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We’ve assembled posts on a wide variety of topics for income tax help. We have articles on tax preparation, tax planning, payroll taxes, sales taxes and more. Feel free to browse our recent articles below, use our search bar to the right, or go to our more popular categories above.

We realize that the income tax code is complex and ever-changing. The posts in this page are meant to be informative but never should replace the need for professional assistance in tax return preparation or tax planning. Therefore, we encourage you to read these posts to become informed, and seek guidance of a CPA or Enrolled Agent when your needs become more complicated.

Navigating IRA Contribution Limits

april15Are you wondering if you can make a contribution to your IRA to help save on taxes? Not every one is eligible to deduct an IRA contribution on their return and the rules concerning IRA contribution limits can be confusing, so here’s some guidance.

First, the overall limit for a contribution to a traditional (deductible) IRA in 2013 and 2014 is $5,500 if you are under 50 years old, or $6,500 if you are 50 years or over.

Second, you must have “earned income” in an amount equal to or greater than the amount you wish to contribute.  Earned income includes W-2 income, income from self-employment, alimony and separate maintenance payments received under a divorce decree or separate maintenance, and combat zone compensation that is excluded from income. It does not include K-1 pass-through income from your corporation, even if you own 100% of the business. In other words, the contribution to the IRA is limited to the lesser of your earned income or the $5,500/$6,500 limit discussed above.  If you don’t work, and your spouse does, you can contribute to your own IRA under the spousal IRA provision.

The last limitation is based on your overall income and whether you participate in a retirement plan at your employer. Income includes income from all sources, including wages, self-employment, interest income, income from investments, rental income, pension income and anything else that is taxable income.

Various limits come into play depending on filing status. If you are an active participant in your employer’s plan, your contribution becomes limited when your income exceeds $95,000 (MFJ), or $59,000 for single filers. There is no deduction allowed if you are married filing separately and your income exceeds $10,000.  All amounts are for 2013 and are adjusted annually by the IRS for inflation. The deduction quickly becomes phased out at income levels above this, and is completely eliminated when your income exceeds $115,000 for married filing joint taxpayers and $69,000 for single taxpayers.

If you are not an active participant, but you are married and your spouse is, your deductible contribution becomes limited when your modified adjusted gross income exceeds $178,000 in 2013. It is completely phased out when your income exceeds $188,000.  There is no deduction allowed if you are married filing separately and your income exceeds $10,000.

These income limitations do not prevent you from making the contribution, they just prevent you from deducting the contribution on your tax return. If that happens, you may want to consider contributing to a Roth IRA instead. However, there are income limitations for Roth IRAs as well, but there are also strategies to get around those income limits that we can discuss with you.

The deadline for contributions for 2013 is April 15, 2014.



Did You Collect the Needed W-9s?


  • The IRS Form W-9 is used to obtain independent contractors’ tax ID numbers.2013 Form 1099-Misc
  • Tax ID numbers are required when filing 1099s.
  • 1099-MISCs must be issued to independent contractors that are paid $600 or more during the year for performing services for a trade or business.

If you used independent contractors to perform services for your business or trade, and you paid them $600 or more for the year, you must issue them a Form 1099-MISC to get the deduction for their labor and expenses and avoid potential penalties. (This requirement generally does not apply to payments made to a corporation. However, the corporation exception does not apply to payments made for attorney fees and for certain payments for medical or health care services.)

It is not uncommon to have a repairman out early in the year, pay him less than $600, then use his services again later and have the total paid him for the year exceed the $600 limit. If this happens, you may overlook the information needed to file 1099s for the year. Therefore, it is good practice always to have individuals complete and sign the IRS Form W-9 the first time you use them. This eliminates oversights and protects you against IRS penalties and conflicts.

Many small business owners overlook this requirement during the year, and only realize in January that they have not collected the required documentation to issue 1099s.

If you have not collected W-9s throughout the year, do so as soon as possible, so you will have them available when it comes time to prepare 1099s for the year. It is sometimes difficult to acquire contractor information after the fact, especially from those contractors with no intention of reporting the income, so it’s always better to get it up front.

Form W-9 provides entries for the contractor’s name, contact information and tax ID number. It also includes a signature block for the contractor, certifying the information and insulating you against penalties if he or she provides an incorrect or phony ID number.

Click here to download the Form W-9.

