speed of payment, and joy to deal with are important too. Ask your accounting staff and your sales staff. You'll soon come up with a list of top customers.
There's another way in which the 80-20 rule applies to your business. Very likely, 80% of your problems and complaints come from 20% or fewer of your customers. If you identify those problem customers, you can change the way you do business with them to reduce the problems. Consider changing your pricing for those customers so that at least you're being paid for the extra time and effort they require. Sometimes the only solution is to tell these customers that you no longer wish to do business with them.
The bottom line is that understanding your customers better can only help your business. Contact us if you need help analyzing your customer profitability.
Last Updated by Admin on 2014-09-26 12:59:39 PM
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If you do volunteer work for a charitable organization and have not kept track of your out-of-pocket expenses, you might be passing up an excellent opportunity to lower your tax bill. To qualify, your unreimbursed expenses must relate directly to the charity, and you must itemize your deductions on your tax return. Here is a brief rundown of some possible deductions.
* Volunteers may deduct the cost of phone calls, postage stamps, supplies, and other out-of-pocket costs incurred in their volunteer work. For volunteers who are required to wear a uniform, the cost of buying and cleaning uniforms is deductible if they are unsuitable for everyday wear.
* The cost of your time, no matter how valuable it may be, is not deductible. That's true even if you would normally be paid for the type of service you contribute. For instance, accountants who perform free consulting for charities can't deduct what they would normally charge for their services.
* Using your car in connection with volunteer work can earn you a deduction. The standard mileage rate for volunteers who use their own cars is 14 cents per mile. Alternatively, you may deduct your actual unreimbursed expenses for gas and oil - but not maintenance, depreciation, or insurance. Either way you choose, related parking fees and tolls are deductible as well.
* If you travel overnight for charitable purposes, your expenses are deductible as long as they are reasonable in amount and not connected with personal activities or any element of recreation.
* Special rules apply to conventions. Travel and other out-of-pocket expenses related to attendance at a convention for volunteers are deductible only if you have been chosen as a delegate to represent the organization.
Finally, just remember that it is up to you, the volunteer, to substantiate your deductions. If you take these deductions, you should be prepared to show the IRS the connection between the costs claimed and the charitable work performed.
Last Updated by Admin on 2014-09-18 04:58:42 PM
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Another strong warning from the IRS is alerting taxpayers to phone scams that have already resulted in 90,000 complaints and the theft of millions of dollars. Here's how the typical scam works: The caller claims to be from the IRS and, using hostile and abusive language, demands immediate payment of taxes by a prepaid debit card or wire transfer. The IRS reminds taxpayers it will never contact you by phone about owed taxes; the first contact will be by mail. It will never ask for credit, debit, or prepaid card information in a phone call, and it will never request immediate payment over the phone.
Last Updated by Admin on 2014-09-10 10:33:35 AM
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September 15th is fast approaching and it’s the filing deadline for the various returns and form below:
2013 tax returns for calendar-year corporations (C & S-corporations) that had extensions of the March 15th deadline.
2013 partnership tax returns (multi-partnership & LLC) that had extensions of the April 15th filing deadline.
September 15 is the deadline for individuals to pay the third quarter installment of 2014 estimated income tax.
Last Updated by Admin on 2014-09-03 11:12:48 AM
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The death of a spouse can be a devastating experience, both emotionally and financially. As the survivor, you'll have to make important decisions while you're in what could be the most vulnerable and distracted stage of your life. The suggestions that follow might at least help ease your financial stress.
* Don't make major decisions right away. Put off selling your house, moving in with your grown children, giving everything away, liquidating your investments, or buying new financial products.
* Get professional help. You'll need an attorney to help interpret and explain the will and/or applicable law and implement the estate settlement; your accountant to provide financial advice and prepare the necessary tax documents; one or more insurance brokers to help with filing and collecting death benefits; and a funeral director, who in addition to the obvious services, can obtain needed copies of the death certificate.
* Gather and review any applicable documents, such as the decedent's social security card and statements, insurance policies, loan and lease agreements, your spouse's birth certificate, the death certificate, investment paperwork, mortgage statements and agreements, deeds, retirement plans and related statements, credit cards and credit card statements, employment and/or partnership agreements, divorce agreements, funeral directives and/or contracts, safe deposit box information, and tax returns. (You'll need a dozen or more copies of the death certificate to provide to insurance companies, government agencies, creditors, credit card agencies, banks, and a host of others.)
* Determine who must be paid, and when. You'll need to notify your spouse's creditors (including joint creditors) and continue paying for mortgages, car loans, credit cards, utilities, and insurance premiums not specific to your spouse. Notify health insurance companies (including Medicare) that you'll no longer be paying your spouse's premiums, and cancel your spouse's memberships and subscriptions.
* Alert the credit card agencies (Experian, Equifax, and TransUnion). Request addition of a "deceased notice" and a "do not issue credit" statement to the decedent's file. Order credit reports, which will provide a complete record of your spouse's open credit cards.
* Determine what payments are due to you, such as insurance proceeds, social security or veteran's benefits, and pension payouts. File claims where needed.
* Maintain your joint checking account to facilitate the deposit of incoming checks payable to your spouse.
Finally, call us as soon as you can. We're always ready to advise and assist you, before or after life's tragic events.
Last Updated by Admin on 2014-08-27 10:25:03 AM
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Participating in a 401(k) or similar retirement plan is a tax-advantaged way to save for retirement. If you have the option of participating in a 401(k) plan, avoid these five common mistakes.
* Failing to participate fully. Too many employees opt out of the plan or don't contribute as much as they can afford. At a minimum, try to set aside enough to receive the full employer-matching contribution. For example, your employer might offer to match 30% of the first 3% of payroll. That match is equivalent to a 30% first-year return on the amount you contribute.
* Over-investing in company stock. Don't invest too much of your plan contributions in company stock. Remember, even if the company is doing well now, things can change. And if the worst happens and you lose your job, you don't want to lose your retirement savings too. (Think of Enron employees.) If your employer uses company stock for the matching contribution, you may have no choice. But at least you can select other investments for your own contributions.
* Failing to diversify. Choose a well-diversified mix of investments in the plan. Then continually monitor and rebalance your investments as they grow. Coordinate your investment choices with your non-401(k) savings to make sure you have an appropriate mix. Seek professional advice if you need it.
* Borrowing from your plan. Take a loan from the plan only as a last resort. Remember, these savings are for your retirement, not to fund everyday needs. When you borrow from the plan, you're losing the tax-deferred growth on those funds.
* Withdrawing your savings if you change jobs. It's tempting to cash out your savings if you change jobs. But if you do, you'll owe taxes and probably a penalty. More important, you'll lose the future tax-favored growth that you might need in retirement. Instead, arrange a direct rollover into an IRA or your new employer's plan.
Last Updated by Admin on 2014-08-20 11:36:47 AM
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In September the IRS will be sending a survey to 10,000 employers to collect information on tax compliance issues. The survey will ask employers about the time, money, and other resources they spend in dealing with compliance requirements, such as income tax withholding, processing Forms W-2, and filing taxes. The IRS says it will use the data collected to reduce employer compliance burdens. The survey is voluntary; employers who receive a survey and choose not to respond will not be penalized.
Last Updated by Admin on 2014-08-13 10:40:45 AM
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Once you have filed your 2013 tax return, you may still have a few tax questions. The IRS provides these answers to commonly asked questions.
* How can I check the status of my refund?
You can go online to check on your refund. Go to www.irs.gov and click on "where's my refund?" Or call 1-800-829-4477 for automated refund information available 24 hours a day, seven days a week.
* What records should I keep?
Keep receipts, canceled checks, or other substantiation for any deductions or credits you claimed. Also keep records that verify other items on your tax return (W-2s, 1099s, etc.). Keep a copy of the tax return, along with the supporting records, for seven years.
* What if I discover that I made a mistake on my return?
If you discover that you failed to report some income or claim a deduction or credit to which you are entitled, you can correct the error by filing an amended tax return using Form 1040X.
* What if my address changes after I file?
If you move or have an address change after filing your return, send Form 8822 "Change of Address" to the IRS. You should also notify the Postal Service of your new address so that you'll receive any refund you're due or notices sent by the IRS.
For answers to other tax questions you may have, give us a call.
Last Updated by Admin on 2014-07-16 10:26:03 AM
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If your child has a job this summer, encourage him or her to set up an IRA. The amount that can be contributed is $5,500 or the child's earnings, whichever is less. If you wish, you can even provide the cash for the IRA and let your child spend his or her earnings. Roth IRAs are generally a smarter choice for children than traditional IRAs.
Last Updated by Admin on 2014-07-10 10:23:06 AM
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Selling items on eBay and other online auction Web sites has become a very popular way to get rid of unwanted household stuff, as well as a way to turn a little profit. Many users have even started full-time businesses auctioning merchandise on the Web. But like any business venture, selling items in the virtual world has tax implications that are all too real.
From a tax standpoint, casual selling on eBay is essentially the same as holding a garage sale. If you sell an item for less than you paid for it, you cannot deduct the loss. When you sell something for a profit, however, you must report it on your tax return. Long-term gains on the sale of collectibles, such as artwork, antiques, or rare coins, are taxed by as much as 28%.
Profit is the difference between the selling price and your "basis" in the item. In most cases, basis is simply the amount you paid for it. Inherited items generally have a basis equal to their fair market value at the time of receipt. If the basis cannot be documented, it becomes zero, and you pay tax on the entire selling price.
Online selling activity can reach the point where it is deemed to be a business venture. Status as a for-profit eBay business versus a casual online seller is not clearly defined. Factors considered by the IRS include the amount of time you spend selling online and whether you conduct yourself like other self-employed business owners, such as keeping accounting records and advertising your services.
The good news is that if you are treated as a business, you can deduct expenses related to your selling activity. The downside to business status is that profits from selling online may be subject to self-employment tax. What's more, depending on where you live, you may have to deal with sales taxes.
Taxpayers who operate like a business, but rarely show a profit, may be treated as hobbyists. In this scenario, losses can only be deducted to the extent of gains.
Whether you are an infrequent user of online auction sites, or an all-out eBay business owner, you cannot afford to ignore the tax implications of selling online. For the details you need to avoid tax problems, call our office today.
Last Updated by Admin on 2014-06-25 11:09:00 AM
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You probably know that you can exclude up to $250,000 of gain ($500,000 for most joint filers) when you sell your principal residence. IRS regulations may now allow you to apply this gain exclusion when you sell vacant land that is adjacent to your home.
To qualify, the land you sell must be adjacent to the parcel on which your house sits. Also, the land sale must occur within two years before or after the residence is sold. You must meet the other usual requirements for claiming the exclusion. If you qualify, you can apply your $250,000 or $500,000 exclusion to both sales combined.
Example: You own and live in a house which sits on four acres. You decide to sell the house on a one-acre lot and sell the other three acres of empty land to a developer. Provided the land sale occurs within two years before or after you sell the house, you can exclude up to $250,000 ($500,000 if you file jointly) of the combined gain from both sales.
Last Updated by Admin on 2014-06-18 10:19:08 AM
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When your financial situation leaves you no other choice but to borrow from your 401(k), there are a few things you can do to make the situation better. Consider withdrawing the funds from the cash or fixed-rate portion of your plan's portfolio. This may leave higher-earning investments at work. Try to pay off the loan as quickly as possible, and continue making regular plan contributions in order to take full advantage of your employer's match.
Last Updated by Admin on 2014-06-11 11:06:37 AM
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You can enjoy a vacation home and cut your taxes - with some careful planning and a little discipline.
The IRS rules can be complex and potentially restrictive, so a word of caution is in order as you plan the use of your vacation home.
Owners of vacation homes often rent out the property when they're not using it themselves. Renting out your vacation home may or may not make sense for you. The principal variables are the number of days you rent the property, the number of days of personal use, your individual tax situation, and your personal wishes for the use of your vacation home.
* Rent for 14 days or less and a simple tax break is available. If you rent your vacation home for 14 days or less, all of the rental income is tax-free. This attractive tax benefit can help provide cash for your mortgage and other expenses.
* Rent for more than 14 days and your tax planning and personal life become more complex. If you rent your vacation home for more than 14 days, all your rental income is reportable. Whether you treat the income and expenses as a second residence or as rental property depends on the personal use of your vacation home relative to the time the home is rented out. This test is made annually and determines the nature of deductions, loss carryovers, and the tax treatment if the vacation home is sold.
Please call us to guide you through the IRS rules to find the rental strategy that meets your financial goals, yet ensures the personal enjoyment of your vacation home.
Last Updated by Admin on 2014-05-28 12:31:24 PM
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Tax records should be kept year-round, not hastily assembled just for your annual tax appointment. Without tax records, you can lose valuable deductions by forgetting to list expenses on your return or having unsubstantiated items disallowed if you're audited.
Generally returns can be audited up to three years after filing. However, if income is underreported by more than 25%, the Internal Revenue Service can collect underpaid taxes up to six years later. In other words, you need good records to verify what you report on your tax return, and you should hang on to those records for seven years.
Last Updated by Admin on 2014-05-21 10:43:21 AM
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For years, the IRS interpreted the IRA rules to allow taxpayers to do one rollover per year in each IRA he or she owned. In doing a rollover, the taxpayer is not taxed on the funds taken from the IRA so long as the funds are redeposited into an IRA within 60 days of the withdrawal.
A recent court ruling stated that the rollover limit should be applied on an aggregate basis, meaning that only one rollover per year is allowed for all IRAs owned by the taxpayer, not one for each. The change becomes effective January 1, 2015.
Contact us for assistance before planning any IRA rollover to be sure you don't end up with a tax surprise.
