Discounts & Specials

Solar Tax Credit

Solar Energy Tax Credits

Federal Tax Credits of Solar Energy

Tapping the sun to acquire power feels very good. Solar power does not pollute but it reduces the use of fossil fuels and other coal and also reduce the individual carbon footprint. It is also up to five times expensive as electricity that is from natural gas and the other sources.

In order to encourage the Americans to use the solar power, the Department of Energy along with the Environmental Protection Agency run the Energy Star Program which among the other projects also offer the tax credits simply for the solar-powered systems.

Credits for approved solar installations

Installing the alternative energy equipment in one’s home can also qualify them for a credit that can amount to 30% of the total cost. The credit is made available until the end of 2019. The percentage usually steps down every year and then ultimate does so at the end of 2021.

The qualifying equipment also includes the solar-powered units that can generate the heat water or electricity. The credit can be made available for improvements especially when it is to make a residence for the individual. This can also apply to a second residence.

As credit, it is possible to take the amount directly off the tax payment and not make this a deduction from the taxable income. Aside from the cost of the system, there is also no limit to the total dollar amount of the credit.

How to Claim Solar Credits for Rental Property

It is not possible to claim credit simply for installing solar power at the rental properties that the individuals own. The exception is when the taxpayer lives in the house for just some time of the year and also use it as a rental while one is away. When one is needed to reduce the credit for the vacation home, rental and otherwise, also reflect the time that this was not there. If the individual lives there for around three months per year, for example, then the individual can claim 25% from the credit. The system usually costs around $10,000 which is the 30% credit from the $3,000 and can also claim a quarter from that, which is around $750.

Filing Requirements for Solar Credits

When claiming the credit, it is necessary that the individual must file the Form 5695 as well as part of the tax return. This can be calculated on the credit of the form. This is then entered as a result on the 1040.

If the individual ends up with bigger credit than the income tax due, then they cannot use the credit in order to get the money back from Internal Revenue Services. Generally, what they can do is carry the credit over to the following year. Unfortunately, it is not yet clear whether they can carry these unused credits to the years after the solar credit expires.

Residential Renewable Energy Tax Credit

The Consolidated Appropriations Act was signed in December 2015. It also has an expiration date for solar thermal technologies and PV and introduced the gradual step down in the value of the credit for the technologies. The credit that is delegated to the other technologies also expired toward the end of 2016.

Taxpayer can claim the credit of 30% that is considered qualified expenditures for the system that has served as a dwelling unit which is located in the United States. As long as this owned and used as a residence for a taxpayer, then this is what counts. The expenditures in relation to the equipment can also be treated and made the minute the installation of these solar panels are completed and finished. When the installation is set at the new home, then the date that is placed in the service of the occupancy from the homeowner. The expenditures also include the labor costs for every on-site preparation that is in the assembly of the installation of an original system. Preparing and wiring of an interconnected system to a home can also receive deductions from the federal tax.

Solar-Electric Property

  • 30% of the systems have been placed by December 31, 2019
  • 22% of the systems have been placed in service by December 31, 2021 and before January 1, 2022
  • Systems can also be placed in service between January 1, 2006 and December 31, 2021
  • The home that is served by the system does not have to be the principal residence of the taxpayer
  • 26% for the systems that have been placed in the service between December 31, 2019 and Janaury 1, 2021
  • There is also a maximum credit for the systems that is placed in service after 2008

Solar-Water Heating Property

  • 30% for systems have been placed in service by December 31, 2019
  • 22% for the systems have been placed in the service between December 31, 2020 and January 1, 2022
  • Systems are also placed in service between January 1, 2006 and December 31, 2021
  • Half the energy that has been used to heat the dwelling’s water ideally must come from solar and the solar water-heating property expenditures to make it eligible
  • The home is served by the system and it does not have to be the principal residence of the taxpayer
  • The tax credit does not also apply to the solar water heating property for hot tubs or swimming pool
  • Equipment must be certified for performance and pass the SRCC or the Solar Rating Certification Corporation or any comparable entity that has been endorsed by the government of the corresponding state where this property has been installed
  • There is no maximum credit for the systems that have been placed in service after the year 2008.
  • 26% for systems are placed in service that are between December 31, 2019 and January 1, 2021

 Fuel cell property

 The maximum credit is $500 for every half kilowatt

  • The fuel cell can also have a nameplate capacity at least 0.5 kW of electricity that uses an electrochemical process and the electricity-only generation efficiency is more than 30%.
  • The home served by the system must also be the principal residence of the taxpayer
  • If ever it is a joint occupancy, the most maximizing costs that can be taken into account by every occupant is $1,667 for every 0.5 kW. This does not necessarily apply to the married individuals who filed as joint. The credit can also be claimed for every individual that is proportional to the over-all costs that have been paid.
  • Systems must be put in service between January 1, 2006 and December 31, 2016
  • For the systems that have been installed in 2017, these are all considered not eligible

 Small wind-energy property

  • For the systems that have been installed in 2017, these are not eligible
  • Systems can also be placed in service between January 1, 2009 and December 31, 2016
  • There is no maximum credit that is placed for the systems after the year 2008
  • The home served by the system also does not necessarily have to be the principal residence of the taxpayer

Geothermal heat pumps

  • For systems that have been installed in 2017, these are not eligible.
  • Systems must also be placed in service between January 1 2008 and December 31, 2016
  • The home that is served by the system does not necessarily have to be the principal residence of the taxpayer
  • The geothermal heat pump can also meet the Federal Energy Star criteria
  • There is also no maximum credit for the systems that have been placed in service after the year 2008

Significantly, the American Recovery and Reinvestment Act of 2009 also repealed the previous limitation on using the credit for eligible projects that are supported by the “subsidized energy financing.” For projects that have been placed in service after December 31, 2008, then the limitation no longer applies.

