Qualified Business Income Deduction (QBI)
Sanjiv Gupta CPA - 8 months ago
Sanjiv Gupta CPA explains the basics of QBI (Qualified Business Income Deduction) for small business owner. You may qualify for up to 20% tax free business income. Watch this small 5 minute segment to understand the QBI Deduction.
Charitable Contribution and Tax Deduction
Sanjiv Gupta CPA - 8 years ago
Giving is part of Christmas and most holidays for that matter. It is a tradition across the world for people to exchange gifts during holidays and other important days of the year. Corporate giving is one of the ways in which the companies give back to the communities in which they operate. It is a way in which the locals are allowed to share in the fortunes of the company that is in their environment. That is just one part of it; the gifts that are given away have tax implications to the company or the person who is giving them away. To start with, the company that is giving away the gift may be required to pay taxes due on that gift if it goes beyond certain thresholds. This is why it is important for the gift-giving season to be handled with caution.First, companies should confirm whether the firms to which they are bestowing the gifts are authorized. Checking whether a company is authorized can be done on the IRS website through a quick search. Those organizations that are not listed should be further scrutinized to determine if they are working under a tax-deductible scheme. In general, it is much better to deal with firms that are listed since you can deduct your contributions to them for tax purposes. It is also important to note that the small gifts are not usually deductible unless a check is written or a receipt is received for such a gift. In the same vein, any donations that are in excess of $250 have to come with a contemporary receipt. This receipt acts as proof of the donation since the cheque only is not considered to be full-proof. In general, you are allowed to deduct the value of the goods that you receive from the total of the receipt. In cases where you do not receive a gift in return, then you are supposed to indicate the same on the receipt for the IRS to consider it a valid proof of transaction. This receipt is required to be given at the time when you make the contribution as the IRS usually does not accept any receipts that are made out later. In essence, for every contribution you make that you intend to deduct from your taxable amount, it is important to get a receipt for the same immediately after making the contribution so as to be on the safe side with the taxman.The rules for making contributions are generally simple. You are required to make a list of all the goods that you are contributing to and to who you are contributing them. Afterward, calculate the value of these goods and get a receipt for them once you drop them off at their intended destination. Some of the goods such as art or cars may have special rules applying to them. For the larger donations, it is important to have an independent valuer make a valuation on your behalf for taxation purposes.
Avoiding the Dirty Dozen Audit Red Flags
Sanjiv Gupta CPA - 8 years ago
The taxpayers are warned on manipulating any information related to the filing of their tax return deductions. This can let loose the ever-inquisitive nature of the IRS and you can invite trouble upon yourself, which is best avoided at any cost. There are many factors that may flag your return for an audit and you should always consult with your tax professional to ensure that your return is in compliance with all applicable laws. In this article, I am going to point out twelve indicators/warning signals which in case exceed what is believed to be normal, can trigger an inquiry from the IRS. The twelve ‘Red Flags” as they are addressed, are listed below.Filing higher income.Failing to report all taxable income as stated by the duplicate records available to the IRS.Filing for a large charitable deduction, disproportionate to your known income.Filing for home office deduction.Filing for a deduction on real estate rental losses.Filing for a deduction on travel, business meals & entertainment.Filing the deduction for full (100 %) use of a vehicle.Filing the deduction on the losses related to a hobby activity.Filing a deduction for running a business on cash.Failing to report the account you hold in a foreign bank.You engage in transactions involving currency.Filing for deductions which exceed the average.Availing of deductions sufficing the dictates of being reasonable can actually help you avoid unnecessary hassles, which would emanate out of a situation like facing the IRS audit. A part of the mentioned “hot spots” are clear manifestations of a planned deceit; the rest can be majorly attributed to ignorance on the taxpayer’s part on filing deductions. An experienced tax expert can help you remain on desired procedures along with putting up an effective representation for you in case required.Handling the IRS audit on your own is not advisable: you wouldn’t have the expertise and skill required in handling the excruciatingly long & intimidating interrogation by the examiner. Rather the nervousness ensuing from the process holds the potential of you spilling off the restricted information to the auditor. This would worsen the matter further for you.The bill raised by the examiner would be proportional to the information you give, as he digs for more.Taxpayer has the legal right to representation. You can contact a seasoned tax expert to represent you at the IRS audits and aid you in resolving your tax issues forever.
Job Search Expense Tax Deductions
Sanjiv Gupta CPA - 8 years ago
Many have been having a hard time finding a job position in an economy that has been experiencing a recession. Job-related expenses may seem negligible, but for those with no income, these expenses can take up a large amount of available money. Job search-related expenses are eligible for a tax deduction.Eligible job expenses that can be claimed in taxes must meet specific criteria. The job expenses are eligible for a tax deduction if you are related to your current career. Employment agency fees are also eligible for a tax credit if you used an agency while unemployed.Travel expenses can also be used for the time spent during your job search. Both bus fare and gas expenses can be claimed on federal taxes. The cost of stamps and mailing supplies for sending out resumes is another deduction that can be used for job applications that went through the U.S postal service.Job search expenses are not eligible for deductions with those who are looking for work for the first time. This can apply to high school students looking for a job and it can apply for those who have never had a job and are finishing a degree program. If you have had a job and have had a substantial break from the workforce, you are still eligible to use the tax credit to offset any job search expenses that you have incurred. Job search and application expenses must be claimed for the specific tax year only.
