Category Archives: Deductions

Home Office Deduction Simplified

 

HHome Office Deduction Simplified

 

IRS posts a new simplified method for the Home Office Deduction Starting in 2013; Home-Based Businesses May Deduct up to $1,500;

 

WASHINGTON — The Internal Revenue Service published Revenue Procedure 2013-13.  This procedure explains a a simplified option that a lot of owners of home-based businesses and some home-based workers may use to figure their deductions for the business use of their homes. The government estimates this will saves Taxpayers 1.6 Million Hours per year in compliance time.

 

In tax year 2010, the most recent year for which Statistics of Income are available, nearly 3.4 million taxpayers claimed deductions for business use of a home (commonly referred to as the home office deduction).

 

The new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will reduce the paperwork and recordkeeping burden on small businesses by an estimated 1.6 million hours annually.

 

“This is a common-sense rule to provide taxpayers an easier way to calculate and claim the home office deduction,” said Acting IRS Commissioner Steven T. Miller. “The IRS continues to look for similar ways to combat complexity and encourages people to look at this option as they consider tax planning in 2013.”

 

The new option provides eligible taxpayers an easier path to claiming the home office deduction. Currently, they are generally required to fill out a 43-line form (Form 8829) often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions.  Taxpayers claiming the optional deduction will complete a significantly simplified form.

 

Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method.

 

Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees are still fully deductible.

 

Current restrictions on the home office deduction, such as the requirement that a home office must be used regularly and exclusively for business and the limit tied to the income derived from the particular business, still apply under the new option.

 

The new simplified option is available starting with the 2013 return most taxpayers file early in 2014. Further details on the new option can be found in, Revenue Procedure 2013-13.

 

The information contained within this article is provided for informational purposes only and is not intended to be a substitute for obtaining accounting, tax, or financial advice from a professional accountant.

 

CPA South Florida

 

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Deductions Still Available For 2012

Deductions Still Available  For 2012

 

 

Tax Saving Tips // Tax Preparation

 

 

 

Tax Savings Ideas For 2012

There is good news there is still a way to make a deduction for the previous year. The most sensible, legal tax-saving move for anyone that wants deductions for last year is to to fully fund one’s  IRA or SEP.

 

The funding can be postponed until the due date of the return, so there isn’t a panic to fund those right now.

 

 

What is an IRA?

 

 

IRA stands for Individual Retirement Account, and it’s basically a savings account with big tax breaks, making it an ideal way to sock away cash for your retirement. A lot of people mistakenly think an IRA itself is an investment – but it’s just the basket in which you keep stocks, bonds, mutual funds and other assets.

 

 

What is a SEP?

 

 

A SEP is a simplified employee pension plan. A SEP plan provides a way for the self-employed to fund their own retirement.

 

Frequently a client with a second business will ask, “If I am an employee and participate in my employer’s retirement plan, can I set up a SEP for self-employment income?

 

Yes. A SEP can be set up for a person’s business even if he or she participates in another employer’s retirement plan.

 

We are here to accommodate clients with good service that is convenient, and priced fairly. Our office is here to answer any tax questions that you need help with.

 

CPA Deerfield Beach

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Pension Plans-Some Basic Selections for Smaller Companies

Starting and managing a company has its difficulties, plus in spite of the fact you are devoted to the company, the business cannot run indefinitely.Ultimately, every owner stops working; your employees will stop working and retire too. As a company owner here are some basic options to help plan for the golden years.

§401(k) – Most owners consider a §401(k) plan an option for larger companies, however this kind of retirement plan can be set up for a one owner/employee business. This is known as a Solo §401(k). A lot of clients think the company has to match employee contributions, this is not true. Matching is typical however the plan’s founders can arrange the plan to not match employee contributions. The companies that have enough money to match employee contributions usually see employee morale go higher. Participants usually elect to have a set percentage or dollar amount deducted from their paycheck. The employee limits on contributions to a retirement plan for 2012 is $17,000 for those under 50 years, and $22,500 for those over 50. §401(k)s are available in Traditional and Roth versions. A Roth or Traditional plan version permits the employee to choose between, paying taxes in the beginning or paying taxes when money is withdrawn from the account. Roth §401(k) account owners pay taxes in the beginning. Traditional §401(k) account owners pay taxes when money is withdrawn. 401(k) regulations also permit loans if the plan is setup with that option.