Last Updated by Admin on 2014-05-14 10:48:01 AM
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One of the first decisions you face as a new business owner is whether or not to incorporate the business. The biggest advantage of incorporating is limitation of your liability. Your responsibility for debts and other liabilities incurred by a corporation is generally limited to the assets of the business. Your personal assets are not usually at risk, although there can be exceptions to this general rule. The trade-off is that there is a cost to incorporate and, in some cases, tax consequences.
Should you incorporate? You might not need to incorporate. Depending on the size and type of your business, liability may not be an issue or can be covered by insurance. If so, you could join millions of other business owners and operate as an unincorporated sole proprietor.
If you do decide to incorporate, you'll face a choice of corporate forms. All offer limitation of your liability, but there are differences in tax and other issues.
C corporation. The traditional form of corporation is the C corporation. C corporations have the most flexibility in structuring ownership and benefits, and most large companies operate in this form. The biggest drawback is double taxation. First the corporation pays tax on its profits; then the profits are taxed again as they're paid to individual shareholders as dividends.
S corporation and LLCs. Two other forms of corporation avoid this double taxation: S corporations and limited liability companies (LLCs). Both of these are called "pass-through" entities because there's no taxation at the corporate level. Instead, profits or losses are passed through to the shareholders and reported on their individual tax returns.
S corporations have some ownership limitations. There can only be one class of stock and there can't be more than 100 shareholders, none of whom can be foreigners. State registered LLCs have become a popular choice for many businesses. They offer more flexible ownership than S corporations and certain tax advantages.
Whether you're already in business or just starting out, choosing the right form of business is important. Even established businesses change from one form to another during their lifetime. Some companies use more than one type of corporation - for example, an LLC to hold the business's real estate and an S corporation for other operations.
Consult our office and your attorney for guidance in selecting the form that is best for your business.
Last Updated by Admin on 2014-04-30 10:40:10 AM
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A recent study conducted by Harris Interactive of 1,000 middle class individuals aged 25 to 75 revealed some interesting statistics about retirement attitudes.
Among the survey's findings:
* 37% of respondents say they don't expect to retire; instead they expect to work until they are too sick or die.
* 59% said retirement is not their top priority; their priority is paying day-to-day bills.
* 34% felt they would have to continue working until age 80 or beyond because they won't have saved enough to retire.
* 31% in the 40 to 59 age category say they have a retirement plan; 69% say they have no plan.
* Those who say they have a written plan say they have saved a median of $63,000 for retirement, which represents 32% of their retirement savings goal of $200,000. Those without a written plan say they have saved $20,000 or 10% of their goal.
* A third of those surveyed said that social security would be their primary source of income in retirement.
* 40% said a large unexpected health care expense was their greatest retirement fear; 37% said lower or no social security benefits was their biggest fear.
Last Updated by Admin on 2014-04-23 10:39:36 AM
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More changes made to Affordable Care Act deadlines
On February 10, 2014, the Treasury Department issued rules that will allow mid-sized businesses to delay for one year the requirement to provide health insurance for their workers. The rules also offered some relief for larger companies.
Businesses with 50 to 99 employees will now have until January 1, 2016, to provide minimum, affordable health insurance to their employees, or face penalties. Previously, the deadline for meeting this requirement was January 1, 2015.
In order to qualify for this extension, employers must certify that they have not laid off employees in order to come under the 100 employee threshold.
Larger employers - those with 100 or more full-time employees - will be allowed to phase in the required health insurance coverage. These companies won't owe a penalty under the insurance mandate so long as they offer coverage to at least 70% of their full-time employees by January 1, 2015, and at least 95% by 2016.
Last Updated by Admin on 2014-04-17 03:26:39 PM
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If you're receiving a tax refund this year, the IRS reminds you that you can use it to buy U.S. savings bonds directly from the IRS. Here are the details.
* You may purchase up to $5,000 in U.S. Series I savings bonds.
* The total amount of bonds you purchase must be a multiple of $50. Any refund over the specified bond purchase amount can be deposited in your bank savings account, or you can request a check by mail.
* Bonds will be issued in your name. If you're married and file a joint return, the bonds will be issued in the names of both spouses.
* The bonds will be sent to you by mail.
* You select this option when filing your 2013 return by using Form 8888, "Direct Deposit of Refund to More Than One Account."
* Form 8888 gives instructions on selecting this option and specifying the amount of refund you want to use to buy savings bonds.
For additional information about Series I savings bonds, go to www.treasurydirect.gov.
Last Updated by Admin on 2014-04-09 11:22:40 AM
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If you can't file your 2013 tax return by the April 15 deadline, file for an extension to get until October 15, 2014, to file. You can request the extension on paper, by phone, or online. You don't need to explain why you need more time, but be aware that an extension doesn't give you more time to pay taxes you owe. To avoid penalty and interest charges, taxes must be paid by April 15.
Last Updated by addNew on 2014-04-02 11:02:34 AM
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You can receive your income tax refund in several ways: (1) direct deposit into a single checking or savings account, (2) direct deposit split into up to three different accounts in up to three different U.S. financial institutions, (3) via a paper check, or (4) purchasing up to $5,000 U.S. Series I savings bonds. Split deposits need not be in equal amounts, though buying savings bonds must be done in multiples of $50. You can't split your refund between a direct deposit and a paper check. For direct deposits, verify that your financial institution accepts such deposits, and verify account and routing numbers.
Last Updated by Admin on 2014-03-19 12:07:59 PM
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If you or a dependent had a name change last year, notify the Social Security Administration before you file your 2013 tax return with the IRS. Why? If the name on your tax return does not match SSA records, the IRS is likely to notify you about the mismatch. Any refund you expected could be delayed. So if marriage, divorce, or child adoption resulted in a name change, file "Form SS-5, Application for a Social Security Card" with the SSA to inform them of the change.
Last Updated by Admin on 2014-03-12 11:00:01 AM
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Rules just issued by the Treasury Department give a one-year extension to the health insurance mandate for mid-sized businesses. Companies with 50 to 99 employees will now have until January 1, 2016, to provide health insurance for employees or face penalties. Employers must certify that they have not cut workers in order to come under the 100 employee threshold. Companies with 100 or more employees must still meet the January 1, 2015, deadline for providing health insurance coverage.
Last Updated by Admin on 2014-03-05 10:43:37 AM
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Are you considering withdrawing funds from your traditional IRA to pay unexpected medical costs?
You may be hesitating because of the 10% penalty imposed on withdrawals made when you're under age 59½. Since the 10% is calculated on the total you withdraw, the tax hit could be substantial. Worse, the penalty typically is not withheld from the cash you receive, so you'll need to come up with the money when you file your tax return.
Fortunately, in some situations you can take penalty-free withdrawals from your IRA for medical expenses.
One example is the medical insurance exception, which applies if you lost your job and have received unemployment compensation for 12 consecutive weeks. IRA withdrawals used to pay medical insurance premiums for yourself, your spouse, or your dependents aren't subject to the 10% penalty, as long as you take the distributions in the year you receive unemployment (or the year after).
This exception may also be available if you were self-employed and are unable to collect unemployment benefits.
Another exception: You can take penalty-free withdrawals when you incur unreimbursed medical expenses that exceed 10% of your gross income. For instance, say your 2014 gross income is $40,000 and your total unreimbursed deductible medical expenses are $5,000. To determine the penalty-free withdrawal amount of $1,000, multiply $40,000 by 10%, then subtract the result ($4,000) from $5,000.
You don't have to itemize your deductions to qualify for this exception.
In addition, the penalty does not apply when early IRA withdrawals are due to a permanent, total disability.
For more information about the requirements for these and other exceptions to the 10% early withdrawal penalty, please contact us.
Last Updated by Tax on 2014-02-26 10:33:00 AM
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Every week reporters publish stories about companies that have lost thousands, even millions of dollars because of fraud. They recount the dreadful details of business owners who learned – too late – that a lack of basic controls left their companies vulnerable to pilferage, embezzlement, and other types of misappropriation.
How do these lessons apply to small businesses? After all, small firms generally can't afford to hire internal auditors or set up separate divisions to break up incompatible duties. While it's true that a small company can't always protect itself in ways larger firms might, management can establish controls in certain high-risk areas, such as the following:
Cash disbursements. If at all possible, the owner/manager should sign checks. This control has a dual purpose: management sees how the company is spending its money, and the cash disbursement function is kept separate from bookkeeping or accounting. If the same person signs checks and enters disbursement transactions in the accounting records, embezzlement is harder to prevent. Requiring two signatures on checks above a certain amount also provides greater control.
Customer collections. Consider having the owner/manager open the mail, especially if customer collections are a regular part of your business. Alternatively, you might ask someone separate from the accounting function to open the mail and prepare the deposit slip. Of course, the practice of making daily deposits is also a good control.
Personnel practices. By taking care to perform background checks before hiring key employees, especially those who will be handling cash or other high-risk assets, you can prevent problems later on. Of course, financial pressures, addictions, and other factors can corrupt even good employees. That's why managers might consider discreetly monitoring employee lifestyles (without invading anyone's privacy, of course). An observant manager might note that certain lower-level employees are living well beyond their means, or that warehouse staff are carrying off company materials to remodel personal residences.
Perhaps a small business's greatest control is the "tone at the top." If management sets a high standard, employees generally follow. However, if a manager is perceived as lax – for example, he or she doesn't respond quickly when evidence of misappropriation surfaces – employees might conclude that theft isn't such a big deal.
Remember this: A company that fails to establish minimum controls is providing a golden opportunity for fraud. If you'd like help reviewing your firm's controls, give us a call.
Last Updated by Tax on 2014-02-19 01:00:09 PM
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Small businesses may be missing out on an important new tax perk related to health insurance. And the stakes are even higher in 2014.
The Affordable Care Act provides a tax incentive for small business owners who pay at least a portion of their employees' health insurance. This year as much as 50% (up from 35% in 2013) of the employer's cost for worker health care premiums can be deducted as a tax credit. That's a dollar-for-dollar reduction in your 2014 tax bill. But as with most tax deals, you must meet certain requirements to qualify.
First, you must employ fewer than 25 full-time equivalent (FTE) employees. A half-time employee would count as a .5 FTE, so you must consider all workers in your calculation. The fewer FTE employees you have, the higher the tax credit percentage.
Second, the average annual wages of your employees must be less than $50,000. To make the calculation, you would take your total wages and divide by the FTE number you figured above. In most cases the owner's salary is not included in the formula.
Finally, the business owner must contribute at least 50% of the total cost for single coverage. Family coverage is not factored in. The policy must also be purchased through the Small Business Health Options Program, or SHOP to be eligible for the credit.
A few more wrinkles: if a business doesn't owe tax for the current year, they can apply the credit to past or future years. In addition, the excess of the employer's actual cost of health insurance over and above the credit received can still be deducted as a business expense. And the new rules also mean that small nonprofit organizations can receive a tax credit of up to 35% of their health insurance costs if they meet the above requirements.
Last Updated by Tax on 2014-02-12 10:22:52 AM
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If you do any of the following, you will need an Employer Identification Number (EIN) from the IRS:
If you operate your business as a corporation or partnership.
If you file reports for employment taxes, excise tax, or alcohol, tobacco and firearms.
If you have even one employee.
If you have a self-employed retirement plan.
If you operate as any of several other organizations.
Acquiring an EIN is very quick and simple. You do not need to complete the Form SS-4 unless you prefer to. Go to www.irs.gov. Once there, use the search box and type in EIN online. You will be taken to the page that allows you to answer questions online and you will get your EIN upon validation of your answers. You will be able to download and print your confirmation notice.
If you need assistance, please contact our office. We are here to help you.
Last Updated by Tax on 2014-02-06 11:44:05 AM
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Your children may need to file a 2013 income tax return. A return is needed if wages exceeded $6,100, the child had self-employment income over $400, or investment income exceeded $1,000. If the child had both wages and investment income, other thresholds apply. Contact us for more information or filing assistance.
Last Updated by Tax on 2014-01-15 11:08:43 AM
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Nearly every company, large or small, has to file Form 1099-MISC with the IRS and send a copy to recipients by January 31, 2014.
You use Form 1099-MISC to report miscellaneous payments to nonemployees. This includes fees for services paid to independent contractors, such as consultants, lawyers, cleaning services, and others. Generally, you don't report fees paid to corporations, but there are exceptions (payments to lawyers, for example).
For details or filing assistance, contact our office.
Last Updated by Tax on 2014-01-08 12:06:20 PM
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Form 1099-K is a new information return sent to businesses by "payment settlement entities" reporting the amount of credit card and other electronic receipts that were processed for the business. The IRS also receives a copy of Form 1099-K and cross checks the reported amounts with the business's total income reported on its tax return. Where the numbers don't seem to make sense, the IRS sends notices to businesses telling them they "may have underreported gross receipts." Notices go on to say "This is based on your tax return and Form(s) 1099-K, Payment/Merchant Cards and Third Party Network Transactions that show an unusually high portion of receipts from card payments."
The IRS has sent thousands of letters labeled "Notification of Possible Income Underreporting" to small business owners. The notification project is ongoing as part of the IRS's campaign to deal with the "tax gap," the difference between taxes owed and taxes actually collected.
If you receive a notice, contact us immediately so that we can determine what response is required.
Last Updated by Tax on 2014-01-02 01:49:30 PM
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Thieves and con artists thrive during the holidays. All that good cheer, all those weary and distracted shoppers, all that money being spent - it's a fraudster's paradise. Here are a few tips to keep the bad guys at bay, whether you're shopping online or at your local mall.