Damage and Theft Related Tax Claims
Sanjiv Gupta CPA - 8 years ago
When you go through a loss of property, whether through theft or natural disaster, the first thing you think of may not be the ability to use the lost property as a tax credit. Fortunately, it is possible to use property that has been lost as a tax write off.An unexpected loss of your property can be used as a deduction on your taxes for the year as long as you meet certain criteria. The property that you write off cannot have been covered by an insurance claim. If insurance has paid the monetary value for your property or replaced the lost items, then these cannot be used on your taxes. Items that have not yet been covered can be claimed and must be claimed at their depreciated value. The fair market value is used in the assessment of property-related claims.Any property related damages that you are eligible to claim must have happened in the tax year that you are placing the claim. Prior damaged is not typically eligible for deduction though later damages. In some instances, if damage relief is being relied upon and does not happen, then the damage may be claimed. Property that is stolen may be claimed in the tax year it is discovered.Property loss or damage tax claims require the use of itemized deductions. If you are used to using the standard the deductions, this system will be a bit different. To itemize, you must use the 1040A IRS form to file taxes for the year. A 1040A form will allow you to place any deductions, including property damage and others, to subtract from your overall owed federal tax amount.
Writing Off Your Summer Vacation
Sanjiv Gupta CPA - 7 years ago
Summer vacations can burn a big hole in one’s pocket; however, avoiding them is not the long term solution. Working without taking any vacations can kill a person’s work-life balance. One has to sneak away to small trips now and then and yet have a check on the travel expenses. Here are a few ways on how to travel yet claim deduction on some of the expenses.Combine business with pleasureIf a person travels to trips for a business meeting he can also combine the trip to do something for his personal interest. There is no hard and fast rule to identify if a trip is for business or personal purposes. If the time spent for official reasons is more on a trip, then it is a business trip. Airfares are deductible expenses. Driving to the venue of the meeting gives a whopping deduction of 56.5 cents per mile with the added benefits of parking and toll charges. The key to getting travel expenses deducted is excellent documentation.One must have very good control of his travel expenses and know all the rules of the IRS thoroughly so that he can answer any query regarding his claim for deductions. Business trips help to write off the entire transportation and lodging expenses can be claimed for deductions. 50% of the meal expenses spent on working days are also deductible. Hence if one travels with his wife, only the meal expenses have to be taken care of. There should be some reasonable justification to be provided before claiming some expenses as deductions.Learn somethingEnrolling in some courses while traveling is another way to save travel expenses. As long as the course is to improvise on one’s skills at work, the education expenses and the travel expenses can be written off. One has to regularly attend these classes while traveling and have good records about all the paperwork that might be needed while claiming deductions. These courses could be a business-related seminar or a professional course that would help the person climb his corporate ladder effectively.Lend a handVolunteering to do charity work while traveling can help in claiming tax deductions. This is one way to prove that the aim of travel is not for pleasure or personal purposes. One can choose to do charity work after office hours and get a deduction for all the out-of-pocket expenses one spends. Driving one’s car to the venue of the charity work also helps in deducting car expenses of 14 cents per mile. The parking and other toll expenses are also covered in these deductions.Get healthyIf a person is suffering from a severe obese condition, then he can get himself treated at a spa for weight reduction and improving his general health. These medical expenses are deductable provided there is a statement from the doctor that the treatment was purely medical and not for pleasure. Driving to the medical center can help to deduct up to 24 cents per mile with the combined benefits of parking and toll expenses.
The Super Rich’s Offshore Tax Avoidance Strategies
Sanjiv Gupta CPA - 7 years ago
Most of the business tycoons use the trusts or holding companies in a different country to represent a majority of their income, thereby showing very low taxable income in their native countries. This is a strategy that is being employed by quite a few very rich people and the governments of the native and the offshore countries are devising measures to stop this practice completely.Most of the billionaires are using these offshore holding companies and trusts to manage their assets which are worth hundreds of thousands of dollars, hold these assets till any further notice and obscure them if needed. A survey was conducted in 2011 by Tax Justice Network, a UK based organization that fights for transparency in the tax rules and payments. The results of this survey were quite alarming. It was found out that the amount which all the rich people had stacked in their offshore companies were running into $32 trillions.The purpose of these offshore trusts or holding companies is to protect the incomes from the higher tax brackets of the native governments and also to keep a check on the government’s seizure policies. Bloomberg had analyzed and proved that around 30% of the world’s richest 200 people had assets outside their native countries and these were managed and controlled by the holding companies abroad in an indirect way.The world saw one of the worst financial crises in the year 2008 and that changed the way the tax system in the US operated. Most of the countries re-visited their tax laws and imposed quick and reasonable changes in them so that the taxpayer could not easily manipulate the loopholes of the rule and evade payment of tax. In the year 2009, Liechtenstein brought out a law that instructed all the financial institutions to release all the details of their accounts across countries, whenever requested.Andorra and Switzerland also got influenced by Liechtenstein and hence they also offered concessions to institutions who give a detailed report of all their customer’s accounts held worldwide in all the branches. With effect from July 1st, Singapore would also join the race to discourage money hoarding in other countries, by making it a criminal offense. Luxembourg is aiming to gradually bring down these kinds of accounts by the year 2015.Cyprus was the most preferred by most of the Russians to set up offshore holding companies and stack cash in. However, when Cyprus was bogged down in a serious financial crisis in March, the European Union bailed them out upon a condition. The condition was that Cyprus had to introduce a tax on all deposits into its bank that crosses more than 100,000 pounds. This tax component discouraged many wealthy individuals and hence Cyprus saw a huge reduction of deposits to the tune of $2.4 billion in that particular month.These kinds of changes succeed in reducing offshore money hoarding activities to a small extent, however as more and more countries participate in this drive; this tax evasion process can be completely abolished.
