Tag: Tax Strategy
Business Tax Strategy That Will Save You Money
Sanjiv Gupta CPA - 9 years ago
The wise follow the simple path. If your wisdom has failed to save on your tax-cuts then here is what you must do. If you are a “cash basis” taxpayer then you have to pay considerable attention to “time” your income and your deductions. Clear? Well, it simply means that you don’t have to pay taxes on incomes that you have not received. Also in the same manner if you make any expense on a tax-deductible commodity/product, then you can apply for a tax deduction and thereby cut down upon your taxable income.Common people are not all-knowledgeable about taxation policies. The obvious escapes them and in the stance to do something extra-ordinary they confuse things more often. Now, this is a bad and expensive habit. You can save a considerable amount of tax by simply timing your purchases.For example, Taxpayers who fall into the same tax- cohort for two consecutive years can shrink their taxable income by postponing income to the following year while calculating all deductions into the current year.For those who fear to jump into the larger tax-slab is required to do the opposite. It’s risky to negate future possibilities.Tax- riddle: suppose you have fallen under a 28% tax-slab category this year and the next year your ranking will go as low as 15%, your company needs a business computer. How will you time your purchase?Yes perfect! The current tax-year. That’s right. The best way of taking full advantage of the tax-slabs is to generate income and delay or deter expenses.A cautionary word: if you are a “cash basis” taxpayer then make sure you know what constructive receipt means. For example, your mail inbox has a pending check invoiced on December 31, 2011, but cant deposit it before 1 Jan 2012 then how are you to time your income? Simple calculate it under the 2011 tax-year.If you know how to time your income then your tax-slabs will come down automatically. Keep the deductible expenses for the year when you fall into the higher tax bracket. This plan actually works.Still confused, don’t worry – the staff at our office can help you time your purchases. Simply give us a call or send us an email.
Know How To Distinguish Independent Contractors
Sanjiv Gupta CPA - 8 years ago
Independent contractors are those people or businesses who provide freelance services to other companies. As they are not qualified as employees of a company, the independent contractors are not liable to enjoy any employment taxes or benefits. As employers can save a lot of employee’s taxes and other benefits with independent contractors, they classify many employees as independent contractors to save money on payroll taxes. To stop this practice there are certain factors that can distinguish an independent contractor from an employee.Understanding The Concept Of Independent Contractors Having a clear understanding of the concept of independent contractors is the first element to distinguish between them and an employee. An independent contractor can be a person or a company that offers its services to another company. What makes them different is that these contractors follow their own schedule and work as per their own free will. So the employer company has a limited hold on these independent contractors. The employer companies cannot regulate which jobs the contractors accept or how much pay they will demand and when they will work on a certain project. Another point of difference between independent contractors and employees is that the independent contractors will usually bring in their own supplies, or have some kind of investment in equipment. The employer company also is not liable to provide any insurance or any compensation to them. Determining Ways To Identify Independent ContractorAs hiring independent contractors relieve the employer of giving payroll taxes and other liabilities, many companies list a portion of their employees as independent contractors to save taxes. Some companies also outsource their work to independent contractors to achieve the same goal. Therefore, the IRS has the knowledge of a few factors with which they can identify a contractor from an employee. The first thing that IRS notices is the way the employers exert their authority on the worker. If it is an independent contractor the employer will only give details about the work but if it is an employee, the employer can exercise more control over the way he works, how it is ultimately carried out and his performance. So if the employer is giving out a more defined and whole set of instructions the worker is considered as an employee. Whereas if the instructions are limited and the worker has the freedom to execute a project on his own terms then he is considered an independent contractor. IRS will consider any worker to be an employee if the employer can regulate the way the worker gets paid or if it is the employer who provides all the tools and supplies. Whereas if the worker is paid in accordance with the job done, can offer his services to other companies at the same time or has a considerable amount of investment in the supplies used for the job then the worker is considered as an independent contractor. In addition, if the worker faces profits or losses in a certain work then he is an independent contractor.If the worker and the employer have a written contract and if the employer is liable to pay insurance, casual leave and sick leave then the worker is considered to be an employee. Another way to identify an independent worker is to check if the worker expects to work for the employer only for a specific period of time then the worker can be classified as an independent contractor. These are the factors through which the IRS distinguishes an employee from an independent contractor. It is crucial for the employer to classify his workforce properly as a miscalculation can make one liable for penalty and payment of all possible dues.
