TAX TIP 1040+ Quality Tax Preparation....Some Taxes are deductable

Tax Tip

Some taxes are deductible on your income tax return

Are you planning to itemize on your 2013 federal income tax return? If so, it's likely you'll claim a deduction for taxes paid. According to IRS statistics, taxes are the most frequently claimed itemized deduction, as well as the largest. But what kind of tax can you deduct on your personal return?

State and local income taxes or general sales taxes are deductible for 2013, and you can choose whichever gives you the most benefit.

You can also deduct real estate taxes you pay on your home or other real property you own (including property owned in a foreign country). That's true even if you pay the tax into an escrow account managed by your mortgage holder. In that case, you can deduct the amount actually paid to the tax collector. Just be sure the entire payment is for taxes. Why? Assessments included on your real estate bill for improvements such as sidewalks and sewer lines are generally added to your basis in the property—meaning no write-off this year.

Remember to check closing statements, too, when you buy or sell property, because you can claim the portion of current real estate taxes you're responsible for. However, if you agree to pay delinquent taxes the seller owed at the time of closing, that expense is considered part of your basis in the property.

Personal property taxes are imposed annually on the value of property other than real estate. Certain motor vehicle registration fees fit this description.

Other taxes you can deduct include foreign income taxes. Caution: Instead of deducting these taxes, you have the option of taking a credit, which will reduce your tax bill dollar for dollar and may offer more benefit.

If you inherit certain assets and are required to report the income on your return, you may be able to deduct a portion of the federal estate tax paid. Claim this deduction on Schedule A, on the line for miscellaneous items.

Some taxes, such as self-employment taxes, are deductible elsewhere on your return. Other taxes are not deductible at all. Examples include marriage licenses, gift taxes, gasoline taxes, and Medicare taxes (including the 3.8% net investment income tax).

Feel free to contact us if you have questions about the deductibility of a tax you paid during the year, or if you received a refund of a tax you deducted in a prior year. We're here to help.

Joseph C Becker, CPB, MBA, CQP
Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com

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1040+ Quality Tax Preparation Client Satisfaction is our Stanadard

1040+ Quality Tax Preparation & Financial Services offers full service Bookkeeping, Income Tax Preparation, Quick Books Consulting, Quick Books Training, and Payroll.  

Whether you are a start-up business, a growing business or a mature corporation, 1040+ Quality Tax Preparation & Financial Service has the expertise to help you.  Through prompt and timely service, along with an intimate knowledge of the rules and regulations, we can keep you ahead of government deadlines, maintain order in your internal financial systems, and reduce the headaches that come with owning a business.

We can handle it all, from your payroll needs to banking and check writing.  If you’re having issues preparing your financial statements, we can tackle them for you.  You name it…we can do it!

Why hire staff?  Let 1040+ Quality Tax Preparation & Financial Service do your monthly bookkeeping at a fraction of the cost of a full-time employee.

Our talented team is experienced with all the major accounting software programs.  We perform vital accounting functions, such as accounts payable/receivable, payroll, general ledger accounting, bank reconciliations, financial statement preparation and financial analysis.

When you retain our services, we make it a priority to learn your goals and operations quickly so we can hit the ground running.  Based on experience, we can easily identify opportunities for more effective tax planning, improved internal controls, and other areas that will make your business more profitable.

Joseph C Becker, CPB, MBA, CQP
Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com

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Tax Tips - IRS issues repair regulations

Tax Tip

IRS issues repair regulations

At the end of 2013, the IRS published guidance designed to help answer a question you probably consider whenever you acquire a business asset: Should you depreciate the cost over time or expense it currently?

The new guidance, referred to as capitalization and repair regulations, explains the federal income tax treatment of expenditures you make for materials and supplies, repairs and maintenance, and business property you buy, produce, or improve.

The regulations apply to all businesses, including sole proprietorships, rentals, and farms, and are generally effective beginning January 1, 2014. However, the rules may also affect your prior- and current-year tax returns. Here's what you need to do.

Set up procedures. Written accounting policies detailing the method and reason for classification of asset purchases will help make sure you benefit from expensing elections available in the regulations.

Review past decisions. Look over your depreciation schedule, as well as your general ledger for past years. Make sure decisions regarding the expensing or capitalization of assets conform to the new requirements.

File necessary forms. If you determine some assets should have been treated differently under the new rules, you may need to amend prior year returns or file "Form 3115, Application for Change in Accounting Method."