Apple Tax Conspiracy Explained
Sanjiv Gupta CPA - 7 years ago
There was a huge uproar among the US Senators that the IT major Apple has been evading billions of tax payment by using loopholes and gimmicks to escape from the tax rules. Apple was accused of cheating the US taxpayers of huge amounts of revenue.Apple was said to have smartly used the rules correctly and escaped from trillions of tax payment. Tim Cook, the CEO of Apple as questioned for hours together and the media saw a top story in this. Cook was in the limelight for all the wrong reasons. The US senators conveniently forgot the efficient way in which Cook took over from the great Steve Jobs when the latter died suddenly of pancreatic cancer. All that was spoken about Cook was that he scandalized the tax system by escaping from the rules.However, every coin has two sides. The same applies to the tax scenario at Apple too. It is always good to have a neutral side and view things and take the decision, then viewing things judgmentally. The US Senator, Rand Paul had the court at a loss of words, when he argued that the senators who argued against Apple also took efforts to minimize their own taxes.Paul, in fact, insisted that anybody would try whatever it takes, to ensure that only minimum taxes are paid and that Apple was no exception to the rule. Another factor that went in favor of Apple was the huge contribution it made to the Internal Revenue System in terms of corporate income tax, payroll taxes and the taxable income paid to its employees.However, the real cheat is not Apple, but the whole concept of corporate income tax itself. This is one of the worst types of taxes in the US and allows many loopholes for any company to manipulate and get out of the tax burden easily. There is no scientific design employed in the structure of the corporate tax.For example, a company has a corporate income tax rate of 35%. Assuming its pretax profits are $100 billion and the per-share price is $100, and then the tax that the company needs to pay is $35 per share. Now there are two kinds of people who own stock in this company. One is the aged woman whose economical levels are middle class and has limited stock holding. The rate applicable to her is 35%. The other type of shareholder is the multi-millionaire who lives life king size and owns the majority of the stock. The same 35% applies to him.This is where the corporate income tax is regressive in nature. Corporations are only legal entities and do not have a real identity. So a sensible way to apply this tax would be differential rates for stockholders depending on the quantity of stock they hold. Out of pretax profits of $56 billion last year, considering the tax provision, Apple’s tax per share came to around $15 and this does not qualify for cheating in any way.
IRA and Roth Tax Perks Get Better
Sanjiv Gupta CPA - 7 years ago
There were some changes introduced in January, by the American Taxpayer Relief Act. These changes brought some good news for the investors of the IRA (Individual Retirement Account) and Roth IRA. Workers in the US, now find it very easy to switch from the IRA to the Roth IRA provided their companies have the latter type of account.One of the major changes that took place was the benefits that the workers got, from donating a part of their IRA account. These donations to charity were eligible for a tax deduction. This benefit was traditionally setting off to nil benefits for workers. Michael S. Jackson, a partner in tax services with Grant Thornton LLP, Philadelphia, further explained that there were two methods of doing it initially.One was where the employee used to withdraw his contribution fully, pay the tax component, donate to charity and then claim the charitable deduction for that particular amount. The second method was where the employees used their Individual Retirement Accounts directly to make the donation to charity, thereby not incurring any tax component at all. These benefits were considered to yield no benefits because the income claimed and the deduction made were netting off to zero.This is where the recent law changes come into play. The important change in this law is that the deductions towards charity were kept under control based on the gross income of the employee. This law was designed with the top taxpayers ‘benefits in mind. This change was announced by Jackson in the MarketWatch, which was hosted by the editor of Market Watch’s Retirement e-Newsletter, Robert Powell.Jackson also clarified that this adjusted gross income-based tax rate slabs are going to help the worker save some extra money if the calculation and donations to charity are carried out in a very accurate way. This change found positive reviews among all the attendees of the MarketWatch Retirement event, including Mary Kay Foss, a director with Sweeney Kovar Financial Advisors Inc. Foss also explained that this change, which is called charity rollover rule, is beneficial in a way that does not increase the gross income even if there is no charitable deduction. Hence the amount that is left in the Social Security tax is lesser prone to tax.In cases of charitable donations, it is still beneficial because the deductions are not itemized and the employee ends up getting the tax benefit. This scheme is hugely welcomed by all as it is a mutually beneficial solution both for the employer and the employee. The conditions to avail of these benefits are; the person must be minimum 70.5 years old when making the donation and the amount is fixed at a maximum of $100,000. The limits can be discussed locally with the IRA custodian and checked for transfers of small amounts, as some of the firms think twice while dealing with small transfers. This changed scheme helps the employee to make donations to more than one charitable organization.