Dealing With Tax Liens
Sanjiv Gupta CPA - 8 years ago
Federal tax liens are documents that are filed in the county in which a business or a person is conducting his or her activities informing the public that the person or business n question has outstanding tax bills. This lien attaches to the property of the said individual or business allowing the IRS to recover the full value of the tax bill through the sale of the personal and business property of a person or business. In essence, it is a warrant that the IRS places on your pieces of the property allowing them to dispose of them off in the pursuit of tax arrears. Once a lien is filed, then during the period that the lien is effective the IRS can sell off any property and recover the amounts owed in tax before the balance of such a transaction is given to the individual. So what happens when you pay off your tax debt?Well, the major thing is that the lien is lifted. The statute requires that the lien is lifted within 30 days of the settlement of the bill that was due. That is the law that comes into operation once the balance is cleared. However, in reality, this does not always take place. In most cases, the IRS is normally reluctant to release the lien that it has placed on a piece of property. To make up for this oversight, the lien is often issued with the writing that if it is not refilled on the date of the expiry, then the owner of the piece of property should consider the lien released. This option means that at the end of the liens period, the ownership of the pieces of property that had been attached reverts back to the owner.Does the IRS inform your credit agencies of the release of any lien once it expires? The law requires that a Certificate of Release is filed at the courthouse where the original lien had been filed. Once it is filed, the owner of the piece of property can then use it. However, most people have made the proposal for the creation of at least three copies of the release certificate. These copies would then be sent to the credit bureau once they are filed therefore releasing the individual from doing the job himself or herself.Is it possible to have a tax lien on your credit file without your knowledge? The simple answer is yes. In this day and age when identity theft is at an all-time high, the probability of finding a lien in your credit reports when you have no idea of it is very likely. The next step that you should take is to notify the IRS and the court in which such a lien was filed to seek clarification. Often, the services of a lawyer will be required to make the follow up as the process may be tedious and time-consuming. In addition, it is important to keep legal counsel by your side during this process to mitigate the legal impact such a discovery may have on your affairs.
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.
Understanding Statute of Limitations on IRS Debt
Sanjiv Gupta CPA - 2 years ago
As a rule, anyone who owes back taxes stands the risk of falling into heavy debt as the taxes accrue both interest and penalties for the duration that they remain unpaid. This, in essence, means that the longer you keep skipping payment of the taxes due, the more you are likely to pay when the IRS eventually catches up with you. That is the general length and breadth of the situation. However, the IRS only has 10 years within which it is required to collect the taxes due to it. The counting of these 10 years is supposed to start from the date that your tax bill is finalized until the end of the tenth year. As such, beginning the date upon which your tax bill is finalized and it is agreed that you have tax arrears, then the 10-year window is opened and the countdown begins. It is also important to note that in cases where you did not file a proper tax return, then the IRS will go ahead and make a tax return of their own based on their assessment. The result is that the statute of limitations will be set by them depending on when they would prefer it to. As such, for all intents and purposes, it serves you best to file a tax return on your own, if not to avoid the penalties and interests, then to avoid being slapped with a huge tax bill that has been set by the taxman.The date upon which the statute of limitations expires is very important especially to those persons who are in the process of sorting out their tax mess. To start with, if the Collection Statute Expiration Date, which is an acronym as CSED, is near, then you are normally advised not to do anything that would lead to the extension of such a deadline. This will only work against you as the IRS may opt to start off aggressive actions that are aimed towards the collection of the whole tax debt in full. If for instance, you sign a waiver of the expiry, then you are by all means allowing the IRS more time to come after you for the remainder of the tax debt. However, if the Collection Statute Expiration Date expires and you have not completed the payments, then it is not required of you by law to complete such payments to the IRS.Extensions to the Collection Statute Expiration Date may be given in special circumstances that include: if you chose to solve your tax debt by filing for bankruptcy, if you left the country for an extended period of time or if your tax assessment was completed after you have been convicted of a tax fraud case. In fact, in these situations, your tax debt never expires until such a moment that you actually complete the balance in full. Taxation issues affect virtually everyone at one point in their lives, it is therefore important that you know how the law operates and how you can find some wiggle room.
What is AICPA ?
