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Tag:

deduction

Taxes

Business Deductions: Hire an Expert to Save you Money

by Guest Post April 23, 2016

Most entrepreneurs don’t get into business in order to give away money, yet each year there are thousands of business owners that do. How you ask? By taking on the challenge of managing their own finances and paying their own taxes. Though many entrepreneurs think it’s seemingly the best way to save money (not hiring an accountant), it can actually result in you flushing money down the drain each year.

Uncle Sam certainly isn’t going to reach out to you and let you know, “Hey, I think this money belongs to you.” Therefore, you need to learn how to maximize your earnings so that you can get the savings you deserve. Employing financial applications or consulting with a tax professional is ultimately the best way to ensure you’re not missing out on any cash.

Commonly Overlooked Business Deductions

Still think you can pinpoint all tax credits and deductions on your own? Here are five common areas that small business owners and entrepreneurs overlook on a regular basis.

  1. Home Office Deductions

For entrepreneurs who are working from an area in their home, you have the opportunity to deduct for the cost of your home office. This is considered a business expense and can help reduce the amount of taxes you owe at the end of the year.

  1. Startup Expenses

Did you shell out a lot of cash to start your business? You may be entitled to deductions. Things such as travel, advertising, legal and accounting fees, training, etc, can be written off as expenses. You can deduct up to $5,000 per year in qualifying startup costs.

  1. Transportation

Do you utilize a vehicle for business? If you use your car, for instance, to travel to and from your clients or to transport products or services you’re entitled to write this off as a deduction.

  1. Losses and Bad Debts

Collection accounts, bad debt, and financial losses can wreak havoc on a small business’s finances. The good thing is that it doesn’t have to be a total loss. You may be able to qualify for a deduction. Some types of bad business debt might include things like loans provided to clients or suppliers. If you’ve tried to collect on them for a reasonable amount of time with no such luck, the IRS will give you a break.

  1. Employee Expenses

When you get into the realm of hiring employees, the financial responsibilities of an employer are plentiful. So wouldn’t it be nice to offset some of those expenses with an IRS deduction? Well, many small business owners are unaware that they can receive credit for employee expenses. Expenses that are directly related to work such as hotel accommodations or transportation costs, meals, gas reimbursement, etc can be written off, saving your business money.

  1. Health Insurance Costs

If you’re self-employed, chances are you’re paying for your own health insurance coverage. This out of pocket expense can be hefty – especially if you support a family. Health insurance is ideally a business expense which can be written off around tax time.

It’s pretty common to assume that you can do it all on your own, but the truth is, unless you’ve majored in business or tax accounting, you’re going to need assistance at some point. Many business owners try to juggle it all and miss out on the opportunity to save thousands of dollars each year. Instead of throwing money down the drain or giving it away for no reason, work with an accounting professional or financial company on a periodic basis to ensure you’re in compliance with tax laws and that there aren’t any financial opportunities that you can take advantage of. You can then use this extra money to grow your business beyond your wildest expectations.

 

April 23, 2016 1 comment
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Taxes

Tax Changes for 2013–Fiscal Cliff Deal Finalized

by Evan January 3, 2013

CCH recently released a fantastic Tax Briefing on the legislation passed to avoid the tax die of the Fiscal Cliff.  There were some significant changes to the tax law, as well as avoidance of some terrible sunsets.  I think my personal opinion of the deal would be better suited for another post.  Below are some of the key highlights:

2013 Income Tax Changes via American Taxpayer Relief Act

Key Income Tax Provisions

  • Taxpayers with taxable income of $399,999 ($449,999 for married taxpayers filing jointly) will not have their income tax rate changed.
  • So if you were in the 10%, 15%, 25%, 28% 33% or 35% marginal tax rate nothing as changed as it relates to your income tax rate on ordinary income.
  • Taxpayers with taxable income of $400,000+ ($450,000 for married taxpayers filing jointly) will be taxed at 39.6% (these taxpayers will obviously still benefit from all those lower tax brackets until they hit that 400,000th dollar).
  • All brackets are going to be adjusted for inflation
  • Those provisions which try to minimize the marriage penalty are extended
  • Finally a permanent AMT (Alternative Minimum Tax) solution has been implemented
  • Sunset of temporary Social Security Tax reduction (The 6.2% FICA taxes paid by employees to 4.2% which was initiated a couple years back)