Four Ways To Turn Home Deductions Into Tax Savings
Sanjiv Gupta CPA - 7 years ago
Owners of homes must know the tax rules fully so that they can use the deductions to the fullest extent possible. A lot of tax savings can be made from the deductions available and it can be of immense help when the actual time arrives to pay the taxes.Mortgage pointsThe interest rates in the year 2011 were at an all-time low, and this encouraged many people to buy homes in the US. When the mortgage was established, the lender charges the buyer with some mortgage points. Every point that the buyer paid is equivalent to one percent of the mortgage amount. These points can be claimed for tax deductions in the year in which the tax is actually paid.These reduced interest rates motivated house owners to refinance the mortgages that already existed. The points paid on a refinance scheme can also be claimed as tax deductions by the buyer. The point to be noted in the refinance scheme is that these points can be deducted all together when a purchase is made.Real Estate TaxesA few deductions can be claimed only once, whereas few other deductions are recurring. These are ongoing and can be claimed all through the life of a property. Real estate taxes are good examples of continuous deductions. These taxes are qualified for deductions from the main income tax that the owners pay. The best feature is that these taxes can be deducted for all the years that the home is owned.Seller costs2011 also saw a huge increase in the selling of residential properties. The owners opted to sell their present residences to either upgrade or downgrade their primary source of residence. This year was the perfect time to do renovations as interest rates were at a record low and the purchase prices were at an all-time bottom. A seller had to incur lots of expenses like the agent’s commission on real estate properties, advertising and marketing fees, and fees when a new mortgage is established by the buyer. However, the good news to the seller was that all of these expenses qualified for the full tax deductions, thereby reducing their burden to a great extent.Mortgage interestMortgage interest is an example of a continuous or ongoing deduction that a homeowner can enjoy. In the initial years of owning the home, the mortgage interest is high; hence one can enjoy higher tax deductions. The full interest that is paid for the entire tenure of the property gets qualified for the full tax deductionsThese are a few examples of making home expenses as effective tax-saving tools. One must be fully aware of residential tax properties, especially when one owns residential properties. This is the best way to maximize the benefits of IRS schemes. This is a way to offset the huge amount invested in buying property. The IRS always suggests using a professional tax advisor to help in matters of the tax savings so that one can get the optimum benefits.
Benefits of Sanjiv CPA’s Payroll Services
Sanjiv Gupta CPA - 6 years ago
When you use Sanjiv Gupta CPA Payroll Services, you can avoid the complexity of calculating your payroll and tax withholdings. This will let you spend time focusing on your business’ success.If you are like most businesses, you are constantly struggling to keep up with complex employee-related issues and ever-changing tax legislation. It is time to consider outsourcing your payroll to Sanjiv Gupta. This will help you mitigate your risk and remain focused on your business.You can rely on Sanjiv Gupta CPA Payroll Service’s tax expertise and comprehensive payroll services to manage your business’s payroll. At Sanjiv CPA, you can choose a standalone payroll tax solution or you can bundle the payroll tax services with a complete payroll solution.Benefits Of Sanjiv CPA’s Payroll ServicesConvenience: Submit payroll easily by phone, fax or online.Eliminate Time Consuming Manual Processes: Our payroll service provides automated tax services with payroll integration.Reduce Potential IRS Penalties: Approximately 40% of small businesses get hit with IRS penalties on their payroll tax filings because they filed inaccurate or late returns or they were found in non-compliance. When you outsource your payroll to Sanjiv CPA, you can eliminate the risk of IRS penalties.Peace of Mind: Outsourcing your payroll to Sanjiv CPA provides peace of mind. Your payroll taxes will be filled accurately and on-time by certified public accountants you can trust.Customize Your Business’ Tax Strategy: Sanjiv Certified Public Accountants can help you customize your business’ tax strategy with a wide variety of related tax services and add-ons.Personal Service: Sanjiv Gupta CPA Payroll Services are always only a phone call away. If you have any questions about your payroll account, you can talk to a live payroll advisor and receive immediate attention.Health Care Reform Compliance: We will ensure that you are in compliance with the Health Care Reform so you can prevent issues and penalties.Expertise: When you outsource your payroll to Sanjiv Gupta CPA, you can rest assured that you are putting one of the most important accounting processes in the hands of experts. We have expertise in payroll tax filing, employment-related tax, and all other business-related tax issues.Reduced Payroll Administration Costs: When we handle your payroll tax filings and payroll services, you will find a huge reduction in administration costs. Your staff can spend their time and efforts on business functions that will increase your overall revenue.Sanjiv Gupta CPA provides innovative payroll features and reliable expertise that you can trust. Your staff will be able to stay focused on your core business. We will handle your payroll, tax filings, 1099s, workers comp, and withholdings.We guarantee our cost-effective and timely payroll tax filing services. You can rest easy because you will no longer be stressed over filing deadlines and tax calculations. You will not have any more IRS penalties or interest charges because you accidentally filed late. Sanjiv Gupta CPA Payroll Service advisors are experts in government regulations. We can help you reduce hidden payroll costs, reduce potential risk and start focusing on your bottom line.
