Tax Provisions That Expire In 2013

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Tax Provisions That Expire In 2013

Dec 25, 2013 Posted by Sanjiv No Comments

There are many tax provisions that are scheduled to expire at the end of 2013. You should consider taking advantage of these provisions while they exist.

Tax Breaks For Individuals

Exclusion for Mortgage Debt Cancellation on Primary Residences

In general, debts that have been cancelled or forgiven are considered to be taxable income. There has been an exception for mortgage debt cancelled between 2007 and 2013 if the debt was canceled because of a short sale, mortgage restructuring or foreclosure.

Distributions From Retirement Plans Are Tax Free If It Is For Charitable Purposes

Individuals that are at least 70.5 years old can distribute funds from a retirement account directly to the charity of their choosing up to $100,000 per year as a qualified charitable distribution. These qualified charitable distributions are tax free and may satisfy the minimum plan distribution rules.

Qualified Small Business Stock Exclusion

Investors are able to sell qualified small business stock. 100% of the gains from the sale of the stock will be excluded from income. After 2013, only 50% of the small business stock gains will be able to be excluded.

 Tax Breaks For Employee Benefits

 Mass Transit Benefit

 During 2013, the tax free exclusion for the mass transit fringe benefits was $245 each month. The amount is reduced to $130 per month beginning in 2014.

 Above The Line Deductions

Deduction For Classroom Expenses

K through 12 educators, principals and teachers are able to deduct job related expenses up to $250 as an above the line deduction. In 2014, they will only be able to deduct these expenses as part of the itemized deduction for employee business expense.

Deduction for Tuition and Fees

This above the line deduction expires in 2013. In 2014, the American Opportunity Credit and Lifetime Learning Credit will be available.

Itemized Deductions

Mortgage Insurance Premium Deduction

Homeowners are able to deduct mortgage insurance premiums, only through 2013, as part of the mortgage interest deduction.

Local and State Sales Tax Deduction

State sales tax can be deducted in place of state income taxes. This is very valuable for taxpayers that live in any state that does not have state income tax.

 Real Property Charitable Contributions Made For The Purpose of Conservation

Taxpayers that donate conversation easements to a charity can deduct the value of the easement limited to 50% of AGI minus deductions for all additional charitable contributions. The 50% special limitation expires in 2013.

 Tax Credits

Non Business Energy Property Credit

The tax credit is for 10% of the cost of the qualified energy efficient products that are installed at the main residence of the taxpayer.

2 Or 3 Wheeled Plug In Electric Vehicles

This tax credit is for $2,500 for a vehicle that draws energy from a battery that has a minimum of five kilowatt capacity hours. There is an additional $417 credit for each additional kilowatt capacity hours in excess of the minimum five. The total of this credit has a limit of $7,500.

 Credit For Health Coverage

 The health coverage credit is equal to 72.5% qualified health insurance premiums and the taxpayer’s family.

Credit For Work Opportunity Tax Credit

This tax credit is an incentive for businesses to hire specific employees including public assistance recipients or veterans. For example, employers can receive a tax credit of $4,800 for each disabled veteran that is hired.

 Depreciation

Bonus

 Businesses are able to deduct up to 50% of new equipment costs through a bonus depreciation deduction in 2013. All of the rest of the cost of the equipment will be depreciated over the equipment’s useful life. This bonus will not be available in 2014. The only exception in 2014 will be in the case of noncommercial aircrafts and long production period property.

Section 179

Under section 179, businesses are able to expense the total cost of equipment in the year it is purchased instead of using depreciation and spreading the cost over many years. In 2013, businesses are able to expense up to $500,000. In 2014, they will only be able to expense up to $25,000.

 

 

 

Education Tax Deductions and Credits Can Help Save You Money

Dec 25, 2013 Posted by Sanjiv No Comments

The cost of college is always increasing; however, there is some relief with education tax deductions and credits. Qualified education expenses may be deducted for your dependents, yourself or your spouse. These tax deductions and credits help more parents and students pay for college expenses.

 American Opportunity Tax Credit

 The American Opportunity Tax Credit helps taxpayers save money on the cost of post-secondary education. It is a tax credit for undergraduate college qualified expenses. This credit was extended until Dec. 31, 2017 when the 2012 American Taxpayer Relief Act was passed.