Established by the Energy Policy Act of 2005, the FTC or federal tax credit for the reoprty ‘s residential energy initially started to work with solar-electric systems, fuel cells and solar water heating systems. The Energy Improvement and Extension Act of 2008 also extended the tax credit of the small wind-energy systems along with the geothermal heat pumps. This was made effective January 1, 2008. Other key revisions include the eight-year extension of credit until December 31, 2016. The ability to take advantage of the credit and set this alongside the alternative minimum tax. This also includes the removal of the $2,000 credit limit that is targeted solely for the solar-electric systems that started in 2009. The credit has also been further enhanced in February 2009 as conducted by the American Recovery and Reinvestment Act of 2009. This removed the maximum credit amount all on eligible technologies with the exception of fuel cells that have been placed pretty much in service after 2008.

Guide on How to Receive the 30% Credit from Solar Energy

The Solar Tax Credit is the Law that has been extended by legislature in December 2015 and it lets the taxpayer take the 30% credit, as long as it is a qualified expenditure for the solar system. This is considered qualified if it serves as a dwelling unit that is located in the US and is owned and also used as a home by the active taxpayer.

The expenditures in relation to the equipment are made when the installation has been completed. The eligible expenditure also covers the labor costs for preparation made on site, piping and wiring the interconnection of the system to the home and the installation of the original system. In a nutshell, this means that the entire value of the quote from this solar company can install the solar panels that are eligible for the tax credit.

To claim the 30% tax credit from solar energy, individuals must complete the Form 5695 and then add the results to the main tax return.

Here are steps on how to complete the Form 5695:

Form 5695 calculates the tax credits for various qualified residential energy improvements. You just need to worry about Line 1 for solar electricity. Also insert the total cost for the solar panel systems that include the installation listed into Line 1.

Assuming that the taxpayer is not receiving the tax credit for the fuel cells that have been installed on the property, then they do not carry forward the credits that have been accumulated form last year. If this is the case, the value from Line 6 is then put on Line 13.

The next step is to calculate if the taxpayer has enough tax liability to acquire the whole 30% credit that can be received for the year.

The worksheet on Page 4 of Form 5695 must then be calculated to come up with the limit on the tax credits that can be claimed. If they are claiming tax credits for interest on mortgage, buying a plug-in hybrid or electric vehicle, buying the home for the first time or adoption expenses, then there should be more information at hand.

  1. Enter the amount on Line 47 from Form 1040 or Line 45 from Form 1040.
    2. Enter the overall amount, if there are, of the credits from Lines 48 until 51 on Form 1040 and Line 22 on Schedule 4 or Lines 46 to 48 from Form 1040NR.
    3. Enter the amount om Line 40 from Form 5694.
    4. Enter the amount on Line 11 or Line 12 if the individual is claiming child tax credit.
    5. Enter the amount on Line 9 from Form 8396.
    6. Enter the amount on Line 16 from Form 8396.
    7. Enter the amount on Line 3 from Form 8859.
    8. Enter the amount on Line 15 from Form 8910.
    9. Enter the amount on Line 23 from Form 8936.
    10. Add the lines 2 to 9.
    11. Subtract Line 10 from Line 1. Enter the amount on Line 14 from Form 5695 as well. If it is zero or less, then just enter 0 on Lines 14 and 15 of Form 5695.
    12. Enter the result on Line 14 from Form 5695 and then review Lines 13 and 14 and put the smaller one among the two on Line 15.
    13. Add the Lines 6, 11 an 12.

This is hwo you come up with the Federal Tax Credit for Solar Energy.

Understanding The 2018 Tax Changes

President Trump signed the Tax Cuts and Job Acts on December 22, 2017. It slashes the corporate tax rate originally from 35 percent and down to 21 percent the minute 2018 starts. In other words, the highest individual tax rate is now 37 percent and it also cuts the rates of the income tax, eliminates personal exemption and then doubles the standard deduction. Corporate cuts are usually permanent whereas the changes in individual cuts end by 2025. In a nutshell, here is how this new Act changes deductions for elder and child care, business taxes and income taxes.

Income Taxes

* The Act retains the seven income tax brackets. The only difference is that the tax rates are lower. Employees will eventually see these changes reflected in their February 2018 paychecks. The income levels rise every year because of inflation. However, they increase slower compared to the past because the Act is resorting to the “chained consumer price index.” This will eventually move people to higher tax brackets.