Key Capital Gains and Dividend Tax Provisions

  • Increases the long term capital gains and qualified dividend tax rates from 15% to 20% for those that exceed the $400,000/$450,000 threshold above
  • Those with an income which is below the top of the 15% bracket will enjoy a 0% long term capital gain rate
  • All others will have a 15% rate for both dividends and long term capital gains

Pease Limitation is Back

  • This limitation has been absent for 12 years.
  • It reduces most itemized deductions by 3 percent of the amount by which AGI exceeds a specified threshold, up to a maximum reduction of 80 percent of itemized deductions.
  • That threshold is now $300,000 for married couples filing jointly and $250,000 for unmarried taxpayers

Personal Exemption Phaseout is Also Back

  • According to CCH, “reduces most itemized deductions by 3 percent of the amount by which AGI exceeds a specified threshold, up to a maximum reduction of 80 percent of itemized deductions.”
  • That threshold is $300,000 for married couples filing jointly and $250,000 for unmarried taxpayers

2013 Update to Miscellaneous Income Tax Deductions

  • Child credit is set at $1,000 (it was supposed to revert to $500)
  • Provides a permanent suspension of the 60 month deductibility of education loan interest
  • One year extension of not including the cancellation of mortgage debt as income
  • Two year extension of qualified distribution to charity of required minimum distributions

2013 Federal Estate and Gift Tax Changes

  • The Federal Estate Tax exclusion amount is set at an inflation adjusted $5,000,000.  The amount was set to sunset to a $1,000,000 if nothing was done
  • The Federal Estate Tax rate increased from 35% to 40%
  • Portability was extended
  • Gift taxes were kept unified with Estate taxes so that you can gift up to $5,000,000 (inflation adjusted) before getting hit with a gift tax which is set at that same 40% rate.
January 3, 2013 3 comments
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Taxes

What does your Tax Return Say About You and Your Financial Health?

by Evan July 23, 2010

I just recently discovered the new York Times Series titled, Financial Tuneup whereby author Ron Lieber attempts

To tackle the never-ending, ever-multiplying list of undone money tasks in your life, he came up with the idea of taking a fiscal health day — a single day to tuneup your personal finances, during business hours.

I haven’t had a chance to check out all of the parts, but one title got my attention right away.  It is titled, “Tax Return Holds Clue to the Health of Your Finances.”  The article takes a look at certain lines in your 1040 to determine what it says about you.

What does your 1040 Say about your Finances?

Every tax payer knows what a 1040 is – it is most people’s tax return and looks a little like this:

1040-1

So what does each line say about your financial health?

  • Look at Lines 8 and 9 of the 1040 for interest and dividends, and, if you have more than $1,500 of either, at the attached Schedule B. On the 1040, Line 13 will show net capital gains or losses, with the details of your trades on Schedule D.
  • If Schedule D showed only gains, take it as a warning sign, said Lyle K. Benson Jr., who heads his own firm, L. K. Benson & Company in Baltimore, adding, “Harvesting losses is an important part of good planning.” Often investors do not want to sell losers, feeling a stock will surely bounce back. But a capital loss could offset a capital gain, making the gain tax-free, and the money that was recognized in selling losers could be reinvested, perhaps more productively, he pointed out. Net losses of up to $3,000 can offset ordinary income with any excess carried forward to future years.

I don’t trade all that often so I am very unlikely to harvest losses.  What about you? Do you take advantage of this?

  • The income from wages and salaries reported on Line 7 of the 1040 is after the retirement contribution.
  • Self-employed people can set up several different types of tax-deferred retirement plans, including the Simplified Employee Pension, known as SEP, and Simple and qualified plans, such as solo 401(k) plans. And they can take a deduction for their contributions on Line 28 of the 1040.

I have my 401(k) going strong, but I am absolutely not putting in the maximum.  What does your Line 7 Say? or your Line 28?

    • Schedule A, which lists itemized deductions, gives rise to several planning issues. For people who are not liable for the alternative minimum tax, state income taxes are deductible. Some people are liable for taxes in two states because they maintain two homes, Mr. Benson said. With state taxes generally rising, people thinking of buying a second home or of eventually retiring to a different state may want to check the state and local tax rates first.
    • If you take a deduction for mortgage interest expense, consider the rate on your mortgage, he said. With today’s low interest rates, it may make sense to refinance, he added, though the rules are tricky and careful study is needed.

