Tag: tax deduction


17 Small Business Tax Credits

Sanjiv Gupta CPA - 9 years ago
President Barack Obama is all set to boost the country’s economic pillar; How? Well, surprising but yes he lent a patient hearing to the grudges and grievances of over a thousand small business entrepreneurs through the columns of Advise the Advisor and Winning the Future Small Business Forum this week. Several questions poured in. Some directly questioned Obama’s administrative policy regarding cuts on tax frills. Twitter found one Lindsmith asking Whitehouse about the 17 tax policies that Obama passed as law. This article contains a pertinent explanatory, direct from the mouths of the government’s official financial consultants. In this article, we explain the tax laws of President Obama pertaining to small business and what effect the change has had on it. Ever since Obama joined the government’s prestigious office in 2009 he put into effect 17 tax laws that promised tax-incise and increase of credits for all small business entrepreneurs.  The three key legislative acts that pronounce tax-cut terms are the American Recovery and Reinvestment Act, the HIRE Act and the Affordable care Act.Each of the Acts covers as many as eight small business tax-cut variations that have had a significant impact on the small business sector. To name a few are:Exempting 75% on capital gains (small business establishments)Health insurance tax-credit for employees (small business establishments)Tax-credit for newly recruited employees (Those that were unemployed for over 2 months) Again in September 2010 the President signed and passed the Small Business Jobs Act which contained another eight laws on tax-slash and tax-credit. The benefits of the Small Business Jobs Act are as follows: Extending small business expense limit to $500,000 (so far this is the highest amount granted)Simplification of rules when applying for business phone usage deductionTax-exempt on medical costs for the self-employedGreater tax-exempt for start-up businessmenExpelling tax imposition on capital gains (small business establishments) In the same year winter, a tax bill was passed under the Obama Administration which furthered the benefits and stated that all businessmen, large and small, could use 100% of capital gains to propel new business investment plans. This plan was however limited to the next seasonal winter of 2011. Also, the period of tax-exempt on capital gains for all small business investments was extended until the end of 2012 and well the good news is that the president suggests that he is trying to turn this policy into a permanent one. This would mean to be a special incentive for the small business sector and could function as the much-required boost for the economy that is struggling under the current recessionary scenario. In fact, experts opinion that the attention paid to small business entrepreneurs is just one of the many ways that will help the government strengthen its position by securing the economic backbone of the country- small business establishments. Obama is, therefore, all keen to win the future with the flourish of small business centers and thus he is introducing these measures in the tax rules pertaining to the small business sector. Well, his actions are heartily acknowledged and supported as long as he keeps the government running with the conscience that the government is of the people by the people and for the people. In the list given below we enumerate Obama’s 17 small business tax-cuts: Tax-laws as granted by, HIRE Acts, the Affordable Care Act and the Recovery Act:1. A New Small Business Health Care Tax Credit2. A New Tax Credit for Hiring Unemployed Workers3. Bonus Depreciation Tax Incentives to Support New Investment4. 75% Exclusion of Small Business Capital Gains5. Expansion of Limits on Small Business Expensing6. Five-Year Carryback of Net Operating Losses7. Reduction of the Built-In Gains Holding Period for Small Businesses from 10 to 7 Years to Allow Small Business Greater Flexibility in Their Investments   8. Temporary Small Business Estimated Tax Payment Relief to Allow Small Businesses to Keep Needed Cash on Hand  Tax-Laws as granted by the Small Business Jobs Act:9. Zero Capital Gains Taxes on Key Investments in Small Businesses10. The Highest Small Business Expensing Limit Ever– Up to $500,00011. An Extension of 50% Bonus Depreciation12. A New Deduction for Health Care Expenses for the Self-Employed13. Tax Relief and Simplification for Cell Phone Deductions14. An Increase in The Deduction for Entrepreneurs’ Start-Up Expenses15. A Five-Year Carryback Of General Business Credits16. Limitations on Penalties for Errors in Tax Reporting That Disproportionately Affect Small BusinessAnd Tax-law as under the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act:17. 100 Percent ExpensingHow much tax can you save with so many tax credits? Well, you need to contact your CPA to find this answer.

Tax Tips That Offer Better Results for Small Businesses

Sanjiv Gupta CPA - 9 years ago
Come the month of January/February and the nation prepares itself for tax sessions. It is time to check that all your financial records are in perfect order. The Certified Public Accountant who will start corporate accounting can call you any time and ask for your spontaneous cooperation if certain papers to prepare the actual audit results are missing. Are you ready? Still, worrying if 2012 will be an expensive Tax-year? Follow the below-stated tips to prepare yourself better for the tax-return file. Establish your business as an entity with the state:This is a great tactic as it allows you to enjoy tax benefits by protecting your personal assets and possessions from your business’ sponsors or financers. This you can simply do by listing your business as an entity with the state. Being an entity of the State increases your brand value and authenticates you as a trustworthy and reliable entity to both the clients and the IRS. In order to enjoy this kind of tax benefit or tax break, you need to undergo paperwork proceedings with the Secretary of State. This process is completely different and is in no way similar to the process of filing with the country records office for an assumed-name certificate. Anyone with such a paper gets permission to conduct business under an assumed or imaginary name. If the firm is recognized as a legal entity then it attracts some amount of costs which is normally capitalized for tax purposes and considerable amortization is done for a period of 15 years. The first tax tip states that for the current year if the total start-up expense for a firm does not exceed $50000 annually then up to $5000 can be deducted from the expenses. Business owners need to keep track of their expensesThe domain of tracking expenses covers home, office, auto, and client development expenses. All these expenses are integral to the development of the business and as such is considered to be an integral part of it. The costs incurred on these heads are liable to be deducted from tax but to get the benefits there are certain rules to be followed. The IRS will ask you for the mileage bills in cases of business automobile usage. It is very well known that small businesses overstate automobile expenses and so bills must be kept for the actual information. If you fail to keep a record of your transport cost then the IRS can decline a small or major part of your deduction from auto expenses. Just like auto and home-office expenses, client development costs are also subjected to some specific rules. In matters of deductible client development costs, there must be a clear mention of time, date and place – these include details such as when you went to meet the client, the business contact’s name and the business you thought of generating as a direct effect of your expenditure. Unreasonable client development expenditures are not considered and only 50% of the business meal prices and other client entertainment expenses are deductible. Small business owners need to invest in equipmentThere is a provision of a total tax cut of $139000 on total business equipment expenses ranging between $560000 and less. This is calculated annually. If in any case repair extends the life of equipment or the equipment is used for a different cause other than the requirement of the company, then the cost will be regarded as an improvement that is entitled to be capitalized and depreciated for the purpose of tax deduction. Need to collect past due accountsIf you are running a proper business you must be well aware that for some obvious reasons there may be a few clients who will refuse to pay you the due money. The work will become easier for you if you have some valid documents to prove your claims such as a receipt, contract, or written slip which documents the fact that these people owe you money. This will place you in a position to exercise your right to collect past-dues. For speeding up the collection process write a note to your client requesting him to clear off their payment and if they express their inability or refusal to pay then you can place your claim on this amount as a “bad business debt loss” for tax purposes. But the debt has to be appropriate and on business grounds. Only then will it be granted for a tax deduction by the IRS. The need to protect payroll taxesBeware of using the payroll taxes for financing any kinds of business operations or proceedings such as clearing the dues of the creditors and suppliers. This is one common mistake that small businesses commit. Payroll taxes are strictly inspected by the IRS and in cases of tax-default or evasion, the IRS can also freeze your personal assets. Even though you have established yourself as an organized business firm the IRS will not entertain any reason while calculating payroll taxes.