* The new Act doubles the standard deduction. Those who are single filers increases the deduction from $6,350 and to $12,000. Those who are Married and also Joint Filers find their tax increasing from $12,700 and reaching $24,000. This means that the over-all 94% of taxpayers get the standard deduction. The National Association of Realtor and National Association of Home Builders are against this. When taxpayers take the standard deduction, only a handful of them would make the most out of the mortgage interest deduction.

* This can lower housing prices. This is why people are now concerned about the real estate market. They think it is currently trapped in a bubble which could burst anytime, therefore resulting to another collapse.

* It eliminates personal exemptions. Before President Trump signed the act, taxpayers are deducted $4,150 from their income every time they claim one dependent. This then results to families with multiple children paying higher taxes regardless the increased standard deduction that the new Act has imposed.

*It eliminates itemized deductions. This covers moving expenses. Only members of the military are exempted from this. This means that individuals paying alimony are no longer deducted for this, whereas those receiving the alimony can. This begins in 2019 for couples that signed the divorce in 2018.

*The new tax code retains the deduction for retirement savings, student loan and charitable contributions.

*It limits the deduction on the mortgage interest for every $750,000. Deductions can no longer be applied on the interest of home equity. Those who currently have mortgage are not affected by this.

Those who pay taxes can subtract to a total of $10,000 on local and state taxes. They have to choose whether the taxes will be on the property taxes, sales taxes or income. Taxpayers in California and New York, both high tax states, are in the losing end here.

The New Act Regarding Medical Expenses

The Act expands the deduction for 2017 and 2018 medical expenses. It lets the taxpayers deduct their medical expenses that range around 7.5 percent and even more of their income. Before this bill, the cutoff for medical expenses was 10 percent for insured individuals who were born after 1952. Obviously, seniors already receive the 7.5 percent cutoff. Statistics show that around 8.8 million people have already used this deduction in 2015.

The Act also repeals the much-discussed Obamacare tax for individuals who do not have health insurance in 2019. Without this mandate, the Congressional Budget Office predicts that around 13 million people will discontinue their plans. Therefore, the government would eventually then be able to save around $338 billion because there is no need to pay for the subsidies. The downside to this is that the costs of health care will increase. This is because fewer people get the preventive care required and needed in order to avoid those unexpected visits to the emergency room. Maine Representative Senator Susan Collins approved this bill because the President promised to reinstate the subsidies to the insurers. This is outlined in the Murray-Alexander bill.

The overall subsidies of $7 billion is reimbursed through lowering the costs for Americans who are within the low-income range. However, the CBO has stated that it will not offset the health care prices that are higher in value and were created by the repealed mandate.

This Act also doubles the exemption of the estate tax down to $11.2 million for the single taxpayers and around $22.4 million for those who filed as couples. This benefits those who are in the top 1 percent of that group. These higher 4,918 tax returns have a total contribution of $17 billion in their taxes. The exemption also reverts the pre-Act levels in the year 2026.

It maintains the Alternative Minimum Tax. It increases exemption from the amount $54,300 to $70,300 for the singles and as for those who filed as joint, this ranges from the amount $84,500 to $109,400. As for the exemptions, the phase out is at the amount of $500,000 for the single taxpayers and $1 million for those who filed as joint. This exemption also reverts to the Act levels of the year 2026.

Elder and Child Care

As for the Child Tax Credit, the Act raises it from the amount $1,000 to $2,000. For parents who do not earn enough in order to pay the taxes, they can claim credit as much as $1,400. It also increases income level at $110,000 to $400,000 for tax filers who are married.

This lets the parents use the 529 savings plans to pay for the tuition in private schools, as well as religious schools with the K-12 program. They can also resort to these funds to pay for the expenses that are acquired when children are home-schooled.

Every non-child dependent is given $500 credit. This assists the families in caring for their elderly parents.

Taxes on Businesses

The New Act decreases the maximum tax rate of corporations from 35 percent down to 21 percent. This is the lowest that it has been since the year 1939. For the longest time, the United States is included in the list of countries with the highest rates around the world. A number of corporations do not pay that much. Therefore, on average, the reasonable and effective rate is around 18 percent. Large corporations employ tax attorneys who assist them in coming up with ways so that they do not have to pay more.

This then raises the standard deduction to the amount of 20 percent for businesses that are referred to as “pass-through.” This deduction is said to end after the year 2025. Those considered to be pass-through businesses are sole proprietorships, S corporations, limited liability companies and partnerships. They also cover hedge funds, real estate companies along with private equity funds. The deductions are then phased out for the service professionals who reach the income amount of $157,500 for singles and as for joint filers, it’s around $315,000.

This New Act sets limitation to the corporations’ ability of deducting the interest expense down to 30 percent of the overall income. Within four years, the income is based on the EBITDA but this also reverts the earnings before the taxes and the interests. This makes it more expensive for the financial firms to borrow some money. The companies will also have less opportunities to issue the bonds and buy their stock back. Stock prices may fall. This limit generates the revenue to also pay for the other tax breaks.