The Tax Liabilities For Business Ventures in The USA
Sanjiv Gupta CPA - 6 years ago
Business ventures can thrive in the land of promise (USA) reasonably well provided they do not default on their obligation of tax towards the federal government. The business that employs people is responsible not only towards what they pay for their employees, in addition, they have to take responsibility for the society for its social welfare schemes, the healthcare of the elderly in the society and also the medical facilities for their own employees. By means of tax reduction at the source of the pay of the employees, the employers withhold a certain percentage in the pay-roll amount. This income is taxable and there are cases where proper reporting has not been there. To avoid having to face hassles in the form of the IRS (internal revenue service), stringent measures and punishment; employers are required to comply with the payroll taxes.Some employers instead of remitting the payroll taxes use that amount for funding their companies’ requirements or for rotation of funds as quick-fix measures to address the shortage of cash. This may be due to the high rent and business not up to the expectations. This willful noncompliance, in the long run, leads to heavy damage for non-disclosure and willful abetment of tax law. Criminal proceedings may also be instigated for such offenses.It is mandatory for employers to withhold a certain amount from the employees and submit the details to the IRS and based on this the pay-roll taxes are computed. They are obliged to submit the details of their employees and their pay-roll periodically. Employers are required to file the reports of the payroll on a quarterly basis in the states and annually to the federal government. Failure to remit the payroll tax will invite a penalty or 2 -10%. The IRS is a long-handed arm of the government that can punish both the employee and employer when they discover the default in payroll taxes.Just as the FBAR is the long-handed arm to check the proliferation of unaccounted money in foreign banks similarly the IRS is the arm working with the country.Any business whether small or big should work in tandem with the government authorities to iron out their differences and if in case of appeal they can always take it to the office of appeal for reversal. The ways in which tax evasion can happen areOmission and understatement of incomeImproper deduction and fictitious deductionsFalse information of employeesImproper allocation of incomeAny responsible business venture should approach a tax consultant and see to it that their business does not undergo stress with tax evasions and non-reporting. Know all the details of tax law! Become the master of your own business with the right input of running the business, with the proper input of managing the business- coupled with proper reporting to the tax authorities and be a good employer who inspires the employees to remain steadfast and innovate in their field.
Evaluate the Repercussions of Non Disclosure and Make a Speedy Effort and Comply with The Tax Through SFOP
Sanjiv Gupta CPA - 6 years ago
Every individual or a small concern or a big company has to comply with the financial obligation of filing the tax due to the government. Any institution can hope to flourish only if they act in consonance with their duty as a responsible citizen of a country/state, which has allowed them to function on their soil, to do business with their people and earn well. Tax procedures have been updated as per the requirements of the times and now the new IRA has come into force there is more trouble for people who willfully default on tax payments.The government has introduced the streamlined domestic offshore procedure (SDOP) and the streamlined foreign offshore procedures (SFOP) to bring into the net of tax all those people who have not fulfilled the responsibility of tax payment for a period of time. The term ‘willfulness’ has assumed importance in that there is a chance of opting for SDOP or SFOP if the error in not filing is not due to willfulness in not reporting the asset or earnings through foreign assets. With the dictum ‘better late than never’ all citizens who have a stake in the country as citizens either with assets or earnings held within the country or outside, are duty-bound to pay all the taxes due for all the missed years even if it involves penalties of 5% as given. In fact, SDOP and SFOP have the procedures to soften the impact of the repercussions of negligence.FBAR is the reporting of the Foreign Bank Account Reporting. Many Americans are earning in different areas both within the country and outside, the result is they have accounts in banks wherever they run their business outside the country. The government has brought in the provision of FBAR to show that all citizens who have been earning through these in the form of bonds and assets and business earnings should report the same and comply with the tax as per value. In fact just by compliance with tax regulation whether with stakes within the country or outside it is possible to use our time for genuine business instead of watering down the progress through nondisclosures of earnings. The following are considered as foreign assets:Financial accounts in foreign institutionsFinancial accounts of a US institution in a foreign countryForeign stocks and securitiesForeign mutual fundsPrivate equity funds or hedge funds of foreign countriesDepending on which of these categories a person falls in he has to take the time to evaluate the repercussions of nondisclosure and make a speedy effort and comply with the tax through SFOP and for this make it a point to meet the tax consultant.
Education Tax Deductions and Credits Can Help Save You Money
Sanjiv Gupta CPA - 7 years ago
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 during the first 4 years of 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:TransportationRoom and boardMedical expensesInsuranceStudent fees that are not required as a condition of attendance or enrollmentExpenses that are paid with tax-free assistanceExpenses that are used for another educational benefit, tax credit or tax deductionDo 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.