Tax credits are better than tax deductions because credits reduce the total amount of tax owed or it increases the total amount of your refund in the credit amount. This means that your tax liability will be reduced one dollar for each eligible credit. There is a $2,500 maximum per student for the American Opportunity Tax Credit. In order to qualify, you need to have paid a minimum of $4,000 during the year in qualified education expenses. If you do not incur a tax liability during the year, this credit is still partially refundable up to 40%.

What Expenses Qualify For The Education Tax Credits?

The American Opportunity Tax Credit is unlike other education related tax credits because in addition to tuition, it also includes expenses for supplies, equipment and course related books that are not always paid directly to the educational intuition. Computers qualify for the tax credit if the computer is needed as a condition of attendance or enrollment at the educational institution. These expenses for course materials must be needed for the course of study.

This credit is allowed to be claimed for expenses that are incurred for during the first 4 years of the post-secondary education. The expenses must be paid during the taxable year and relate to the academic period that begins during the same year or the academic period that begins during the first 3 months or the following taxable year.

There are several expenses that do not qualify for the education tax credits. These expenses include:

  • Transportation
  • Room and board
  • Medical expenses
  • Insurance
  • Student fees that are not required as a condition of attendance or enrollment
  • Expenses that are paid with tax-free assistance
  • Expenses that are used for another educational benefit, tax credit or tax deduction

Do I Qualify For The American Opportunity Tax Credit?

The education expenses must relate to the first 4 years of college after high school to qualify for this tax credit. Although graduate students do not qualify for the American Opportunity Tax Credit, there may be other tax deductions and credits that may be eligible for including the Tuition and Fees Deduction and the Lifetime Learning Credit. The American Opportunity Tax Credit is not available for single filers with a modified AGI (adjusted gross income) higher than $90,000 or people filing jointly with income higher than $180,000.

What is the Tuition and Fees Deduction?

 If you have paid a minimum of $4,000 in education tuition and fees, the tuition and fees deduction maximizes out at $4,000. This is a tax deduction and is not the same as a tax credit. Additionally, it is different than the American Opportunity Tax Credit because the deduction for upper income is phased out at a slightly lower income range. This deduction is not available for single filers with a modified AGI (adjusted gross income) higher than $80,000 or people filing jointly with income higher than $160,000.

It is important to understand that you cannot use the American Opportunity Tax Credit and the Tuition and Fees Deduction in the same year. You need to choose between taking the Tuition and Fees Deduction or claiming the American Opportunity Tax Credit.

Interest is taxable but often overlooked

Sep 16, 2013 Posted by Sanjiv No Comments

Any interest that the tax payer receives directly, or through a credit in his account and is of the nature that it can be withdrawn at a future date without attracting any penalty or interest, is termed as taxable income. Bank interest rates, money market accounts, certificates of deposit, deposited insurance dividends etc, are few examples of taxable interest income.

The interest on Series EEE and the series IUS bonds saving bonds are usually classified as tax deferred bonds as tax need not be paid on these, unless it matures and starts generating income. Interest from such bonds, which have been issued after the year 1989, are not taxable if it is generated to fund higher education expenses for that particular year. Form 815 explains about the interest that needs to be excluded from redeemed US Savings bond whereas form 1040A, 1040 or Schedule B talks about excludable interest from the Series EEE bonds issued after 1989.

Dividends are actually interests on deposits or accounts with banks, credit union, stocks held in the capital market, domestic building and loan associations, mutual savings banks etc. The interest payer sends the Copy B of Form 1099- NT to the receiver, who in turns all the necessary paperwork to claim deductions for interest received. The Publication 550 or Publication 1212 gives more details about bonds or debt instruments that were originally offered at a discount. This explains that a part of the original discount must be included every year as interest charges.

Some interest incomes qualify for the federal income tax but are exempted from the state and local income taxes. These incomes include interest from Treasury Bills, notes and bonds. Interest income on some bonds that are used for financing government operations, or that are issued by the state government or by the District of Columbia or a US possession does not qualify even for the federal income tax. It is the duty of the tax payer to duly submit all the interest details that are exempted from tax while filing tax returns. This is because details submitted to the IRS should be complete and accurate. This is only for the records of the IRS and they would not charge any tax on this amount.