SEP- SEP (Simplified Employee Pensions) IRAs are an easy option for many small companies. These plans are comparatively undemanding to administrate. Participants generally cannot defer salary to the account. The company makes contributions based on a percentage of salary. Some participants in a SEP-IRA plan start additional IRAs to plan for the future. One major benefit to this plan is that a SEP-IRA can be set up after the tax year is closed. The employer contribution can be made as late as the due date (including extensions) of the company’s tax return for that year. IRS regulations do not permit loans, early withdrawals, or catch up contributions.

SIMPLE IRA – means for Savings Incentive Match for Employees. Relative to other kinds of pension plans the name “simple” is true. One downside is that the company is obligated to match employee contributions. Another thing to consider is the max contribution allowed to this type of plan is $11,500. The reporting requirements for this kind of plan are minimal.

The preceding information is not intended to replace the services of a professional. Consult a CPA or an Attorney who can better understand your particular circumstances. Please contact us.

CPA Firm

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The Choice Between A Regular §401(K) Plan Or A Roth §401(K)

When we meet clients to review their tax information, there often is a frequent question. “Which retirement option is better, the Roth option of my employer’s retirement plan or the traditional option?”

Roth accounts started in 1998.  The key concept of a Roth accounts is sacrifice a current year deduction for a guarantee the distributions taken when you retire are tax free.

From 1998 until 2005, Roth accounts were only available in the form of an IRA account. A lot of middle-income and high-income taxpayers could not contribute to a Roth IRA, because their incomes exceeded the relatively modest limit based on their filing status.  (The Roth IRA limit for 2012 is $125k for single individuals and $183k for married couples.)

Our elected representatives liked the public giving up a current year tax breaks by opting to go with a Roth IRA instead of to a Traditional IRA. In 2005, politicians decided to expand this opportunity to employer plans.

What’s the difference between the Traditional and Roth versions? Traditional employer plans permit the salary deferrals to reduce your taxable income and grow tax deferred.  Income taxes are paid on distributions taken from these accounts when you retire.

Let’s say you earn $200,000, and you max out your salary deferrals for $17,000 during the year.  In this case, your W-2 will report taxable wages of $183k in Box 1.  Assuming you are in the 33% federal tax bracket, the $17k you contribute saves you $6,667 in federal income taxes.  That’s a pretty good tax break.

What happens if you instead decide defer into a Roth version? When you contribute money to a Roth account, you forego a current year tax-break.  Your W-2, therefore, will report the full $200k as taxable wages in Box 1, instead of $183k that would be reported had you gone with the Traditional version.  The benefit of giving up this tax break is the tax-free treatment of the compounded growth on the $17k of salary deferrals. In other words, you won’t owe any federal income taxes on the distributions taken from this account when you retire.

The Max Benefit Factor:

From a general tax perspective, the Roth IRA is the better choice if your tax rate during retirement will be the same or higher than your current tax rate, as the Roth IRA allows you to pay the taxes now, and receive tax-free distributions when your income tax rate is higher. If your tax rate will be lower during retirement, then the traditional IRA may be the better choice if you are eligible to receive a tax deduction now when your tax rate is higher.

Since the savings you accumulate in traditional employer plans will eventually be taxed at ordinary income rates when you withdrawal, high tax rates during retirement could dramatically reduce the after-tax value of those savings.

As a general rule the Roth accounts are better for savers in their 20s and 30s. This is when the option of paying taxes on your contribution now is generally a better deal than getting a tax break today. When people are in a lower tax bracket and should expect to be in the same or higher tax bracket when  they retire.

The core to financial planning is saving. Saving will start to make you a Money Hero. On the way to becoming a hero there will be others to like us, to help improve your financial well-being.

