Viewing ‘Taxes’ Category

How to Get a Tax Deduction For Your Auto Expenses

Car

Auto costs can be a significant portion of a small businesses’ expenses. Even if your business does not depend on cars or trucks to function, you may still be able to deduct some vehicle expenses. Here are the steps to knowing what you can, and cannot, deduct.

Identify the type of auto(s) you are using for business functions. The following applies only to the use of a car, van, pickup or panel truck for business purposes. Larger vehicles, such as tractor trailers, have different rules. The vehicle can be purchased or leased. If the automobile is used for personal use, also, then the percentage used for business must be determined to figure out the deduction that can be taken.

Understand what usages of the auto are deductible…

The business use of a car or truck can be claimed for any, or all, of the following:

  • Visiting customers.
  • Traveling between your regular work locations within your city or general area.
  • Commuting from home to a temporary place of work (only if you have one or more regular places of work).
  • Attending a business meeting not held at your place of work.
  • Using your car for an overnight business trip away from your home area.

NOT DEDUCTIBLE:

  • Travel between home and regular place of business. Tolls are also not deductible.
  • Parking fees at your main workplace.

Decide which of the two methods for claiming expenses works best for your business.

You can choose to use only one of the following:

Actual Expenses Rate

  • Actual car or truck expenses are deducted:
    • Depreciation
    • Lease payments
    • Insurance
    • Gas
    • Repairs
    • Registration fees
    • Licenses
    • Oil
    • Tires
    • Tolls
    • Parking fees
    • Garage rent

Standard Mileage Rate

  • This method must be used the first year the car or truck is used for business to be eligible in the following years. If leased, it must be used for the entire lease period.
  • The standard mileage rate as of July 31, 2012 is 55.5 cents.

Standard Mileage cannot be used:

  • For fleet operations (five or more vehicles)
  • If the car is used for hire (taxi, limo)
  • If you are claiming depreciation or actual expenses, including lease payments, insurance, and/or gas on that vehicle.

Always, keep clear, continuously updated, records of the usage of your auto. In case of audit, these records will be invaluable. Mileage logs, receipts, and invoices will help support your deductions.

Consult with your CPA…

Not sure which deduction method will benefit you the most at tax time? I will be happy to help! Give me a call today! The initial consultation is free for first time clients. Current clients, I am always happy to discuss these issues as part of your current agreement.

Celebrate Tax Savings

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First observed in 1998, Floridians enjoy a very special holiday…the Sales Tax Holiday. This year, during three action-packed days of shopping that rival Black Friday, folks will hit the stores with fervor. Thanks to the Florida State Legislature, shoppers get to skip the state sales tax on officially exempted items from Friday, August 3 through Sunday, August 5. I can assure you, parents and kids needing clothes and classroom supplies to fill their back-to-school lists embrace this holiday like a long lost friend who only visits once a year. And for those of us not looking for college-ruled paper, Duo-Tang™ folders (yeah-I know you remember those) and Batman lunch boxes, we get to benefit, too. Many clothing items priced $75 or less and school supplies (a.k.a. “office supplies”) of $15 or less are on the tax exempt list.

So what else can you stock up on beginning at 12:01 am on Friday morning? If you need to channel your inner 1980’s (along with the Batman lunchbox), “fanny packs” are on the list. To complete the look, add “bowling shoes” (purchased only…sorry, no discount on the rentals at the alley) and “vintage clothing.” I’m not kidding, “vintage clothing” is exactly how that item appears. I wonder who asked for that clarification?

Evidently the dress codes in schools are being relaxed this year as “lingerie” made the cut. And yes, “underclothes” are also on the list, so “lingerie” does not encompass that makes-sense category.

And while the Legislature doesn’t feel like the football or softball players in your family need such silly protective gear as helmets and gloves, your athletes will be good to go in their newly-added-to-the-curriculum hunting class with some classic camo. Yes, “hunting vests” made the list.

On the serious side, as a proud Floridian, I am thankful to our government for providing a much-needed tax break to residents; many of whom are struggling to provide what their families need to go back to school.

If you are interested in reviewing the full list and braving the crowds for some great deals this weekend, visit http://dor.myflorida.com/dor/pdf/tip2a01-02List.pdf.

ObamaCare and You: Changes for 2014 and Beyond

Most of the healthcare reform rollout will be completed in 2014. In this final blog of the series, let’s look at a few of the highlights that may impact you, your family and business as the final parts of the law are enacted.

1.     Individual Mandate

All individuals who do not obtain adequate healthcare coverage by 2014 will be taxed.