You Can Deduct Up To 55.5 Cents a Mile in 2012

Sanjiv Gupta CPA - 9 years ago
Now you can deduct up to 55.5 cents a mile for business driving expense.   You can use this rate for all kinds of vehicles including cars, vans, pick up and panel trucks.  The rate increase was recently announced by the IRS for the year of 2012.You can deduct the actual cost of vehicle operation by keeping track of expenses.  However, Standard Mileage deduction can be used by those who do not keep track of the actual costs.  The standard mileage rate is determined by authorities using the annual study of the fixed and variable cost of automobile operation.In addition to the mileage rate, you can claim a separate deduction for expenses like parking fees or tolls.  You can also deduct interest and state and local taxes relating to the purchase of the automobile.Please note when the standard business mileage rate is used, automobile depreciation will be considered to have been allowed at a rate of 23 cents a mile. This depreciation will reduce your cost basis in the vehicle.Where you cannot use the standard deduction?For the most part, standard deductions are a great place to start if you do not document each expense.  However, in some cases, the standard deduction is not your friend. For example, you cannot use standard mileage deduction for automobiles used for hire like taxicabs.  You cannot use the standard deduction of the vehicle that was previously depreciated by other than the straight-line method.We recommend you consult with your Tax Professional to ensure your deduction is calculated accurately.

Free Resources For Tax Preparation

Sanjiv Gupta CPA - 9 years ago
With so many tax rules changes, you may find it very hard to do your taxes online or yourself.  I would like to point out some of the free resources available to help you with your taxes.Let’s start with California Tax Service Center, which has forms and information on important dates, credits & deductions, payment options and how to file your taxes online. The center is sponsored by the California Fed State Partnership, which includes the Board of Equalization, Employment Development Department, Franchise Tax Board, and Internal Revenue Service.You can also find similar information on our website by visiting sanjivcpa.com.I have also notice that many people are concerned about 1099 they are receiving for mortgage forgiveness.  Similarly, low-income folks are curious to know about the earned income tax credit.Here is an easy way for you to see if you qualify for these benefits.Mortgage Forgiveness Debt Relief. Under Senate Bill 401, a law authored by Senator Wolk in 2010, taxpayers can exclude up to $500,000 in income from mortgage debt forgiveness resulting from a short sale or loan modification on a recourse loan. SB 401 applies retroactively to the 2009 tax year and through 2012.The Earned Income Tax Credit (EITC) is a refundable federal income tax credit that helps low to moderate-income working individuals and families keep more of what they earn. Those earning under $49,078 should see if they qualify for an EITC refund by going online to http://www.irs.gov/eitc, or by contacting a local volunteer assistance site.The Office of Sanjiv Gupta can also answer your questions regarding your personal situation. Feel free to give us a call at 510-825-7563.   We are the only month and a half away from tax time and appointments are filling fast.   Get your appointment set up today.

FBAR | Forign Bank Account Reporting: June 30th 2012

Sanjiv Gupta CPA - 9 years ago
FBAR | Foreign Bank Account Reporting Deadline June 30th, 2012If you live in San Francisco Bay Area, you must have heard Sanjiv Gupta CPA talk about FBAR filing.   Sanjiv has been explaining FBAR on TV and Radio for the last couple of years.  We have talked about FBAR on our blog a lot as well.  None the less, there are many questions still floating around and folks are sill finding confusion about FBAR.One of the most common questions our client ask us is:Do I need to file FBAR on April 17th along with my tax return?No – FBAR deadline is June 30th and you need to send it to a different address (than your tax return)I filed FBAR this year but didn’t file for the last several years. What should I do?Well, it depends if you were required to file the FBAR or not.   You should start by consulting with your CPA or Attorney to make sure if you were required to file the FBAR or not.   Once you the answer, you can work on the strategy to deal with the situation.Can I file past due FBAR?Of course, you can but please do note there are penalties for late filing.Is there a way to avoid penalties?Maybe – you will need a good reason.  You will be required to explain why you didn’t file FBAR in the first place?I live in San Jose, Santa Clara, Cupertino, Palo Alto area and didn’t know that I have to file FBAR?More than likely this statement won’t work.   You need to work with your accountant or attorney to clearly explain why you didn’t file FBAR.  You may not know about FBAR but you still need to articulate your argument.  According to the IRS website, Here are the penalties for not filing the FBAR :Failure to file FBAR PenaltiesThere are very heavy penalties for failure to file FBAR.  The following chart highlights the civil and criminal penalties that may be asserted for not complying with the FBAR reporting and recordkeeping requirements.ViolationCivil PenaltiesCriminal PenaltiesCommentsNegligent ViolationUp to $500N/A31 U.S.C.§ 5321(a)(6)(A)31 C.F.R. 103.57(h)Non-Willful ViolationUp to $10,000 for each negligent violationN/A31 U.S.C. § 5321(a)(5)(B)Pattern of Negligent ActivityIn addition to the penalty under § 5321(a)(6)(A)with respect to any such violation, not more than $50,000N/A31 U.S.C. 5321(a)(6)(B)Willful – Failure to File FBAR or retain records of accountUp to the greater of $100,000, or 50 percent of the amount in the account at the time of the violation.Up to $250,000 or 5 years or both31 U.S.C. § 5321(a)(5)(C)31 U.S.C. § 5322(a)and 31 C.F.R. § 103.59(b) for criminal.The penalty applies to all U.S. persons.Willful – Failure to File FBAR or retain records of the account while violating certain other lawsUp to the greater of $100,000, or 50 percent of the amount in the account at the time of the violation.Up to $500,000 or 10 years or both31 U.S.C. § 5322(b) and 31 C.F.R. § 103.59(c) for criminalThe penalty applies to all U.S. persons.Knowingly and Willfully Filing False FBARUp to the greater of $100,000, or 50 percent of the amount in the account at the time of the violation.$10,000 or 5 years or both18 U.S.C. § 1001,31 C.F.R. § 103.59(d) for criminal. The penalty applies to all U.S. persons.Civil and Criminal Penalties may be imposed together. 31 U.S.C. § 5321(d). Want to Learn more about FBAR | Foreign Bank Account ReportingHere are some links to other FBAR discussion on Sanjivcpa.com Offshore voluntary disclosureSanjiv explains FBAR on TVIRS reminds FBAR requirementsDo office of Sanjiv Gupta CPA files FBAR | Foreign Bank Account Reporting?Yes | We help both businesses and individuals with FBAR filing.  You can call our office at 510-825-7563 to make an appointment. Do you only offer FBAR for Fremont Residents?We have clients from across the globe filing FBAR using our services.   However, most of our customers filing FBAR are of Indian origin and usually located in Fremont, Hayward, Santa Clara, Sunnyvale, Palo Alto, Cupertino, San Jose.  We serve clients from the San Francisco Bay Area.Are you open on weekends?Yes, we are open to atleast on Saturday.I am not sure if I need to file FBAR, Can you help?It is a good idea to make an appointment to understand if you should file the FBAR or not.  As you know, the consequences of not filing (if required) can be painful.  Sanjiv Gupta CPA can sit down and learn more about your situation and advise if you should or you should not file FBAR?I live in the San Francisco Bay Area but can not come to your office?We offer an appointment by phone and video conferencing.  Give us a call and we will try to find a solution for you.

Discounted Kaiser Insurance for Small Business Owners

Sanjiv Gupta CPA - 8 years ago
Our public accounting firm is focused on Small Business Owners and Individuals and many times new business owners ask us about health insurance.   Most of us live in the Bay Area and prefer  “Kaiser” as a  health care provider and therefore I gathered some basic information about Kaiser health care plans for small business owners.Kaiser offers many health care plans but one that suits the need of small business owners is called “GROUP POLICY”.  You can buy this group policy in two flavors.  One with the annual deductible and one with no annual deductible.Plan with annual deductibles cost about $250-$300 less than the non-deductible plans. Both policies cover doctor's visits and other services offered by Kaiser.  Both plans have minimum out of pocket doctor’s visit cost but the key difference is that with an annual deductible plan you have to pay the minimum deductible ($1500) before your major benefits kick in.   For example, a daily rate for the hospital room maybe $500/night and you will have to pay for 3 nights before your insurance pays.  However, with non-deductible plans you won’t be required to pay for these three days.So, if you and your employees are fairly healthy and won’t be needing any major services than you can opt for deductible plan and save a significant amount on a monthly basis.How about Spouse and kids?Yes, of course, your employees along with officers/owners of the company can also enroll their dependents including kids and spouses.  Most policies don’t allow you to include your parents.What are the requirements for this kind of policy?You must have a business in good standing.You must have two or more people enrolling in the policy.More than 50% of all eligible persons should have insurance.Can I get a tax deduction for the health policy?You can read my post about health care policy deduction for more details.How much does the policy cost?I found the group policy of very good value. Rate varies by age but here is a simple example. Females less than 30 years old can get this kind of policy for about $300.  Not Bad?How can I enroll in group policy?Simply call Kaiser and ask for enrolling in group policy.

