Tag: Tax Savings


Tips to Maximize Tax Savings

Sanjiv Gupta CPA - 7 years ago
You may be working hard and earning big money but what is the use when you have not planned your taxes properly? Not planning for tax payments is as good as being unemployed because a lot of hard-earned dollars are wasted in paying taxes due to the lack of planning. So it is imperative to plan for tax payments, well in advance.Here are a few tips, from well-accomplished financial consultants, that may help you to maximize your tax savings and have more money in hand to spend for yourself.Working for a companySometimes it is good to work for someone than have your own business. Wondering why? Let me explain. By working for a company or by being on someone else’s payrolls, you may have to take a cut in your pay package. Nevertheless, you may still be left with more take-home money than what you had when you owned a business because you end up paying less in tax. For example, if you were working for a University as a professor, fringe benefits such as health insurance and worker’s compensation would take a big chunk of your salary thereby leading to lower tax payments.Combining vacations with Business TripsGoing on expensive vacations may burn a big hole in your pocket in terms of tax payments. But if these vacations are combined with business, there could be a lot of savings in terms of tax payments because hotel bills, meals, and car rentals are partly deductible from tax payments. But this is not a good practice to follow always as there could be a lot of questions from the IRS when this becomes a regular pattern. So, sometimes it is better to pay taxes fully for expensive vacations than claiming for deductions.Keeping a tab on Business related expensesNormally when on business trips we are lax and do not keep a tab on the expenses incurred during the trip. It is critical to keep track of all these expenses because, in the case of an IRS audit, it is this information that will come in handy to substantiate expenses incurred during a business trip. Also, it is a good practice to tag all business transactions to a single credit card. By using the same credit card for all business-related expenses, the expense statement from the credit card company can be used to back up claims made towards expenses incurred during a business trip.Employing your SpouseThough a little tricky, this option provides a lot of tax savings. Being your spouse’s employer you can claim for health reimbursements that cover out-of-pocket medical expenses such as spectacles, co-payments and dental costs with pretax dollars. But under these circumstances payroll tax payments are unavoidable. In order to claim for tax payments under this option, it is imperative to have an employment contract, signed by your wife and a perfect timesheet recording your wife’s working hours. It is very important to keep track of payroll tax payments because payroll mistakes can completely wipe away the tax savings.While these are just some of the many tax saving options available, it is always advisable to seek the guidance of a qualified CPA in order to maximize tax savings.

How to claim the Small Business Tax Savings Credit

Sanjiv Gupta CPA - 7 years ago
The small business employers provide good health care plans to their employees and hence they are given tax credits to reduce the burden they suffer by providing the health insurance plans.What is the small business tax savings credit?According to the Affordable Care Act, small business employers, and small tax-exempt employers like non- profit organizations get a tax credit of 35% and 2% respectively for the years 2010 to 2013.  These credits are due to increase correspondingly to 50% 35% in the year 2014. The scheme of offering such attractive tax credits is called Small Business Health Options Programs (SHOP).These tax credits can be carried back or forward to other years also thus helping small business employers in a big way. The health insurance premiums that they pay to the employees are usually higher than the tax credits that they receive through the SHOP. In these cases, these employers can claim a business expense deduction for the premiums that they pay over and above the tax credit that they get. This is a double whammy for them, as they get both the credits and the deductions that they are due to get.What exactly is a small business?The explanation of the tax credits mentions small business employers on every page. However, there are certain rules to explain to who those small business employers. To qualify for the double whammy, one needs to fulfill the following conditions:  a) the employer needs to cover at least 50% of the health care coverage (single coverage and not family) for each of his employees. b) There must be lesser than 25 full-time employees in the business for it to be classified as a small business. Two half time workers can be considered as a 1 full-time employee and c) These employees must be paid less than $50,000 a year as wages.Claiming the creditThe small business employers can arrive at the tax credit that they are due, by using the IRS form 8941. This has to be then included along with the general business credit while filing the income tax return. The small business employers have a great advantage to carry their tax credits either backward or forward and use it as and when they require it the most. Using the help of a professional tax advisor can help in calculating the exact tax credits and maximizing the benefits of this option.All sufficient evidence supporting the facts should be submitted to the IRS to make it clear that the employer, who is qualifying for a tax credit, is indeed a small business employer. Once the IRS is fully convinced about the authenticity of the paperwork, then the tax credit gets approved and it reaches the employer at the time that they have opted. The additional deductions also help employers in a big way as they don’t feel the burden of huge healthcare expenses.

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.

Small Business Tax Savings Credit Explained

Sanjiv Gupta CPA - 7 years ago
How to claim the Small Business Tax Savings Credit?The small business employers are given excellent benefits in the Affordable Care Act. These small business employers provide good health care plans to their employees and hence they are given tax credits to reduce the burden they suffer by providing the health insurance plans.What is the small business tax savings credit?According to the Affordable Care Act, small business employers, and small tax-exempt employers like non- profit organizations get a tax credit of 35% and 2% respectively for the years 2010 to 2013. These credits are due to increase correspondingly to 50% 35% in the year 2014. The scheme of offering such attractive tax credits is called Small Business Health Options Programs (SHOP).These tax credits can be carried back or forward to other years also thus helping small business employers in a big way. The health insurance premiums that they pay to employees are usually higher than the tax credits that they receive through the SHOP. In these cases, these employers can claim a business expense deduction for the premiums that they pay over and above the tax credit that they get. This is a double whammy for them, as they get both the credits and deductions that they are due to get.What exactly is a small business?The explanation of the tax credits mentions small business employers on every page. However, there are certain rules to explain to who this small business employer. To qualify for the double whammy, one needs to fulfill the following conditions: a) the employer needs to cover at least 50% of the health care coverage (single coverage and not family) for each of his employees. b) There must be lesser than 25 full-time employees in the business for it to be classified as a small business. Two half time workers can be considered as a 1 full-time employee and c) These employees must be paid less than $50,000 a year as wages.Claiming the creditThe small business employers can arrive at the tax credit that they are due, by using the IRS form 8941. This has to be then included along with the general business credit while filing the income tax return. The small business employers have a great advantage to carry their tax credits either backward or forward and use it as and when they require it the most. Using the help of a professional tax advisor can help in calculating the exact tax credits and maximizing the benefits of this option.All sufficient evidence supporting the facts should be submitted to the IRS to make it clear that the employer, who is qualifying for a tax credit, is indeed a small business employer. Once the IRS is fully convinced about the authenticity of the paperwork, then the tax credit gets approved and it reaches the employer at the time that they have opted. The additional deductions also help employers in a big way as they don’t feel the burden of huge healthcare expenses.

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.
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