  • The tax will be phased in over three years.
    • In 2014: tax amount will equal whichever is greater, 1% of income or $95.
    • By 2016: equal to whichever is higher, 2.5% of gross income or $695.

2.     Tax Credit For Low-Income Medical Care Purchasers

Starting in 2014, a refundable tax credit will be provided on a sliding scale based on household income, between 100% and 400% of the federal poverty level (approximately $11,000 to $44,000 for individuals and $22,000 to $88,000 for families) for purchasers of medical care coverage.

3.     Health Insurance Exchange

In 2014, each state will have a government-regulated exchange offering different levels of health insurance coverage at different prices.

  • Plans can be purchased by individuals, the self-employed and small businesses.
  • Small firms can receive credit of up to 50% of their costs by signing up with one of the exchanges.
  • The credit will phase out based on the following (and be gone after 2015):
    • 1-10 workers & average annual wages of $25,000 or less
    • 11-24 workers & wages $25,001-$49,999
    • 25 workers & $50,000 +

4.     Excise Tax on High-Cost Health Plans

  • This tax will begin in 2018.
  • Will be levied on the portion of the plan that exceeds:
    • Individuals: $10,200
    • Families: $27,500

5.     Businesses Charged for Inadequate Coverage

  • Applies for businesses with 50 or more employees.
  • Fee will be nondeductible.
  • Fee will not count the first 30 workers.
  • Calculation of the fee will be remaining number of employees times $2,000.

As always, I am here to help you determine how you can make the most of these changes. Give me a call today!

Missed one of the previous blogs in this series?

ObamaCare and You: 4 Ways the Healthcare Reform May Affect You Now 

ObamaCare and You: Get Ready for 2013

ObamaCare and You: Get Ready for 2013

With each passing year, the ObamaCare reforms get more and more aggressive. Plan ahead for 2013 by taking a look at the following summary of what you can expect.

1.     Medicare Surtax

  • A 0.9% Medicare surtax will apply to those earning the following:
    • Single: $200,000 or more
    • Married: $250,000 or more

 2.     Medicare Tax on Investment Income

  • A 3.8% tax will be applied to the lesser of the following for those in the earning levels listed in #1 above (excluding retirement account income and tax-exempt interest):
    • Unearned income (interest, dividends, capital gains, rents, royalties and annuities)
    • Amount the taxpayer’s adjusted gross income exceeds the amounts listed in #1.

3.     Health Care Flexible Spending Account Limit

  • The amount that employees can contribute will be set at $2,500/year/person.

4.     Itemized Deductions for Medical Expenses

  • The floor will be set at 10%. ( an increase from 7.5%)
  • Taxpayers age 65 and over will not experience this change until 2016.

5.     Medicare Part D Prescription Drug Coverage

  • Employers will no longer be able to take a deduction for providing this coverage to their retirees to the extent the federal government subsidizes the coverage.

Next blog: ObamaCare and You: Changes for 2014 and Beyond

Click here to read about the healthcare reforms that are already in place.

Be sure to share! Help your friends and family prepare for ObamaCare by sharing this article on Facebook or Twitter.

As always, I am here to help you determine how you can make the most of these changes. Give me a call today!

ObamaCare and You: 4 Ways the Healthcare Reform May Affect You Now

ObamaCare. Love it or hate it, the odds are you are not totally clear on how it impacts you and your business. Whatever our opinions are of this major healthcare reform, I know we can all agree: its good to be fully aware of the changes so we can be proactive.

Lets take a look at some of the ways it may already be part of your life.

1.       Small Business Tax Credits

As an incentive to provide coverage, small companies can currently benefit…

  • 1-10 workers & average annual wages of $25,000 or less: Receive a credit of up to 35% of your health premium costs through 2013.
  • 11-24 workers & wages of $25,001-$49,999: credit decreases based on a sliding scale.
  • 25 workers & $50,000 +: No credit.

 2.       Reporting Health Care Benefits

  • Employers are required to report the value of health care benefits provided on their workers’ 2012 W-2s (reporting on the 2011 W-2s was optional). However, the amount reported is not taxable income.

 3.       Special Healthcare Accounts

  • HSA Penalty: Taking a non-qualified distribution from your health savings account now means a doubled penalty of 20%.
  • Over-the-counter medications may not be purchased with funds from flexible spending accounts, health reimbursement agreements or health savings accounts.

4.       Insurance Coverage for Children Under 26

  • Young adults under 26 may be covered under their parent’s plan even if they are married or are financially independent.

The changes up to now have been relatively minor, but they will get more aggressive next year.

Next blog: ObamaCare and Me: Get Ready For 2013

Be sure to share this article on Facebook and Twitter to help your family, friends and business associates know how they can prepare, too! The sharing buttons are below.

