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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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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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