Tax Deductions for Independent Contractor or 1099

Sanjiv Gupta CPA - 8 years ago
Starting out a consulting business can be very lucrative. However, it can also result in a heavy tax bill you do not organize your income and expense properly.   So, how do you organize your income and expenses?You can start by opening a different bank account.  Do not mix your business bank account with your personal bank account. All business-related income should come to this account and all expenses should be paid from this account.   Your client will send you to form 1099-misc at the end of the year.  IRS will also reactive a copy of this 1099.  That being said your total business income should be greater or equal to the amount listed in 1099.  You may get an automated customer-generated audit if you report a total income less than the amount listed on your 1099.  Keeping a separate bank account will help in calculating total business income and you act as proof in case of an audit.Now you need to deal with your business expenses.   The easiest way to do this is to categories your business expenses.   We recommend you use the same or similar categories listed on schedule C.  This will help during tax time.  Now, every time you pay a bill, you simply need to enter that transaction in the correct category.  You can use a simple spreadsheet, financial software or you can use a shoe-box.  Most CPA firms also provide bookkeeping services. For example, you can simply send us your bank statement at the end of the month and we can do the complete bookkeeping. We will assign each expense into appropriate categories based upon its tax implication.What are some of the most popular business expense categories?Advertising – All expenses paid for online marketing or print marketing including business cards or flyers.Consultation Fees – Fee paid to professionals like attorney, CPA, or marketing professionals.Insurance Cost –  Business Insurance Expenses including life, property & casualty, or business insuranceInterest Cost – Interest cost of your business loans. You can include fees and other related cost.Office expense – Any supply or equipment you purchase for your business operation.Rent or lease other business property – Cost of operating your business office.Repairs and maintenance – Include all cost related to your business only.Travel – the cost of traveling to a business-related event like convention, meeting, or business tripMeals and entertainment – You can include meals and entertainment expenses related to your business.Utilities –electricity, gas, telephone, internetOther expenses – such as Dues & Subscriptions, Web development, and Business telephone expenses. Health Insurance expenses:  Premiums paid for your health insurance are tax-deductible.   You can deduct the full cost of health insurance premiums on form 1040 but you must have an Income from your business.   You can deduct the health insurance cost event if you run into losses but it has to be reported differently.  Consult with your CPA to ensure you are reporting the deduction properly.Still have a question about your business expense?  Leave us a comment or call our office at 510-825-7563

How To Avoid Paying Tax On Home Sale?

Sanjiv Gupta CPA - 8 years ago
You may be able to avoid paying taxes on the profit of your home sale.  Want to know how?You can take advantage of $250,000 Exclusion on the Sale of a Main HomeUnder the current law, Individual homeowners can exclude up to $250,000 in profit from the sale of a primary residence.  Married couples can get a double benefit and take advantage of up to $500,000 exclusion.  The key requirement is that you have owned the home and lived in the home for a minimum of two years.  The good news is that these two years do not have consecutive.  You are required to spend 24 months our five year period for the qualification of this exclusion.  You can also strategically plan the sales of your home or investment property by keeping this rule in mind.This is a great way of building wealth.   You can sell the property and take the profit tax-free.  Now you can reinvest the same funds into another property.  This allows you to increase your cost basis even if this property is an investment.  You can also do this multiple times.  This is probably one of the best legal ways of not paying income tax.Selling Your Home Due to Job RelocationIf your Job location has changed or you have started a new job than you can still avoid paying some of the taxes on the home sale.  Consult with your CPA to see if you can qualify for this kind of deduction.Selling Home Due to Health ReasonsIRS may also allow you to exclude some of your Income from primary residence if sold the house due to health reasons.   This one can be tricky.  Make sure to keep proper documents including a note from your physicians.  Also, make sure to consult with your CPA before putting your home on the market.There are some other similar reasons that may help in avoid paying tax on home sale income.  For example, natural disasters, acts of war, acts of terrorism, change in employment or unemployment that left you unable to meet basic living expenses, death, or divorce. What about the Loss on the sale of a HomeUnder current tax laws, there is no provision to deduct the loss from the sale of your primary residence.How to Report the Gain on the Sale of Your Primary ResidenceGain from the sale of a property is considered capital gain and it is reported on Schedule D.  Gain is considered short-term capital gain if you owned the property for one year or less.  Similarly, the gain is considered long-term capital gain if you owned the property for more than one year.Calculating your Cost Basis and Capital GainThe formula is fairly simple.  Just calculate total income and subtract the total cost. Your cost can include purchase price, purchase cost (escrow or agent fees), improvements, selling cost, depreciation.It is always a good idea to bring a CPA in a picture if you are looking at substantial gain or loss from the sale of a property.  Your CPA can advise how to structure the sale of your property so that you can minimize the tax implication.

Tax Issues Affected by Estate Planning

Sanjiv Gupta CPA - 8 years ago
It is wrongly judged that estate planning is free from income tax compliance. The truth is that when a client is filing for an income tax return, the individual has to plan meticulously on how to itemize properties so that tax expense can be curbed to some extent. Careful practitioners try to balance both factors: estate arrangement techniques and tax compliance. Following are some important points that a practitioner should keep in mind while planning estate arrangements for a client:                                                                                                    Family Loan: One of the most popular wealth management methods is to transfer property rights/ loan out cash to family members. For instance, it’s easier for a son/daughter to pay back “intra-family loan” at minimum interest (under IRC sec. 7872) than to clear home loan debts, taken from a bank or a private creditor. Also, the family sentiment which helps heirs put up with financial problems is one reason which makes an intra-family loan more popular. To go by the proceeding, an intra-family loan agreement document is drafted. It acts as a promissory memorandum. The practitioner, it is advised should keep a copy of this document. The creditor charges a minimum interest from the benefactor who, as per rules and terms penned in the loan agreement, is required to pay back the debt amount. Most of the agreements are time-bound and the tax returns are filed in the name of the lender. In case the interest amount falls within a tax-return deductible slab, it must be shown by the borrower.Also, the income and the interest payment terms should be in sync as per the loan agreement doc. The borrower should not skip payments; otherwise, the whole purpose of revenue management becomes futile. Compensation Issues: S corporation return deals with reasonable compensation possibilities which can help save payroll taxes.  Under Sec. 1402(a) shareholders can apply for compensation by filing personal Form 1040. However, there are many key issues that might affect estate planning for the client. Unreasonable high compensation demand implies that a client is still interested to derive profit from a business partnership, gifts, and family property handovers. Gifting stocks or shares to heirs is one of the most judicious ways of doing justice to estate planning. However, if the parent lender continues to extract interest amounts over a prolonged period then IRS can debate on and preside over the matter. The tricky part is that if the creditor is sanctioning gifts to GRATS (grantor retained annuity trust) that is trying to gain an absurdly low compensation then it could unveil the ‘real’ estate-arrangement plans and put at stake all possibilities to save payroll taxes. Therefore a practitioner must be alert not to stress much on compensation; rather they must understand how the process works and how it must be approached at. Grantor Trusts Grantor trusts, a very popular technique for asset protection and estate planning, must be included in the trust provisions when a client transfers his assets to an irrevocable trust. The ubiquitous revocable living trust is a common grantor trust used to segregate gift assets from inherited assets. Mostly used in determining equal share in divorce proceedings, living trusts are often used to avoid probate. The Beneficiary Defective Irrevocable Trust (BDIT) caters to the child alone and not the parent because if the trust is established by the child’s parent or any other benefactor for that matter it includes an annual demand called the Crummy power for the child/ benefactor which makes the child its rightful trust. BDIT should be handled with precision different from the traditional ones. Again all those assets’ immunity stands jeopardized under revocable living trusts if assets received as gifts or inheritance by the client are used to paying income tax. Insurance Transfer for Value Rules If an insurance transfer is not subjected to IRC Sec.101(a)(2), its proceeds then are income tax-free. Transfer for value rules is triggered only if it takes place between a corporation and a shareholder and not between two partners in a partnership. Following this life insurance transfers that appear on any return must be investigated to avoid transfer for value rules. Disregarded LLCs In order to bring down the administrative expenses of a business partnership, clients often prefer utilizing ‘single-member ignored Limited Liability companies’. The only disadvantage of this policy is that if a lawsuit is filed against the client then the executive organ of the government can investigate all personal accounts of the client. Filing a Schedule C, on the other hand, much guards income information of an individual.   Schedule B: Titles To Assets In 2010 the IRS sanctioned the “asset portability” tax act. This provision allows the surviving spouse to ignore estate tax payment in a de-coupled state. However, this provision is only limited to state tax exemption policies and does not work at the federal level.  The practitioners on the other hand, more often follow the traditional technique of paying a subsidy to trust in the name of the deceased. But it seems that there are many loop-holes in the asset portability act which the IRS needs to address. Non-retirement asset division, balancing property distribution, etc should be carefully planned by the practitioner so as to avoid complications while preparing Schedule B concerning Titles to Assets.