A nominee who receives the interest on behalf of the actual recipient should inform the IRS of the same and also furnish all these details to the actual recipient or recipients. Interest amount received by the nominee should be shown as a subtotal of the all interest revenues listed under Schedule B of form 1040 or Form 1040A. The nominee must fill up the Form 1099-INT for the interest portion and hand over the copy B to the actual recipient.

If one receives interest income that qualifies for tax payment, then the same should be done by the receiver on time so that no interest charges or penalties are charged on them. The receiver of the interest should furnish accurate details about his social security number to the interest payer.

Obama Care Explained in Plain English

Aug 17, 2013 Posted by Sanjiv No Comments

The US President, Barack Obama and the Congresss, signed an agreement in the year 2010 to bring Obamacare into practice. This is a health insurance scheme initiated by the President, so that all the US citizens are covered. The medical costs are on an uptrend in the recent years and average medical expenses run into thousands of dollars. In a bid to reduce these costs and make the citizens feel covered in case of medical emergencies, the Obamacare plan was launched.

Once a family is covered with the general health insurance, then it need not worry about the shooting medical expenses in case of hospital visits, as a majority of the expenses are covered under this scheme. The patient only needs to pay a very nominal amount during the first visit to the hospital. This is called co-payment. Most of the employees provide this scheme to their employees in return for a reasonable monthly premium payment.

However Obamacare gives additional benefits to families who already have this scheme and it also provides coverage for people who are so poor that they cannot afford even the minimum premium payments. There are lots of daily wage workers in the US, whose employers do not offer any health insurance schemes to cover them. Obamacare is a panacea for all.

Changes that are reflected already

People who have health insurance get additional benefits from Obamacare in various ways. Parents can get additional coverage for their kids, till the kids turn 26 years of age. This plan does not drop patients midway or remove the coverage if somebody in the family falls ill suddenly. Insurance companies, under Obamacare policy, can never refuse to cover for families that have a chronically sick member. The co-payment option is taken off from this system and most of the general check and pregnancy tests can be done free of cost.

Insurance companies cannot act fraudulently and can raise premiums during the term of the policy, only if the increase rates are allowed by the state government. According to this policy, the insurance companies should use 80% of the premiums they receive, for settling claims of the insured people. However, if they fail to do it and instead spend on advertising expenses, they have to send a check to the insured for the excess amount used up. Families that do not have any insurance can use Obamacare to get temporary insurance cover till the year 2014.

Important changes in future

Obamacare will make health insurance compulsory in the year 2013. Failure to take insurance  will attract a fine of 2.5% of the annual income to be paid to the government. Insurance schemes can be easily purchased online. Small business employers will have to mandatorily buy health insurance, failing which, they have to cough up a fine of $2000 per employee, except for the first set of 30 employees who joined the company.

How to claim the Small Business Tax Savings Credit

Aug 17, 2013 Posted by Sanjiv No Comments

The small business employers are given excellent benefits in the Affordable Care Act. These small business employers provide good health care plans to their employees and hence they are given tax credits to reduce the burden they suffer by providing the health insurance plans.

What is the small business tax savings credit?

According to the Affordable Care Act, small business employers and small tax –exempt employers like non- profit organizations get a tax credit of 35% and 2% respectively for the years 2010 to 2013.  These credits are due to increase correspondingly to 50% 35% in the year 2014. The scheme of offering such attractive tax credits is called Small Business Health Options Programs (SHOP).

These tax credits can be carried back or forward to other years also thus helping the small business employers in a big way. The health insurance premiums that they pay to the employees are usually higher than the tax credits that they receive through the SHOP. In these cases, these employers can claim a business expense deduction for the premiums that they pay over and above the tax credit that they get. This is a double whammy for them, as they get both the credits and the deductions that they are due to get.

What exactly is a small business?

The explanation of the tax credits mentions small business employers in every page. However, there are certain rules to explain as to who these small business employer. To qualify for the double whammy, one needs to fulfill the following conditions:  a) the employer needs to cover at least 50% of the health care coverage (single coverage and not family) for each of his employees. b) There must be lesser than 25 full time employees in the business for it to be classified as a small business. Two half time workers can be considered as a 1 full time employee and c) These employees must be paid less than $50,000 a year as wages.