Tax Provisions That Expire In 2013
Sanjiv Gupta CPA - 7 years ago
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 IndividualsExclusion for Mortgage Debt Cancellation on Primary ResidencesIn general, debts that have been canceled or forgiven are considered to be taxable income. There has been an exception for mortgage debt canceled 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 PurposesIndividuals 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 ExclusionInvestors are able to sell a 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 DeductionsDeduction For Classroom ExpensesK 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 expenses.Deduction for Tuition and FeesThis above the line deduction expires in 2013. In 2014, the American Opportunity Credit and Lifetime Learning Credit will be available.Itemized DeductionsMortgage Insurance Premium DeductionHomeowners are able to deduct mortgage insurance premiums, only through 2013, as part of the mortgage interest deduction.Local and State Sales Tax DeductionState 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 a state income tax. Real Property Charitable Contributions Made For The Purpose of ConservationTaxpayers 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 CreditsNon-Business Energy Property CreditThe 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 VehiclesThis 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 CreditThis 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. DepreciationBonus 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 aircraft and long production period property.Section 179Under 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.
What Is The New Home Office Deduction?
Sanjiv Gupta CPA - 7 years ago
The new deduction for people that work from home could save taxpayers money and time when it is time to file tax returns. There are millions of people that work from home every day in the United States. The Internal Revenue Service has created a new option for these people so that they are able to deduct some of the expenses on their federal income tax returns.The home office deduction is currently in effect for the 2013 tax year. Workers based out of their home will be able to claim a tax deduction of $5 sq. ft for 300 sq. ft of workspace or less. The total deduction will be up to $1,500 depending on the amount of office space they are using. Space must meet requirements set by the IRS. Space must be used exclusively and regularly for the purpose of business. Save Time On Record-keeping And PaperworkThe internal revenue service is estimating that this new option for home office expenses will save more than 1.6 million hours for small businesses in paperwork and record-keeping. However, taxpayers will still have the old option to use Form 8829 in order to calculate the deduction if they choose to. Is The New Home Office Deduction The Best Option?The new home office tax deduction is not going to be the best option for all small businesses. It will be the best option for taxpayers who have less than $1,500 each year in-home office expenses and if the home office is smaller than 300 sq. ft. The best thing to do is to calculate whether your expenses will be more than $1,500 or if you will have a lot of depreciation. If your expenses are much higher than $1,500, then using Form 8829 will be the best option for you. Your tax advisor can also assist you in determining the option that is best based on your individual situation.This option may be easier for more workers that are based out of their home to be able to get a deduction. In the past, the home office deduction was a red flag for IRS audits. Many people were afraid to take the deduction because they were afraid that they would not have the proper records to back up the deduction. The new home office deduction is a safe harbor method taxpayers can choose to use.If you work from home, now you can take the new home office deduction when you file your federal tax return this year. The first thing you need to do is determine if you meet all of the IRS requirements for a home office. Next, determine if the new deduction will be the best option for you. Consider speaking with a tax advisor to help you decide what makes the most financial sense for you. Remember, you do not have to use the new home office diction option. You can still use Form 8829 if it will provide a higher deduction for you.
A New Tax Strategy For College Expenses
Sanjiv Gupta CPA - 7 years ago
There are a lot of families that make too much money for their beloved child to qualify for college aid that is need-based. The only way they can save money on college expenses is to focus on college tax aid. This is a tax saving that will help parents lower the total college cost. Currently, the stock market is reaching all-time highs. Parents are able to combine any investment gains using this strategy which could wipe out capital gains up to $25,000 during the years that their child is attending college. It is a great way to save for college as well as paying you dividends when you retire. Example of This Tax StrategyYou give your child an investment such as a mutual fund, EFT or appreciated stock. Your child can then use the personal exemption, American Opportunity Tax Credit and standard deduction to offset the $25,000 of long term capital gains for that year. Personal Exemption & Standard DeductionNormally, parents claim the personal exemption ($3,900 for 2013) for their child in college because they provide more than 50% of the support during the year. If your child uses her own assets and income to provide more than 50% of their own support (approximately 50% of the college costs) than they can claim their own personal exemption instead of the parent claiming the exemption.A dependent child standard deduction is the amount of income the child earns from $300 up to $6,100. If your child claims their own personal exemption because he/she provide more than 50% of his/her own support, he/she can get the personal exemption automatically in addition to taking the full standard deduction ($6,100 in 2013) no matter how much income he/she has earned.American Opportunity Tax CreditYour child can claim the American Opportunity Tax Credit if you do not claim this tax credit or claim that child as a personal exemption on your personal tax return. The American Opportunity Tax Credit is worth a maximum of $2,500 for each of the 4 college years. The amount of the tax credit is 100% of qualified tuition, costs, and fees that are paid in addition to 25% of the next $2,000 that was paid.Kiddie TaxAn unearned income that is paid to children under 19 years old or if your child is attending college full time and is under 24 years old is subject to the Kiddie tax. In 2013, the first $1,000 of unearned income is tax-free, the second $1,000 of unearned income is taxed at the child’s tax rate and any other income over $2,000 is federally taxed at the parents’ federal tax rate.A college student can avoid the Kiddie tax by providing more than 50% of his/her own support using earned income such as salary or wages. Understand that the requirement for the Kiddie tax is different from the personal exemption support test.Example of Tax SavingsYou gift your child appreciated assets of $14,000 per year for each permitted donor in 2013 or $28,000 for parents filing jointly. Your child will need to sell some of the assets during the year to pay for his/her own support. Your child realizes $25,000 in long term capital gains. Your child will use the money from selling the assets to enroll in a state university that costs $46,000 every year.Your child will get the personal exemption, standard deduction and use the American Opportunity Tax Credit in order to offset the $25,000 long term capital gains for the year.The personal exemption and standard deduction will reduce the capital gains of $25,000. The remaining taxable income will be $15,000 that will be taxed, under the Kiddie tax, at 15% (which is the parents' capital gains tax rate). The total tax will be $2,250. This will be completely eliminated when the American Opportunity Tax Credit of $2,500 is used.