Obama's Health Care Plan and Tax Deductions

Sanjiv Gupta CPA - 8 years ago
As many of you may know that starting 2014 Obama’s healthcare plan will kick in that may allow low-income families to enroll in a qualified health care plan and claim the insurance premium as a tax credit.  However, some of us are still wondering what if a qualified health plan offered by Obama's health care plan is cheaper than the one offered by our employer.    Can we switch to a different plan?  If we make the switch, can we still deduct premium?Answers to these questions are equally important to the employers.   Employers would like to predict their exposure to the employer responsibility excise imposed should if they offer the healthcare that does not provide minimum value (What is the minimum value?), or is unaffordable.   After all, employers want to know if they should continue with their health plans or not?“Have IRS not finalized the rules?” you may ask.  You can read T.D. 9590 published by the IRS and Treasury Department.  You will find many rules to determine eligibility for and calculation of the tax Code section 36B refundable health insurance premium tax credit added by the Patient Protection and Affordable Care Act, as amended.   These rules address many matter e.g treatment of required waiting periods or relief from erroneous automatic enrollment in an employer-sponsored plan.  But at the same time, they leave many issues for future guidance and public interpretation.For example, Employers can find out when employer plan coverage is affordable for the employee by using a simple formula (i.e., the employee’s contribution is no more than 9.5% of household income) but do not address whether coverage is affordable for related individuals who can enroll in the employer plan.Many groups are working closely with IRS and Obama’s administration to finalize the rules and calculation methods to determine how much premium should be deductible.  Taxpayers are also being invited by the IRS to comment on these matters.Would you like to share your thoughts on this matter?

A To Z Of Home Office Tax Deductions

Sanjiv Gupta CPA - 8 years ago
If you have a home-based business you can save money by availing home office tax deductions. The IRS allows you to save money on insurance, mortgage, repairs, and other utilities if you have an office at home. Home office deductions are applicable for all kinds of homes irrespective of apartments, flats, and even mobile homes. So if you are wondering how to claim a home deduction this article will provide you with all the basic information.Requirements for home deductionsThe internal revenue service or the IRS has created certain specific requirements that must be met with to claim home office deductions. They are as follows:Regular use: For you to claim home office tax deductions you have to work from your home on a period of over two years.Exclusive use: You can also be eligible for home office deductions if you use your home exclusively for work. You can either have a separate area for work or a room within your house but it must only be used for work-purpose.The principal place for your work: Your home must serve as a principal area for your work. You cannot claim tax deductions if you use your house occasionally for the purpose of your business. But even if you have another office at some other location but use your house regularly for client meetings and other administrative and executive purposes you can easily be eligible for home office tax deductions.What percentage of the house is being used: Another requirement that will decide the deductible amount is what percentage of the house is being used for work. So before you file your house deduction claim you need to understand what percentage of the house is used for work if you are using more than one room or only a portion of a room as your home office.Rules for employeesThe IRS has specified a couple of other rules for employees claiming home office deductions. So if you are an employee in addition to the above-stated rules you would also have to comply with these other criteria.For an employee looking for home deductions, he must show that he's working from home is actually more beneficial for the employer. You can easily claim home office deductions if your office does not provide any space for you to work in their location and you have to work from home. However, the IRS does not have any specific rules to judge if your work is actually beneficial for your employer. They base their decision on facts and circumstantial information.You cannot be eligible for tax deductions if you rent a part of your home to the employer and use that part to work for that same company.What can you saveFiling for a home office tax deductions can reduce your tax bills considerably. If you meet all the required compliance criterion you can easily save a lot by home tax deductions. The IRS will deduct mortgage insurance, rent, repair, real estate taxes, depreciation and any other type of utilities.However, your deductible amount will depend on the percentage of the house you are using for your work.Also if your income is lesser than the expenditure incurred for your business your deductions will be constrained.How to file your claimIf you are thinking of claiming your home office deductions and you are meeting all the compliance criterion you can easily reduce a considerable portion of your tax bills. Here is how you can claim your home office deductions. Self-employed: For those who are self-employed and using their homes as the office they have to fill Form 8829 to understand the amount of deduction they will be eligible for. Then this amount has to be stated in Schedule C.Employees: Employees have a different procedure for filing home office deductions. If you are an employee you can calculate your deductible amount using the worksheets of IRS publication 587. Once you have calculated your deductions you can then claim them as itemized deductions on Schedule A.These are the basic information that one needs to know and follow to file a home office tax deduction. Successfully filing your claim can easily reduce a considerable amount of tax burden from your shoulders.

Turning Over Your Business? 5 Steps To Know

- 1 year ago
Whenever we start a business we hope to make it big, earn profits and expand a lot. But doing these is not easy. While we all expect the maximum return from our businesses turning over your business requires the implementation of some essential steps. So if you, like many are trying to know and understand the steps that will help you to turn over your business, this article will surely be of much help.Increasing your turn overIncreasing your turn over is what all businessmen try to do but to actually be successful in doing this requires some steps. Here are a few of them:Lowering costs: Lowering costs of the company will inevitably result in a higher turnover. You can lower the expenditure of the company by getting your products at a lower cost from the supplier and by evaluating the business processes and systems to reduce any wastage. Reducing these costs will ensure an increased turn over. You can also try to reduce overheads and introduce a functional method that will help your employees to properly utilize time. The less time they spend on unnecessary activities the more time they will spend on productive works thereby increasing your turnover. Asses your employees: Assessing your employees’ performance can also help you increase your turn over.  Motivate your employees to work better to increase profitability, appoint the seniors to hand over easy tasks to the juniors so that they can have more time to work on important projects and reward employees when they have done something good. Creating a proper work schedule and keeping yourself updated with how the work is being carried out, who is responsible for a certain project and the end result will bring out better quality work and increase your turn over.Plan well: Proper planning and execution help a lot with increasing your turn over. Having a proper plan will ensure that the work will get done quickly and you will also be able to adapt to changes. You should set a short time, well-thought plans and see if you can implement them properly. You can also modify your plans as they are implemented to suit your needs. Developing a customer base: Increased customer base will automatically mean an increased turn over. You can increase your customer base by developing your service and product quality. You should have a market survey to understand the recent trends and offer your products or services according to those trends. Pricing your commodities perfectly so they give good value for money is a great way to expand your client base. Providing after-sale services such as training and installations creates a good feeling about your company to the customer and this can help attract more customers. You should also develop your customer care services so that they can solve their problems quickly. The number of satisfied customers the more turnover you will have.Check your profit margins: Periodical checking of the profit margins of the company will help you identify the pattern of sales and profit from which you can take proper steps to either maintain or to bring the necessary changes to increase turnover. If you find high sales with high profits you should definitely continue implementing the action plan and reward those employees who have made your product successful. However, if you find that your profit margins are low but sales are high you can increase your pricing of the product. Many times there is a considerable profit but the sales are low. In such a scenario you can think of plans that will help you increase sales and bring more profit to the company. But if you are faced with low sales and low profits you then need to stop the present action plan and incorporate something new that will help you to hike up the sales and in turn more profits. Hopefully, these steps have helped you understand how you can increase your business turn over. It is very important that you remain updated about the strategies being used to generate more sales for a product or service. Since a large customer base can expedite your company turnover you must design your products and services to suit their demand. Since employees are also a big part of the company you should motivate them and have a reward program to encourage them to increases the profit margin of the company.