- Stick with reputable merchants. During the holidays, your e-mail in-box may be filled with unsolicited messages urging you to "click here." Don't. Scammers set up websites that mimic legitimate stores. Their sole purpose is to extract personal information from unwary consumers. If you don't know the merchant, either type in the web address yourself or, better yet, shop elsewhere.
- Take care with charities. Of course, many legitimate church groups and nonprofit organizations engage in fund-raising activities during the holidays. If you're confident that the group is above-board, go ahead and donate. But if you catch a whiff that something's not quite right - the solicitor is too pushy or the guy at your front door evades reasonable questions about the organization - hold on to your money.
- Be attentive at the mall. Thieves love to lurk in and around shopping malls. So be aware. Take only the cash and credit cards you need to make purchases. Don't be fooled by someone selling $10 Rolex watches or $50 Armani suits. Some crooks even hang out in store parking lots stalking potential targets. In one scam, a thief will approach a woman in a parked car and inform her that the vehicle is damaged. When she gets out to check, the thief's partner absconds with the lady's purse. If an activity or person seems suspicious, call 911 or mall security.
- Be on guard with gift cards. These little pieces of plastic can be great stocking stuffers, but they're also prime targets for crooks. Scammers have been known to copy numbers from gift cards hanging in store displays. They then call a toll-free number to learn when the card is activated and use the card number to make purchases. One way to avoid this is to buy from retailers who keep gift cards behind the checkout register.
Last Updated by Tax on 2013-12-19 09:02:34 AM
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Now
that the holiday season has arrived, you might decide to step up your
charitable donations to boost your deductions for 2013. Here are six timely
strategies.
1.
Audit-proof your claims. The IRS imposes strict substantiation rules for
charitable donations. In fact, you're required to keep records for all monetary
contributions, no matter how small. The best approach is to obtain written
documentation for every donation.
2.
Charge it. The deductible amount for 2013 includes charitable gifts charged by
credit card before the end of the year. This covers online
contributions using a credit card account. So you can claim a current deduction
for donations made as late as December 31.
3.
Give away appreciated stock. Generally, you can deduct the fair market value
(FMV) of capital gain property owned longer than one year. For instance, if you
acquired stock ten years ago for $1,000 and it's now worth $5,000, you can
deduct the full $5,000. The appreciation in value isn't taxed.
4.
Sell depreciated stock. Conversely, it usually doesn't make sense to donate
stock that has declined in value, because you won't receive any tax benefit for
the loss. Instead, you might sell the stock and donate the proceeds. This
entitles you to a capital loss on your 2013 return plus the charitable
deduction.
5.
Clean out the storage space. The tax law permits you to deduct charitable gifts
of used clothing and household goods that are still in "good used
condition or better." Don't be so quick to discard items that can be
donated to charity.
6.
Donate a car. The deduction for a donated vehicle valued above $500 is
generally limited to its resale amount. However, if the charity uses the
vehicle for its tax-exempt purposes, you may be able to deduct its fair market
value.
Call
us for more details on the tax rules governing charitable contributions.
Last Updated by Tax on 2013-12-12 02:32:27 PM
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There's
not much time left for you to make beneficial tax moves for 2013. Consider
these possibilities.
*
Maximize retirement plan contributions. For 2013, you can put $17,500 in a
401(k) plan, $12,000 in a SIMPLE, or $5,500 in an IRA. If you're 50 or older,
you can set aside even more as "catch-up" contributions.
*
Decide whether to sell investments to offset gains or losses already taken this
year. You can deduct $3,000 of net losses against ordinary income.
*
Estimate your tax liability for 2013, taking the new Medicare tax increases for
higher-income taxpayers into account. If you'll be underpaid, adjust your final
quarterly tax payment or your December withholding.
*
December 31 is the deadline for taking a 2013 required minimum distribution
from your traditional IRA if you're 70½ or older. Miss this requirement and a
50% penalty could apply.
*
Purchase needed business equipment to use the first-year $500,000 expensing
option for new and used equipment and 50% bonus depreciation for new equipment.
*
Make energy-saving home improvements that could qualify for a lifetime tax
credit of up to $500.
*
Finalize annual gifts to use the 2013 exclusion from gift tax on gifts of up to
$14,000 per recipient.
Contact
our office for details on these and other year-end tax moves.
Last Updated by Tax on 2013-12-04 12:56:07 PM
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Some tax-cutting strategies make good financial sense. Other
tax strategies are simply bad ideas, often because tax considerations are
allowed to override basic economics.
Here's one example of the tax tail wagging the economic dog.
Let's say that you run an unincorporated consulting business. You want some
additional tax write-offs, so you decide to buy $10,000 of office furniture
that you don't really need. If you're in the 28% tax bracket and you deduct the
entire cost, this purchase will trim your tax bill by $2,800 (28% of $10,000).
But even after the tax break, you'll still be out of pocket $7,200 ($10,000
minus $2,800) - and stuck with furniture that you don't really need.
There are other situations in which people often focus on
tax considerations and ignore the bigger financial picture. For example:
* Someone increases the size of a home mortgage, solely to
get a larger tax deduction for mortgage interest.
* A homeowner hesitates to pay off a mortgage, just to keep
the interest deduction.
* Someone turns down extra income, because it might
"push them into a higher tax bracket."
* An investor holds an appreciated asset indefinitely,
solely to avoid paying the capital gains tax.
Tax-cutting strategies are usually part of a bigger
financial picture. If you are planning any tax-related moves, we can help make
sure that everything stays in focus. For assistance, give us a call.
Last Updated by Tax on 2013-11-27 01:00:31 PM
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Are you familiar with PEP and Pease? Though they sound like
a pop duo, the terms refer to tax rules known as phase-outs that can impact how
much federal income tax you owe.
Phase-outs are reductions in the amount of deductions,
credits, and other breaks you can claim on your tax return. Though generally
based on adjusted gross income, phase-outs vary in rate, amount, and how
they're calculated.
Here's an overview of PEP and Pease, two tax breaks that are
once again subject to phase-out this year.
* Personal exemption phase-out (PEP). If you're married
filing jointly for 2013 and your income exceeds $300,000, the PEP will reduce
the amount you claim for yourself, your spouse, and your dependents.
The personal exemption for 2013 is $3,900. But when PEP
applies and your income increases, your deduction is reduced accordingly.
* Itemized deduction phase-out. You probably already know
that some itemized deductions are limited. For instance, to claim a deduction
for medical expenses, your out-of-pocket costs for this year have to exceed 10%
of adjusted gross income (AGI). This threshold remains at 7.5% of AGI if you
are 65 or older. Miscellaneous itemized deductions, such as unreimbursed
employee business expenses, are limited to amounts over 2% of AGI.
* There's also an additional phase-out called the Pease
provision that limits the amount of total itemized deductions - after the above
reductions. For 2013, Pease kicks in when your income exceeds $300,000
($150,000 if you're married filing separately).
Other phase-outs limit the amount and deductibility of IRA
contributions; the education, adoption, and childcare credits; and the
alternative minimum tax exemption. Please call for a review of how phase-outs
affect you and what you might be able to do to avoid them.
Last Updated by Tax on 2013-11-20 03:57:34 PM
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As the population in the U.S. continues to age, more and
more people will find themselves caring for their parents. Here are some of the
tax breaks that caregivers should consider.
* If you provide more than half of your parent's support,
you may be able to claim your parent as a dependent on your tax return. To be
eligible, your parent can't earn more than $3,900 in 2013, excluding their
nontaxable social security and disability income.
* What if you and your siblings all pitch in to support a
parent? Anyone who contributes at least 10% of the total support can be the one
to claim the $3,900 exemption if all of you sign a multiple support agreement.
* Even if a parent's income exceeds $3,900 this year, you
can still deduct the medical expenses paid on the parent's behalf, as long as
you provide more than half of his or her support.
* If you hire someone to take care of your parent while you
work, you might qualify for the dependent care tax credit. Your parent must be
physically or mentally incapable of caring for himself.
* Unmarried individuals who support a parent can file their
tax returns as "head of household." To qualify, your parent doesn't
need to live with you. Instead, as long as you pay more than half of the cost
of maintaining your parent's main home, including a rest home or nursing
facility, you qualify for this preferential tax treatment.
For more information about the tax issues affecting
caregivers and their parents, please give us a call.
Last Updated by Tax on 2013-11-13 10:18:21 AM
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The government closure came during the peak period for
preparing IRS systems for the 2014 filing season. Updating these core systems
is a complex, year-round process with the majority of the work beginning in the
fall of each year.
There are additional training, programming, and testing
demands on the IRS this year as the agency works to prevent refund fraud and
identity theft.
The IRS is exploring options to shorten the delay and will
announce a final decision on the start of the 2014 filing season in December.
Last Updated by Tax on 2013-11-07 12:37:38 PM
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Want to lower your 2013 tax bill? The time for action is
running out, so consider these tax-savers now.
* You can choose to deduct sales taxes instead of local and
state income taxes. If you're planning big ticket purchases (like a car or a
boat), buy before year-end to beef up your deductible amount of sales tax.
* If you're a teacher, don't overlook the deduction for up
to $250 for classroom supplies you purchase in 2013.
* Consider prepaying college tuition you'll owe for the
first semester of 2014. This year you can deduct up to $4,000 for higher
education expenses. Income limits apply.
* Max out your retirement plan contributions. You can set
aside $5,500 in an IRA ($6,500 if you're 50 or older), $12,000 in a SIMPLE
($14,500 if you're 50 or older), or $17,500 in a 401(k) plan ($23,000 if you're
50 or older).
* Establish a pension plan for your small business. You may
qualify for a tax credit of up to $500 in each of the plan's first three years.
* Need equipment for your business? Buy and place it in
service by year-end to qualify for up to $500,000 of first-year expensing or
50% bonus depreciation.
* Review your investments and make your year-end sell
decisions, whether to rebalance your portfolio at the lowest tax cost or to
offset gains and losses.
* If you're charity-minded, consider giving appreciated
stock that you've owned for over a year. You can generally deduct the fair
market value and pay no capital gains tax on the appreciation.
* Another charitable possibility for those over 70½: Make a
direct donation of up to $100,000 from your IRA to a charity. The donation
counts as part of your required minimum distribution but isn't included in your
taxable income.
* Install energy-saving improvements (such as insulation,
doors, and windows) in your home, and you might qualify for a tax credit of up
to $500.
These possibilities for cutting your taxes are just the
starting point. Contact us now for a review of your 2013 tax situation and
tax-saving suggestions that will work best in your individual circumstances.
Last Updated by Tax on 2013-10-30 10:41:20 AM
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Employees often have too much of their employer's company
stock in their 401(k) or other retirement plan. Employees feel they know their
company best, overlooking the risks of having too much of an investment in any
one company, including their own.
What are some of the risks of loading up on your employer's
stock?
* Tremendous bet in a "safe haven." Overweighting
investment holdings in any company minimizes diversification, exposing your
portfolio to increased risk. The belief that employer shares are less risky is
an illusion.
* Double whammy potential. No company is protected from
economic downturns. If your employer's performance weakens, you may lose your
job, as well as growth in your retirement portfolio from the company's market
value.
* Lock-up periods. Some companies prohibit employees from
converting the employer retirement match contributions in company stock into
other investments until after a number of years. In this case, use your own
contributions to diversify your holdings.
* Tendency to forget. As you move closer to retirement, you
may forget the riskiness of your employer's stock to your portfolio. At the
same time, contributions of company stock may be growing, based on higher
benefit matches - just when portfolio reallocation is becoming more important.
Your goal should be to create a well-balanced portfolio that
suits your age (investment horizon) and your risk tolerance. Call us for
assistance in reviewing your retirement situation.
Last Updated by Tax on 2013-10-23 12:06:37 PM
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For federal tax purposes, the determination of
"business" or "hobby" is a matter of deduction. If your new
venture is considered a business, you can deduct losses against other income.
However, when the activity is classified as a hobby, the
"hobby loss" rules limit the amount you can write off. Expenses you
incur might be deductible only if you itemize - or they might even be nondeductible.
The distinction affects the amount of tax you owe. So how
can you prove you're trying to run a money-making business despite several
years of losses?
One test you're probably familiar with is the general rule
of earning a profit in three of the past five years. If your business has more
income than deductions in three of five consecutive taxable years, the IRS
generally accepts that you have a profit motive. (The time frame is two years
in seven for certain horse-related activities.)
Unable to meet that test? Additional factors play a role as
well. For instance, the Tax Court agreed that a volleyball consulting service
with multiple loss years qualified as a business, in part because of a
businesslike manner of operation. Among other items, the Court mentioned the
maintenance of a separate bank account and accurate records as support for a
profit motive.
Positive indicators of your profit-making intentions also
include your expertise in the activity, the time and effort you put into your
new business, and your success in other ventures.
If you'd like a complete list of the IRS "business vs.
hobby" criteria, please contact us. We'll be happy to review the
guidelines with you.
Last Updated by Tax on 2013-10-17 03:22:14 PM
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It's massive, and it's complicated. At more than 2,400 pages, the Affordable Care Act (ACA for short) has
left businesses and individuals confused about what the law contains and how it
affects them.
The aim of the law is to provide affordable, quality health care for all Americans. To reach that goal, the law requires large companies to provide health insurance for their employees starting in 2015, and uninsured individuals must get their own health insurance starting in 2014. Those who
fail to do so face penalties.
Insurance companies must also deal with new requirements. For example, they cannot refuse coverage due to pre-existing conditions, preventive services must be covered with no out-of-pocket costs, young adults can stay on parents' policies through age 26, and lifetime dollar limits on health benefits are not permitted.