Sanjiv Gupta CPA - 8 years ago
AICPA is an acronym that stands for the American Institute of CPAs. This is a mother organization that combines all the CPAs in the country. This organization has some pretty good ideas on the tax policies and their implications for the normal citizen in the year 2013. The skill required to analyze and completely take advantage of the tax issues in today’s world are complex in many ways. This means that today’s tax CPA faces a mountain of a task in trying to decipher the challenges that the new tax laws portend. The AICPA provides an avenue through which CPAs across the country are able to communicate, interact and come up with a system of practices that can be used across the country. The AICPA offers a number of avenues through which individuals can be helped. It is split into three major departments: advocacy, practice support and professional standards and ethics. In essence, the institution provides support to the CPAs across the country in the performance of their duties.What is the AICPAs opinion on the new tax bill that is before the congress? Officially, the AICPA has no stand on the tax bill. As a unit, it is their work to implement policies that are being put in place by the government and the politicians. However, they also play a very important part in ensuring that the policies actually make sense. This means that they consult actively and engage the relevant bodies in the process of policy making as they try to create a tax policy that makes sense and maintains the rule of equity and equality.Through their advocacy plan, the AICPA petitions various federal regulators and members of Congress on behalf of its members, touching on a wide range of issues that affect CPAs in general and taxpayers. In fact, the institution has in the past successfully sought guidance as well as a raft of changes to the regulations and tax administration. All these were done in a bid to ease the return preparation as well as repeal a number of burdensome reporting requirements that the law had put in place.The AICPA has a tax division that provides a number of tools and aids that may include, journals on current tax laws, checklists, engagement letters, and webinars. All these resources are designed to help its members provide the best services possible in the regions in which they practice. The AICPA has over the years acted to the benefit of its members and the public in general. The changes in the tax bill are expected to have far-reaching impacts in the coming year. The AICPA is expected to play a large part in not only designing the eventual policy that will be placed in the public domain but also in its implementation. Through their different arms, the AICPA is expected to be key during the next financial year; on a larger scale, the AICPA will play an important role all through the next four years.
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.
Your Marriage And The IRS
Sanjiv Gupta CPA - 7 years ago
Whoever said that the marital status does not impact tax rates needs to do a rethinking. Here are the details of how staying married effects the tax process in a big way. It is the duty of the taxpayer to know the rules fully and pay tax the smart way.Filing tax jointly or separatelyThis is an area that needs some analysis by both partners. Filing tax either jointly or separately has its own advantages and disadvantages. It is prudent to weigh both the options and choose the one that is most suitable for the partners. Most of the couples choose the option of filing tax jointly as it saves them lots of hassles. It requires filling up of one single form, and the problem of attaching every deduction, income, tax benefits to each of the partners individually, can be eliminated completely.Filing two separate returns might result in a higher tax payment sometimes and the government benefits for child care, higher education concessions, etc cannot be availed if the bills are separate. It is a lot cheaper to file one single return for both the partners as it makes them eligible for all the potential benefits that they might be entitled to.The major disadvantage of filing a joint tax return is that one partner is liable for any wrongdoing of the other partner. If one of the partners makes an underpayment or is levied any penalty for any wrongdoing either deliberately or negligently than other partner is equally liable for the crime. If the wrongdoing partner escapes or avoids investigation, the other partner has a high chance of being harassed by the judicial authorities and can be made to cough up a high fine at times.In some worse cases, the innocent partner is harassed even after a legal divorce. Hence, a couple should opt for joint filing only if they are mutually confident about one another’s integrity. Separate tax filing, if done, may result in a slightly higher bill; however, it is worth to choose this option than to experience harassment for the wrongdoings of the other partner.Marriage bonus or marriage penalty?In cases of couples who earn fairly equal and handsome incomes, their combined incomes might fall at a higher tax bracket, and the couple may have to pay a slightly higher tax rate than they would have paid individually. However, couples who have a huge difference in incomes can get the marriage bonus due to reduced tax rates on the lower income.Selling an appreciated home after getting marriedOne need not pay any tax up to $250,000 that is gained from selling a property for profit. If both the partners own homes and both sell at a profit, $500,000 can be the limit of tax-free income. However, after marriage or after moving into the same house, if the couples sell their old home, they not only get the $250,000 gain but after some time, also get $500,000 gain as part of the sale of the spouse’s house.