Scams in Property Taxes: Please Take a Note

Sanjiv Gupta CPA - 8 years ago
Everyone wants their property taxes reduced. In an attempt to reduce taxes many people fall prey to tax scammers. To be safe from these scammers the taxpayers need to be careful about the following things:Many times you may receive letters that look like they are from government offices but in reality, they are usually from the private companies trying to fool you into giving them money.Homeowners should also stay clear from any company that offers to file an assessment challenge in return for an upfront fee.Homeowners should also avoid any kind of services that requires a copy of the property deed or the social security number.Many of you must have received letters that claim to get your property assessment done for a fee that can be as nominal as a few dollars to a couple of hundred dollars. But in reality, these companies just take your money and fill out a property assessment form which you can do yourself without any charge. And in some cases, these companies just take the money and do nothing at all.While the government agencies send out their forms sometime in June these scammers send their form much early. In some of the states if the value of the house has gone down from the previously assessed value then the property taxes are automatically reduced. So the scammers usually target those homeowners who are hoping for a reduction in taxes. These companies send their forms or letters earlier than the government agencies and claim that they will reduce the taxes. Many homeowners pay a considerable amount to them and in June their taxes are reduced. What the homeowners fail to realize is that their taxes were naturally supposed to go down and the company has not actually done anything.But if you are actually looking for one such company to handle your property taxes then it is better that you avoid any company that proposes to do your work for an upfront fee or your property deed or social security number. It is also better to keep away from companies that claim that they are affiliated with government agencies.

Can’t Pay Your Taxes? Get Help From IRS

Sanjiv Gupta CPA - 8 years ago
Those that fall under the ax of taxation will tell you how difficult it is to cope with inflation on one hand and to abide by taxation policies on the other. Nonetheless, there is no exception to paying taxes. But then there is good news – Those that have genuine monetary problems can appeal to the IRS to reduce taxes. Provided the tax filer provides original documents and proofs to support his claim, the IRS can also provide potential tax relief programs.Most of you, I assume, know that evading or missing the payment of taxes is considered a crime. Paying taxes is mandatory for everyone as it the source of government revenue. The government, therefore, has given the responsibility to the internal revenue system or IRS to make sure that everybody files their tax return. While it is a criminal offense not to submit your taxes, the IRS shows a certain amount of leniency for those who are financially distressed and cannot file their taxes.Distressed taxpayer? IRS can helpThe internal revenue service identifies those people who have missed their tax payment owing to severe financial distress as distressed taxpayers. The IRS has devised certain relief measures for these distressed taxpayers. Here is how the IRS can help distressed taxpayers:Flexibility: If a person is unable to pay his taxes on time due to certain financial difficulties then the IRS provides him with a more flexible payment plan. If the IRS identifies you as a distressed taxpayer then they can either provide you with a flexible installment plan for your taxes, reduce the amount you have to pay and in some situations allow the complete nonpayment of the installment.The offer in compromise: The IRS in many situations comes to an agreement with the distressed taxpayer if the taxpayer can show that his expenditure is more or equal to his income. But in some cases, there can be a problem, especially if the taxpayer has equity in real estate. The IRS finds that the real estate measurements to identify if a person is in a state to pay his taxes can at times be unreliable which in turn causes certain problems for the offer in compromiser to be accepted by the IRS. But to solve this problem the IRS is trying to introduce another review of information gathered about the financial condition of the taxpayer so that the IRS can correctly asses if the offer in compromise can be applicable for that individual.Preventing defaults in offer in compromise: In many situations, the IRS face defaults even in the amount agreed to be paid in the offer in compromise terms. In such conditions, the IRS has a special team that will help the individual to find out ways to pay the agreed amount of taxes and not be a defaulter.Delaying collection: If an individual has recently faced a serious financial crisis, the IRS in some cases delays the date for tax payment. They do not need any kind of documentation for implementing such actions and can be taken by the employees to ease out the financial burden on the taxpayer.Speeding up levy realizes: In many cases if the distressed taxpayer requests an emergency quick levy release, the IRS relaxes the requirements from the taxpayer and allows an expedited delivery of the levy release. However, the taxpayer must provide the IRS with a fax number of the bank or the employee handling the levy when asking for an expedited levy release delivery.Here are a few ways the internal revenue service can help distressed taxpayers. While paying taxes is compulsory these measures relieve a lot of the burden from those facing serious financial hardships. Moreover, the additional review of the offer in compromise and the delaying of the collection action give more time to the taxpayer to get help from the IRS and to pay their taxes. IRS’s laudatory efforts to help the distressed taxpayers will surely help them to a great extent.

What Are The Available Medical Deduction Plans?

Sanjiv Gupta CPA - 8 years ago
A medical deduction plan helps to reduce tax on medical expenses.  This type of plan is beneficial for one who has to spend excessively on medical issues.   Medical deduction plans allow a person to qualify for tax exemptions. However, to file a tax return on medical expenses it is essential for an individual to present all supporting medical documents.Tax Deductible ExpensesTax deduction for medical expenses is available for a large number of issues. One can get a deduction on diagnosis cost, cost of treatments and even cost of medical supplies. Medical deduction plans are available for the following issues generally. Fees payable to doctors and dentistsExpenses that one has to pay for medicines that are prescribed by a doctor.For medical aids and equipment like pacemakers, wheelchairs, hearing aids and dental equipment.Charges of weight loss program which is prescribed by a doctor.  However, the charges of low-calorie foods can not be tax-deductable.Travel expenses due to medical treatment. The cost of any type of surgery including eye surgery and cosmetic surgery.However, one point to remember is that medical expenses that improve general health such as vitamin deficiency are not tax-deductible.Who can have the benefits of a tax deduction?A taxpayer can deduct medical expenses for his/her own medical treatment, cost of equipment and surgery.A taxpayer can receive tax deduction for the treatment of a spouse.A taxpayer can claim a tax deduction for the medical issues of a person who is dependant on him/her.  Is there any exposure for non-dependant?IRS generally offers no tax deduction offers for the non-dependants. However, in some special cases tax deduction rules can be changed.IRS does not offer any coverage for a non-dependant even if it is one’s, own child. But if the child is a non-dependable according to the law of divorce or separation. A taxpayer can not claim a person as a dependent if he/she gets $3,700 and more. How to apply for tax deduction? A taxpayer can claim a deduction of medical and dental expenses if the services were made during the tax year.  An applicant can apply for a tax deduction when the payment is complete. This is applicable for each type of payment, such as online payment, payment by phone or credit card.Deduction plans for long term medical expensesIRS offers a tax deduction for long term medical expenses.  If a person suffers a long time from a severe medical issue, he/she can claim a tax deduction for diagnostic, therapeutic, treatment and personal care costs. In order to avail of a long-term medical deduction, one must meet all criteria as specified by the IRS.Medical issues must be of chronic type:  a person can be diagnosed as a chronic sufferer if he /she has been suffering for one year or more and is unable to perform daily activities without substantial cooperation.  if the mentioned person requires extensive care to maintain personal care andDiagnosis, treatment and all other necessary medical services should be executed under the supervision of a recognized doctor or medical practitioner. What should be included in long term medical deduction plans?A tax deduction can also be granted for the following issues. Expenses of meals that a person takes at a hospital or nursing home. However, such meals must be part of medical care. Charges paid for the medical conferences including transportation and admission costs. The time of the conference must involve medical sessions. A person is not capable to claim a tax deduction for food and lodging charges that he/she has to pay during the medical conference. IRS offers a tax deduction for medicines, injections and other medical supplies that are prescribed by a certified medical practitioner. For diabetes patients, the charge of insulin is deductable without prescription. A chronic patient some times requires additional nursing services to perform regular activities. In such a case, the cost to appoint a nurse or an attendant or a caregiver is deductable. Cost of operation, eye surgery can be tax-deductible. On the other hand, IRS does deduct amounts that are spent due to unnecessary surgical treatments such as some kind of cosmetic surgery, artificial implantation, etc.IRS offers a tax deduction for certain issues. These are mentioned in the following points.Stop smoking programPsychoanalysisSterilizationPregnancy test kitsSpecial educationWeight loss programIssues that do not tax deductableChildcare services for a healthy babyCosmetic Surgery except for a medical requirement.The weight loss program is only for general health and appearance improvement.Household serviceElectrolysisExpenses for funeralHair TransplantIllegal surgical treatmentsCost of Insurance PremiumsImported drugs and medicinesNutritional SupplementsFees for Veterinary treatmentDiaper Service

How Tax Shelters Help To Reduce Tax Burden?