It lets the businesses also deduct the overall costs of the assets that are considered to be depreciable and have this done in one year as opposed to amortizing these through several years. This, however, does not apply to the structures. To qualify, the equipment can be purchased between September 27, 2017 and January 1, 2023.

The New Act also requires the requirements to be stiffened especially on profits that carry interests. Carried interests are usually taxed at the rate of 23.8 percent as opposed to 39.6 percent. The firms are then required to hold these assets for the duration of a year so that they can qualify within the lower rate. The Act also extends this requirement to last up to three years. This may not benefit the hedge funds that have the tendency to continuously trade. It would also not affect private equity funds that are within the assets of five years. This change in taxes could increase the revenue to $1.2 billion.

It also eliminates the corporate AMT. This had a tax rate of 20% that kicked in if the tax credits pushed the effective tax rate of the firm right below that specified level. Under the AMT, these companies do not have the ability to deduct the spending budget for research and development as well as the total investments especially in a low-income neighborhood. By eliminating the corporate AMT, it adds a total of $40 billion to over-all deficit.

The New Bill also advocates the change from the “worldwide” tax system that is currently operating and turn it into a territorial system. Under this, multinationals receive taxes based on the foreign income that they have earned. They also do not have to pay the tax unless the profits are brought home. This results to corporations basing their businesses overseas. When it is set in a territorial system, these businesses are not taxed on the profit that they earned on foreign soil. There are more chances that they will invest this within the United States. This benefits the pharmaceutical as well as the high tech companies, most of all.

It lets the companies repatriate the overall $2.6 trillion that they hold in stockpiles. They only have to pay the tax rate that is usually 15.5 percent once and also 8 percent for the equipment. This repatriation could also raise the yields of the Treasury note. The corporations that hold the most of the cash in the treasury notes usually sell them because the supply that are in excess often send the yields on a higher basis.

Other Benefits of the New Tax Bill

* It lets the oil drilling within the Arctic National Wildlife Refuge. It is estimated to increase this by $1.1 billion in total revenue over a period of 10 years. When drilling this, it may not appear profitable unless it gains $70 per barrel.

* It retains the tax credits for the wind farms and the electric vehicles.

* It also cuts the deduction for the drug research targeted on orphans from 50% and to half which is 25%.

* There are cuts on the taxes of liquor, beer and wine. The Brooking Institute has an estimation that amounts to 1,550 more deaths that are related to alcohol. The studies also discovered that if the alcohol prices are lowered then there are more purchases of this product and therefore results to death tolls being higher.

How It Affects Taxpayers and Individuals

This new tax plan assists businesses, and not individuals. The tax cuts on businesses are permanent whereas the individual cuts have an expiration, and this is 2025. However, the largest private employer in the country, Walmart, has released a statement that they will increase the wages of their employees. They will also use this additional money that they have saved from the tax cuts to divide it in the form of bonuses and then also increase the benefits.

As for individuals, the clear winners are the higher-income families. Those who are within the 20-80 percent of the income range receives a 1.7% increase in their income after tax. Those who are in the 95 to 99 percentile will benefit an increase of 2.2%.

The Tax Policy Center also estimates that the ones in the lowest earning percentile would see their income at a rate of 0.4% higher. As for those who are in the next highest percentile, they are expected to receive 1.2 percentage boost. Those in the next two quintiles can see their income raise by 1.6 to 1.9 percent. The biggest increase goes to those who are earning the most.

What is Incorporation and How Does It Work?

One of the first decisions you have to make in creating an incorporation is the type of business you want to create. A sole proprietorship? A corporation? A limited liability company? This decision is important because the type of business you create determines the types of applications you will need to submit. You should also research liability implications for personal investments you make into your business, as well as the taxes you will need to pay. It is important to understand each business type and select the one that is best suited for your situation and objectives. Keep in mind that you may need to contact several federal agencies, as well as your state business entity registration office.

The first step in understanding how businesses can be set up comes with knowing that, even though they may all seem similar from the outside, not all businesses are structured identically. Even within the same industry, some owners might opt for one setup while another owner will decide that a different type of arrangement is more suitable. It all depends on the individual needs, preferences, and requirements of the potential business and the business owner. This article will give you a glimpse of how an Incorporation works and how a business owner can use this model to further his or her ventures.

How does Incorporation Work?

A business becomes incorporated when the company’s organizers file incorporation paperwork with the state. For example, corporations in Texas must file a certificate of formation with the Texas Secretary of State’s office, as a condition of its formation. Incorporating a business requires activities, such as selecting individuals to serve as directors, and creating a unique business name. In most cases, a fill-in the blank certificate of formation, also known as articles of incorporation, will be provided by the Secretary of State’s office where the corporation is organized. The fee to file a certificate of formation will vary from state to state.