Claiming the credit

The small business employers can arrive at the tax credit that they are due, by using the IRS form 8941. This has to be then included along with the general business credit while filing the income tax return. The small business employers have a great advantage to carry their tax credits either backward or forward and use it as and when they require it the most. Using the help of a professional tax advisor can help in calculating the exact tax credits and maximizing the benefits of this option.

All sufficient evidence supporting the facts should be submitted to the IRS to make it clear that the employer, who is qualifying for a tax credit, is indeed a small business employer. Once the IRS is fully convinced about the authenticity of the paper work, then the tax credit gets approved and it reaches the employer at the time that they have opted. The additional deductions also help the employers in a big way as they don’t feel the burden of huge healthcare expenses.

President Obama has been a boon for entrepreneurs and small businesses.

Aug 5, 2013 Posted by Sanjiv No Comments

The health care plan issued by President Obama has been a boon for entrepreneurs and small businesses. This Affordable Care Act gives these small businesses lot of support and help for buying health insurance. Venture capitalists see this as a massive opportunity and they have been giving away lots of cash benefits for starting up health care centers across the US.

The investments made in health care setups grew at a whopping 64% in the first quarter of 2013 which is way higher than investments last year.  Brad Weinberg, a partner at Blueprint Health  and a venture capitalists for new health care setups suggests that this is the best time for entrepreneurs for setting up health centers as all infrastructure is available like the interest, support and capital.  Blueprint has been helping around 30 companies with $20,000 each for setting up health care centers for a stake of 6% in equity.

Health care was never the most sought after industry in the US as technology was the booming sector. Even the IT companies were more focused on social networking or game centers. However the Affordable Care Act turned everybody’s focus on the health care industry, due to the huge financial incentives that it provided. There are more opportunities to set up newer units and speedily resolve many health problems.

Attractive financial incentives accompany the Affordable Care act. These are offered to health care providers to upgrade their medical equipments to newer models and the patients are encouraged to stay healthy always. People who work with the new start ups have stated out of their experience, that the hospitals and insurance companies always look up to entrepreneurs for their innovative technologies. New start ups are given huge aids to come up with new and cheap techniques to make healthcare a booming industry.

David Whitlinger, executive director of the New York eHealth Collaborative announced recently that the list of venture capitalists and health care providers that have registered with them, are more than what they can deal with.  Whitlinger runs a digital health accelerator program that had graduated its initial set of startups recently.  This initiative selects a list of startups that have the potential to help New York’s medical program that find dozens and dozens of venture capitals who are interested in investing in these set ups.

Insurance leaders, medical centers and medical shops have gone on record to offer huge discounts and financial assistances for health start ups that solve their problems. This has encouraged these small businesses and entrepreneurs to come out with new models and help the people in reducing their hospital visits. These entrepreneurs have found the able support of venture capitalists, who offer them the much needed capital and support to set up their establishment. This is a mutually beneficial plan of the Affordable Care Act where the venture capitalists get a stake of equity of the fresh start ups and these new businesses get the backing of established venture capitalists and enough capital to start working.

 

New York Times gets so- called “Cadillac Tax” wrong

Jul 21, 2013 Posted by Sanjiv No Comments

Healthcare-Now! is an online portal that specializes on the health schemes of US and helps the people to understand the schemes better and ways to access the same. Recently it clarified a mistake that was done by New York Times about the coverage and purpose of the Cadillac Tax. Healthcare-Now! explained the right concepts and insisted that the article by New York Times was clearly misleading to the general public.

They insisted that thought the publication was right about the perils of this tax, it had gone wrong about who can use this tax and how the employers are looking out for ways to evade the same.  The tax was incorrectly said to punish the employers who provided high end health welfare plans to their workers. However, in reality, the tax actually punishes plans that have huge premium charges. ($10,200 for individuals and $27,500 for families).