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.
Should You Delay Social Security Benefits
Sanjiv Gupta CPA - 7 years ago
Social Security is a scheme in which employees are encouraged to retire later than their actual tenure. There was legislation that got passed in the year 1983 which had allowed the retirement age to be fixed at 67 for people who were born after the year 1959. Delaying the Social security benefits has been under the scanner for long and researches were conducted by many to check if this scheme was beneficial to the aged people.One idea that came up during analysis was to offer lump-sum amounts to employees who retire later than their actual term. The idea of this bulk payment might motivate the aged people to extend their tenure, without having to compromise on their benefits. This research was conducted by four researchers- Jingjing Chai, Raimond Maurer, Ralph Rogalla (from the Goethe University, Germany) and Olivia Mitchell (from the Wharton School).The basic finding from their research was that the lump-sum payment option did motivate the workers to extend their retirement by 2 years, on average. The number-crunching concept behind this research was simple. It was calculated that a person who retires at 66 years instead of 65 years, would get 1.2 times more benefits than he would have got at 65 years in addition to the normal benefits that he is entitled to, at his actual retirement age.The amount that is calculated as the bulk payment is the expected current value of the extended retirement package. There would not be any increased costs to society or decreased benefits for the worker. Hence this system was found out to be “cost-neutral” to society. The workers reacted well to this delayed social security scheme as results proved that the workers who extended their retirement age rose by 49%. Workers who were lured by this delayed social security package were the ones who gave priority to work than vacations, were risk-takers and who were keen to invest in the stock market for increased returns.Another factor in favor of the delayed social security scheme was that the lump-sum payment paid out by the extended tenure did not directly relate to giving away to legal heirs. This amount was mostly used by the people to take care of them as they grow older. This was the motive of the Social security scheme; to be of help to the retired people as they step into their relaxed lifestyles.Social security schemes are considered as the primary source of retirement fund by around 42% of people whose annual income is less than $30,000 and around 33% of people whose annual income is between $30,000 and $75,000. However, people who earned more than $75,000 did not see Social security as one of the top retirement funds. Around 65% of these people used the options of 401K or IRA, which the workers used to deposit their lump-sum payments in. Delaying the retirement benefits was helpful for people with low class or middle-class income levels.
How To Fix Taxes – After You File
Sanjiv Gupta CPA - 7 years ago
There are chances of mistakes to happen while filing an income tax return. In the hurry to file tax returns, people may tend to miss out on basic details and realize it once the filing is done. In such cases, there is a guideline issued by the Internal Revenue System which explains what needs to be done if the errors are found out after filing the returns. Eric Smith, a spokesman at the IRS explains briefly about this process.Whether filing an amended return is necessary or not, depends on the nature of the errors of the taxpayer. Some of them make mistakes in the arithmetical calculations or miss to attach a form. These errors do not need amended returns because there is a step by step process in the IRS to check for calculation errors or missing forms. These kinds of errors are automatically spotted by the IRS and letters are sent to the taxpayers to revise their filing. The public need not spend their time and effort for filing amended returns for these kinds of errors.There are certain other gross mistakes like misreporting of income. This error changes the final tax amount payable by the taxpayers of the government. These errors need an amended return. Benson Goldstein, who is the senior technical manager at the American Institute of Certified Public accountants, suggests that errors like people finding a forgotten 1099 Form or incorrect filing status, deductions or credits require amended returns from the taxpayers. The IRS has an inbuilt system in place to find out the nonreported income, missing to include all the 1099 forms, etc. and these people are picked up for questioning and audit.Some may file returns to claim deductions, which they were not aware of earlier or to correct a deduction or claim that they had incorrectly applied for earlier, but were not actually eligible. However, Goldstein pointed out, a majority of the taxpayers file amended returns so that they can claim extra refunds if any. However, Mr. Goldstein insists that, while filing for extra refunds, the taxpayers must wait for the original refunds to hit their account, and then file for the revised return and then get the increased refund. However, after the amended return and revised tax calculations, if it is found out that the taxpayer needs to pay more tax to the government, then it would invite some extra penalty charges.Another benefit is that the IRS gives up to 3 years' time from the date of filing a wrong return, to correct the same. For example, if a return is filed wrongly in 2012 incorrectly, then the taxpayer can correct the same till the year 2015. An amended return must be sent only by email. Multiple amended returns can be sent, however, separate envelopes should be used to differentiate the year for which the return is filed. There is an option available on the IRS website to check the progress of a particular filing
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.