When a business becomes incorporated, a separate and distinct legal entity is created. An incorporated business acts independently of its business owners. According to the Entrepreneur website, incorporating a business provides the company with most of the legal rights granted to an individual, with the exception of voting privileges. Incorporated businesses must hold shareholder and director meetings, and keep company minutes, as described on the Companies Incorporated website. In addition, corporations must keep accurate banking records that are separate from the personal funds of its owners. Furthermore, an incorporated business must file taxes and annual reports with the state where the company is organized. This new business entity – corporation or limited liability company (LLC) – transforms the way the business is seen through the eyes of the law and often has more credibility with potential customers, vendors, and employees.

When it comes to business taxes, owners of an incorporated business may pay taxes twice on the same corporate dollars, also known as double taxation. This occurs when the company pays business taxes on its earnings. If dividends are issued to shareholders of the corporation, the shareholder pays taxes on those dividends at their individual tax bracket. Dividends issued to shareholders of a corporation aren’t deductible and don’t reduce the corporation’s tax liability. Lastly, for company Stocks, unlike a sole proprietorship or a partnership, an incorporated business has the ability to issue stock to employees and investors. Corporations with unissued shares of stock can sell shares to raise money for the company. Because an incorporated business has limited liability protection, investors may be more likely to invest in a corporation in comparison to a sole proprietorship or partnership. Employee stock incentives may be used to attract talented individuals to work for the corporation.

In any case that the venture hits some financial hurdles, corporations normally file one of two different types of bankruptcy – Chapter 7 or Chapter 11. Alternatively, corporate creditors may force a corporation into bankruptcy. When a corporation enters Chapter 7 bankruptcy, the bankruptcy court appoints a trustee to oversee the liquidation of corporate assets. Assets are then distributed to external creditors according to their priority and the amount that they are owed. Shareholders are the lowest priority unless, for example, the corporation borrowed money from a shareholder. Unlike an individual debtor, the corporation receives no discharge of debt – it simply dissolves and ceases to exist after its assets are liquidated and distributed. On the other hand, when a corporation enters Chapter 11 bankruptcy, corporate representatives negotiate with a creditor’s committee for favorable payment terms, reduced interest rates and, sometimes, a reduction in the principal balance of its debts. The corporation must usually pay its outstanding debts within five years. Both the creditors and the corporation may submit payment plans to the bankruptcy court, but the court must approve it. Once the corporation complies with the settlement, it receives a discharge of any remaining debt.

The Incorporation Doctrine

The incorporation doctrine is a constitutional doctrine through which selected provisions of the Bill of Rights are made applicable to the states through the Due Process clause of the Fourteenth Amendment, the Legal Information Institute explains. This means that state governments are held to the same standards as the Federal Government regarding certain constitutional rights. The Supreme Court could have used the Privileges and Immunities Clause of the Fourteenth Amendment to apply the Bill of Rights to the states. However, in the Slaughter-House Cases 83 US 36, the Supreme Court held that the Privileges and Immunities clause of the Fourteenth Amendment placed no restriction on the police powers of the state and it was intended to apply only to privileges and immunities of citizens of the United States and not the privileges and immunities of citizens of the individual states. This decision effectively put state laws beyond the review of the Supreme Court. To circumvent this, the Supreme Court began a process dubbed as “selective incorporation” by gradually applying selected provisions of the Bill of Rights to the states through the Fourteenth Amendment Due Process clause.

Selective and Offshore Incorporation

To give you a breakdown on what “selective incorporation,” it is a constitutional doctrine that ensures states cannot enact laws that take away the constitutional rights of American citizens that are enshrined in the Bill of Rights. Selective incorporation is not a law but has been established over time through court cases and rulings by the United States Supreme Court. In actuality, selective incorporation is the process that has evolved over the years, through court cases and rulings, used by the United States Supreme Court to ensure that the rights of the people are not violated by state laws or procedures. Moreover, according to Law Teacher, it does not consider all rights in the Bill of Rights fundamental not all rights in the Bill of Rights and some rights outside the Bill of Rights are fundamental. This approach rejects the totality of circumstances to decide whether phases of rights or particular portions of Instead if a right was fundamental, drafters incorporated it into the Fourteenth Amendment through the Due Process Clause and deemed applicable to the states and the federal government. At its heart, selective incorporation is about the ability of the federal government to limit the states’ lawmaking powers.

Meanwhile, Offshore incorporation is a corporation or limited liability company that has been formed outside of your country of residence. One is well advised to choose the country of incorporation wisely. The great thing, however, about having an offshore corporation company that has been established properly is that it will give you, the owner financial confidentiality. If one has an offshore bank account in one’s own name, the name of the account holder is easy to trace. Many people who have an offshore corporation have several companies. Having more than one offshore company allows funds to be transferred between companies that are free from government reporting. There is usually a significant reduction in paperwork because there may be no requirements by the government to report transfers of money between one foreign account and another.

Filing Articles of Incorporation

Starting your own business is a big step, and the legal issues involved can be confusing.  Thinking of a business idea is hard enough, but then there are forms to fill out and technicalities to deal with, especially if you’re structuring your company as a corporation. Here’s what you need to know about one of the first and most important steps of incorporating your business: filing your articles of incorporation.

The articles of incorporation sometimes called a certification of formation or a charter, is a set of documents filed with a government body to legally document the creation of a corporation. This type of document contains general information about the corporation, such as the business’s name and location.

