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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.

Retirement Plan Tax Savings Strategies

Are you looking for retirement plan tax savings strategies? Retirement plans can generate the best tax savings for business owners and employees alike. And these tax savings can be either current savings, or savings during retirement.

Fully funding your company 401(k) with pre-tax dollars will reduce current year taxes, as well as increase your retirement nest egg. For 2017, the maximum 401(k) contribution you can make with pre-tax earnings is $18,000. For taxpayers 50 or older, that amount increases to $24,000.

If you have a SIMPLE 401(k), the maximum pre-tax contribution for 2017 is $12,500. That amount increases to $15,500 for taxpayers age 50 or older.

If certain requirements are met, contributions to an individual retirement account (IRA) may be deductible. For taxpayers under 50, the maximum contribution amount for 2017 is $5,500. For taxpayers 50 or older but less than age 70 1/2, the maximum contribution amount is $6,500. Contributions exceeding the maximum amount are subject to a 6 percent excise tax. Even if you are not eligible to deduct contributions, contributing after-tax money to an IRA may be advantageous because it will allow you to later convert that traditional IRA to a Roth IRA. Qualified withdrawals from a Roth IRA, including earnings, are free of tax, while earnings on a traditional IRA are taxable when withdrawn.

If you already have a traditional IRA, you should evaluate whether it is appropriate to convert it to a Roth IRA this year. You’ll have to pay tax on the amount converted as ordinary income, but subsequent earnings will be free of tax. And if you have a traditional 401(k), 403(b), or 457 plan that includes after-tax contributions, a new rule allows you to generally rollover these after-tax amounts to a Roth IRA with no tax consequences. A rollover of a SIMPLE 401(k) into a Roth IRA may also be available. As with all tax rules, there are qualifications that apply to these rollovers that we should discuss before you take any actions.

If you require distributions from your IRA or employer retirement plan but are not yet 59-1/2 to avoid the 10% early withdrawal penalty, consider setting up distributions using the “Substantially Equal Periodic Payments” rule that allows these distributions to escape the 10% penalty.

Many employer retirement plans have increased limitations for 2018. For those participating in a 401(k), 403(b), most 457 plans and the government’s Thrift Savings Plan, the annual contribution limit will increase to $18,500 with the catchup contribution for those fifty and older remaining at $6,000. If you maximize and would like your employee contributions spread equally over the year, make sure to request changes with your employer for the first paycheck of 2018.

Retirement plan tax savings tend to be the quickest and easiest way to generate tax savings for most people. We strongly recommend using these plans to minimize taxes. We also recommend coordinating these tax savings vehicles with your financial advisor.

 

Escape the 10% Penalty on IRA Distributions with Substantially Equal Periodic Payments

IRA DistributionsIf you take IRA distributions or 401(k) distributions from your IRA or employer’s retirement plan before the age of 59-1/2, normally you will get tagged with a 10% penalty, in addition to the income taxes owed on the distribution. However, there is a strategy to avoid this penalty by taking “Substantially Equal Periodic Payments”. This strategy allows you to begin making withdrawals before the age of 59-1/2 and avoid the 10% penalty.

There are some rules you must follow to avoid the penalties:

  • The payments must be made at least annually
  • The payments must be calculated using one of three specific IRS methods and are based on the life expectancy of the owner or of the owner and beneficiary.
  • The payments must be made for at least 5 years, or until you turn 59-1/2

Read more here…

 

How to Resolve Excess IRA Contributions

Do you have a problem with excess IRA contributions? If you made contributions to your IRA, Roth IRA or SEP plan that exceed the contribution limits allowed for you this year, you could be at risk of IRS penalties. You can easily correct this, however. If an excess contribution is made during the year, the excess contribution penalty will not apply if the excess contribution plus related earnings is withdrawn by the due date (including extensions) for filing the return.

If you do not withdraw the excess contribution by the due date of the tax return, you will be penalized at the rate of 6% for each year the excess contribution is allowed to remain in the IRA.

 

Time Your Retirement Plan Income

If you are able to plan your withdrawals from your retirement plan, you can save considerable tax dollars. This is not always possible, but the basic premise is to take distributions and pay the resulting tax in years when your marginal tax rate is low. Also watch for years when your taxable income is unusually low and some amount of distributions can be taken tax-free at ages 59½ and over. The early withdrawal penalty applies only to those under 59½.

 

Inherited House

A reader asks, “Someone inherits a house. I understand that if it sold within 6 months, the house steps up in basis and in general there is no tax due. What reporting requirements are there. Do you need to report the sale on your return, what other issues tax-wise would there be?”
Continue reading…

 

Navigating IRA Contribution Limits

Are 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.
Continue reading…

 

Did You Collect the Needed W-9s?

Highlights:

  • 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.