Tag Archives: CPA Deerfield Beach

Investing on Margin Increases Risk and Potential Rewards

Investment Page

CPA Deerfield Beach

Although stocks have been volatile lately, they have been attractive longterm investments. The broad U.S. stock market has returned approximately 10% a year for the past 25, 30, 35, and 50 years—and that’s still true after the bear markets of 2000–2002 and 2008–2009. If you have a long time horizon and can tolerate periodic slides, you probably should hold some of your portfolio in stocks or stock funds. Investors who can tolerate stock market risks may be able to enhance returns by investing on margin, or borrowing from their broker to buy securities using their own holdings to secure the loan. Assuming that stocks continue to rise, long term, margin investing can increase your exposure and your overall gains. You shouldn’t overlook the risks of margin investing, but you also should realize that tax advantages may push your investment results toward the plus side.

Double play

When you invest on margin, you borrow money to buy securities. Once you set up a margin account with your brokerage firm, the firm will lend you money, secured by your holdings there. Base interest rates on margin loans might be in the 6%–7% rangenow, but you can pay more or less if you have a small or large account with the firm. Interactive Brokers is notably cheap. Here is a cheaper firm

$0 – $49,999 2.00% + 1.75% (3.75%)
$50,000 – $99,999 2.00% + 1.00% (3.00%)
$100,000 – $249,999 2.00% + 0.50% (2.50%)
$250,000 – $499,999 2.00% (2.00%)
$500,000 – $999,999 2.00% – 0.50% (1.50%)
$1,000,000 + 2.00% – 0.75% (1.25%)

Typically, the maximum margin allowed on stocks is 50%. By borrowing, say, $50,000 on margin, you can buy as much as $100,000 worth of stocks. Then you’ll stand to gain or lose twice as much as you would if you had not invested on margin.

Where do the tax benefits come in? The interest you pay on a margin  loan may be tax deductible (see the Trusted Advice column “Deducting
investment interest” for more information).

Example: Say you get a margin loan at a 6.5% interest rate, and your effective tax rate (federal, state, local) is 35%. With a 35% tax deduction,
your net borrowing cost is 4.225%: 65% of 6.5%. If your after-tax investment returns from the assets bought on margin top 4.225%, you’ll benefit from using the margin loan. Based on long-term stock market results, investing on margin can be a reasonable strategy for those who can
tolerate the risk.Moreover, the tax savings from deducting margin interest come right away. For many stock market investors, substantial taxes are deferred for many years, until they sell the shares, and favorable long term capital gains rates may apply. Although the numbers may seem favorable, don’t downplay the risks involved with investing on margin. If your investments lose value, you may get a margin call—a demand for more cash or securities in your brokerage account. If you don’t provide the cash or securities that your broker requires, the firm can sell securities from your account and use the proceeds for loan repayment.
One way to reduce this risk is to use less margin—20% or 30%, perhaps, instead of 50%. You’ll own less stock, but you’ll also have less chance of
receiving a margin call.




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Filed under Deductions, Investing

Get the most benefit from retirement plans

What do you want to be when you retire?

You and your friends may have asked each other a similar question in high school. No matter what your age is now, looking ahead to the future is important — and the retirement plans you participate in have a big impact on that future.
Here are tips for getting the most benefit from retirement plans.

  • Maximize your contributions.For 2012, the maximum amount you can contribute to your 401k plan when you’re under age 50 is $17,000. If the plan allows catch-up contributions, which are available when you’re age 50 or above, you can contribute an additional $5,500.For SIMPLE plans, the maximum amount you can contribute for 2012 is $11,500 before catch-up contributions. The maximum catch-up contribution for a SIMPLE plan is $2,500.How you benefit: Contributions are not subject to federal income tax, so amounts you put in your retirement plans reduce your taxes. In addition, income earned in the plan is not taxed until you begin taking withdrawals.
  • Take advantage of employer matching contributions.The contribution limits mentioned above do not include amounts your employer can add to your account. “Matching” contributions are based on a percentage of your wages, and can raise the annual maximum contribution limit to as much as $50,000 for 2012.What’s the benefit? Matching means when you designate a certain amount from each paycheck as a plan contribution, your employer contributes, or matches, that amount up to a limit set by your plan documents. The result? Your retirement savings grow faster at no current cost to you.
  • Another wise retirement plan move: Participating in all plans available to you, such as opening an Individual Retirement Account in addition to your 401(k) or SIMPLE.