Articles of incorporation can easily be confused with bylaws, which lay out the rules and regulations that govern a corporation and help establish the roles and duties of the company’s directors and officers. Articles of incorporation are also sometimes called a certification of formation or a charter. The articles of incorporation contain general information about a corporation, such as the name and location of the business. Bylaws, on the other hand, contain information about the rules and regulations that govern a corporation. In addition, corporate bylaws help to establish the roles and duties of the company’s directors and officers.

 Forms and Legal Documents

 The first step in the process is structuring a business as a corporation. The specific documents vary by state, but each will include a number of questions about the business and its owners. The forms are easily found online but don’t be alarmed if they are called something other than articles of incorporation.

Despite a state-by-state filing, the forms will all ask pretty much the same questions and will be in a fill-in-the-blank format. The most crucial information that is required will be corporate name, recipient of all legal notices and official mailings, the purpose of the business, the duration of the business, the incorporator, the directors, how many shares of stock can be issued, and how many classes of stock the corporation will be allowed to issue.

Articles of incorporation must be submitted to the secretary or department of state in order to establish a company as a corporate entity. Depending on the state of incorporation, articles of incorporation may be submitted in person to the secretary or department of state’s office, by mail or electronically to the secretary or department of state website. A corporation is not required to file the company’s bylaws with any government agency. Instead, corporations are required to maintain their bylaws at the company’s primary business location. Corporate bylaws are an internal document, establishing operating procedures for a corporation.

Legally, the answer is no. In fact, over 70 percent of U.S. businesses are owned by sole proprietors and operate successfully without incorporating. However, if you need liability protection to protect personal assets if a client sues you, potential tax savings (at a price), or a loan to grow your business in the future, then incorporation might benefit you.

Typically, if you only operate in one state, you should incorporate in that state. If you operate in multiple states, you should determine which state is the friendliest to corporations and incorporate in that state.  File your articles of incorporation in the state where you intend to incorporate – usually with the Secretary of State’s office and for a fee, depending on where you live. Check your state website for more information.

The primary benefit to business incorporation is limited liability. When you own a small business, you will invest a lot of money into not only getting it launched but in keeping it running smoothly as well. As the owner, you are responsible for any debts and losses your business may accumulate along the way. However, when you incorporate, you are typically only held responsible for the amount of money you personally invest. Your personal assets typically cannot be used to satisfy the debts and liabilities of your business.

Home Mortgage Deduction

Conducting Real Estate Transaction In India?

Tax Implications of A Real Estate Transaction In India for a US resident

Join us on May 27th 2017 @ 10 am for a FREE ONLINE WEBINAR that will teach everything you need to learn about structuring your real estate investment deal so that you can minimize the taxes and improve your bottom line.  We will discuss various topics revolving around buying and selling a property in India.

  • Taxes Involved In owning the real estate
  • Tax Deduction for owning the real estate
  • Depreciation and Capital Gains
  • Passive Investing vs Active Investing
  • How is real estate income treated?
  • How to hold your real estate title & tax implications.
  • REITs (Real Estate Investment Trust) tax implications
  • Real Estate Inheritance
  • Buying property in foreign country
  • Selling property in foreign country

And much More….

 

 

Hire Your Children To Save Taxes

Child labor is a subject that has a negative connotation in our society. For most people, it means depriving children of their childhood. It means forcing them to work when they should be at home watching TV, or playing in the fields.

But it is a different matter altogether if the child is employed by his or her parent’s company.

If you have a small business and you have children aged below 18 years old, it is highly recommended that you hire them as employees. It can be a very fulfilling experience to them. It can hasten their growth, develop a sense of pride and self-worth, and teach them to be more responsible.

Moreover, it can save your company thousands of dollars in taxes. It’s like hitting two birds with one stone—your children can be productive during their spare time and you andyour company can get to save a lot of money.

Hiring teen and young adults in a family owned business benefits both parents and the young ones. Parents get to save more as their businesses have lesser tax burden. Children, on the other hand, can be productive and get some extra money for their extracurricular and summertime activities.

Tax Benefits

There are several ways for your company to benefit from hiring your children as workers:

  1. The child’s salary is free from taxes.

You might know that the first $6,300 of income in a fiscal year is free from federal taxes. This is called the Standard Deduction. So if you hire a child as an employee of your firm, you’re basically keeping that amount in the family. Hire someone else and that $6,300 is taken out of you.

That money coming from your own pocket can be used by your son or daughter to buy a car, or go on a vacation. Even better, he can use it to support himself or his college education.

  1. The child’s salary will be tax deductible.

Let’s say that you are hiring your child with an annual pay of $6,300.  You can declare that amount as tax deductible from your business income.  The first $6,300 earned by a child working in his/her parent’s firm is not subject to tax. Yes, this means that your child’s earning will not only be subject to federal income tax tax but also state tax, FICA, or Medicare.

You, as the business owner, meanwhile, can declare that amount as fully deductible. This means that you will get a tax relief based on your child’s salary as an employee of your business.