As always, I am here to help you determine how you can make the most of these changes. Give me a call today!

Contractor vs. Employee

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One of the most common questions I have been asked recently is how to determine whether a worker is considered an independent contractor (thereby needing to complete a 1099) or an employee (W-2). Most cases are fairly cut and dry, but there are times where this can be a grey area. The temptation is to classify an individual as a contractor because of savings in employment and unemployment taxes, worker’s compensation insurance, and to avoid state and local tax reporting. But how does the IRS view this issue?

Most simply, the IRS looks at 3 primary factors that are based on the degree of control versus independence:

  1. Behavioral: Does the company control, or have the right to control, how the worker does his or her job? Less control=more likely a contractor.
  2. Financial: Are the business aspects of the worker’s job controlled by the payer? (These include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.) More financial control=more likely an employee.
  3. Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business? A contract and end date for the job=more likely a contractor.

If the above list does not clear things up, then the IRS also provides 20 questions to determine the level of control.

1. Must the individual take instructions from your management staff regarding when, where, and how work is to be done?
2. Does the individual receive training from your company?
3. Is the success or continuation of your business somewhat dependent on the type of service provided by the individual?
4. Must the individual personally perform the contracted services?
5. Have you hired, supervised, or paid individuals to assist the worker in completing the project stated in the contract?
6. Is there a continuing relationship between your company and the individual?
7. Must the individual work set hours?
8. Is the individual required to work full time at your company?
9. Is the work performed on company premises?
10. Is the individual required to follow a set sequence or routine in the performance of his work?
11. Must the individual give you reports regarding his/her work?
12. Is the individual paid by the hour, week, or month?
13. Do you reimburse the individual for business/travel expenses?
14. Do you supply the individual with needed tools or materials?
15. Have you made a significant investment in facilities used by the individual to perform services?
16. Is the individual free from suffering a loss or realizing a profit based on his work?
17. Does the individual only perform services for your company?
18. Does the individual limit the availability of his services to the general public?
19. Do you have the right to discharge the individual?
20. May the individual terminate his services at any time?

What is interesting about this issue is that there is very little, if any, case law from the IRS’s perspective. Most case law relates to workers compensation and unemployment issues. In those cases, the courts have rule that some control is allowable when classifying an individual as a contractor.

Odds are you now have more questions than answers regarding the proper status of your team. Give us a call and we can review your business’ situation to help you to navigate the grey area of contractor versus employee.

Purchasing Equipment: When Is the Best Time to Buy?

Thinking about making equipment purchases for your business? Now is the time to act.  Through the end of 2011, you are able to take a 100% bonus depreciation deduction for new equipment that is purchased. If the equipment purchased is not new, you can still deduct 100% of the equipment up to a limit of $500,000 under Section 179.

The primary differences between the bonus depreciation and the Section 179 deduction are as follows:

  • Bonus depreciation is for new equipment only
  • There is no limit to the amount of bonus depreciation, whereas Section 179 is limited to $500,000 of equipment purchases
  • Section 179 cannot be used to create a net operating loss

Section 179 and the bonus depreciation do not apply to passenger automobiles, even if the auto is used solely for business. Fortunately, Section 280 provides bonus depreciation for passenger automobiles placed in service in 2011 in the maximum amount of $8,000. This is in addition to the standard depreciation allowed for passenger automobiles of $3,060 in the first year of service for a potential total of $11,060 in the first year depreciation. This does not apply to a SUV over 6,000 pounds. An SUV over 6,000 lbs. is eligible for up to $25,000 in section 179 expense; and, if the vehicle is used 100% for business, the remaining value can be taken as 100% bonus depreciation in 2011.

Beginning in 2012, the bonus depreciation will be reduced to 50% and Section 179 will be limited to $139,000. So now is the time to act to take advantage of these generous deductions.

Charitable Contributions

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The final countdown is on…that’s right, 2011 is almost over. Are you ready for your 2011 tax bill? With one month to go, you still have a few more options to lower your amount due to the federal government. Let’s start with one of the most popular methods of deduction…

Charitable Contributions

Giving is a traditional part of many of our holiday celebrations at this time of year. Thankfully, when we are eligible to itemize deductions, the government honors our efforts by letting us deduct our gifts from our taxes; a fact which helps us be even more generous than we might otherwise be able.

However, I am sure you join me in an even greater reason to give…the shear joy. With so many people in need and excellent charitable organizations facing a significant drop in donations, our help is needed more than ever.

So, during this countdown to the new year, take a few minutes to review your giving for 2011. Use the following guidelines to take advantage of tax deductions.