Give us a call for more information about your retirement plans. We’re here to help you maximize the benefits you receive, both today and in the future, so you can achieve the life you envision in retirement.



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Filed under Retirement Planning

Finding a New Job Can be Tax Deductible

CPA Deerfield Beach

CPA Deerfield Beach



Don’t miss this often overlooked deduction

With continued turmoil in the job market, the number of people searching for work continues to be at a high level. Because of this, the amount of time it takes to find a new job can be long and expensive. Don’t overlook the ability to deduct qualified job hunting expenses on your tax return. Here is what you need to know.


If you are searching for a new job in your present line of work, you may take qualified job search expenses as a miscellaneous itemized deduction on Schedule A of your tax return. When combined with other miscellaneous expenses you may deduct any amounts over 2% of your Adjusted Gross Income. Think you may not have sufficient expenses? Think again, especially since your income may be temporarily lower as you transition into a new position. To qualify you must pass three hurdles;

  • The new position must be in the same line of work. There is leeway here, but if you decide accounting is not for you and you wish to become a doctor, the expenses do not qualify.
  • There can be no substantial gap in time. If you are out of the workforce for a long period of time AND have not been looking for a job, you run the risk of having the expenses disallowed. So keep up activity to defend your deduction.
  • Sorry recent graduates, this deduction is not for you. It only qualifies for obtaining a new job in your present line of work.

Qualifying Expenses

The following expenses are usually deductible even if you don’t end up with the job:

  • Costs to prepare your resume, letters, and other correspondence. This includes the cost of printing stationery and paying for someone to help you organize your resume.
  • Fees to employment agencies, recruiters, and consultants
  • Advertisements in newspapers and trade magazines
  • Transportation to interviews including out-of-town lodging
  • Meals while out-of-town related to the job hunt (subject to 50% deductibility)
  • Telephone expenses. This includes job hunting related cell phone use.
  • Other related expenses. This can be things like printer cartridge ink for printing your correspondence or parking fees.

If the expense can be directly related to your job hunt, document it.


Keep track of all your job related expenses to substantiate your deductions. Here are some hints:

  1. Keep a log of your activities. A small note book or calendar can be a handy tool to log your activities.
  2. Keep receipts and canceled checks. You’ll need to document the deductibility of your expenses.
  3. Keep copies of job ads. This will help you defend the search is in your present line of work.
  4. Keep potential employer letters. This will show that your expenses are legitimate.

Don’t forget to keep track of other miscellaneous expenses to help cross your 2% threshold. Once the threshold is met, each incremental dollar could result in a reduction in your taxes. Other common miscellaneous deductions include; union dues, continuing education related expenses, uniforms, special work clothing, expenses for the production of income, tax preparation fees, and hobby expenses.


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FBAR TDF90-22.1 Deadline

May is over and June represents another filing deadline for persons who have foreign bank
accounts and investments

Some things to remember to prepare Form TD F 90-22.1, Report of Foreign Bank and
Financial Accounts, commonly referred to as FBAR, for calendar year 2011:

1. Make sure to use the most current version of the form (dated January 2012) to ensure the
filing is not rejected by FinCEN. The government does not process expired versions of this

2. Calendar 2011 FBARs must be received by Treasury on or before the June 30 due date in
order to be considered timely filed. Therefore, one should plan accordingly and file the
FBAR in sufficient time in advance of the due date. No extension of time is permitted. The
familiar mailbox rule that applies for income tax returns is not applicable with respect to

3. For those who are able, consider the use of the BSA E-Filing system to electronically
submit the calendar 2011 FBAR. Electronic filing of FBAR is only currently available by the
actual FBAR filer, and is not yet available for practitioners to file on behalf of their clients for
calendar 2011 FBARs. All should keep in mind that FinCEN is moving forward with plans
to require mandatory electronic filing for all FBARs in the future.