Self Employment Income Needs To Be Turned Into Pension Plan
Sanjiv Gupta CPA - 7 years ago
For people who are self-employed, had a great year and want to save for retirement, it is advised that they start a defined benefit plan by the end of the year. You are funding the pension plan: you can deduct and contributed the most and build up your benefits significantly in a relatively short time (often only 5-10 years). If you combine your defined benefit plan with a 401(k) plan, you will be able to shelter your income from taxes with a tax deduction that could reach a couple hundred thousand dollars each year. How Do I Get The Tax Deduction For This Year?To get this year’s deduction, you will have to start the plan before the 31st of December but the good news is you do not have to fund it fully until the following year before your tax filing deadline. The exact amount that you will be able to contribute is based on actuarial calculations that consider your income, years until you retire and age. Generally speaking, the older a person is, the more they can contribute. These defined benefit plans are perfect for those individuals who would like to contribute more money than they are allowed under many retirement plans including 401(k)s or SEP-IRAs.Defined benefit plans are best for small practices and owner-only businesses. Think architects, doctors, software developers or sales reps. If you are married to your business partner, you could put away large amounts of money for your retirement. These plans are also perfect for employees that have a side business for extra income and spouses that are self-employed but they are not the partner that has to contribute to the living expenses of the family. Do I Have To Make Contributions To The Defined Benefit Plan Every Year?Once your defined benefit plan is set up, you will be required to add the minimum contribution that has been recalculated for the year. It is important that you only sign up for a defined benefit plan if you are expecting 3-5 steady years with a good income. Only put in the amount you feel comfortable with. Do not let any advisors push you over that amount. Many people want to put the maximum amount in because they want to get the most take benefits; however, they need to think about the future. If your business goes out of business, you are able to close the plan.If you are not sure if you will have a steady income over the next few years, you should consider contributing a smaller about to the plan and open a 401(k). This way, in good years you can contribute to the 401(k) plan after you have made the defined benefit plan’s minimum contribution.Now is the time to start your defined benefit plan. Remember, if you want to take advantage of the tax advantages for this year’s taxes, you need to open your plan by December 31st. You have until the filing deadline to fully fund your plan and it will still count for this year’s tax return.
Tax Advantages of being a home owner
Sanjiv Gupta CPA - 7 years ago
When you own a home you are able to deduct a lot of home-related expenses if you itemize your deductions. That means that you will have to file Form 1040 including schedule A. Below is a look at some of the tax advantages when you own a home.Mortgage InterestAll of the mortgage interest you pay each month is tax-deductible unless you have a loan over $1 million dollars. That is great news since most of the money you pay goes toward interest.Even if you refinance your home, get a line of credit or get a home equity loan, the interest is generally fully tax-deductible on equity debts that are $100,000 or under.Even second homes are fully tax-deductible. It can be a home, RV or boat as long as it has facilities for sleeping, cooking and a bathroom. You can even rent your second home as long as you stay in your home 14 days a year or more than 10% the number of days you rent the property (whichever is more). If you do not stay in your home that long, the IRS will consider it a rental property and you will lose your mortgage interest deduction.PointsIf you paid points on your mortgage so you could get a better rate, you can get a tax break. When you purchase your main residence, the IRS will let you deduct all of the points during the year they were paid.When you refinance your home, you still get a tax break but the points usually get deducted over the loan’s life.For lines of credit or home equity loans, you can deduct the points the same year they are paid if the money is used to do work on the home. If you use the money to do anything else, the points will be deducted throughout the term of the loan.On second homes and vacation residences, the money paid in points must be amortized over the term of the loan.Property TaxesAnother big tax break you will receive is deducting the amount you paid for property taxes during the year. All of your property taxes that were paid will be itemized as an expense on IRS Schedule A.Sell Your HomeIf you sell your home, you can avoid some of the taxes on any profit you make. A sales gain up to $250,000 for individuals and $500,000 for married couples is tax-free if the property was owned for 2 years and has lived in it 2 years before the sale. If you do not meet the residency and ownership requirements, you will owe tax on all of the profit.Unforeseen CircumstancesIf you sell your home because of unforeseen circumstances, the IRS provides some tax relief for people who have to sell before they fully qualify for the tax break.Unforeseen circumstances include:– Job loss– Divorce– Death– Multiple births during the same pregnancy– Employment changes that make it hard for the owner to pay a mortgage and cover all basic living expenses.Also, you can receive a partial exclusion if you have to sell because of damage to the residence from a man-make disaster if the property is converted involuntarily, taken by the government or natural disaster. Check with your tax professional for more information.ForeclosureUnder the Mortgage Debt Relief Act, homeowners that were either foreclosed had their debt reduced in a restructuring of their mortgage or had a short sale do not have to pay taxes on the canceled debt as taxable interest. This tax law is only in effect until the end of 2013 unless Congress takes action.