It was also found out that the coverage of the insurance plans had no relation to their premium amounts, which means that plan with high premiums do not necessarily offer a wide coverage and plans with low premium do not necessarily offer a small coverage. Recent studies reveal that only 3.7% of the entire premium differences could be related to the difference in coverage. This tax would not give any impact for people, who already have a good coverage, but this could affect older patients who might be required to pay up to three times the premium amounts of what the younger patients pay and it could also mean more premiums to pay for people who live in states that have expensive health care.

The Times had explained that this tax would encourage the employers to lower their employees’ premium cost through various health and wellness centers to monitor the employees’ health. However lots of research was done on this subject lately and it was found out these health centers only act as a tool through which the employers transfer costs onto workers with lifelong illnesses. These employees are either exorbitant rates of premium or their benefits are withheld.

Healthcare-Now insists that a single payer tax system  is a better way to reduce healthcare costs  as it would take off the burden of huge costs from the employer’s shoulders and ensures that all employees get reasonable coverage for their premiums. A publication as reputed as the New York Times should act more socially responsible and stop publishing wrong information about the Cadillac Tax as millions of people get misled due to this.

Hence, this portal requests and encourages the readers to submit a short 150 page letter to the editor of the New York Times explaining about any recent article and requesting them to change their stand on the Cadillac Tax. People who are interested and write to the editor must mention their names, addresses and phone numbers so that it is easy for tracing. A huge collective effort like this would surely stop people from misinterpreting the properties of the Cadillac tax.

Small Business Tax Savings Credit Explained

Jul 21, 2013 Posted by Sanjiv No Comments

How to claim the Small Business Tax Savings Credit ?

The small business employers are given excellent benefits in the Affordable Care Act. These small business employers provide good health care plans to their employees and hence they are given tax credits to reduce the burden they suffer by providing the health insurance plans.

What is the small business tax savings credit?

According to the Affordable Care Act, small business employers and small tax –exempt employers like non- profit organizations get a tax credit of 35% and 2% respectively for the years 2010 to 2013. These credits are due to increase correspondingly to 50% 35% in the year 2014. The scheme of offering such attractive tax credits is called Small Business Health Options Programs (SHOP).

These tax credits can be carried back or forward to other years also thus helping the small business employers in a big way. The health insurance premiums that they pay to employees are usually higher than the tax credits that they receive through the SHOP. In these cases, these employers can claim a business expense deduction for the premiums that they pay over and above the tax credit that they get. This is a double whammy for them, as they get both the credits and deductions that they are due to get.

What exactly is a small business?

The explanation of the tax credits mentions small business employers in every page. However, there are certain rules to explain as to who these small business employer. To qualify for the double whammy, one needs to fulfill the following conditions: a) the employer needs to cover at least 50% of the health care coverage (single coverage and not family) for each of his employees. b) There must be lesser than 25 full time employees in the business for it to be classified as a small business. Two half time workers can be considered as a 1 full time employee and c) These employees must be paid less than $50,000 a year as wages.

Claiming the credit

The small business employers can arrive at the tax credit that they are due, by using the IRS form 8941. This has to be then included along with the general business credit while filing the income tax return. The small business employers have a great advantage to carry their tax credits either backward or forward and use it as and when they require it the most. Using the help of a professional tax advisor can help in calculating the exact tax credits and maximizing the benefits of this option.

All sufficient evidence supporting the facts should be submitted to the IRS to make it clear that the employer, who is qualifying for a tax credit, is indeed a small business employer. Once the IRS is fully convinced about the authenticity of the paper work, then the tax credit gets approved and it reaches the employer at the time that they have opted. The additional deductions also help employers in a big way as they don’t feel the burden of huge healthcare expenses.

Three annuity mistakes to avoid

Jun 30, 2013 Posted by Sanjiv No Comments

The recently concluded Market Watch Retirement Adviser Event held in New York, gave some basic insight into dealing with annuities and what are the mistakes to avoid while doing so. The immediate annuities and the deferred annuities contribute excellently to the whole retirement income strategy; however, the benefits of these are usually not utilized fully, because both consumers and financial experts make some gross errors while dealing with these.