Documentation

Be sure you get a written receipt from the organization showing its name, the date and place of the contribution and the amount given. For donations under $250, only, you can also use canceled checks or bank records to prove your deduction.

Non-cash Contributions

Worth over $500: You will need to file Form 8283 (Noncash Charitable Contributions) with your 1040.

Worth over $5,000: Obtain a written appraisal of the value of the item(s) and complete Section B of Form 8283. Signatures of both the appraiser and a representative of the charity are required on the form.

Publicly traded securities worth over $5,000

No appraisal needed. However, with appreciated securities in any amount, only donate those you’ve owned for more than one year or your deduction will be limited to cost rather than current market value.

Used Clothes and Household Items

Includes furniture and furnishings, electronics, appliances, linens, etc., which are at least in good condition. “Junk” items cannot be deducted.

Donated Vehicles

Your deduction depends on the charity’s use of the vehicle. If the charity sells it (and does not use it significantly for making improvements or for other charitable purposes), your deduction will typically be the amount of gross sales proceeds. Also, be aware that the charity is required to issue detailed written acknowledgments on Form 1098-C to you and to the IRS…which the IRS can use to verify the information on your tax return.

I am thankful for your generosity to our community and world and want to make sure you get the tax deductions you deserve. If you have any questions or concerns about how you can optimize the tax write-offs of your 2011 charitable contributions, please give me a call to discuss.

Is This Meal Deductible?

inside restaurant

Can you guess the tax question I get most often? If you are a small business owner or contractor, the odds are you have also asked this question…

How much of my meal is tax deductible?

Of course the basic answer is the meal must involve a business function. Beyond that, the list of meals you can deduct falls into two categories:  50% or 100% of the meal cost is deductible. Here are the details:

Meals are 50% deductible:

  • When involving the business meetings (including office and partner meetings) of employees, directors, stockholders and agents.
  • During most business travel. Note: even though an employee many be reimbursed 100% for business travel meals, the meal is still only 50% deductible.
  • At conventions, seminars or similar events where the meal is included. If it is not included in the event fee, calculate the cost using a reasonable per diem rate for that locale.
  • When the business will benefit from the meal or the meal includes a business purpose when meeting with people associated with the business (clients, vendors, customers)

Meals are 100% deductible when:

  • office snacks (coffee, colas, bottled waters, donuts, etc.) are provided on your business’ premises.
  • food is made available to the public for free (such as a promotion of your business).
  • Your company holds the annual picnic and holiday party.
  • You provide food for a charity sporting event.
  • You provide a meal of convenience to more than half of your employees while at your place of business (such as when your employees work after general working hours).

Billing a client for a meal? Be sure to separately state the meal cost to receive the full deduction. If the cost of the meal is not separately listed, only 50% of the cost can be deducted.

5 Ways to Prepare NOW for Tax-Free Retirement Income

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Whether you are many years from retirement or it’s just around the corner, the idea of paying taxes on your retirement income is not a pleasant thought. We know that retiring typically means having a fixed income, so how can you prepare now to avoid taxation worries later?

The key is where you place your money. Here are four locations to set aside your savings today.

Health Savings Account: While we generally think of this as a current benefit for uninsured medical costs, this tax-free-contributions plan can be used in retirement to reimburse yourself for past or present health care costs…including Medicare premiums! Long-term investment options are offered per plan and funds remain until you retire. As long as you follow the plan’s rules, no taxes are paid on withdrawal (not even on the gains).

Roth IRA: Your money is only taxed when deposited and not when withdrawn in retirement…and that tax-free status covers your investment gains. However, tax bracket and contribution limits mean this option is not for everyone.

Roth 401(k) or 403(b) account: Available to any income level, this option lets you make Roth contributions inside your 401(k) and 403(b) accounts. While the withdrawal of contributions and earnings in your retirement years are tax-free, you do pay taxes on your contributions during the year the funds are deposited. Also, the contribution limits are higher.

Municipal Bonds and Funds: Income from municipal bonds is federal-tax-free (though sometimes taxed by states). However, these bonds typically pay a lower interest than taxable versions and are subject to taxes if bought or sold on a secondary market.

Life Insurance: After you have exhausted all your other tax-deferral opportunities, it could make sense to consider a cash value life insurance policy. Cash value builds up in a whole life insurance policy on a tax-deferred basis. There is no tax on the cash value until surrender, and then only if the value exceeds the policyholder’s cost basis. If a policyholder wants access to the cash value without surrender, he can borrow up to a designated percentage of a cash value.

Which tax-free options fit best with your current situation and retirement plans? Call me to review your portfolio, now. Then you can rest assured that all of your retirement savings will be ready for you to use, later.