For instance, your business is in the 35 percent tax bracket. You hire your 14-year old son to work in your office and help you with the filing of documents, or working  with the spreadsheets. For the year, he earns $6,300 in wages. He must also has no other sources of income.

You, as the business owner, stand to save $2,205 since the full amount of his wages will be deductible as compensation.

  1. No FICA taxes.

As mentioned earlier, your child’s salary isn’t subject to FICA tax. This means your firm won’t have to pay FICA taxes on your child’s wages.

However, there are certain requirements for your child’s salary to be exempt from this kind of tax:

  1. Your business is a sole proprietorship
  2. It is a husband-wife partnership
  3. It is a husband-wife LLC considered as husband-wife partnership for tax purposes
  4. It is a single member LLC treated as sole proprietorship for tax purposes

It should be noted that your child’s salary is not exempt from FICA taxes if your business is a corporation. FICA tax exemption is also not applied if the business is a partnership, or one or more partners are not parents of the child.

  1. Setting up retirement savings plan.

What most people don’t realize is that children under 18 can contribute to their own individual retirement account (IRA). This can be a great way for them to get a head start as far as saving and investing money is concerned.

Your child can contribute up to $5,500 to a traditional IRA. He can subtract the amount from their income for tax purposes. However, your child can’t make more contribution to what he earned in a year. So if he earned $5,000 in a year, the maximum IRA contribution he can make is $5,000.

  1. Shifting a parent’s higher taxed income to a child.

Since your child can save by a) having his income exempt from taxes and b) having the option to set up IRA on the income, you can then shift your higher taxed income to him.

Going back to our examples, your son makes $6,300 and then adds $5500 as a contribution to an IRA. Thus he has $11,800 shielded from taxes, and your business can write off that amount as a legit business expense that can reduce your gross income.

That’s the maximum amount that your child can make in a year sans tax. If you give him a higher pay than $6,300 in a year, the next $9,275 will only be taxed at a rate of 10%.

Thus, your son stands to have a tax of just $927.50 for the year on aggregate earnings of $21,075.

You’ll be wise enough to include that amount in your own income as you can incur a tax liability of $10,600. You can save up to $9,672 in taxes by doing so.

Guidelines

There are several things that you should know if you are to hire your kids as employees. Knowing these guidelines should keep the IRS from disallowing your company from claiming said tax exemptions:

  1. He/she must be a real employee.

Your children should be hired as bona fide employees. This means that they have work that is helpful and appropriate for your business. Typical jobs for children include routine office work such as typing jobs, stuffing envelopes, cleaning the office, answering phones, or making deliveries.  Tech-savvy teenagers can help in marketing a company through social media. Or they can help in maintaining the spreadsheets of the firm.

They can’t be hired for jobs that have no connection with your business, like mowing your lawn at home. Suffice to say, children shouldn’t be asked to do household chores and get compensated for it.

Since your child is considered as a real employee, he or she should fill out their timesheets. It is also recommended that they sign a written employment agreement that specifies the duties and work hours of the employee.

  1. The work must be age-appropriate.

The work assigned to your child should be age-appropriate. There’s a chance that a 8 or 9 -year old child can help in some tasks in the office like stuffing envelopes or even making deliveries. But it will be difficult for the IRS to believe that a child aged below that age can perform any useful work for your firm. Employing a 6 or 7 year old for photocopying work or filing can put you in trouble with the IRS.

It’s also a no-no for children aged 16 years and below to work in a dangerous industry. Hence if your business is heavy equipment contracting, you can’t assign your 15-year old son to the field.

  1. Child should comply with legal requirements.

Since the child is considered a real employee, he or she should comply with the same legal requirements as you would when you hire a stranger. Thus, he will have to apply for a Social Security Number and fill out IRS Form W-4. He or she should also complete Form I-9 of the U.S. Citizenship and Immigration Services.

  1. Compensation must be reasonable.

Simply put, your child’s salary should be consistent with market rates.

Many shrewd business owners would try to give their children a big compensation because it can give them more tax savings in the long run. It would enable them to shift much of their income to their kids who are likely to be in a much lower income tax bracket. But you shouldn’t attempt to do this as the IRS would eventually find out about this if they do an audit.

In paying your children, you should give them a reasonable compensation. The total compensation must include the salary plus all the fringe benefits such as health insurance and medical expense reimbursements.

To get an idea on how much you are to pay your child, you can call an employment agency to see the typical compensation for the type of work that your youngster will do in your business.

  1. Pay in cash.

It’s up to you to decide how much you would pay your son for the services he renders to your business. Just make sure that you pay him in cash if you don’t want to get in trouble with the IRS. Compensation in the form of foods and other things won’t cut it.

There was this case of a tax preparer in Washington who also owned an employment agency. She employed her three children aged 8, 11, and 15. The kids earned a combined $15,000 in two fiscal years for doing tasks like filing and stuffing envelopes. Their mom deducted their salary as business expenses. The IRS disallowed it.

Why?  It’s because the children’s wages was used by their mom to pay for their food, often pizza.  Also, she used the money to pay for their tutor’s fees.