Sanjiv Gupta CPA - 8 years ago
A tax shelter is a great way of reducing tax. It can effectively reduce your tax burden to the IRS (Internal Revenue Service). But tax shelters can turn to be a problematic issue if the law is violated. So make sure that the tax shelters are legitimate.A tax shelter is actually a financial arrangement that helps to reduce a taxpayer’s tax burden. Tax shelters accomplish such difficult jobs by decreasing and sometimes eliminating your taxable income. This is also a great tool to create tax-deferred or tax-exempt income.You have to be very cautious while setting up the tax shelter. It should be legitimate. If it’s proven abusive then it can create a big problem. When the purpose of a tax shelter is avoiding tax, then that is considered as an abusive tax shelter. There are many other purposes involved with legal tax shelters.A legal tax shelter can effectively reduce taxable income. The main purpose of setting up a legal tax shelter is to report the IRS very little of your income. Tax shelters are extremely beneficial for high-income professionals. Especially big companies are to take the help of tax shelters for avoiding tax payments.The most common examples of tax shelters are charitable donations, pension plans, retirement accounts, municipal bonds and so on. Investments like life insurance and health insurance plans can also be considered as tax shelters. Investing in real estate is also a perfect example of a legal tax shelter. So it can be said that tax shelters work great as an incentive for investment.A tax shelter is actually a great strategy. The more intelligent reason you can show to the IRS the easier will be to reduce the amount of payable tax. Larger firms have no way but to use this subtle way of cutting the taxable amount.Without much stretching the laws, you can really set up a beneficial tax shelter. A charitable donation is a legitimate way to avoid taxation. The authorities of the IRS monitor tax shelters efficiently. So going with laws is the best way to reduce your taxable amount. To know the laws better you must visit

Your Tax Credits and Deductions Are Expiring Soon

Sanjiv Gupta CPA - 8 years ago
The US congress and senate have a way of waiting until the last moment before making the many needed changes in legislation. In the year 2012, the country was just coming out of a deep international recession that affected the economy deeply. At that time, the congress and senate fell over themselves as they scrambled to try and save the normal Americans from feeling the effects of expiry on the tax breaks that they had gotten used to. This was then; however, the same situation seems to be in the offing at the end of this year. Most of the extensions that had been given earlier in 2012 are nearing their end with the collapse of this year, and as yet, few safety nets have been put in place to protect the common folk for when that time comes. Pundits point out that the delay in enacting changes in these laws or determining the direction that any fiscal interference from the government will take largely depends on the result of the presidential election. Well, the elections have come and passed, and the democrats had their way with regard to the presidency. As such, it is expected that such bills such as the Family and Business Tax Cut Certainty Act of 2012, which was approved by the Senate are going to sail through to the implementation stage.This is only half the solution; while the bill covers most of the extensions, there are some and albeit crucial parts of the bill that have not been looked at. This to some extent indicates the direction that congress may be leaning in relation to the tax breaks that have been the norm for a while now. The result will be a reaction that is part in full to what the market is used to. If this is the result, then it is expected that people are bound to tighten their belts, so to speak in the recent future.Initially, the bill took care of the tax provisions that affected individuals including restoring the alternative minimum tax (AMT) patch. The bill also took care of the deduction for state and local sales tax as well as the parity for employer-provided mass transit and parking benefits. Such provisions for these businesses include the extension of research and development credit in addition to the work opportunity credit. On the other hand, some of the things that this bill overlooked include the impending changes that are expected to happen on income, estate and capital gains tax rates.Recently, estimations by the Joint Committee on Taxation held that the renewal of this smaller list of provisions would have a net effect of costing more than $192 billion in loss of revenue from the fiscal year 2013 all the way to the fiscal year 2017. This is by no means a small number; however, the main question is “can the US economy handle such a loss at the moment?” If so, just what is the net return if such a move is undertaken?

Important Year-End Tax Implications For Ranchers

Sanjiv Gupta CPA - 8 years ago
The thing about taxes is that you always have to pay them at one point in your life. In fact, at some point, it is said that the only thing human beings are sure about is death and taxes. Ranchers make up a fairly large percentage of the human population in the USA. So what are the implications of end of year tax implications to the ranchers in the USA?The answer to this particular question is somewhat complicated in itself owing to the multifaceted way in which it can be tackled. This is because the implications can be economical, social and fiscal in nature. The magnitude of these implications is also something that needs to be looked at, especially considering that a larger part of the population is just picking itself up from the throes of financial recession. However, in this article, we are going to look at the major financial implications of the end of year tax changes to the average rancher.The baseline of this article is simple; if congress does not act this year to shield the local folk by enacting safety nets with regard to ranching, then the result is that the New Year will not be too good to the ranchers. This is because such a move will have the net effect of raising the rates on virtually all the taxes that taxpayers pay, and in this case, ranchers. Such taxes include, but are not limited to income taxes, capital gains, dividends, wages, gifts, and estates. Looking at the wholesome situation, most of the tax provisions that expire at the end of the year actually have a direct bearing on the tax amount that is paid by the ranchers and farmers in much of the USA. Most of the farmers and ranchers in the USA are owners of a large estate through which they carry out their businesses. Estate taxes are some of those taxes that are bound to increase if changes are not made. As such, a person paying a 35% tax on his estate may be slapped with a top rate tax of up to 55%. Such increases are bound to increase the cost of business and of the products sourced from these ranches. This is one of the reasons that experts advise businessmen to take care of their estates before the year-end. If not, then the net result may be something that is not entirely good.It is for this particular reason that the end of year tax implications should be put into account not only by the accountants as they crunch the numbers but also by the government and the legislators as they continue to debate the taxation issue. Initially, there were exemptions to the extent of 10 million dollars; however, with the expiry of the tax breaks, the situation is bound to get a little tighter. This is because only exemptions of up to 1 million will be entertained by the taxman. 

New Year Tax Cut Updates

Sanjiv Gupta CPA - 8 years ago
It is now common knowledge that the New Year will signal an increase in taxes. This is not very good news, especially at the start of a new year. However, with the expiration of the term of most of the tax breaks that had been legislated, there is not much choice for the common folk. The chances of another extension being provided are all the same minimal, especially considering that the estimated loss of these breaks is about $192 billion. The effects of such a loss are expected to be felt way into the year 2017.  The resultant net effect of these changes in the tax threshold is meant to cover at least 90% of the citizenry. These changes are expected to cut through the social fabric, from the very rich people to the very poor people. Even then, this does not mean that the population in general and the government are ready for the result of such tax changes. While the government may be happy that more and more people will be covered with the tax threshold, the result may not be smooth sailing for everyone who is affected. As such, the total effect is an increase of about $2000 in the tax bill of individuals.Now that the elections are complete, it is expected that the congress will finally get down to business and deliberate on the tax bills. The problem with this kind of deliberations is that the congress will be forced to balance delicately between the spending cuts that they seek and the tax increases that they want to effect. As such, while the legislators will be busy trying to reverse or change the scheduled tax increases, various accounting professionals are expecting to get busy with the process of re-arranging the tax benefits of their clients so as to minimize the effect of tax on the bottom line. It is therefore expected that a lot of lobbying will happen before a blueprint for tax in the New Year is let out to the public. On the other hand, the public can only hope that the result of this intense lobbying is a relief nonetheless.It is the expectation of many people that some particular types of taxes are bound to make a come back in the process. Some of these include payroll tax, which was cut at the time to help inspire growth. This kind of tax is set to affect virtually everyone who falls within the tax bracket. The president has been on record as pushing for some of the tax cuts as well as some of the scheduled tax increases. With a government in debt even more than it was before, his reasoning cannot be faulted one bit. At the end of the expiry period, the average rise in taxes that individuals and businesses pay is bound to affect the bottom line of most institutions. Businesses, individuals and the government have to work together so as to fend off any negative impact that such a situation may bring.