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Filed under CPA South Florida, Deerfield Beach CPA, South Florida CPA, Tax Planning

Common Payroll Mistakes

1. Classification of Employees as Independent Contractors
2. Failure to Subject Vendor Payments to Backup Withholding
3. Failure to Issue Form 1099s
4. Not Including the Fair Market Value of Gift Cards,
Prizes and Awards in Employees’ Income
5. Failing to Timely Deposit Withheld Taxes
6. Incorrectly Handling Expense Reimbursements
7. Not Including the Appropriate Value of Taxable Fringe Benefits
in Employees’ Income

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Filed under CPA South Florida, Deerfield Beach CPA, South Florida CPA

Patient Protection and Affordable Care Act of 2010

Starting in 2013, an increased Medicare tax will apply to high income taxpayers and a new Medicare contribution tax will apply to investment income.

The changes enacted by the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, will be partially financed by an increase in the Medicare Hospital Insurance (“HI”) tax on employees and self employed individuals and the imposition of a 3.8 percent Medicare contribution tax on net investment income, both beginning in 2013.

With respect to trade or business income from partnerships, LLCs and Subchapter S corporations, the income attributed to the taxpayer will not be excluded from investment income unless the taxpayer materially participates in the activities of the trade or business in accordance with the passive activity rules. Investment income from the investment of working capital of a trade or business is subject to the same general rules as under the passive activity rules.

Tax Tip

Net investment income does not include the following:

Active trade or business income
Gain on sale of an active interest in a partnership or S corporation
Distributions from IRAs or qualified retirement plans
Income from tax exempt municipal bonds
Tax deferred non-qualified annuities
Income taken into account for self-employment tax purposes
Capital gain excluded under I.R.C. §121

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Filed under Deerfield Beach CPA

Tax Planning Summer Series

Tax Alert: Plan now for changes coming in 2013

What’s the summertime forecast? From a tax perspective, the outlook calls for planning now to prepare for changes gathering on the horizon – specifically, provisions currently expected to take effect in January 2013. Here are four new rules to think about during your mid-year tax review.

1. A decrease in tax-free contributions to your flexible spending account. Starting in January 2013, the maximum you can contribute to your FSA will be $2,500. In addition, the “use it or lose it” feature of FSAs means you won’t be able to carry any 2012 excess remaining in your account into 2013 (unless your plan provides a 2½ month grace period for using prior-year funds).

Planning move: Schedule elective medical procedures during the last half of 2012.

2. An increase in the threshold for claiming the itemized medical expenses deduction. Do you itemize? For 2012, you can claim a deduction on your federal income tax return for qualified medical expenses that exceed 7.5% of your adjusted gross income (AGI).

Beginning in 2013, if you’re under age 65, your medical expenses will have to exceed 10% of your AGI to be deductible. This is the same percentage applied to qualified medical expenses when calculating the alternative minimum tax.

Planning move: Review your itemized deductions for 2012 to determine whether accelerating or delaying deductions makes the most sense for you. What to keep in mind: phase-outs and other limitations to itemized deductions that were in effect in prior years, as these may return in 2013.

3. An increase in Medicare tax on certain wages. The amount of Medicare tax you pay on wages and self-employment income is scheduled to go up next year. When you’re single and your wages are greater than $200,000, your employer will withhold an additional 0.9% of Medicare tax from your paycheck. Are you self-employed? The tax applies when net self-employment income exceeds the threshold. The income threshold is $250,000 for married couples.

Planning move: If you’re self-employed, review the way your business is organized. While you always want to pay yourself a reasonable amount of compensation, some entity types can allow for flexibility in the timing of wages or salary.

4. A new Medicare tax on unearned income. You probably associate Medicare tax with earned income – that is, the 1.45% tax your employer deducts from your pay. But a provision in the 2010 health care laws extends the Medicare tax to certain unearned income, beginning in 2013.

The new surtax is a flat rate of 3.8%, and will apply to interest, dividends, capital gains, annuities, royalties, and rents. It kicks in when your AGI exceeds $250,000 (for married filing jointly). When you file as single, the AGI threshold is $200,000.

Planning move: Consider adding tax-exempt bonds to your portfolio. The interest is not subject to the new tax. Roth conversions and selling assets with capital gains may also be a wise move in 2012.

Many other tax law changes are expected in 2013. Timely planning is essential for preserving tax- saving opportunities. Please give us a call to discuss strategies to put in place now to maximize your benefits.

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Filed under Tax Planning