The law mandates health insurance coverage, but not every business or individual will be affected by this requirement. Here's an overview of who will be affected.
FOR BUSINESSES - It's all in the numbers
Fewer than 50 employees
* Companies with fewer than 50 employees are encouraged to provide insurance for their employees, but there are no penalties for failing to do so. A special marketplace will be available for businesses with 50 or fewer employees, allowing them to buy health insurance through the Small Business
Health Options Program (SHOP).
Fewer than 25 employees
* Small companies that pay at least 50% of the health insurance premiums for their employees may be eligible for a tax credit for as much as 35% of the cost of the premiums. To qualify, the business must employ fewer than 25 full-time people with average wages of less than $50,000. For 2014, the maximum
credit increases to 50% of the premiums the company pays, though to qualify for the credit, the insurance must be purchased through SHOP.
50 or more employees
For companies with 50 or more full-time employees, the requirement to provide "affordable, minimum essential coverage" to employees has been delayed for one year and is not required until 2015. Originally, employers had been required to file information returns that reported details about the health
insurance they provided, with penalties to apply if the insurance did not meet standards. Companies complained that they needed more time to meet the reporting obligations, and in response the IRS made the reporting requirement optional for 2014. Without the reporting, the IRS could not determine
penalties, so the penalties also were postponed for a year.
Bottom line: the IRS is encouraging companies to comply in 2014 even though there are no penalties for
failure to do so.
The business play or pay penalty
Starting in 2015, companies with 50 or more employees that don't offer minimum essential health insurance face an annual penalty of $2,000 times the number of full-time employees over a 30-employee threshold. If the insurance that is offered is considered unaffordable (it exceeds 9.5% of family income), the company may be assessed a $3,000 per-employee penalty. These penalties apply only if one or more of the company's employees buy insurance from an exchange and qualify for a federal credit to offset the cost of the premiums.
FOR INDIVIDUALS - It's all about coverage
Currently,attention is focused on the health insurance exchanges or (Marketplace) that opened for business on October 1. Confusion about the Affordable Care Act has left many people thinking everyone has to deal with the exchanges. The fact is that if you are covered by Medicare, Medicaid, or an employer-provided plan, you don't need to do anything.
Also, if you buy your health insurance on your own and are happy with your plan, you can keep your coverage. However, the only way to get any premium-lowering tax credits based on your income is to buy a plan through the Marketplace.
The exchanges(Marketplace
Each state will either develop an insurance exchange (Marketplace) or use one provided by the federal government. The Marketplace will allow those seeking coverage to comparison shop for health plans from private insurance companies.
There will be four types of insurance plans to choose from: Bronze, Silver, Gold, and Platinum. The more expensive the plan, the greater the portion of medical costs that will be covered. The price of each plan will depend on several factors including your age, whether you smoke, and where you live.
Many individuals will qualify for federal tax credits which will reduce the premiums they actually pay. Each states Marketplace will have a calculator to assist individuals in determining the amount, if any, of their federal tax credit.
The individual play or pay penalty
If you're one of the 45 million or so Americans without health insurance, you will need to get coverage for 2014 or pay a penalty of $95 or 1% of your income, whichever is greater. Low-income individuals may qualify for subsidies and/or tax credits to help pay the cost of insurance.
The penalty increases to $325 or 2% of income for 2015 and to $695 or 2.5% of income for 2016. For 2017 and later years, the penalty is inflation-adjusted. Those who choose not to be insured and to pay the penalty instead will still be liable for 100% of their medical bills.
NOTE: If you will be shopping for health insurance on the Marketplace, be aware that there's no need to rush to enroll; the enrollment period runs from October 1, 2013, through March 31, 2014. Take the time
you need to review your options and select what's best for you and your family.
MORE ABOUT THE LAW AND YOUR TAXES
In addition to the penalties required by the Affordable
Care Act, the law made other tax changes that could affect you. Among them are the following:
Annual contributions to flexible spending accounts are limited to $2,500 (indexed for inflation).
The 7.5% adjusted gross income threshold for deducting unreimbursed medical expenses increases to 10% for those under age 65. Those 65 and older can use the 7.5% threshold through 2016.
The additional tax on nonqualified distributions from health savings accounts (HSAs) is 20%, an increase from the previous 10% penalty.
The payroll Medicare tax increases from 1.45% of wages and self-employment income to 2.35% on amounts above $200,000 earned by individuals and above $250,000 earned by married couples filing joint returns. This rate increase applies only to the employee portion, not to the employer portion.
A 3.8% Medicare surtax is imposed on unearned income (examples: interest, dividends, capital gains) for
single taxpayers with income over $200,000 and married couples with income over $250,000.
The Affordable Care Act may be one of the most complicated and confusing laws ever passed, but one thing is very clear: the law will affect the taxes of most Americans. In order to manage your tax
bill, you will have to factor the new health care rules into your overall personal and business tax planning. For guidance, contact our office.
To begin checking out your state's exchange (Marketplace), start at www.healthcare.gov - the federal government�???�??�?�¢??s website on the Affordable
Care Act.
NOTE: This Memo is intended to provide you with an informative summary of the tax issues connected with the Affordable Care Act. This massive package of legislation contains varying effective dates, definitions,limitations, and exceptions that cannot be summarized easily. For details and guidance in applying the tax provisions of this law to your situation, seek
professional assistance.
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Last Updated by Tax on 2013-10-09 11:57:56 AM
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·
You should continue to file and pay taxes as normal. Individuals who
filed a personal tax return extension should file their returns by Oct. 15,
2013.
·
All other tax deadlines including the payroll tax deadlines remain
in effect, including those covering individuals and businesses.
·
You can electronically or paper file your tax return. However,
paper filing will be delayed until they resume operations. Enclosed payments with
paper tax returns will still be accepted by the IRS.
·
Tax refunds will NOT be issued until government operations
resume.
·
Only automated toll-free telephone applications will remain
operational.
·
Taxpayer can obtain a tax transcript via mail during the shutdown by
using the automated tools at irs.gov.
·
Taxpayers with audits, collection, Appeals or Taxpayer Advocate cases
should assume their meetings are cancelled. IRS assigned to the case will
reschedule those meetings after normal operations resume.
·
Tax software companies, tax practitioners and Free File will
remain available to assist with taxes
Last Updated by Tax on 2013-10-08 12:49:39 PM
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The health care reform law passed in 2010 included a
provision that would require employers of 50 or more full-time employees to
provide affordable health insurance to their workers or face steep penalties.
That provision was scheduled to take effect January 1, 2014.
The Treasury Department has announced that the effective
date of this provision will be postponed for one year. The mandatory employer
and insurer reporting requirements and any penalties connected with them will
be delayed in order to allow more time for companies to adapt to meet the
requirements.
Last Updated by Tax on 2013-10-02 12:31:09 PM
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In a "2013 Summertime Tax Tip," the IRS reminded
taxpayers about the current rules on home sales. Here's a quick review of those
rules.
Tax Free Home Sale
The tax law allows the majority of taxpayers who sell their
homes to enjoy 100% tax-free profit from the sale.
If you have owned and used your home as your principal
residence for at least two of the five years preceding the sale, you may
exclude from income tax up to $250,000 of profit if you're single or up to
$500,000 if you're married filing jointly. Generally, the exclusion may be used
only once every two years.
The law provides that married individuals may exclude up to
$500,000 of profits if:
* either spouse owned the home for at least two of the five
years before the sale,
* both spouses used the home as a principal residence for at
least two of the five years before the sale, and
* neither spouse is ineligible for the exclusion because of
the once-every-two-year limit. If one spouse cannot use the exclusion because
of the once-every-two-year rule, the other spouse may still claim the exclusion
if he or she qualifies. However, the exclusion then cannot exceed $250,000.
Meet the Requirements
The law does contain some relief for those taxpayers who
cannot meet the ownership and use rules or who have already excluded gain on a
home sale within the two-year limit. If the failure to meet either rule is due
to a job change, health problems, or certain other unforeseen circumstances, a
partial exclusion may be available. The partial exclusion is calculated based
on the fraction of the two years that the requirements were met.
The IRS reminds homeowners that if all the gain in their
home sale is excludable under the rules above, they probably don't need to
report the sale on their tax return. Only one home sale per two-year period can
be excluded, and only a taxpayer's main home qualifies for an exclusion. If a
taxpayer has two homes and lives in both of them, the main home is usually the
one lived in most of the time.
If you have questions about the tax consequences of your
home sale, contact our office.
Last Updated by Tax on 2013-09-25 12:16:28 PM
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For instance, though you probably know the initial borrowing
has no federal income tax effect, you might be wondering whether the interest
you pay will be deductible. In general, the answer is no. That's true even when
you use 401(k) loan proceeds for your home.
Ordinary loan repayments are not taxable events either. That
is, you don't have to pick up the interest you repay into your account as
taxable income. And, though you're increasing your 401(k) account with the
principal portion of each payment, that amount is not considered a
contribution. You can still make pre-tax contributions up to the annual limit
($17,500 for a traditional 401(k) during 2013, plus an additional $5,500 when
you're age 50 or older).
What if you default on the 401(k) loan? The balance of your
loan is considered a distribution to you, and you'll have to report it as
ordinary income on your federal tax return. In addition, when you're under age
59½, a 10% early-withdrawal penalty typically applies.
Being both a 401(k) borrower and a lender can lead to tax
surprises. Give us a call to make sure you have the whole story before you
arrange a 401(k) loan.
Last Updated by Tax on 2013-09-18 12:26:43 PM
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It turns out you can go back after all - at least when it
comes to last year's decision to convert your traditional IRA to a Roth. The
question is, do you want to?
You might, if your circumstances have changed. For example,
say the value of the assets in your new Roth account is currently less than
when you made the conversion. Changing your mind could save tax dollars.
Recharacterizing your Roth conversion lets you go back in
time, as if the conversion never happened. You'll have to act soon, though,
because the window for undoing a 2012 Roth conversion closes October 15, 2013.
Before that date, you have the opportunity to undo all or
part of last year's conversion. After October 15, you can change your mind once
more and put the money back in a Roth. That might be a good choice when you're
recharacterizing because of a reduction in the value of the account. Just
remember you'll have to wait at least 30 days to convert again.
Give us a call for information on Roth recharacterization
rules. We'll help you figure out if going back is a good idea.
Last Updated by Tax on 2013-09-12 10:05:02 AM
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Review your tax deductions for 2013 while there's still time
to manage them for a lower tax bill this year. The standard deduction for 2013
is $12,200 for married couples filing a joint return and $6,100 for single
taxpayers. If your deductions are close to the threshold, consider accelerating
deductible expenses. For example, you can add sales tax paid on a new vehicle
to the IRS standard amount when claiming the itemized deduction for state and
local sales tax.
Last Updated by Tax on 2013-09-04 02:59:36 PM
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If you're one of the millions of taxpayers who've moved
recently, don't forget to notify the IRS of your address change. Use "Form
8822, Change of Address," or send written notification to the IRS center
where you file your return. Include your full name, old and new addresses,
social security number, and signature. If you filed a joint return, include
this information for both taxpayers. Keeping the IRS informed of your current
address will ensure that you receive notices and refunds without delay.
Last Updated by Tax on 2013-08-28 12:21:18 PM
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Last Updated by Tax on 2013-08-21 12:10:25 PM
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Three important birthdays affect your retirement plan:
* At age 50, you can make extra "catch-up"
contributions to your IRA and 401(k) savings. For 2013, these are $1,000 and
$5,500, respectively.
* After age 59½, you're eligible to make penalty-free
withdrawals from your IRAs.
* Beginning no later than the year after you reach age 70½,
you're required to take minimum distributions from your traditional IRAs each
year.
Need more details? Contact our office.
Last Updated by Tax on 2013-08-14 12:05:39 PM
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If you lost the benefit of a tax credit or other tax break
on your 2012 tax return, start now to review how your 2013 income could affect
tax credits this year. If your adjusted gross income (AGI) is too high to use
certain tax breaks, consider switching investments to reduce your AGI. Consider
replacing accounts earning taxable interest with tax-free investments. Invest
in tax-efficient mutual funds instead of funds that usually distribute large
capital gains.
Last Updated by Tax on 2013-08-07 12:25:24 PM
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Whether you're a stock market bull or bear, you have
investment expenses - and you may be wondering if they're deductible on your
federal income tax return.
Here's a quick review.
* What are investment expenses? Investment expenses
are amounts you pay to produce or collect taxable income, or to manage,
conserve, or maintain your investments.
Professional investment advice or financial newspaper
subscriptions are examples of deductible items, as is safe deposit box rent
when you use the box to store investment papers. You can also claim fees you
incur for replacing stock certificates.
* How much is deductible? Investment expenses are
miscellaneous itemized deductions, meaning your total costs generally have to
be greater than 2% of your adjusted gross income before you benefit. Other
limits may also apply.
* What isn't deductible? Some investment costs, such
as broker's commissions for buying and selling stocks, are considered part of
your basis and affect your gain or loss when you sell the investment instead of
being currently deductible.
Travel and fees you pay to attend seminars,
conventions, or other meetings - including stockholder meetings - are not
deductible, nor are expenses related to tax-exempt income.
Other rules govern certain costs related to your
investments, such as interest paid on money you borrow to buy stocks.
Please give us a call to discuss investment-related
expenses. We'll be happy to help you get the greatest benefit.
Last Updated by Tax on 2013-07-31 12:12:20 PM
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Planning to change employers this year? As you look forward
to starting your new job, you're probably not thinking about taxes. But actions
you take now can have an impact next April - and beyond.
Here are three tax-smart tips:
* Roll your retirement plan. You may be tempted to cash out
the balance in your employer-sponsored plan, such as a 401(k). But remember
that distributions from these plans are generally taxable.