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.
Visiting Your Dream Destination While Winning the Audit: Here’s How You Do It
Sanjiv Gupta CPA - 3 years ago
Taking a trip to the destination of your dreams sounds fun, but nothing is more fun that taking a trip while winning the resulting audit at the same time.Yes, you read it right. Turning your vacation into an honest-to-goodness tax deduction is possible. In fact, you can travel throughout the Mediterranean with no or very little travel costs. The key is by making your trip either a passive or an active business trip. Remember that the only way you can reduce your transportation expenses is by making business the primary purpose of your trip.As a business owner, you know that taking a vacation doesn’t come easy. Aside from the fact that you don’t have paid vacation leaves, you can’t just entrust your business to someone else while you’re away. However, your advantage is that when it comes to business, you are free to mix pleasure with business. If you do it right, you make it possible for you to enjoy a vacation while reducing your tax bill. Why Need to Make Your Trip a Business Trip If your purpose is to lower your travel expenses, making your vacation a business trip is a must. This is because it becomes a lot easier to deduct transportation expenses if the purpose of your trip is business.You should also not forget to count up the number of days allotted for business and for personal activities on your planned trip. As a rule of thumb, make sure that the majority of your travel days are spent on business activities. A weekend that is squeezed in between workdays can also be counted as business days. Hence, you can fly to Hawaii on a Thursday and meet a client the following day, stay there for the entire weekend, have meetings again on Monday and Tuesday, and fly back home the following day. That way, you’ve already had seven business days and you can enjoy Hawaii and still expense your transportation costs. How to Make Your Vacation Look like a Business Trip Now that you know that the key to reducing your travel tax is by writing it off as a business trip, the next thing you have to figure out is how to actually do that. Well, of course, you cannot just take off for your dream destination with your business cards and pretend that you are going there for pure business.Today, for your trip to be considered a business trip, you have to have a prior set of business purposes. That is as per the requirements set by the IRS. Simply put, you need to schedule at least one business appointment before leaving for your trip. If you fail to do it, then you will never be able to expense your transportation costs.There is nothing wrong with deducting part or your entire trip by deducting your travel costs as business expenses. In fact, this is the reason many professional groups host their annual conventions in popular tourist spots. Combining your vacation with business travel is not a bad idea at all, as long as you do it right. The IRS Rule on Travel Expenses and Deductions If you love the idea of traveling with minimal travel costs, it is necessary that you identify which among your travel expenses are tax-deductible and which are not. Once you have identified that, then you can finally let your tax savings pay for the deductible part of your trip.Writing off some of your travel expenses may invite scrutiny, but don’t hesitate taking deductions if you think you are entitled to them. However, you have to be careful when it comes to this part and remember the IRS rule. You cannot simply claim that your trip is a business trip just because you have to visit an office somewhere. The IRS made it clear: “The scheduling of incidental business activities during a trip, such as viewing videotapes or attending lectures dealing with general subjects, will not change what is really a vacation into a business trip.”Expenses that are Considered Deductible You know that on every trip, your transportation costs–taxi fare, airfare, airport parking, etc.)–make up a huge part of your travel expenses. If you are good and careful enough, you can fully offset such costs so long as you meet the criteria set by the IRS. Aside from your transportation costs though, there are other expenses that can be added up, too.The IRS Pub 463 has laid out the details when it comes to these expenses, but just to give you an idea, here are some of the basic things that you should take note of:For each day that is considered a business day, you are allowed to deduct the entire cost for your lodging, car rentals and tips. That means that if your weeklong trip to Hawaii includes five days of business and two days for your personal getaway, then you can legally deduct your hotel bill for all those five business days.For each day that is considered a business day, you can deduct 50 percent of the total amount you spent on food.You can also deduct other miscellaneous expenses that are “ordinary and necessary” to your travel, like dry cleaning and baggage fees.The catch is, you cannot deduct the amount spend for your family, in case they joined you on your trip. Simple Steps to Follow When Writing Off a Trip Choose any place in the U.S. where you want to go.Decide how you want to write off your trip–as an active or a passive trip.Find a conference, convention or any event in that destination that is related to your business or profession.Book the trip. Things to Remember if You Want to Write Off Your Trip You have to go a long way to be able to write off your trip. The IRS has existing rules stipulating which particular expenses can be written off and which cannot, so it takes a dose of wisdom to avail of tax deductions without a hitch. S. Trip vs International Trip. Deductions for business trips within the U.S. differ from deductions for international trips. If your trip is pure business and is just within the U.S., then you can expect your transportation to be fully deducted both ways. However, if your business trip is out of the country, then it has to be at least 75 percent business to be written off your plane ticket. If you go less than 75 percent, then the amount to be deducted will be just the percentage related to business.The Importance of Traveling via a U.S.