1099 Independent Contractor Tax Deduction

Sanjiv Gupta CPA - 8 years ago
Recently we got a question asking about the tax deduction for the 1099 contractor. The caller wanted to know if he can deduct the travel expense from his home to his office.In the San Francisco Bay Area, many of us are 1099 contractors, working for consulting companies or own our small business. With gas prices reaching $5 per gallon, it is no wonder that we are starting to pay special attention to the travel expenses. The small answer, like always, to this question, is – Yes, but it depends.You can deduct travel expenses from your office to your client site. Meaning, if you have a home office and you travel from your home office to your work than that expense can be deducted.However, if you simply travel from your home to your work than that expense is not tax-deductible. Set Up A Home Office To Take Tax Deduction.Your home office should be a separate place in your home that is dedicated to your office. There is no special rule that defines what furniture or equipment you need to buy to claim a place as your office. However, your office should serve as your “HOME OFFICE”. Meaning you should be able to do an operational task from such a place. Moreover, this office space should not be used for personal use. It should be dedicated forth office use only.With an increasing number of audits from the IRS, I suggest that you keep a picture of when your office was set up. Taking your home office pictures can also help strengthen your position in case of an audit. Making a list of things you do from your home office can also help you establish your home office.

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.

Handling 2012 Gift Tax Audits at the Internal Revenue Service Appeals Level

Sanjiv Gupta CPA - 8 years ago
The way you plan and deal with the storm of 2012 gifts, the documentation of 2012 tax gains in 2013 for the 2012 gifts and also the ultimate audit a lot of these gifts will unquestionably be taken through; must be backed by how you will take charge of the Appeals of those audits. 2012 will probably show to be the most energetic year in the gift tax record.With the risk of a decline in the yearly gift exception from $5.12 million to very lessee $ 1 million, also with reduction grantor policies, continuous GST shares all being planned for lawmaking constraint, extra well-off taxpayers will create considerable moves in 2012 than they did before.Huge statistics of huge dollar moves will probably affect in growing Internal Revenue Service review action. However, the huge dollars that are moved will consequence in a lot of those reviews departing up to the Appeals Division as taxpayers and the Internal Revenue Service attempt to resolve what will unquestionably be huge appraisals. lack of concentration to the official procedure: The Wandry issue has led in a number of practitioners lessening the significance of a lot of gift setting up facts and in its place depending on the backstop of a distinct worth section to explain any gift levy issues.Wandry v. Comr., 2012-88. Merely put a number of practitioners may have considered that they did not necessitate to be worried concerning the excellence of the evaluation, or whether extra official procedures were stuck to, as they may have completed in former years.In view of the fact that many understand the Wandry case as having prearranged wide permit to the usage of distinct assessment sections, they may have reconsidered the disadvantage of a 2012 gift as additionally unassuming as possibly must have been completed. Step operation policy:The pure occasion force to complete many 2012 gifts will effect in missed steps, the lack of “aging” dissimilar stages of the map, the conclusion of mechanism that is in the earlier period might have been extended in excess of more than a few levy years into a sole tax year, and extra.These might all elevate the presence of the Internal Revenue Service making use of the step operation policy to pack together a lot of dealings into a more expensive tax effect. Competency:If the taxpayer did not have adequate psychological ability to contract (which is a senior amount of ability than that required to sign a will) the gift contract will be unproductive. Given the possible collision of state assets tax in decoupled states and the danger of a lesser central immunity total, a lot of grown-up taxpayers will have certainly been optimistic to create 2012 moves. Post-Gift Operations:As practitioners managing audits and petitions in general outlook the certification finished at the time of the gift as of supreme significance, they must not markdown post-gift certification that might be pertinent to the gift tax appraisal

Home Office Deduction | Video

Sanjiv Gupta CPA - 8 years ago
In this short video, Sanjiv Gupta CPA discusses the “Home Office Deduction”.What is considered as Home Office?Please consider the IRS definition for Home Office.Whether you are self-employed or an employee, if you use a portion of your home for business, you may be able to take a home office deduction.  Here are six things the IRS wants you to know about the Home Office deduction1. Generally, in order to claim a business deduction for your home, you must use part of your home exclusively and regularly:as your principal place of business, oras a place to meet or deal with patients, clients or customers in the normal course of your business, orin any connection with your trade or business where the business portion of your home is a separate structure not attached to your home.2. For certain storage use, rental use, or daycare-facility use, you are required to use the property regularly but not exclusively.3. Generally, the amount you can deduct depends on the percentage of your home used for business. Your deduction for certain expenses will be limited if your gross income from your business is less than your total business expenses.4. There are special rules for qualified daycare providers and for persons storing business inventory or product samples.5. If you are self-employed, use Form 8829, Expenses for Business Use of Your Home to figure your home office deduction and report those deductions on line 30 of Form 1040 Schedule C, Profit or Loss From Business.6. If you are an employee, additional rules apply for claiming the home office deduction. For example, the regular and exclusive business use must be for the convenience of your employer.

Tips for Avoiding an IRS Audit for Charitable Giving

Sanjiv Gupta CPA - 8 years ago
Taxpayers have a general inclination towards overstating their charitable contributions & gifts, compared to their income levels. This tendency can prove detrimental at raising the suspicion of the IRS and inviting audit on oneself. This is with reference to an article posted by me earlier, on how the year-end contributions prove beneficial to saving tax.Coming forth are tips on how to evade the roving eye of the IRS, along with extracting maximum benefits from this provision.Make sure that all the donations are made before December 31 of the tax year. Make your donations imperatively to a qualified charity, which can be verified by taking simple measures: the charity concerned should be questioned on their tax-exempt status, in order to avoid an identity theft scenario; by hitting the select check tool under the Exempt Organizations section on the IRS.gov site.Donations and gifts made by credit card and a postmarked check consecutively by December 31st are acceptable donations.The IRS has specified the list of possible deductions: Contributions made in cash to a qualified charity; value calculated as per the fair market of the donated property – clothes, boats, cars and household items in good and usable condition – to a qualified charity. Gifts to friends, family members, strangers, and individuals do not qualify as acceptable donations.All cash contributions, irrespective of the amount, need to be recorded in writing, in one of these specified modes: check which is canceled; statement of bank or credit card and record of the payroll deduction; a written statement depicting the charity name, amount & date of contribution from the charity.Avoid planning a large purchases based on a tax refund. The IRS has already started giving indications on a possible delayed tax refund in 2013. It may be required of you to push ahead large purchases in case the refunds actually get delayed this year.Gearing up towards preventing the audit by the IRS as discussed, is definitely a healthy step, especially in the wake of the IRS recently stepping up its collection activities. In case you have already passed the preventive phase and are having trouble related to taxes or are being audited by IRS currently; think of arranging representation qualified at presenting your case before the IRS on tax audit, along with helping you solve your other taxes related issues.

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. 

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.

Avoiding FBAR By Keeping Balances Low

Sanjiv Gupta CPA - 7 years ago
One of our readers made a comment about avoiding FBAR by keeping the balance low in your foreign bank account.  I am sure many of our readers have at least thought about this scenario at one point or another and therefore I would like to discuss this question in a blog format to point out a couple of important factors. Let’s start with our reader's comment:Thanks. I got a very good understanding of FBAR with your videos. a silly question that arises in my mind is, what if I always transfer $9000 to Indian bank and immediately transfer to Parent’s bank account thus making room for another $9000. Hence avoiding “$10000 worth INR at any point in time in foreign bankHere are a few things you want to keep in mind.Number One:-According to the Department of Treasury, you must file FBAR if you have written or verbal control over a financial asset in a foreign country. So, if you are transferring the funds to your parent's account but keeping control of that account then you should file FBAR.  Although it might be a bit hard for Govt. to prove that you had control over your parent's account if you are not listed as an account holder but the law is always open to interpretation by smart attorneys of this fine nation. Number Two:An individual is only entitled to gift up to $14000 per year without having to take their lifetime estate exemption and filing the proper paperwork.   If you simply transfer $9000 to your parent's couple times than you will be required to report this as a GIFT to your parents and you must file the proper paperwork to deal with estate taxes.Please note that the year gift exemption threshold increased every year. Here are some historic figures. YearAnnual Exclusion Amount1997$10,0001998$10,0001999$10,0002000$10,0002001$10,0002002$11,0002003$11,0002004$11,0002005$11,0002006$12,0002007$12,0002008$12,0002009$13,0002010$13,0002011$13,0002012$13,0002013$14,000Number Three: Lastly, you should also consider how you will bring the money back to the US if needed.  I won’t get into this topic today but if you don’t send the money via proper disclosure than you are simply postponing the problem.  You will run into various issues at some point.The question I have for you is that why don’t we simply file the FBAR?  As discussed much time by Sanjiv, FBAR is not a tax. It is simply a disclosure requirement.Our office can file your FBAR for last year or help with filing proper documents for delinquent FBAR’s.