Instead, ask your plan administrator to make a direct
rollover to your IRA or another qualified plan. If you're under age 59½, this
decision also avoids the additional 10% penalty on early distributions. Bonus:
Your retirement money will continue to grow tax-deferred.
* Adjust your withholding. Assess your overall tax situation
before you complete Form W-4 for your new employer. Did you receive severance
pay, unemployment compensation, or other taxable income? You might need to
increase your withholding to avoid an unexpected tax bill when you file your
return.
* Keep track of your job-related expenses. Unreimbursed
employment agency fees, résumé preparation costs, and certain travel expenses
can be claimed as itemized deductions.
Are you moving at least 50 miles to your new job? You may be
able to reduce your income even if you don't itemize. Eligible moving expenses
are an above-the-line deduction.
More tax issues to consider when you change jobs include
stock options, employment-related educational expenses, and the sale of your
home. Give us a call. We'll be happy to help you implement tax-saving
strategies.
Last Updated by Tax on 2013-07-17 12:12:17 PM
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==============================================================================
Business - Avoid growing pains in your business
One way to kill your business is to grow it too fast. Many
profitable small businesses have expanded at the wrong time and at the wrong
level of increased costs. The result is that they never again make a profit.
How does this happen?
A given amount of building, equipment, employees, and the
associated maintenance, insurance, and taxes will allow your business to
operate at a certain maximum sales volume. If you want to grow, say double or
triple your current sales, you will need more of all the above items. When you
commit to that new larger building with more equipment and employees, you have
increased your "breakeven point" (the level of sales you need at
which you make your first dollar of profit).
Take this example. Assume that you are a local carpet store.
You occupy a 4,000 square foot building. You have a fairly fixed amount of
inventory, equipment, and employees. Let's say you are doing $1 million in
sales, your gross profit is $300,000, and your fixed costs (building, etc.) are
$250,000 with a net profit of $50,000. Since you have an established local
customer base, you are convinced that a shop three times this size would make
you even more money. Here is what to look out for.
Let's assume that your new 12,000 square foot building and
associated higher expenses have raised your fixed costs to $650,000. If you
double your sales to $2 million, your gross profit will be $600,000. That
leaves you $50,000 in the hole for the year. You would need sales of $2.3
million to get back to the same net profit you had before you tripled your
floor space.
Before you go down a permanent road of no return, play a few
games of "what if."
Last Updated by Tax on 2013-07-10 01:04:29 PM
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If you are planning a summer business trip, you and your
spouse may be able to travel for little more than you would have paid on your
own. For example, if a double hotel room costs $250 and a single room costs
$200, you can still deduct $200 as a business expense, even if the two of you
get the double.
Last Updated by Tax on 2013-07-03 12:15:00 PM
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Last Updated by Tax on 2013-06-26 11:39:41 AM
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The IRS recently announced the inflation-adjusted contribution limits for health savings accounts (HSAs) for 2014. HSAs allow taxpayers with high-deductible health insurance plans to set aside pretax dollars that can be withdrawn tax-free to pay unreimbursed medical expenses. The 2014 contribution limit for individuals is $3,300; the limit for family coverage is $6,550. A catch-up contribution of an additional $1,000 is permitted for individuals who are 55 or older.
Last Updated by Tax on 2013-06-20 10:02:45 AM
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If you have assets in a foreign account and the total value exceeded $10,000 at any time, you must file the "Foreign Bank Account Report" (commonly called FBAR) by June 28, 2013. The FBAR is an annual information form, filed separately from your federal income tax return. The 2012 FBAR must be received by the Treasury Department by the deadline, not just postmarked by that date. No filing extension is available, and penalties for failing to file are steep. You may choose to file electronically. For details or filing assistance, please contact our office.
Last Updated by Tax on 2013-06-12 12:00:53 PM
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The IRS will close all of its operations on June 14, July 5, July 22, and August 30, 2013. The current budget situation, including the sequester, has made these closures necessary; IRS employees will be furloughed without pay on these days. Taxpayers should continue to file returns and pay any taxes due as usual, though on these days the IRS will not answer toll-free hotlines or accept or acknowledge receipt of electronically filed returns. Electronic deposits of employment and excise taxes must be made as usual.
Last Updated by Tax on 2013-06-05 10:34:03 AM
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Are you looking for a way to help your child with buying a home? Some strategies you might consider include lending your child money, gifting under the annual gift tax exclusion, pledging securities, and equity sharing.
Assuming you have enough liquid assets, you can effectively act as the mortgage lender to your child by lending money to pay for the house.
Another option is to give the child money for a down payment on a house. Making a gift to your child for the down payment is an ideal situation for parents who are primarily concerned with decreasing the size of their estate and the taxes on it after their death. Current tax law lets individuals make annual gifts of up to $14,000 per person. If both parents join in the gift, they can give the child $28,000 without any gift tax liability.
With some planning, even larger gifts can be made. For instance, if the child is married, his or her spouse is also eligible to receive gifts. Collectively, a married couple could receive $56,000 in gift-tax-free cash for a home purchase. If the gift is spread over a new year, it can be increased to double the amount, giving the child and his or her spouse $112,000 toward the cost of the home.
Another possibility is pledging securities to secure a child's home loan at a financial institution. By pledging securities instead of selling them, the parents can be saved from a potentially taxable event.
Finally, another alternative is equity sharing where the ownership of the home is shared. Typically, the parent makes the down payment, and the child pays the mortgage payment, utilities, taxes, and other ongoing expenses. The home is jointly owned, and the family can agree on a split of any appreciation in value if the home is later sold.
For details on these and other options available to parents who want to help their child buy a home, give us a call.
Last Updated by Tax on 2013-05-29 01:41:07 PM
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Keep records that directly support income or expense items on your tax return. For income, this includes W-2s, 1099s, and Form K-1s. Also keep records of any other income you might have received from other sources. It's also a good idea to save your bank statements and investment statements from brokers.
For expense items, keep your cancelled checks as well as support for any itemized deductions you claimed. This includes acknowledgments from charitable organizations and backup for taxes paid, mortgage interest, medical deductions, work expenses, and miscellaneous deductions. Even if you don't itemize, keep records of expenses for child care, medical insurance if you're self-employed, and any other expenses that appear on your return.
The IRS can audit you routinely for three years after you file your return. But in cases where income is underreported, they can audit for up to six years. To be safe, keep your records for seven years.
Keep certain other records longer. These include records relating to your house purchase and any improvements you make. Also keep records of investment purchases, dividends reinvested, retirement plan contributions, and any major gifts you make or receive. And finally, keep copies of all your tax returns and W-2s in case you ever need to prove your earnings for social security purposes.
Please call our office if you have specific questions about recordkeeping.
Last Updated by Tax on 2013-05-22 11:54:23 AM
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What should you do if you find that you made a mistake on your 2012 tax return after it's been filed? Perhaps you find that you missed a big deduction. Perhaps you receive a late notice of income you earned. Or perhaps you receive a corrected Form 1099 from your broker. The answer is not to panic. You can correct the mistake with an amended return.
The general rule is that you have three years to amend a personal or business return. Special rules may apply if you paid your taxes late, or are claiming certain business losses or carrybacks. You may have as long as seven years if you are filing to claim a loss on a worthless security or bad debt.
Many amended returns are filed each year. Form 1040X is used to show the items of income or deductions that you want to change or the different elections you want to make. A separate form must be filed for each previous year you want to change. You?ll have to file a paper copy to amend your return, even if you originally filed electronically or by telephone. If you want to change a corporate return, you file a Form 1120X, but the procedures are similar.
If you owe additional tax because of the change, you should send a check at the time you file your amended return. The IRS will let you know if you owe additional interest or penalties.
Please contact our office if you have questions about any return that's already been filed. We can let you know whether you need to file an amended return and help you with any of the necessary paperwork.
Last Updated by Tax on 2014-02-12 11:41:01 AM
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The IRS and the Treasury Department are getting increasingly interested in U.S. citizens who maintain foreign bank, savings, and investment accounts. If you have any foreign investments, there's an approaching reporting requirement that you should be aware of.
You are required to file "Treasury Department Form 90-22.1," the "Report of Foreign Bank and Financial Accounts," if you have a financial interest in or signature authority over a foreign financial account. These accounts include bank accounts, brokerage accounts, mutual funds, or other types of foreign financial accounts. This is not a form that you file with your tax return. Rather it is a separate form due June 30 each year that is filed with the Treasury Department in Detroit (due June 28 this year since June 30 is a Sunday). Generally, this report is required to be filed if you have an interest in such accounts, and the aggregate value of those accounts exceeds $10,000 at any time during the calendar year.
If you do have assets in foreign banks or brokerages, be sure to meet your filing obligation. The requirements can get complicated, and the penalties for non-filing are severe. For details or filing assistance, contact our office.
Last Updated by Noel Dalmacio on 2013-05-15 12:35:18 PM
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If you have a sizable refund of your 2012 taxes, it may be time for you to check your withholding. After all, when you overpay your taxes, you?re making an interest-free loan to the government.
Reducing your withholding is as simple as filing a new Form W-4 with your employer. The form comes with a worksheet to figure out how many allowances you should claim. Don?t forget to allow for other taxable income besides wages, such as dividends or investment gains.
If you?re concerned about underpaying taxes and exposing yourself to penalties, there are a few rules you should know. Generally, you won?t face a penalty if you pay for 2013, through withholding or quarterly estimated payments, at least 100% of your 2012 taxes (110% if your adjusted gross income is over $150,000), or if you pay at least 90% of what you?ll owe for 2013.
Last Updated by Noel Dalmacio on 2013-05-01 05:27:37 PM
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The Medicare tax on earned income increases this year for
individuals earning more than $200,000 and married couples earning more than
$250,000. The tax on earnings above these thresholds will increase from 1.45%
to 2.35%. This tax increase will also apply to self-employment income exceeding
the threshold amounts.
Employers are required to withhold the additional tax from
wages exceeding $200,000, regardless of the individual's filing status. They
are not required to inform employees when they begin the additional
withholding, nor are they required to match the additional withholding.
Employers who don't withhold
the additional Medicare tax required this year may be subject to penalties in
addition to the tax, according to an IRS official. If employees pay the
additional Medicare tax at the end of the year, the employer may only be
required to pay the penalties.
Last Updated by Noel Dalmacio on 2013-04-24 01:49:26 PM
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Nonprofit organizations are required to file annual reports
with the IRS. Those with gross receipts below $50,000 can file an E-postcard
rather than a longer version of Form 990. The deadline for nonprofit filings is
the 15th day of the fifth month after their year-end. For
calendar-year organizations, the filing deadline for 2012 reports is May 15,
2013.
Last Updated by Noel Dalmacio on 2013-04-19 01:02:37 PM
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Interest rates charged by the IRS on underpaid taxes and
paid by the IRS on tax overpayments will remain the same for the second quarter
of 2013 (April 1 through June 30). Therefore, for the first six months of 2013,
the rates will be the following for individuals and corporations:
For individuals:
* 3% charged on underpayments; 3% paid on overpayments.
For corporations:
* 3% charged on underpayments; 2% paid on overpayments.
* 5% charged on large corporate underpayments.
* ½% paid on the portion of a corporate overpayment
exceeding $10,000.
Last Updated by Noel Dalmacio on 2013-04-03 10:53:04 AM
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Will you be among the thousands of taxpayers who get a big
tax refund this year? While most Americans happily accept their tax refund
checks, smart taxpayers understand that refunds actually cost them money. Here's
why:
* The government pays no interest on refunds. Kept in your
hands, those dollars could have been productive. For example, you could have
invested the money or used it to pay off your debt during the year. If the
money had been added to a 401(k) plan, tax would have been deferred on both the
investment and its earnings. Even better, your employer might have matched all
or part of your investment, adding to your retirement savings.
* Refunded cash is not available for use until actually
received. Even though most taxpayers get their checks promptly, circumstances
or errors can delay (or stop) a refund.
To prevent losing money on tax refunds, consider reducing
your withholding or estimated tax payments. For most taxpayers, withholding
must equal either the prior year's tax or 90% of the current year's liability.
If your annual income changes little, it's relatively easy to avoid
overwithholding. You should consider filing a revised Form W-4 withholding
statement with your employer if you're having too much withheld.
For taxpayers with fluctuating income or multiple sources of
income, the problem is more complex. The IRS provides a worksheet with Form
W-4, but many people find the form complicated. If you'd like assistance
adjusting your withholding, contact our office.
Last Updated by Noel Dalmacio on 2013-03-27 01:05:26 PM
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The filing status you choose when you file your 2012 tax
return will affect the tax breaks you'll qualify for, your standard deduction
amount, and ultimately the amount of tax you'll pay. Are you single, head of
household, married filing jointly, or married filing separately?
Here are seven facts that will help you choose the right
status.
1. Your marital status as of the last day of the year is
your marital status for the entire year.
2. If you qualify for more than one status, choose the one
that results in the lowest tax liability for you.
3. Single filing status is likely to be your filing choice
if you are not married or you are divorced or legally separated.
4. Married individuals can file a joint return. If your
spouse died during 2012, you generally may still file a joint return for 2012.
5. Married couples may file "married, filing separately"
if they choose.
6. "Head of household" status is available to you
if you are not married and you paid more than half the cost of maintaining a
home for yourself and a child.
7. The status "qualifying widow(er) with dependent
child" is available if your spouse died during 2010 or 2011 and you have a
dependent child. Other conditions may apply.