If you have questions or need copies of the Form W-9, please call us. We can also assist you with your 1099 filing requirements; the deadline to mail these to your vendors is January 31st.


16 Tax Issues Facing Small Business Owners in 2014

2014 will be a challenging tax year for small business owners and higher-income taxpayers. The following issues are concerns that may impact you and your company’s tax liability in the new year.

  • Small Business Health Insurance Credit – The tax credit to small employers (25 or fewer equivalent full-time employees) that provide an affordable health insurance plan for their employees and supplement at least half the premiums, will increase to 50% of the employer’s contribution in 2014, up from 35% in 2013. For non-profit employers, the credit will be 35% in 2014.
  • Net Investment Income Tax – As part of the Patient Protection & Affordable Care Act (the new health care legislation sometimes referred to as “Obamacare”), a new tax kicked in for 2013 and will continue in 2014 and beyond. It is a surtax levied on the net investment income of taxpayers in the higher-income brackets. And although it is perceived as an additional tax on higher-income taxpayers, it can affect even those who normally don’t have higher income if they have a large income from the sale of real estate, certain business assets, stocks, or other investments. This is on top of the 20% long-term capital gain tax rate now in effect for higher-income taxpayers.
  • Higher Tax Rates – Prior to the increase in 2013, there were six tax brackets: 10, 15, 25, 28, 33, and 35%. Beginning in 2013 and continuing for future years, a new top rate of 39.6% has been added for higher-income taxpayers.
  • Higher Capital Gains Rates – Beginning in 2013 and continuing for future years, the tax rate for long-term capital gains and qualified dividends has been increased to 20% (up from 15%) for taxpayers with incomes exceeding the threshold for their filing status.
  • Medical AGI Phase-out – Beginning in 2013 and continuing for future years, a taxpayer’s medical deductions will be reduced by 10% of their adjusted gross income, up from the previous 7.5% (but the 7.5% continues to apply to seniors through 2016).
  • Possibility of Lower Expensing Deductions – The Sec 179 business expensing allowance for business equipment drops from $500,000 per year to $25,000 in 2014 unless Congress extends the more liberal amount.(1)
  • Bonus Depreciation Expires – Beginning in 2014, the 50% bonus depreciation for tangible business assets will expire unless Congress extends it.(1) This also reduces the first-year maximum depreciation deduction for business autos and small trucks.
  • Individual Insurance Mandate – Beginning in 2014, the Patient Protection & Affordable Care Act will impose the new requirement that U.S. persons, with certain exceptions, have minimum essential health care insurance, or face a penalty.
  • Large Employer Mandatory Insurance Requirement – Originally scheduled to begin in 2014 but delayed until 2015 because the government did not have the reporting mechanisms in place, large employers, generally those with 50 or more full-time equivalent employees in the prior calendar year, that:o Do not offer health coverage for all its full-time employees,
    o Offer minimum essential coverage that is unaffordable (employee contribution being more than 9.5% of the employee’s household income), or
    o Offer minimum essential coverage where the plan’s share of the total allowed cost of benefits is less than 60% (i.e., less than the bronze plan coverage),

    will be required to pay a penalty if any of its full-time employees were certified to the employer as having purchased health insurance through a state or federal exchange and qualified for either tax credits or a cost-sharing subsidy.

  • Simplified Home Office Deduction – Effective for tax years beginning in 2013 and continuing for 2014 and beyond, taxpayers can elect a simplified deduction for the business use of the taxpayer’s home. The deduction is $5 per square foot with a maximum square footage of 300. Thus, the maximum deduction is $1,500 per year. Eligibility qualifications are the same whether the simplified or regular deduction is claimed.
  • Increased Payroll and Self-Employment Tax – As part of the new health care legislation, higher-income taxpayers are faced with an additional 0.9% health insurance (HI) tax. Starting in 2013, and continuing for future years, this surtax is imposed upon wage earners and self-employed taxpayers whose wage and self-employment income exceeds $250,000 for married taxpayers filing jointly ($125,000 if filing separately) and $200,000 for all others.
  • Pease Limitations – The Pease limitation on itemized deductions that was reinstated in 2013 will continue for 2014. The Pease limitation phases out certain itemized deductions for higher-income taxpayers.
  • Phase-out of Exemptions – The phase-out of exemptions for higher-income taxpayers that was reinstated in 2013 continues for 2014.
  • Longer Depreciation Life for Leasehold and Restaurant Property – The current 15-year depreciable life will increase to 39 years in 2014.(1)
  • Qualified Small Business Stock Gain Exclusion – Beginning for qualified small business stock issued in 2014, the gain exclusion drops from 100% to 50%.
  • Qualified Real Property Expensing – Congress temporarily permitted the use of the Sec 179 expensing deduction to write off certain leasehold improvements, and restaurant and retail property improvements. Without Congressional intervention, this provision will no longer be available in 2014.