Please give us a call to discuss how the capitalization and repair regulations will affect your business.

Joseph C Becker, CPB, MBA, CFE
Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com

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Tax Tip - Follow these steps when shutting down a business

Tax Tip

Follow these steps when shutting down a business

Business owners may decide to shut down their operations for a variety of reasons. Some struggle for years before admitting that their particular market is drying up or the company's products lack sufficient customer appeal. Others manage strong businesses, but no longer feel motivated to continue pouring energy into the enterprise. Still others may find that partnerships have grown sour or personal crises have unavoidably encroached on their time and resources.

Regardless of the reason for shutting down a business, owners should follow a systematic dissolution strategy whenever possible. Such a plan should include the following steps:

Vote to close the business. Of course, a sole proprietor may only need to consult with a spouse or trusted advisor. With a partnership, corporation, or limited liability company, more than one business associate must agree to the dissolution. Organizational documents or a state's business statutes often mandate the level of agreement required (a simple majority or two-third's majority, for example), so you'll want to consult applicable rules.

File a final tax return. Even if the business only operated for a portion of the year, you'll need to notify the IRS that the company's annual tax return is its last one.

Fill out dissolution paperwork. Let your state and local governments know that the company is ceasing operations. The forms you need should be posted on your secretary of state's website. Especially when a partnership or corporation is dissolved, formal filings should prevent future confusion about ownership and liabilities.

Cancel licenses, permits, and insurance policies. Most businesses are required to obtain city, county, and/or state licenses to operate. Those governments should be notified of the dissolution. Insurance brokers as well should be told to cancel business liability, health care, and other company policies.

Notify interested parties. At some point you'll want to inform lenders, suppliers, service providers, and customers. Lenders will be eager to find out how you plan to repay loans. Suppliers will want to know when to make final deliveries. Utility companies will need to know when to turn out the lights and shut off the water. Customers, too, should be given plenty of notice about final orders and ongoing projects.

Get expert advice. Closing down a business can be a stressful and fragile process. Many things can go awry, so seeking help from us can keep the process moving in the right direction.

If you have any questions, please call us.

Joseph C Becker, CPB, MBA, CFE
Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com

Tax Tip - When should you start collecting social security benefits?

Tax Tip

When should you start collecting social security benefits?

Each day, people are retiring by the thousands and most will decide to collect social security benefits as soon as they're eligible. Under current rules, anyone born in 1929 or later and who's paid into the system for at least 40 quarters (ten years of work) is entitled to collect benefits starting at age 62. Recent estimates suggest that over 70% of those who reach that golden age will sign up right away.

For folks who rely heavily on social security to pay the rent and buy the groceries, choices are often limited. But if you're fortunate enough to enjoy greater financial flexibility, you'll want to consider the following questions:

How's your health? If you don't expect to live into your seventies or eighties, taking social security benefits early probably makes sense. On the other hand, if you expect to live a long life and don't want to run out of money, waiting to apply for benefits may be prudent. That's because social security benefits are substantially reduced for every year you're under "full retirement age." People born between 1943 and 1960 can start collecting full benefits between ages 66 and 67. Folks born after 1960 can collect full benefits at age 67. If you begin receiving social security payments at age 62, your monthly check will be reduced by as much as 30%, depending on your age. Since you'll be collecting benefits for the rest of your life, the long-term difference in payouts may be significant.

How's your retirement plan doing? If, while waiting to reach full retirement age, you're drawing down retirement savings to cover expenses, you may want to reassess your options. Say you're earning a 5%-8% return on your 401(k) account or IRA. It might make more sense to take social security benefits at age 62, leave your retirement accounts alone, and let compound interest work its magic. The higher the return on your retirement accounts, the more important to let that money grow, even if it means foregoing a higher social security benefit. On the other hand, if your investment portfolio is just keeping pace with inflation and you expect to live until age 95, postponing social security benefits until full retirement age may be the better choice.

Clearly, deciding when to apply for social security benefits isn't a one-size-fits-all proposition. If you need help with this important decision, give us a call.

Joseph C Becker, CPB, MBA, CFE
Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com

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Tax Tip - Nanny tax rules might affect you

Tax Tip

Nanny tax rules might affect you

The household employee tax — which you may know as the "nanny tax" — hasn't made the headlines lately. But the filing requirements still exist, and they may apply to you, if you hired people to help around the house in jobs such as caregiving, housekeeping, or gardening during 2013.