Last Updated by Noel Dalmacio on 2013-03-15 06:32:32 PM
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Over the coming years, millions of baby boomers will reach
age 62, the minimum threshold for receiving social security retirement
benefits. If recent history is any indication, most of these people (over 70%
by some estimates) will take their benefits as early as possible.
But whether you should take social security retirement
benefits at the earliest possible age, or defer them until reaching normal
retirement age (or even age 70), depends on several factors. Among these are
your overall health and life expectancy, your plans to earn income before
reaching normal retirement age, anticipated returns on other investments, even
your guesses about the future of social security. Like most retirement planning
choices, this decision isn't one-size-fits-all.
For some people, deferring social security benefits isn't an
option. If your savings won't cover ongoing expenses, you may need to rely on
social security income to make ends meet.
But if your circumstances offer more financial flexibility,
you may want to consider deferring social security benefits. For each year you
delay taking benefits, the payouts increase, up to age 70. Also, if you plan to
earn significant income between age 62 and your normal retirement age (age 65
to age 67, depending on the year you were born), putting off your social
security benefits may make sense. That's because any benefits in excess of
specified limits ($15,120 in 2013) will be reduced. You'll lose $1 of benefits
for every $2 in earnings above the limits. Fortunately, you won't lose any
social security benefits (regardless of earnings) once you reach full
retirement age.
On the other hand, let's say you've accumulated $500,000 in
your 401(k) account and expect that account to generate an 8% annual return.
Under such a scenario, you might be better off leaving your retirement savings
alone and taking your social security benefits early to cover living expenses.
Or perhaps your family has a history of health problems and you don't
realistically expect to live into your 80s. Again, taking social security
benefits at age 62 might be a good choice.
Last Updated by Noel Dalmacio on 2013-02-27 11:15:04 AM
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Most taxpayers believe that a "dependent" is a
minor child that lives with them. While that is essentially correct, dependents
can include parents, other relatives and nonrelatives, and even children who
don't live with you. There is really much more to the dependent deduction than
you might at first imagine.
* Exemptions and your taxable income. For 2012, each
dependent deduction is worth $3,800, reducing your taxable income by this
amount. In 2013, the deduction increases to $3,900 and is phased out for
high-income taxpayers.
* Dependents defined. It's impossible to present all of the
rules relative to dependents here, since they are so complicated. Generally
speaking, if somebody lives with you and you provide more than half of that
individual's support for the entire year, there is a good chance that person is
a dependent. There are many exceptions. For example, parents don't have to live
with you if they otherwise qualify, but some other relatives do. A child of
divorced parents doesn't necessarily have to live with the noncustodial spouse
for the dependent deduction to apply.
* People who can't be claimed. Generally, you may not claim
a married person as a dependent if that person files a joint return with a
spouse. Also, a dependent must be a U.S. citizen, resident alien, national, or
a resident of Canada or Mexico for part of the year.
* One dependent deduction per individual. If you claim
yourself as your own dependent, anybody else who can truly meet the tests and
claim you as a dependent will lose out. This is common for college students who
file their own tax returns for their part-time jobs, while mom and dad really
meet all of the qualifications to claim the dependent exemption.
While the dependent deduction might seem relatively minor,
it can lead to other deductions on the tax return. In order to claim the child
tax credit, the education credits, the dependent care credit, for example, you
must claim the dependent deduction for the child that qualifies for the
deduction or credit.
Finally dependent deductions can be negotiated, which is
especially important for divorced taxpayers. In the past, the IRS would accept
the language of the divorce decree to allow the noncustodial parent the
dependent deduction. However, under the current rules, the IRS will no longer
accept a divorce decree in lieu of IRS Form 8332 (Release of Exemption).
Last Updated by Noel Dalmacio on 2013-02-20 01:23:46 PM
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Dear valued client:
A number of tax breaks that had expired at the end of 2011 or were to expire at
the end of 2012 were extended by the recently passed law, the "American
Taxpayer Relief Act of 2012." Keep these deductions and credits in mind as
you gather the paperwork for filing your 2012 tax return. Those that apply to
you or your business could cut your 2012 tax bill.
FOR INDIVIDUALS. The law restored for 2012 through 2013 the
following tax breaks:
* The optional deduction for state and local sales taxes
instead of deducting state and local income taxes.
* The above-the-line deduction for up to $4,000 for
qualified tuition and related expenses.
* The deduction for mortgage insurance premiums.
* The above-the-line deduction for up to $250 for classroom
supplies purchased by teachers.
* The exclusion from income for cancellation of mortgage
debt of up to $2 million on a principal residence.
FOR BUSINESSES. Included in the law's provisions were the
following items that could affect your business:
* The Section 179 first-year expensing option was increased
retroactively for 2012 and extended through 2013 at $500,000 for the purchase
of new and used equipment. The investment limit is set at $2,000,000.
* 50% bonus depreciation, which applies only to new
equipment purchases, was extended through 2013.
* Both the research tax credit and the Work Opportunity Tax
Credit were extended through 2013.
For assistance in identifying and utilizing all the tax
deductions, both new and old, to which you are entitled, please give us a call.
Last Updated by Noel Dalmacio on 2013-02-13 01:15:45 PM
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The 2010 health care reform legislation included several
provisions that go into effect this year. Among them is the increase in
Medicare taxes for taxpayers with incomes above certain levels. Here is an
overview of these two new taxes.
FIRST, the payroll Medicare tax will increase from 1.45% of
wages to 2.35% on amounts above $200,000 earned by individuals and above
$250,000 earned by married couples filing joint returns. The tax increase will
also apply to self-employment income exceeding the threshold amounts.
Employers are required to withhold the additional tax from
wages exceeding $200,000, regardless of the individual's filing status. They
are not required to inform the employee when they begin the additional
withholding, nor are they required to match the additional withholding.
SECOND, there is a new 3.8% Medicare tax on unearned income
for single taxpayers with adjusted gross income over $200,000 and married
couples with income over $250,000. The tax will apply to the lesser of (a) net
investment income, or (b) the amount by which modified adjusted gross income
exceeds the $200,000 / $250,000 thresholds. The tax may require adjustments to
the estimated taxes paid by an individual, but it does not have to be withheld
from wages.
Examples of unearned income include interest, dividends,
capital gains, royalties, and rental income. Social security benefits, alimony,
tax-exempt interest, and distributions from most retirement plans are examples
of unearned income not subject to this new tax.
Last Updated by Noel Dalmacio on 2013-02-06 11:49:35 AM
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If you're not sure what the "saver's credit" is,
you're not alone. Members of the Senate Finance Committee believe many people
who are eligible to claim the credit are unaware of its existence.
Here's what you need to know:
*The saver's credit, also called the "retirement
savings contributions credit," is a tax break designed to encourage you to
make contributions to your traditional and Roth IRAs and certain other
qualified retirement plans -- including your 401(k).
*You apply the credit directly to your federal income tax
liability, including the alternative minimum tax. The credit is nonrefundable,
meaning you can use it to reduce your tax liability to zero, but no lower.
*The maximum credit is $1,000 ($2,000 if you're married
filing a joint return).
*You're eligible if you're not a full-time student or a
dependent, are over age 18, and your 2012 adjusted gross income is less than
the phase-out amount of $28,750 ($57,500 for married filing jointly). For 2013,
those phase-out amounts increase to $29,500 for singles and $59,000 for joint
filers.
Here's why it's a good deal: If you're eligible, you can
take the credit and still deduct your traditional IRA contribution, which gives
you the opportunity for double savings.
Additional rules might apply. For instance, the amount of
the credit may be reduced by certain distributions from your retirement plans.
To learn how you can obtain the maximum benefit, please give us a call.
Last Updated by Noel Dalmacio on 2013-01-30 12:10:54 PM
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It happens to butchers, bakers, and candlestick makers. It
probably happens in your business, too: A customer doesn?t pay what they owe
and you end up with a bad debt. Can you take a tax deduction?
The answer depends on how you account for income on your tax
return. If you included the amount due from the customer in income this year or
in previous years, it?s likely you have a bad debt deduction. You can claim all
or part of the worthless receivable.
What if you record income as you collect the cash? In this
case, since you don't receive the amount your customer owes you, and since you
never reported it as income, there?s no deduction.
Suppose you lend money to a customer for a business reason
and the loan becomes uncollectible. Is the loan considered a deductible bad
debt?
Last Updated by Dalmacio Accountancy Corp on 2013-01-23 01:01:10 PM
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Last Updated by Noel Dalmacio on 2013-01-16 10:15:51 AM
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If you did not contribute the 2012 maximum to your IRA by
December 31, 2012, and you make any IRA contributions before April 15, 2013,
tell your bank or other trustee that these 2013 contributions are for 2012
until you reach the $5,000 limit ($6,000 if you're 50 or older). You can then
deduct these 2013 amounts on your 2012 tax return for a quicker tax benefit.
For details, contact us.
Last Updated by Noel Dalmacio on 2013-01-10 01:51:34 PM
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Dear Valued Client:
Hope you had a wonderful holiday season. Here?s the fiscal cliff
update & summary, which the President is expected to sign.
Tax rates beginning January 1, 2013
A
top rate of 39.6% (up from 35%) for individuals making more than $400,000 a
year, $425,000 for head of household, and $450,000 for married filing joint.
2% Social Security reduction gone
AMT permanently patched
A
permanent AMT patch, adjusted for inflation, will be made retroactive to 2012.
Dividends and capital gains
The
maximum capital gains tax will rise from 15% to 20% for individuals taxed at
the 39.6% rates (those making $400,000, $425,000, or $450,000 depending on
filing status, as noted above).
Itemized deduction and personal exemption phase-outs
The
itemized deduction phase-out is reinstated, and personal exemption phase-out
will be reinstated, but with different adjusted gross income (AGI) starting
thresholds (adjusted for inflation): $300,000 for married filing joint,
$275,000 for head of household, and $250,000 for single.
Estate tax
The
estate tax regime will continue to provide an inflation-adjusted $5 million
exemption (effectively $10 million for married couples) but will be applied at
a higher 40% rate (up from 35% in 2012).
Personal tax credits
The
$1,000 Child Tax Credit, the enhanced Earned Income Tax Credit, and the
enhanced American Opportunity Tax Credit will all be extended through 2017.
Other personal deductions and exclusions
The
following deductions and exclusions are extended through 2013:
- Discharge
of qualified principal residence exclusion;
- $250
above-the-line teacher deduction;
- Mortgage
insurance premiums treated as residence interest;
- Deduction
for state and local taxes;
- Above-the-line
deduction for tuition; and
- IRA-to-charity
exclusion (plus special provisions allowing transfers made in January 2013
to be treated as made in 2012).
Business provisions
- The
Research Credit and the production tax credits, among others, will be
extended through 2013;
- 15-year
depreciation and §179 expensing allowed on qualified real property through
2013;
- Work
Opportunity Credit extended through 2013;
- Bonus
depreciation extended through 2013; and
- The
§179 deduction limitation is $500,000 for 2012 and 2013.
Last Updated by Noel Dalmacio on 2013-01-03 09:57:12 AM
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The IRS is warning people to be aware of fraud connected
with Hurricane Sandy. As is usually the case following a natural disaster, scam
artists are impersonating charities to get money or financial information from
those wanting to help victims of the storm. The scammers contact people by
phone, social media, e-mail, or in person. To avoid falling for a scam, donate
only to recognized charities, and avoid those with names that are similar to
real charities. Do not give personal information to those seeking
contributions, and don't give cash donations. Contributions by check or credit
card provide greater security as well as a record for tax purposes.
Last Updated by Noel Dalmacio on 2012-12-19 10:06:36 AM
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The IRS has increased the standard mileage rates to be used
in computing the deductible costs of operating a vehicle for business or when
driving for medical or moving reasons. The new rates will apply to vehicle
mileage starting January 1, 2013.
The revised rates are 56.5 cents per mile for business
driving and 24 cents for medical and moving driving. The rate for charitable
driving is fixed by law and remains at 14 cents per mile.
Instead of using standard mileage rates, you have the option
of calculating the actual costs of using a vehicle for business, medical, or
moving purposes.
Last Updated by Noel Dalmacio on 2012-12-12 10:42:15 AM
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The relief applies to taxpayers in the disaster area and
those outside the area whose tax professional and/or records are located in the
disaster area. Workers assisting in hurricane relief activities conducted by
recognized government or philanthropic organizations may also qualify.
For more information, contact our office, call IRS toll-free
disaster assistance at 1-866-562-5227, or visit www.disasterassistance.gov.
Last Updated by Noel Dalmacio on 2012-12-05 10:10:06 AM
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The typical investment advice at year-end is to sell losing
stocks to offset gains you have taken for the year. This year that strategy may
just be the wrong way to go. Here's why.
The maximum rate on long-term capital gains is scheduled to
rise from the current 15% to 20% next year. Also scheduled for 2013 is an
increase in the top rate on dividend income from the current 15% to 39.6%.
If you expect these scheduled rates to occur in 2013, it may
make sense to harvest gains before year-end. Remember, wash sale rules do not
apply to gains, so you can repurchase a similar investment immediately. This
tactic may allow you to "reset" your basis for a future sale while
benefiting from current low rates.
What about investment losses? Despite the uncertainty over a
possible increase in tax rates, it's a good bet that some rules -- such as
those covering capital losses -- will not change. When pruning stocks from your
portfolio, keep in mind that capital losses are more valuable when tax rates
are higher. You may want to postpone taking losses until 2013 if you think
rates will be higher next year.
In your investment review, don't overlook the new 3.8%
Medicare surtax that will apply to certain unearned income, including interest,
dividends, capital gains, and passive rental income. If this surtax goes into
effect as scheduled, an individual with adjusted gross income of $200,000 or
more ($250,000 for couples filing jointly) could pay an effective federal
income tax rate of 43.4% on some income.