(1) Congress, a few years back, engaged in brinkmanship with last-minute tax changes. Normally, they have managed to finalize tax law by year’s end. However, for 2013, they adjourned without addressing the issue of extending many tax breaks that were set to expire at the end of 2013. It is not known if these tax provisions will be extended or not.


How an Employee Bonus is Taxed

Employee BonusAre you thinking of giving an employee bonus, holiday bonus, or year-end bonus? What’s the best way to handle these employee bonuses? Can they be handled ‘under the table’? Do you have to include them as wages on their W-2?

The answer to this question is quite simple. Any additional compensation to your employees over and above their standard salary or hourly rates is considered to be taxable compensation. The bonus is considered wages and must be reported as payroll on the employee’s W-2 and is subject to all applicable payroll taxes – federal and state withholding, FICA, Medicare and the related employer taxes.

On your books and records, the bonus is reported as wages on the income statement and it is fully deductible as a valid tax deduction if it is handled this way.  Payments to your employees made in cash (and not reported) or recorded as other expenses are not tax deductible, and may cause unforeseen issues if the IRS or state audits your books.

Many employers like to give a flat dollar bonus amount. You can do this by choosing the amount of the bonus you want hand to your employee and “gross-up” the amount. Most payroll services and payroll software can handle this calculation. By grossing up the flat dollar net amount, you are including the estimated taxes into the amount so that, after taxes, the amount is what you want to provide your employee.

The only way you can exclude the bonus payment from the employees’ W-2, not pay associated employer payroll taxes, and still get a tax deduction on your business tax return, is to make the bonus as a profit sharing bonus through your 401(k) profit sharing plan. Although your employees don’t get the bonus in cash or check, the bonus is completely non-taxable to the employee until they withdraw the funds from their plan, and you avoid paying the payroll taxes associated with paying the bonus in cash or check and including it on their W-2.


Adjusted Gross Income (AGI)

This may be the most important tax term since the tax code uses the Adjusted Gross Income (AGI) to limit a vast number of tax benefits. AGI is basically a taxpayer’s gross taxable income from all sources (gross income) reduced by certain allowable adjustments, sometimes referred to as above-the-line deductions, which are deductible whether or not the taxpayer itemizes their deductions. The more frequently encountered adjustments include deductions for deductible IRA contributions, moving, alimony payments, higher education interest, forfeited interest and deductions for health insurance premiums, pension plan contributions and 50% of SE tax for self-employed individuals.


Watch out for Corporate Records Services scam

A client of mine asked me about completing a form and paying $125.00 to a company called Corporate Records Services. They sent him a very official looking letter asking for corporate information and a check for $125.00. For a sample of the letter, click here.

I just happened across a warning about this yesterday from one of my LinkedIn attorney contacts. He had this posted on his LinkedIn profile:

“Right now business corporation owners all over the area (possibly entire state) are receiving official looking green envelopes from “Corporate Records Service” calling for “Annual Minutes Requirement Statement”. Be warned — this is NOT an official government mailing, this is NOT the Illinois Secretary of State, and you are NOT required to send this private company your corporate information and credit card information. I could not find “Corporate Records Service” company registered in the IL SOS database or authorized to do business here. Consult your legal adviser before doing anything.”

So be warned!

By the way, we are publishing this only as a warning to others. Please don’t call our office requesting confirmation of whether the letter you received is correct. We are a very busy CPA firm and we have been fielding many calls about this. If you have a question, we advise you to contact your own CPA or attorney.


Fake Affordable Care Act Websites Target Consumers for Identity Theft

Computer hackers are creating phony Affordable Care Act (ACA) websites and are asking for consumers’ personal information, such as social security and bank account numbers. The Better Business Bureau (BBB) warns consumers to never give out personal information on the Internet before confirming that the website is run by the government.
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