I leave my deductions up to my CPA, but I think they are optimized.

What I look for when I review a Client’s 1040?

Mr. Lieber does a Great Job! Whenever I review client’s 1040s I always look to see all income types.  Are they diversified  Is their business the only type of income? Do they have multiple retirement buckets?

Thoughts?

July 23, 2010 8 comments
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Taxes

Long Term Care Insurance May be Federal Income Tax Deductible

by Evan January 7, 2010

I have discussed in the past that Long Term Care Insurance may be state income tax deductible, but I have never really went into the federal tax aspects Long Term Care Insurance.

Luckily, I don’t have to.  Every year there is an update released by The Corporation for Long-Term Care Certification.

https://myjourneytomillions.com/2010_One_Page_Tax_Summary.pdf

My Opinion of Long Term Care Inusrance

I have never priced it out, but I know Long Term Care Insurance is expensive and therefore not an option for most people.  Those that is an option for usually have sustainable assets that say they’d rather self insure.

Notwithstanding the above, I think LTCi is a great product for those with the cash flow to pay the premiums.

I don’t have any stats (I am sure they are out there), but I think where you see LTCi sold the most is in group plans with smaller benefits, or and it is a bigger or, is when the client is the owner of a business and we can use it as a tax deduction.

The most important thing to remember about this post is – if you are already paying for Long Term Care Insurance you better make sure you are getting the proper deductions.

Do you have Long Term Care Insurance? Are you taking the proper deductions?

January 7, 2010 4 comments
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Taxes

The IRS Produces Videos for the Deaf in American Sign Language (ASL) to help them Understand Recent Tax Changes

by Evan August 25, 2009

When I discussed the best cell phone service for deaf or hard of hearing people I mentioned that my brother was deaf (yes, I know Sign Language).  So, whenever I hear something about deaf life or culture I have more than a general interest.  So, thanks to Kay Bell of Don’t Mess with Taxes for pointing out that the IRS now has a YouTube Page made for the deaf!

The IRS ASL YouTube Page has 7 short videos covering:

  • Making Work Pay Tax Credit
  • General Recovery Message
  • Unemployment Compensation
  • Vehicle Tax Deduction
  • Credit Repair Education
  • Home Energy Credit
  • First time Home Buyer

Why Should the IRS Produce More Videos to help the Deaf Culture Understand Tax Changes?

Lets say you are in the group that believe that tax information should be open to every language than you should understand that American Sign Language is a language.  American Sign Language as defined by Wikipedia

ASL is a natural language as proved to the satisfaction of the linguistic community by William Stokoe, and contains phonology, morphology, semantics, syntax and pragmatics just like spoken languages. It is a manual language or visual language, meaning that the information is expressed not with combinations of sounds but with combinations of handshapes, palm orientations, movements of the hands, arms and body, location in relation to the body, and facial expressions. While spoken languages are produced by the vocal cords only, and can thus be easily written in linear patterns, ASL uses the hands, head and body, with constantly changing movements and orientations. Like other natural sign languages, it is “three dimensional” in this sense.ASL is used natively and predominantly by the Deaf and hard-of-hearing of the United States and Canada.

Now, lets say you are one of those people that believe English should be our only language well then these videos are an attempt to help those that may need a little help.  Would you deny a brail instructions of a tax form to a blind person? I certainly would hope not.  This is just another way to express English.

Why is providing Tax Information to Deaf People Important?

My wife often refers to me as an emotional waste land, a person who doesn’t get emotional, a guy who never reacts.  But wow, I will tell you right now I lost it…I mean LOST it watching the Documentary, Hear and Now.  Hear and Now is about 2 educated deaf parents and their adventure in obtaining a cochlear implant (their hearing child created the documentary).  Here is a trailer:

The Deaf Community is not dumb, but very often misunderstood, and that is the reason the IRS should help them out!  When was the last time ANYONE read tax instructions and couldn’t use a little help? Now add in a communication barrier based solely on nature.

If you know anyone that knows anyone that is deaf, take it upon yourself to forward this post to them.  If I can help even one deaf person understand the craziness that are the tax code changes which took place in the past year, then this past year of blogging would be worth it.

August 25, 2009 1 comment
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