Individual situations will vary, so consider all the
relevant factors in making your year-end decisions. For assistance in your
analysis, contact our office.
Last Updated by Noel Dalmacio on 2012-11-28 10:18:06 AM
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Pre-schoolers and teenagers obviously have different
financial concerns and abilities. But there are a few basic lessons that all
children should learn by the time they enter college or start a career.
*Having money means making choices. Teach your child how to
choose between spending and saving, and how to do both intelligently. A regular
allowance will help your child gain real-world financial experience.
*Money requires planning. At the appropriate age (usually
about nine or ten), show your child how to develop a simple spending plan. In
later years, show how to plan for larger expenditures.
*Money means responsibility. Inevitably, your child is going
to make some money mistakes. Try to avoid criticism, but don?t automatically
fix every problem and let your child off the hook. Help analyze the reason for
the mistake, and suggest how to avoid it in the future.
*Money needs to be managed. Specific lessons might range
from how to compare interest rates on savings accounts, to the pros and cons of
mutual fund investing. But there should be one common element to all of your teaching
in this area: money doesn?t take care of itself.
The way you handle your money may be the most powerful lesson of all for your children. For your child?s sake, as well as your own financial well-being, it?s important to practice what you preach.
Last Updated by Noel Dalmacio on 2012-11-21 01:12:35 PM
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It's likely to be a daily occurrence: Your e-mail inbox
contains at least one message touting a too-good-to-be-true offer. You probably
shake your head and delete the pleas from mysterious mock millionaires who need
your help recovering imaginary inheritances.
But what do you do when the e-mail has the Internal Revenue
Service web address in the FROM box and a subject line that claims you're about
to be audited by the Criminal Investigation Division?
*Step 1. Stop and think. You've never given the IRS your
e-mail address in relation to your tax return. Even if you had, the government
does not request personal information such as your bank account, credit card,
or social security numbers via e-mail.
*Step 2. Without clicking on any links or responding to the
e-mail, forward the entire message to the IRS (phishing@irs.gov). The IRS
established this e-mail box in 2006 to investigate and shut down online fraud.
Note: You will not get a response, either online or off,
from the IRS when you report scams.
*Step 3. Delete the e-mail.
Besides the audit subterfuge, other common e-mail tax
schemes to know and avoid include a promise of additional money due, bogus
government grants, and requests for you to check the status of your refund.
Tax scams never die, and they can be taxing. Before you
react to any communication from -- or purporting to be from -- the Internal
Revenue Service, contact us. We're here to help you resolve tax issues.
Last Updated by Noel Dalmacio on 2012-11-16 12:57:22 PM
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If you convert a traditional IRA to a Roth, there's a price
to pay. Converted amounts attributable to tax-deductible contributions, plus
all of the earnings, are taxable at ordinary income rates. To lessen the tax
hit, you may choose to convert only a part of your IRA to a Roth. You can
convert as much as you like, or you can convert some each year if that seems
advisable.
Last Updated by Noel Dalmacio on 2012-11-07 11:31:18 AM
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With the recent economic downturn experienced by many
taxpayers, there is a tax concept that is very important: cancellation of debt.
You would think that the cancellation of debt by a credit card company or
mortgage company would be a good thing for the taxpayer. And it can be, but it
can also be considered taxable income by the IRS. Here is a quick review of
various debt cancellation situations.
* Consumer debt. If you have gone through some type
of credit ?workout? program on consumer debt, it?s likely that some of your
debt has been cancelled. If that is the case, be prepared to receive IRS Form
1099-C representing the amount of debt cancelled. The IRS considers that amount
taxable income to you, and they expect to see it reported on your tax return. The
exception is if you file for bankruptcy. With bankruptcy, generally the debt
cancelled is not taxable.
Even if you are not legally bankrupt, you might be
technically insolvent (where your liabilities exceed your assets). If this is
the case, you can exclude your debt cancellation income by reporting your
financial condition and filing IRS Form 982 with your tax return.
* Primary home. If your home is ?short? sold or foreclosed
and the lender receives less than the total amount of the outstanding loan, you
can also expect that amount of debt cancellation to be reported to you and the
IRS. But special rules allow you to exclude up to $2 million in cancellation
income in many circumstances. You will again need to complete IRS Form 982, but
the exclusion from taxable income brought about by the debt cancellation on
your primary residence is incredibly liberal. So make sure to take advantage of
these rules should they apply to you.
* Second home, rental property, investment property,
business property. The rules for debt cancellation on second homes, rental
property, and investment or business property can be extremely complicated.
Generally speaking, the new laws that cover debt cancellation don?t apply to
these properties, and the IRS considers any debt cancellation to be taxable
income. Nevertheless, given your cost of these properties, your financial
condition, and the amount of debt cancelled, it?s still possible to have this
debt cancellation income taxed at a preferred capital gains rate, or even considered
not taxable at all.
Be aware that many of the special debt cancellation
provisions are set to expire at the end of 2012. If you?re unsure as to how
debt cancellation affects you, contact our office to review your situation and
determine how much, if any, cancelled debt will be taxable income to you.
Last Updated by Noel Dalmacio on 2012-11-01 10:17:22 AM
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Don't let penalties for underpaid taxes increase your tax
bill next April. Check the total tax you've paid in for 2012 through
withholding and/or quarterly estimated payments. If you've underpaid, consider
adjusting your withholding for the final pay periods of 2012.
Withheld taxes are considered paid in equal amounts during
the year regardless of when the tax is withheld. Therefore, a year-end
adjustment to your withholding could help you avoid a penalty.
Last Updated by Noel Dalmacio on 2012-10-24 11:19:21 AM
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If you want to give your tax recordkeeping skills a
performance boost, do what accounting professionals do.
1. Maintain a separate bank account for all self-employed
business activity. This will greatly minimize confusion come tax time by giving
you just one place to look for business transactions. The same is true for
credit cards; have a card used solely for business and another for personal
purchases.
2. Reconcile your bank statements. Though tedious, it is the
only way to know for sure if you've included everything in your records.
3. Take advantage of technology. There are many software
applications available for organizing tax records, and digitizing your records
can also save office filing space.
4. Track your finances by important tax categories. Knowing
how to classify your expenses and income is half the battle. Look at your last
tax return or accountant's tax organizer for clues. Individuals should focus on
itemized deductions and tax credit categories; business owners should look at
Schedule C line items.
5. Be diligent and consistent. Make recordkeeping a
year-round task, not a year-end burden. For instance, update business mileage
records daily. File away receipts before they are lost. Record tax transactions
as they occur throughout the year.
6. Watch for important receipts. You probably already know
you should collect the standard items: W-2s, 1099s, and annual mortgage
statements. But did you know that charitable donations of $250 or more must be
substantiated by a receipt from the charity to be deductible? Also, keep all
pay stubs and brokerage statements. They might contain hidden deductions.
7. Hold on to prior-year tax records. Because an IRS audit
is always a possibility, keep copies of tax returns and supporting records for
seven years.
8. Be aware of special tax breaks. Some records become
important as tax rules change. For instance, business owners should be careful
to maintain records on major equipment purchases to qualify for enhanced
expensing perks. Homeowners need to keep supporting documents for
energy-efficient purchases.
9. Keep your tax advisor abreast of major life changes. New
happenings in your life, like a job change, new child, or change in marital
status might affect how you track your income and expenses. A quick call to
your tax pro will help you stay on top of things.
Last Updated by Noel Dalmacio on 2012-10-16 10:29:11 AM
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Time is running out to make tax-saving moves for 2012.
Here's a sampling of ideas to consider.
* Maximize the contributions to your employer's tax-deferred
retirement savings plan, thereby saving taxes immediately and deferring taxes
on earnings in your account. Also don't overlook an IRA contribution if you
qualify.
* If you've held appreciated stock for more than one year,
consider donating those shares to charity rather than making cash donations.
You'll avoid paying taxes on the stock's appreciation, but can generally claim
the full fair market value of the stock as a charitable deduction.
* Adjust your withholding. Increase the income tax withheld
from your paycheck through year-end to cover extra amounts due from Roth
conversions or other taxable income increases in order to avoid underpayment
penalties. Alternatively, reducing your withholding to account for an
overpayment puts money in your pocket now, instead of next year when you file
your return.
* Schedule charitable contributions. Cash and checks mailed
by year-end count as 2012 deductions, as do credit card charges you make by
December 31. Donations of appreciated securities are deductible when you
relinquish control. Allow extra time for stock transfers handled by your broker
or a mutual fund company.
* Make family gifts. For 2012, the annual amount you can
give away to any individual, free of gift tax, is $13,000 ($26,000 when you're
married and make the gift with your spouse).
* Plan for elective health care expenses. Use up the balance
in your flexible spending account (FSA) by year-end, and figure out how much
you'll contribute in 2013. No FSA? You still have time to set up a health
savings account (HSA) and make a deductible contribution.
* Remember required minimum distributions. Failing to take a
required distribution from your traditional IRA before year-end could cost you
50% of the amount you should have withdrawn.
These are just a few of the tax-cutting moves you should
review. For help in finding the right moves to make in your particular
situation, give us a call.
Last Updated by Noel Dalmacio on 2012-10-04 10:30:00 AM
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If the current job market has you thinking about starting a
business of your own, take some steps to increase the odds that your business
will succeed.
* The first step is an honest self assessment. Common
characteristics of a successful entrepreneur are the drive to achieve and the
willingness to take risks. To succeed in business, you need good organizational
and people skills, confidence to make good decisions under pressure, and the
emotional and physical endurance to work long hours. Experience in the type of
business you're planning is a major factor.
* Take the time to do your homework. A business is more
likely to fail if you're in a hurry to open the doors. Consult trade
associations, other successful business owners, governmental agencies, and
professional advisors for information relating to your new business. Is there a
demand for your type of product or service? If so, who will your customers be,
and where should you locate in order to be easily accessible to them? How will
you set your prices to attract customers, yet maximize profits? How will you
make your business stand out from the competition?
* Look for ways to limit your overhead expenses. For
example, determine whether you should lease or buy your premises and equipment.
If you only need an office to meet with clients, consider places that rent
space on an as-needed basis and furnish secretarial help and equipment. Check
out the benefits of an enterprise zone, where taxes and even the cost of
utilities and phone service may be lower.
* Incorporate your research into a business plan. Have your
accountant assist you with this. Chances of obtaining the necessary start-up
capital improve if you have a clear business plan.
Opening a new business is the dream of many people. For
guidance that can help improve the chances of success for your venture, give us
a call.
Last Updated by Noel Dalmacio on 2012-09-26 10:17:36 AM
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There are many reasons why the Internal Revenue Service could be contacting you. Some contacts involve very minor corrections; some are for serious changes that could involve a lot of money. Sometimes the IRS is correct in what they are seeking; sometimes they are wrong.
An IRS notice can be something as simple as a correction to a social security number or as significant as a billing for more taxes, plus interest and penalties.
So, what should you do if you get a letter from the IRS?
Here is a list of do's and don'ts concerning contact from the IRS.
* Don?t panic, but don't ignore the notice; the problem will not go away.
* Act promptly. A quick response to the IRS may eliminate further, more complicated correspondence.
* Follow the instructions in the IRS notice. Any correspondence you have with the IRS must make reference to the specific notice you are addressing.
* If you agree with the IRS adjustment, you do not need to do anything unless a payment is due.
* If the IRS is requesting more money or a significant amount of new information, be sure to contact your tax preparer immediately.
* Always provide your tax preparer with a copy of any IRS notice, regardless of how minor it appears to be.
* Keep a copy of all the IRS correspondence with your tax return copy for the year in question.
If you would like more information or assistance with any tax matter, please contact our office. We are here to help you.
Last Updated by Noel Dalmacio on 2013-05-15 12:06:27 PM
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The Affordable Care Act of 2010 requires employers to
report the cost of coverage under an employer-sponsored group health plan on
the employee's W-2 for 2012.
The IRS is easing this requirement for small companies.
Employers issuing fewer than 250 W-2s will not need to include the cost of
health care on W-2s for 2012. For these employers, the 2012 reporting is
optional. And such reporting will not apply for future years until the IRS
publishes guidance giving at least six months of advance notice of any change
in the filing requirement.
Last Updated by Noel Dalmacio on 2012-09-12 01:05:12 PM
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Consider a Roth IRA if you qualify for one. The beauty of a
Roth is that your investment grows tax-free, and qualified withdrawals from a
Roth will be completely tax-free. Contact our office for more information.
Last Updated by Noel Dalmacio on 2012-09-05 11:21:55 AM
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The end of the year is the traditional time for securities
investors to "harvest" capital losses for federal income tax
purposes. But there's an added wrinkle in 2012: Due to pending tax law changes,
you might try to reap more capital gains than losses. Thus, the usual strategy
of harvesting losses could be turned upside down.
Here's a recap of the basic rules. The capital gains and
capital losses you realize during the year are "netted" under complex
rules when you file your tax return. A gain or loss is treated as being
long-term if you've held the securities for more than one year. For 2012, net
long-term capital gain is taxed at a maximum tax rate of 15% (0% for investors
in the regular 10% and 15% tax brackets).
If you're showing a net capital gain on paper as year-end
approaches, any capital losses you realize will reduce the amount of the
taxable gain or offset it completely. An excess loss can then offset up to
$3,000 of highly taxed ordinary income before any remainder is carried over to
next year. However, the usual strategy of harvesting losses is complicated this
year by three key tax law changes scheduled for 2013.