How to Make Tax Deductions for Cars and Trucks ?
Sanjiv Gupta CPA - 6 years ago
Cost of operating a truck, car or other kinds of the automobile is tax-deductible when moving and relocating or driving for medical, business or charity purposes. The deduction made corresponds to the mileage driven for such tax credits. You may opt for the standard rate of mileage in place of calculating actual car expenditure for these individual tax credits.Medical PurposeDriving in order to obtain medical care for either yourself or your dependents is what Medical Purpose covers. This kind of drive must primarily cater to medical care, as indicated by IRS (Publication 502) and the deduction is reflected on Schedule A and comprises part of medical expenses for an individual.Business PurposeBusiness purpose pertains to driving away from your regular employment location to a different worksite in order to meet with a client or traveling for a business engagement. Commuting from home to office does not qualify for this category of individual tax credits. This kind of incentive is captured by Schedule C for self-employed individuals, Schedule F for farmers or as an itemized deduction that forms part of unreimbursed business expenses provided in Form 2106 for an employee.Moving and RelocatingYou can deduct the driving cost for relocating to a new place of residence as part of the moving expense deduction. To qualify for this incentive, it will be necessary to cover a distance of at least 50 miles away from the old home more than what you earlier covered in-between the old home and old job. The deduction is present on Form 3903.Charitable PurposeIndividual tax credits are available for any vehicle used for providing services to charitable organizations. The corresponding deduction is covered by Schedule A as part of charitable donations. It may involve driving for volunteer causes for a charity, church or hospital.Actual ExpensesVarious elements count as a truck or car expense including:parking fees and tollsvehicle registration feesinterest on loanrental and lease expensevehicle registration feespersonal property taxfuel and gasolineinsurancedepreciationrepairs including tires, oil changes, and such routine maintenanceHowever, fines and tickets such as for parking may not be deducted. In addition, expenditure relating to commuting or personal use is not deductible. Various car expenses may also be deducted depending upon why you are driving. One cannot claim interest, insurance, and depreciation as well as auto repairs for medical expenses and charity deductions.Standard Mileage RatesRather than tally up all actual car expenditures, you may utilize a standard mileage rate to aid in calculating deductions. There are standard mileage rates to achieve this goal. It is multiplied by the mileage drive to establish the dollar amount deductible for car expenses as obtained from Notice 2014-79 of the IRS. Standard Mileage RatesType of useThe year 2015Business57.5 cents per mileMedical or moving23 cents per mileCharitable service14 cents per mile In addition to the standard mileage rates, taxpayers may also deduct tolls and parking fees as stipulated by the IRS in chapter 4 of Publication 463.Comparing between Actual Expenses and Standard Mileage RateYou may use any method that will lead to a larger amount of your tax deduction. This varies with individuals depending upon the number of miles driven, the amount of depreciation claimed and other expense variables. Claiming standard mileage rate provides results with less paperwork. It is suited best for situations where the car is driven at times for charity, work or medical appointments and the owner is avoiding lengthy scrutiny of all car-related expenditure. You will require selecting the standard mileage rate option within the first year of using your automobile for business purposes in order to claim the corresponding deduction. If you start by claiming actual expenses, it will be necessary to retain the actual expense option for the entire time duration of using your vehicle for business. IRS Publication 463 offers further clarity on this situation.Where to Make Claims for Car and Truck ExpensesExpenses for vehicles get reported on Schedule C for self-employed individuals and Form 2106 for the Employee Business Expenses. In particular, this deduction is a miscellaneous itemized deduction that is subject to 2 percent of the adjusted gross income limit. It implies that unreimbursed employee expenses may be deducted, although the taxpayer does not benefit from the full deduction dollar-to-dollar on tax returns.Vehicle expenses get reported on Schedule A for medical vehicle uses, together with other medical expenses.For charitable car use, the expense gets reported on Schedule A, together with related charitable donations.Practicing Good Record-KeepingEnsure keeping a mileage log as it will demonstrate your eligibility for car and truck individual tax credits. This document should show the date of each trip made that is tax-deductible. It will be necessary as well to record the total mileage covered for the entire year, which makes it pivotal indicating the odometer reading as each year begins at the first.
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