John Olsen, president of Olsen Financial Group and an expert on annuities (he is also author of lots of annuities books including, Index Annuities: A suitable approach), addressed the gathering and explained about the various mistakes that one should avoid while dealing with annuities. The three mistakes are explained below:

Unfair Comparisons

The common mistake that people make with annuities is about the costs. Most of them view of these costs as overheads and hence there is a perception among the general public that these annuities are quite expensive. However, Olsen gave a different view to the whole concept. He advised that one should start looking at these costs as the charges for the risk that is being borne by the insurance company on behalf of the buyer. One of the major reasons for misunderstanding these annuities is that the consumers are not trained to manage risk properly and to transform their assets into income.It was also emphasized, annuities, being a product of insurance, would definitely come with the additional baggage of insurance costs. This cannot and should not be ignored by customers, at any cost. The insurance products never pay profits on average, and it imperative for the consumers to realize the fact that the insurance companies can never survive if it starts to pay off profits on an average. This being a product of insurance can never be compared with other mutual funds, because that would be equivalent to comparing apples with oranges.

Focusing on Returns

Olsen advised the focusing on the rate of return when buying annuities is not the right way to deal with annuities. Though low interest rates directly collaborate with lower pay payouts, annuities must be viewed for the absolute insurance of having a particular amount, in one’s account every month. One should consider the benefits of mortality credits while evaluating annuities. These are nothing but the process where the premiums paid by persons who die earlier than expected, yield more benefits for persons who live longer.

Failing to Annuitize

Annuitizing a particular portfolio strengthens it and reduces the risk of failure to a great extent. In addition to that, an annuitized portfolio also guarantees a steady flow of retirement income. However, most people fail to realize the benefits of annuitizing. Olsen advised that this process must be focused on more, to evaluate the benefits of annuities in a proper methodical way. The experts at the Market Watch Retirement meet, suggested the consumers that past data should not be taken as the base, as it can create negative impact in their minds.

Tips to Maximize Tax Savings

May 19, 2013 Posted by Sanjiv No Comments

You may be working hard and earning big money but what is the use when you have not planned your taxes properly? Not planning for tax payments is as good as being unemployed because a lot of hard earned dollars are wasted in paying taxes due to the lack of planning. So it is imperative to plan for tax payments, well in advance.

Here are a few tips, from well-accomplished financial consultants, that may help you to maximize your tax savings and have more money in hand to spend for yourself.

  1. Working for a company

Sometimes it is good to work for someone than have your own business. Wondering why? Let me explain. By working for a company or by being on someone else’s payrolls, you may have to take a cut in your pay package. Nevertheless, you may still be left with more take home money than what you had when you owned a business because you end up paying less in tax. For example, if you were working for a University as a professor, fringe benefits such as health insurance and worker’s compensation would take a big chunk of your salary thereby leading to lower tax payments.

  1. Combining vacations with Business Trips

Going on expensive vacations may burn a big hole in your pocket in terms of tax payments. But if these vacations are combined with business, there could be a lot of savings in terms of tax payments because hotel bills, meals and car rentals are partly deductible from tax payments. But this is not a good practice to follow always as there could be a lot of questions from IRS when this becomes a regular pattern. So, sometimes it is better to pay taxes fully for expensive vacations than claiming for deductions.

  1. Keeping a tab on Business related expenses

Normally when on business trips we are lax and do not keep a tab on the expenses incurred during the trip. It is critical to keep track of all these expenses because in the case of an IRS audit, it is this information that will come in handy to substantiate expenses incurred during a business trip. Also, it is a good practice to tag all business transactions to a single credit card. By using the same credit card for all business related expenses, the expense statement from the credit card company can be used to back up claims made towards expenses incurred during a business trip.

  1. Employing your Spouse

Though a little tricky, this option provides a lot of tax savings. Being your spouse’s employer you can claim for health reimbursements that cover out-of-pocket medical expenses such as spectacles, co-payments and dental costs with pretax dollars. But under these circumstances payroll tax payments are unavoidable. In order to claim for tax payments under this option it is imperative to have an employment contract, signed by your wife and a perfect time sheet recording your wife’s working hours. It is very important to keep track of payroll tax payments because payroll mistakes can completely wipe away the tax savings.

While these are just some of the many tax saving options available, it is always advisable to seek the guidance of a qualified CPA in order to maximize tax savings.