1. The maximum tax rate for net long-term capital gain will
increase to 20% (10% for investors in the lower tax brackets).
2. Ordinary tax rates are going up. For example, the top
rates of 33% and 35% will increase to 36% and 39.6%, respectively.
3. A special 3.8% Medicare surtax will apply to the lesser
of net investment income for the year or the amount by which modified adjusted
gross income (MAGI) exceeds $250,000 ($200,000 for single filers).
Barring any late legislation by Congress, investors may be
inclined to harvest capital gains instead of losses at year-end. As a result,
you can benefit from the favorable tax rates in effect for 2012. If you've
already realized short-term gains in 2012, you might want to realize short-term
losses to offset those gains. But don't use short-term losses to offset
long-term gains, if you can help it, because long-term gains are taxed at a
maximum rate of only 15% in 2012.
Other considerations may come into play. The best approach
is to do what's best for your situation. Contact us for assistance in reviewing
your options.
Last Updated by Noel Dalmacio on 2012-08-24 03:15:04 PM
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Should you send your child off to college with a credit
card? Opinions are divided, both among parents and financial advisors. It's a
situation that can work out really well or really badly, depending on the
student and the parents.
At its best, everyone benefits from giving a student a card.
The student uses the card for budgeted expenses, pays off the balance each
month, and starts building a good credit history. The parents sleep better
knowing the student has a credit source in case of emergencies.
At its worst, the student is unused to managing money or
living within a budget. The student fails to make payments on time, incurs high
interest charges, and ruins his or her credit history. The parents have to step
in to bail the student out.
Among the risks:
* Lack of experience in managing money can lead a student to
overspend or to neglect making payments on time.
* Peer pressure may encourage a student to spend on
entertainment or clothes, just to keep up with friends.
* Failure to agree on a budget beforehand can result in
shock when you see your student's monthly statement.
* Parents co-signing for the card can put their credit
scores at risk, too.
* Loss or theft of the card can lead to problems that take
time to resolve.
To minimize risks:
* Set ground rules for use of the card. Agree on what it may
and may not be used for. Put the agreement in writing and have the student sign
off.
* Establish a budget. Talk regularly about how your student
is managing his or her expenses within the budget.
* Consider alternatives to a credit card, at least for the
freshman year. Consider using a prepaid credit card, or set up a checking
account with a debit card. That allows the student to gain experience managing
expenses within a budget.
Finally, remember you may have no say in the matter.
Students are bombarded with credit card offers as soon as they enroll. Card
companies are usually happy to issue a card to any student over age 18 in his
or her own name.
Last Updated by Noel Dalmacio on 2012-08-15 11:03:21 AM
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A college education. Retirement. What do these major life
events have in common?
One shared characteristic is that each comes with a price
tag. Here's another: If you have school-age kids, you might be facing the
challenge of having to decide which goal to save for. They're both important.
So how do you make the choice?
Here are some suggestions that can help you reach a sensible
solution.
* Eliminate excuses for not making a decision.
Procrastination can be costly. For example, to accumulate $100,000 in five
years, you'd have to deposit a little over $1,500 every month in an account
that earns 4%. But with a ten-year time horizon, assuming the same return, you
can build up $100,000 by socking away less than half that amount, or
approximately $700 per month.
What you need to know: Estimate the total amount required
for both goals, how much time you have, and how much cash you'll need to set
aside on a regular basis.
* Expand your resource horizon. Once you've computed the
expense side of the equation, figure out how much you can afford to save. You
may find that, with one pool of income and two goals, there's not enough money
to fully fund both goals.
But who says you have to pay for everything yourself? Turn
an obstacle into an opportunity by searching out alternatives. For instance,
while your income in retirement may be dependent in large part on your savings,
there are plenty of options for paying
college tuition.
Where to look: Investigate the possibility of advanced
placement credits while your child is still in high school. Other potential
sources of help include scholarship prospects, federal work/study programs, and
summer internships.
* Adopt a flexible approach. Broadly speaking, you have
three alternatives for divvying up your available savings between the two
goals. You can save for retirement only, save for college only, or opt to do
both.
Yet within each alternative are creative strategies. As an
illustration, you could start out by saving strictly for retirement, shift
toward saving for college when your child reaches a certain age, then switch
back after graduation.
Caution: Be careful of falling into the deadline trap. It's
likely your kids will attend college before you retire. Since the tuition
deadline is closer, you might be tempted to reduce or eliminate retirement plan
contributions in the early years of your savings plan in order to focus on
education savings.
But consider this: A typical retirement will generally last
longer and cost more than your child's education. By putting college tuition
first, you could end up with less than you need in your retirement nest egg.
Instead, take your overall time horizon into account.
For assistance with the numbers, give us a call.
Last Updated by Noel Dalmacio on 2012-08-08 10:29:10 AM
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Do you own a boat or recreation vehicle? Are you thinking
about buying one? As long as the vehicle has sleeping space, a bathroom, and
cooking facilities, you may be able to claim it as a second home and deduct the
interest and tax payments on your loan.
Last Updated by Noel Dalmacio on 2012-08-01 12:40:34 PM
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But lending money to relatives can have tax consequences.
The IRS requires that a minimum rate of interest be charged on loans. If you do
not charge at least the minimum rate, the IRS will still require you to pay tax
on the difference between the interest you should have charged and what you
actually charged. If these excess amounts become large, or if the loan is
forgiven, there may also be gift tax implications.
There are some exceptions, though. Loans of up to $10,000
generally can be made at a lower (or zero) rate of interest, as long as the
proceeds aren?t invested. Loans between $10,001 and $100,000 are exempt from
the minimum interest requirement as well, as long as the borrower?s investment
income is $1,000 or less. If the investment income exceeds $1,000, you?ll be
taxed on the lesser of this income or the minimum IRS interest.
For the IRS to treat the
transaction as a loan and not a gift subject to the gift tax rules, the
transaction must look like a loan. The borrower should have the ability to
repay the principal and interest. A contract should be prepared which specifies
the loan amount, interest rate, the payment dates and amounts, any security or
collateral, as well as late fees and steps to be taken if the borrower doesn?t
pay. Have the document signed and dated by all the parties. For assistance,
give us and your attorney a call.
Last Updated by Noel Dalmacio on 2012-07-19 10:44:00 AM
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When your best friend views your
nest egg as a source of start-up funds for his latest business venture, or your
nephew hits you up for a car loan, your first impulse may be to reach into your
bank account to help. But it's a fact that loans to family and friends often
end up straining both finances and relationships. As Shakespeare said,
"Loan oft loses both itself and friend." In other words, if you lend
money to friends, you often don't get paid back, and the friendship itself may
disintegrate.
It's best to consider a loan to
someone you love as an "arm's length" transaction. If you're
pondering such a loan, keep the following in mind:
* You can just say "no."
It's your money, after all. Do you really want to raid an emergency fund or dip
into your child's college account to finance a friend's business idea? Think
like a bank. It's reasonable to ask tough questions about the person's bank
accounts, potential sources of income, planned use of loan proceeds, and
spending habits before extending credit.
* Consider a gift. If you're
comfortable sharing your resources, you may want to provide a monetary gift
with no strings attached. In many cases, this is the best solution because
neither you nor your friend expect the money to be paid back. Unlike a loan,
this type of arrangement can forestall misunderstandings and hurt feelings
later on. Of course, you should not give money if doing so would unduly strain
your own finances.
* Formalize loans. If you decide to
lend more than a small amount to a friend or family member, it's generally best
to draft a written agreement. This can be as simple as filling out a promissory
note (available online or at office supply stores). Such forms spell out the
basic terms of the loan -- amount, interest rate, payback period -- and provide
some limited protection should you and the borrower end up in small claims
court. Another recent innovation is the use of direct lending (also called
social lending or peer-to-peer lending) websites to facilitate loans between
family and friends. For a fee, such sites can prepare loan documentation, send
payment reminders, issue regular reports, even facilitate electronic fund
transfers. If the loan involves a significant amount of money, check with your
attorney.
Remember: Many personal
relationships have been damaged when loans go awry. So proceed with caution.
Last Updated by Noel Dalmacio, CPA on 2012-07-12 04:15:54 PM
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Posted in tax
On
June 28, the Supreme Court ruled that the "Patient Protection and
Affordable Care Act of 2010" was constitutional, including the provision
in the law requiring individuals to have health insurance coverage starting in
2014.
Several
provisions in the health care law had already gone into effect, and many new
tax provisions are scheduled to take effect in 2013. These are the provisions
you should factor into your tax planning for the rest of this year. A quick
review of these tax provisions:
*
Annual contributions to health flexible spending accounts (FSAs) will be
limited to $2,500.
*
The 7.5% income threshold for deducting unreimbursed medical expenses increases
to 10% for those under age 65. Those 65 and older may continue to take an
itemized deduction for medical expenses exceeding 7.5% of adjusted gross income
through the year 2016.
*
The payroll Medicare tax will increase from 1.45% of wages to 2.35% on amounts
above $200,000 earned by individuals and above $250,000 earned by married
couples filing joint returns.
*
A new 3.8% Medicare tax will be imposed on unearned income for single taxpayers
with income over $200,000 and married couples with income over $250,000.
Contact
our office for tax planning guidance following this landmark Supreme Court
decision.
Last Updated by Dalmacio Accountancy Corp on 2012-07-12 04:05:52 PM
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Posted in tax
Some
tax-cutting strategies make good financial sense. Other tax strategies are
simply bad ideas, often because tax considerations are allowed to override
basic economics.
Here?s
one example of the tax tail wagging the economic dog. Let?s say that you run an
unincorporated consulting business. You want some additional tax write-offs, so
you decide to buy $10,000 of office furniture that you don?t really need. If
you?re in the 28% tax bracket and you deduct the entire cost, this purchase
will trim your tax bill by $2,800 (28% of $10,000). But even after the tax
break, you?ll still be out of pocket $7,200 ($10,000 minus $2,800) -- and stuck
with furniture that you don?t really need.
There
are other situations in which people often focus on tax considerations and
ignore the bigger financial picture. For example:
*
Someone increases the size of a home mortgage, solely to get a larger tax
deduction for mortgage interest.
*
A homeowner hesitates to pay off a mortgage, just to keep the interest
deduction.
*
Someone turns down extra income, because it might ?push them into a higher tax
bracket.?
*
An investor holds an appreciated asset indefinitely, solely to avoid paying the
capital gains tax.
Tax-cutting strategies are usually part of a bigger financial picture. If you are planning any tax-related moves, we can help make sure that everything stays in focus. For assistance, give us a call.
Last Updated by Dalmacio Accountancy Corp on 2012-07-12 04:06:33 PM
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Posted in tax
The e-mail from your bank gets your attention right
away. It says you need to log into your account in the next 48 hours to
continue your online privileges. Something about a system upgrade. You wonder,
is it legitimate? How can you know for sure?
Bogus e-mails designed to steal your identity, also
known as phishing, are becoming a bigger problem these days. While they
can take many different forms, most scams are designed to trick you into revealing
personal information such as your social security number or online account
password. Through clever use of logos and familiar-looking web addresses, these e-mails often appear to be an urgent message from your bank,
mortgage lender, or e-mail provider.
You may not realize it, but thieves are especially eager to gain access to your web e-mail account. Why? Once a scammer has access to your
e-mails, he
or she can often figure out where you bank and detect clues
to passwords you might use.
So what can you do to protect yourself? Take a moment
and think before you click. Never respond to an e-mail asking for your social
security number or birth date. You can almost bet that it is a scam. If an
e-mail contains a website link that you are not familiar with, do not click on
it. Instead, either go directly to the company?s trusted website,
or contact them by phone.
Also remember that e-mail scams become more prevalent
following a significant public event, such as a natural disaster or sudden
stock market drop. Thieves will prey on your sympathies or fears during these
times, so be extra careful when responding to appeals for charity or notices to
update your financial records. Also, be leery
of e-mails with demanding language or incorrect grammar -- both are potential signs of a counterfeit e-mail.
For preventive measures, try to use a different
password for every online account, and change your passwords regularly. Make your passwords stronger by using
combinations of letters, symbols, and numbers. Also, keep your computer anti-virus software up to date.
Finally, do your part to thwart these crimes by
reporting any suspected scam e-mails to reportphishing@antiphishing.org.
If you receive a
bogus tax-related e-mail, forward it to the IRS at phishing@irs.gov. And of course, feel
free to contact our firm if you need a second set of eyes on any
suspicious-looking e-mail.
Last Updated by Dalmacio Accountancy Corp on 2012-07-12 04:07:54 PM
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Posted in general
Don?t miss the cash discounts offered by your suppliers. A
2% discount for payment in ten days, versus net payment in 30 days, computes to
an annual rate of return of 36%. If you can get a 10% discount for paying
twelve months of payments in advance, you will earn 23% on your prepayment.
Last Updated by Tax on 2012-06-13 11:23:19 AM
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Posted in tax
2012 IRS Inflation Adjusted Amounts
To keep up with inflation, the IRS has revised many tax benefits for 2012. Here are a few of them: The amount of each personal and dependency exemption for most taxpayers will be $3,800 (up $100 from 2011); The standard deduction will be $11,900 for married couples filing a joint return (up $300), $5,950 for singles and married individuals filing separately (up $150), and $8,700 for heads of household (up $200); The tax-bracket thresholds will expand for each filing status; The basis exclusion from estate tax will be $5,120,000; The monthly exclusion amount for qualified parking will be $240; Section 179 limit (unless Congress increases it) will be $139,000 with a phase-out threshold of $560,000. The annual gift tax exclusion will remain unaffected at $13,000. |
Last Updated by Tax on 2012-07-12 12:00:47 PM
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