While the mother argued that it was her children who asked her to spend their earnings that way, the Tax Court ruled in favor of the IRS. It noted that it is her parental obligation to provide food and support her children’s education, and the wages of the kids should not be used for these purposes.

  1. Be diligent about documentation and book keeping.

One way to ensure that this arrangement won’t backfire on you is to be diligent about the documentation and book keeping. Doing so would convince federal or state auditor that you reasonably employed your children for your business, and that your tax claims are legit.

Aside from getting all the state permits necessary to employ children, your company’s recordkeeping and payroll tax accounting must also be fool-proof. The payroll for your kids must be done in the same way that an employer would do the payroll for another employee. Paying a fair market rate, as mentioned earlier, would also satisfy the auditors.

  1. Your child should also help your business.

Finally, business owners should not only be concerned with the tax savings they’ll get when they hire their children. They must also be sure that their children can do the tasks assigned to them. The children should be able to help the business, and not just for the tax savings that the firm gets because of them.

Sure, they’ll reduce taxes by employing a child. But if the child doesn’t do a good job at work, then it would probably best to hire another individual to do the job for the firm.

Let’s say that a father hires his 15-year old son to help typing documents in his office. He’s able to save $3,000 in taxes for doing so. But if his son just lounges around the office and doing nothing, then the father didn’t really get the best out of this arrangement. It would have been better for him to hire another person who can actually help his company.

With the tax savings that small business owners can get, it really makes a lot of sense for them to hire their children during summer or even on weekends. The business owner not only stands to save on taxes, but also instils in his/her children values like hard work and responsibility.

If you decide to do this, you should ensure that you do things right. Get your children the necessary permits. Do your accounting cleanly. And give them real wages—not slices of pizza. If you do things correctly, you can save thousands of dollars in taxes while training your children who could be your successor one day.

$100 iTunes Gift Card Give Away

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This month we are giving away a $100 itunes gift card to one lucky winner.  There is no purchase necessary to participate in the drawing.

Register for our upcoming FBAR Webinar (Next Saturday @ 10 AM)
Like us on Facebook and Tell us you have registered for the next webinar.
Join us next Saturday @ 10 am to join the webinar.

Sanjiv Ji will pick one lucky winner who posted the comment on our facebook page.

 

 

Free Tickets To Marine World 6 Flag

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Are you planning on attending our upcoming FBAR Webinar ?

This webinar is for those with assets and/or Incoming in foreign countries.  This webinar is useful for any one who may own land, property, business or have a bank account in foreign country. You can register for this webinar on our website by clicking here.  Once you register for the webinar, head over to our facebook page and tell us that you have registered for the event.

Only those attendees who like our facebook page and post their registeration comment will be entered into the drawing and have a chance to win the free pair of tickets of 6 flag marine world.

Free Consulting Appointment with Sanjiv Gupta CPA

Good news for all of our tax preparation (Individuals, 1099 and Business Owner) clients.  Sanjiv Gupta CPA firm is offering one free consulting session (30 Minutes) with Sanjiv to any customer who does their 2013 tax return using our tax preparation services during the month of February.  Limited number of appointments are available and we can only offer free appointments based on first come, first serve basis.  Please book your FREE CONSULTING APPOINTMENT well in advance to take advantage of this promotion.

How it works ?

Step 1Do your 2013 Tax Return using our Firm during the month of February.

Step 2 – Book Your free Consulting Appointment with Sanjiv Gupta CPA.

Restrictions Applies to Free Consulting Appointments:

–  You can only book your Free Consulting Appointment during (July 2014 to Dec 2014)

–  Limited Number of Free Appointments are available based upon first come, first serve basis.

 

$100 Gift Card for $50 – Its like getting $50 off

GET $100 GIFT CARD FOR ONLY $50

Limited Time promotion – Deal Expires January 31st 2014

For the limited time only, you can buy a $100 Sanjiv Gupta CPA Firm Gift Card for only $50. You can use this Gift Card for any kind of consulting or tax preparation services offered by our firm. You can book your consulting appointment or order tax preparation services anytime before June 30th 2014. Use it for Tax Planning Consultation, FBAR Consultation, Business Planning Consulting, Tax Preparation or any other kind of consulting or tax preparation services. Gift card can’t be used for tax payments.

Limitations – You can use only one gift card per appointment or apply towards one tax preparation service. However, you are welcome to purchase multiple gift cards for different appointments and/or different services. For example – Mr. Sharma can purchase two gift cards and apply one for the Tax Planning consultation and one towards his personal tax return preparation. But he can’t apply both gift cards for the Tax Planning consultation. You can purchase the gift cards anytime before January 31st 2014 but you have till June 30th 2014 to redeem the gift card.
How it works ?

  • Step 1 – Buy the Gift Card – Call 510-825-7563 to order your $100 Gift Card for only $50
  • Step 2 – Receive an email with your “Gift Card” and payment receipt.
  • Step 3 – Book your consulting appointment or order your tax preparation services.
  • Step 4 – Redeem your gift card at the Sanjiv Gupta CPA Office.