-registered cruise. In the event that you are in a business-related cruise, make sure that you are aboard a ship that is registered in the U.S. and not in any other country. However, the rule is that a business-related cruise in a U.S. ship entitles you to only a deduction of up to $2,000 a year, regardless of how long or how frequent your trip is. Also, this has to come with a detailed written statement with the tax return.On Overstaying. If you stay in Hawaii for a full week but the days dedicated for business is just five days, that’s fine. You do not need to work all day and end your staycation as soon as your business is done. Remember that spending a few more days in your destination will not disqualify you for deductions, but you have to ensure that your primary purpose for that trip is business and everything is well-documented.Family Expenses. When it comes to the expenses incurred by your family throughout the trip, the story is different. Unless they are employees in your company too, any of your family members are not entitled to a deduction because you cannot deduct expenses for anyone who is not really part of the business trip.If you want a way out of this rule, the trick you can do is to find a means through which you can overlap what you have to pay for yourself with what a family member can pay for himself. For example, when you drive him in your car, your deductible transportation also gets him to the destination since both of you are riding the same car. The same trick applies if you share a single hotel room. It is important to note, however, that the costs incurred for the added occupants, the need for a larger room, for instance, are not covered by the deductions. Miscellaneous Fees. We’ve been talking here about transportation costs like airfare, hotel expenses, and food. But how about other fees that you may incur in the course of your travel? Well, it is normal for any trip to rack up some incidental costs, including laundry charges, tips, taxi fares, internet access fees, and phone calls. The rule for such fees is simple. If these expenses are related to your business trip in any way, then you are free to write them off. Otherwise, you pay for them.Meal Deductions. When you go on a business trip with your associates, you are entitled to a deduction of 50 cents per dollar, which means you get to eat out at only half of your total meal cost.Record-keeping. As previously mentioned, the key to getting as many deductions as possible for your trip is to be careful. Since many business organizations abuse this area of the law, it is highly likely for the IRS to interrogate you when it comes to your deductions. When that time comes, you have to be ready to justify everything. Make sure that you keep all the necessary records, which do not only include the receipts but everything that will prove that you were actually out there for a business trip. Hence, you have to be meticulous in keeping even your itineraries and agendas. Extravagant Expenses. You don’t want to be called an abuser of the law, so be reasonable. While you are free to write off some of your expenses since it’s a business trip, the IRS has the power to foul on whatever expenses it may find too extravagant. As the law stipulates, your expenses must be reasonable based on facts and circumstances.On Documenting Your Trip As previously mentioned, you have to document everything so you will have something to present in case the IRS asks you to prove that your trip was actually a business trip. This may sound a bit demanding, but if that’s too big a deal to you, here’s the deal: You don’t really need to keep a pocketful of receipts for expenses smaller than $75.While the IRS does not require you to keep receipts for a travel expense that’s worth under that amount, that doesn’t necessarily mean that you are already off the hook when it comes to record-keeping. Remember, your goal is to make as many expenses deductible as possible, so be responsible enough to document all your deductible expenses. That means if you stayed at a hotel that’s worth $75, you still ought to have a copy of its receipt so you can expense it.Tax Strategy The only best way for you to avoid trouble when it comes to tax strategy is to be honest. Do not deduct expenses that you are not entitled to and keep all the necessary documents that you will eventually need to back up your claim for deductions. Remember that substantiating your claim is important because if you fail to document your expenses, you are entitled to serious penalties such as losing all the deductions altogether and having to pay additional tax on top of penalties and interest.The bottom line here is that there are existing rules on travel deductions and you’re not supposed to push these rules. However, there is no reason that you cannot tack on some days of fun when you are out there for business.
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