Here's an overview.

Are you an employer? If you pay someone to work in your home and you have the right to tell them what work to do and how the work must be done, the answer is most likely yes. That's true even if the employment is temporary or part-time.

What taxes do you have to pay? If your household employee earned $1,800 or more during 2013, you're responsible for social security and Medicare taxes. This threshold amount increases to $1,900 for 2014. You can choose to pay these taxes yourself, or withhold them from your employee's wages. You don't need to withhold federal income tax unless your employee asks you to.

You may also owe federal unemployment and state payroll taxes.

Note. Special rules apply to amounts paid to your parents, your under-age-21 children, and students who are younger than 18.

How do you pay the taxes? File Schedule H, Household Employment Taxes, and include the form and the tax due with your federal income tax return.

What other forms are required? You'll need to complete Forms W-2, Wage Statement, and W-3, Transmittal of Wage Statement, and you may need to file forms for state payroll taxes.

Keep Form I-9, Employment Eligibility Verification, in your file. You'll also need Form W-4, Withholding Allowance Certificate, if your employee asks you to withhold federal income tax.

Please contact us about household employee tax reporting requirements. We'll help you file for an employer identification number and determine if tax breaks are available, such as the child and dependent care tax credit.

Joseph C Becker, CPB, MBA, CFE
Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com

Tax Tip - Don't Overlook Spousal IRA

Tax Tip

Don’t Overlook the Spousal IRA

One frequently overlooked tax benefit is the “spousal IRA.” Generally, IRA contributions are only allowed for taxpayers who have compensation (the term “compensation” includes wages, tips, bonuses, professional fees, commissions, alimony received, and net income from self-employment). Spousal IRAs are the exception to that rule and allow a non-working spouse who files a joint return to contribute to his or her own IRA, otherwise known as a spousal IRA. 

The maximum annual amount that a non-working spouse can contribute is the same as the limit for a working spouse, which is $5,500 for the years 2013 and 2014. A non-working spouse who is age 50 or older can also make “catch-up” contributions (limited to $1,000 for 2013 and 2014), raising the overall yearly contribution limit to $6,500. These limits apply provided that the couple together has compensation equal to or greater than their combined IRA contributions.

Example: Tony is employed and his W-2 for 2013 is $100,000. His wife, Rosa, age 45, has a small income from a part-time job totaling $900. Since her own compensation is less than the contribution limits for the year, she can base her contribution on their combined compensation of $100,900. Thus, Rosa can contribute up to $5,500 to an IRA for 2013.

The contributions for both spouses can be made either to a Traditional or Roth IRA or split between them, as long as the combined contributions don’t exceed the annual contribution limit. Caution: The deductibility of the Traditional IRA and the ability to make a Roth IRA contribution are generally based on the taxpayer’s income:

•  Traditional IRAs – There is no income limit restricting contributions to a Traditional IRA. However, if the working spouse is an active participant in any other qualified retirement plan, a tax-deductible contribution can be made to the IRA of the non-participant spouse only if the couple’s adjusted gross income (AGI) doesn’t exceed $178,000 for 2013 and $181,000 for 2014. This limit is phased out for AGI between $178,000 and $188,000 for 2013 and between $181,000 and $191,000 for 2014.

•  Roth IRAs – Roth IRA contributions are never tax deductible. Contributions to Roth IRAs are allowed in full if the couple’s AGI doesn’t exceed $178,000 for 2013 and $181,000 for 2014. The contribution is ratably phased out for AGI between $178,000 and $188,000 for 2013 and between $181,000 and $191,000 for 2014. 

Example: Rosa, in the previous example, can designate her IRA contribution to be either a deductible Traditional IRA or a nondeductible Roth IRA since the couple’s AGI is under $178,000. Had the couple’s AGI been $183,000, Rosa’s allowable contribution to a deductible Traditional or Roth IRA would have been limited to $2,750 because of the phaseout. The other $2,750 could have been contributed to a nondeductible Traditional IRA.

These contributions can be made up to the April due date of your tax return, and even if you have already filed your return, you can still make the contribution and file an amended tax return reporting the contribution and claiming a refund if the contribution is deductible.

Please give this office a call if you would like to discuss IRAs or need assistance with your retirement planning.

Joseph C Becker, CPB, MBA, CFE
Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com