Tax Prep Deerfield Beach

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Three basic tax areas of the Affordable Care Act

Benefits for Lower Income Taxpayers
Costs for Higher Income Taxpayers
Employer Responsibility

There is a Health Insurance Premium Tax Credit that benefits low and medium income level taxpayers. Medicare taxes are expanded and a new levy is created.  A good number of small businesses are exempt from the employer requirement.

Benefits for the less affluent taxpayers

Tax credit for health insurance. The legislation offers a tax credit to low and medium income level taxpayers. Starting 2014, there is a refundable tax credit (the “premium assistance credit”) for eligible individuals and families who purchase health insurance from an Exchange.

The refundable credit is paid to the insurer to help fund the purchase of certain health insurance plans. An eligible individual enrolls in a plan offered through an Exchange and conveys his or her income to the Exchange. The exchange analyzes the information and calculates the credit. The IRS pays the insurer. The premium amount the individual pays the insurer is the cost minus the credit. Employed individuals pay with payroll deductions.

The credit will be available for individuals and families with certain incomes levels and if they are not eligible for Medicaid, employer sponsored insurance, or other acceptable coverage.

The income test is up to 400% of the federal poverty level. The income thresholds are approximately $45,000 for an individual and $90,000 for a family of four.

Cost for more affluent taxpayers

Higher Medicare taxes. A supplemental Medicare is imposed Singles earning more than $200,000 and married couples earning more than $250,000. There is also a new Medicare levy on investments.

Medicare Taxes are the primary source of money for Medicare’s hospital program. The program pays hospital bills for participants older than 65 and the disabled. Right now workers and employers each pay 1.45%. Self-employed people pay both sides 2.90%   Under the new law, in 2013, most taxpayers will continue to pay the 1.45% Medicare hospital insurance tax, but single people earning more than $200,0000 and married couples earning more than $250,000 will be taxed at an additional 0.9% (2.35% in total) on the excess over those base amounts. Self-employed persons will pay 3.8% on earnings over the threshold.

Medicare tax levy on investments. Right now, Medicare tax is only assessed on wages. Beginning in 2013, a Medicare tax will, for the first time, tax investment income. The new 3.8% tax will be imposed on net investment income of single taxpayers with AGI above $200,000 and joint filers over $250,000. Net investment income is interest, dividends, royalties, rents, gross income from a trade or business involving passive activities, and net gain from disposition of property (other than property held in a trade or business). Net investment income is includes deductions against income.

Tax Tip

The new tax levy is not applicable to retirement accounts such as 401(k) plans. Also, the Medicare tax only applies to incomes in excess of the $200,000/$250,000 thresholds. For example a married filing joint return has $200,000 in wages and $100,000 in gains, $50,000 is taxed.

The employer mandate This is relevant to an employer who has employed an average of at least 50 full-time employees. This tax term is an “applicable large employer,” someone who employed an average of at least 50 full-time employees during the preceding calendar year. The law requires employers to offer coverage.

The following information is not intended to replace the services of a professional. Please consult a CPA or an Attorney who can better understand your particular circumstances. Trying to set up and/or operate a corporation of any kind without competent professional guidance is asking for serious trouble. Please contact us.

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Hiring a Spouse as an Official Employee

Tax Planning

Tax Planning

This can create benefits. Here are two easy tax advantages for putting a spouse on the payroll of an S Corporation

 Accumulated tax deferred funds for retirement When the employee meets the tax-law requirements your company can deduct

contributions. The spouse has to be an official employee with a business purpose.

Contributions to a qualified retirement can create real savings. The annual contributions limits are quite generous. The easiest plan to set up is either a Solo §401(k) or a SIMPLE IRA. With a Solo §401(k) plan, your spouse can defer up to $17,000 to the plan (plus an extra $5,500 if he or she  is age 50 or older). Your company can match those contributions wholly or partially up to tax-law limits.

Get more tax deductions from business trips Generally, you can’t deduct the travel expenses attributable to your spouse if he or she accompanies you on a business excursion. However, if your spouse is a bona fide company employee and goes for a valid business reason, you may deduct his or her travel costs, including air fare, lodging and 50% of the meal expenses. The benefit also is tax-free to your spouse.

CPA Deerfield Beach

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