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.

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

Debt Financing Advising

Sanjiv Gupta CPA - 6 years ago
Sanjiv Gupta CPA specializes in structuring and raising capital for middle-market companies. We are fully dedicated to meeting the debt financing needs of publicly traded, privately-owned and sponsor-backed growth companies. Our focus is on companies looking to raise money through creative financing solutions.We structure and place various structured, senior and subordinated debt and equity products for borrowers with varying credit quality and sizes. Sanjiv Gupta CPA works to assist both the financial sponsors and borrows to address the financing needs in a cost-effective and timely manner.What Is Debt Financing?Debt financing is when companies raise money for capital expenditures or working capital by selling notes, bonds or bills to institutional or individual investors. Individual lenders can include officers, shareholders, directors, friends or family. In return for lending money, the institutions or individuals become creditors. They receive a promise that the funds will be repaid plus an agreed-upon level of interest. Although the term ‘debt financing’ has an undesirable connotation, many new start-up companies turn to debt financing to finance their operations. Even the healthiest balance sheets include some debt.Debt Financing AdvantagesMaintain Your Ownership: One of the major advantages of debt financing is that you will maintain ownership of your company. When you borrow money from a lender, you have an obligation to make all of the payments on time. However, that is where your obligation ends. You will then be able to run your business operations however you would like. Unlike equity financing, you will not have any outside inferencesTax Deductions: In addition to maintaining your ownership, you will also qualify for tax deductions on the debt. In most cases, both the interest and principal payments on business loans are classified as business expenses. Therefore, they can be deducted from your company’s income taxes.Reduced Interest Rate: When you are considering debt financing, you should analyze your federal tax deductions on the debt’s interest rate.Speak with a Sanjiv Gupta CPA debt finance advisor to find out all of the benefits of debt financing.Debt ArrangementsMost debt arrangements will involve a promissory note, loan agreement, and guarantee. Contrary to popular belief, there is no such thing as a standardized loan agreement. Virtually all terms can be negotiated for any debt you take out behalf of your company. Sanjiv Gupta CPA will help you negotiate the best deal for your debt financing. We will help you work through various issues including:Parties (including guarantors and co-signors)Interest rateFees (including attorneys’ fees)Terms of payment (including the grace period, prepayment and late fees)Use of loan proceedsCollateralAffirmative covenantsNegative covenantsRepresentations and warrantiesConditions to closingEvents of defaultSanjiv Gupta CPA debt financing advisors are here to help you determine the best way to raise capital for your business. Over the years, our trusted advisors have helped our clients find creative solutions including structured equity, convertible debt, second lien term loans, senior debt, mezzanine financing and “one stops”. We have extensive experience finding the best solutions for our clients.

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.

Tax deductible gifts – Your 2013 Holiday Gift Guide

Sanjiv Gupta CPA - 7 years ago
Tax-deductible gifts are the order of the day, to save taxes while holidaying. People who find tax-deductible gifts as a mundane option, need to think again as the US government has introduced lots of attractive gifts in the tax-deductible category as long as they are used for the right purposes.Some of the technological gadgets that are classified as tax-deductible are computers, tablets, smartphones, kindles, cameras, video cameras and modern GPS’s. The pre-requisite for making these gadgets tax deductible is that these have to be used for official purposes only. Self-educational gifts are also tax-deductible as this is pursued to develop one’s current skill sets. Some of the educational gifts that can be claimed for deductions are books, subscriptions paid for educational magazines, tuition fees paid for a course, etc.People who work from home are not left behind. There is something in this scheme for these people also. A person can gift himself a new office or some furniture and claim the same for tax deductions as these are used for official purposes; only, in this case, the office is at one’s home itself. Furniture especially is a very good example of a tax-deductible gift and the taxpayer has the added advantage of using this for domestic purposes also.A taxpayer can gift himself a brand new car and claim tax deductions for the same as long as it is used for official purposes. There is no other pleasure than splurging in a new car and getting a tax benefit for the same. A full-time employee can also claim for these deductions as long as the employer does not already reimburse this. Cars are used as tax-deductible gifts mostly by contract employees, freelancers, and entrepreneurs who do not have direct employers to reimburse these.The taxpayer should always note that the gifts can be tax deductible only if it is used for purely official purposes and if the IRS recognizes these gifts only if it is absolutely necessary for the business needs. Care should be taken that a gift used for personal reasons should never be claimed for tax deductions. This is a serious offense and there are high chances that the taxpayer might get inquiries for audit by the IRS and this causes loss of reputation for the individual.However, the taxpayer can prudently use some of the gifts for personal as well as official purposes and still claim tax deductions. Computers, for example, can be used for personal purposes as well but the individual should exercise control to claim deductions only for the official expenses part. The taxpayer should keep a clean record of all receipts in order to claim tax deductions.With these effective tax savings gifts, one can not only enjoy holidays but also have enough money to save for a rainy day. One must smartly use the tax laws to save money, the ethical way.

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.

Health Insurance Deduction

Sanjiv Gupta CPA - 6 years ago
A tax deduction is a big concern, and on the other hand, it is highly beneficial because it can help you in various ways. Health insurance is one of the most crucial things that you can consider in your life. And although you may compromise on many things in life, health insurance is surely something where you don’t want to take a chance. This becomes more important when you know that tax deduction can considerably help you pay for health insurance.The Internal Revenue Service or IRS provides various kinds of deductions for medical expenditures. There are some itemized reductions. Thus, you can make claims for standard deductions. Again some medical deductions are over-the-line exemptions and so all these can be claimed in addition to the standard deductions. With regard to healthcare tax deductions, three options as mentioned below can be chosen. In case you find that your expenditure crosses 7.5 percent of the adjusted gross earnings, then you could take an itemized reduction where your expenses surpass the brink. By qualifying medical expenses, you could consider medical, vision or dental care for your own self, your spouse or any individual dependant on you. Medical services include the ones that would prevent problems that could arise in the future, solve present problems or reduce pains. Medical drugs that need a prescription can be deductible. Further, expenses that you may incur in due course of traveling to the hospital in the form of parking fees, mileage, tolls can also be included.In order to save for future medical expenditures, health savings accounts are sheltered by the tax. However, in order to be eligible for this, you also need to possess a health insurance plan which has a high deductible. Every year, your contribution can go up to a limit set on the basis of the fact as to whether the health insurance plan is just meant for you or also includes your family.Health insurance deduction can also be seen when you are self-employed. If you are in a partnership or you are the owner of greater than 2% of a corporation, you would be able to deduct the price of your health insurance policy and also that of your spouse and any other individual dependant on you. But if you have to qualify for the deductions, your policy should be in your name, that is, the name of the self-employed person, business or partnership. In this deduction, qualified long-term care premiums can be included. But again, there is a limit to the deductible amount because the age of the insured plays an important role in this. This deduction would affect your income tax. But as far as the decrease of your tax liability is concerned, this deduction would not be of any help. As a self-employed individual, you could deduct health insurance premiums from federal income taxes. As a taxpayer, you would be offered huge exemptions that could bring down the taxable income and thus lower the total amount that you would pay in federal income tax.In order to understand more about tax deduction and the way it helps health insurance, you should have a clear idea about the following.If there is a group health insurance provided through an employer then the tax exemption can be enjoyed. In such a scenario, probably your employer is paying the premiums of your insurance from your gross income before holding back federal tax income. This way your yearly tax income comes down and thus you will have a reduced tax bracket. In case your employer is not offering health insurance, you should ideally buy an individual health insurance policy from a private insurance organization. This might also be the case if you prefer to have a completely different coverage plan other than what is available. But again in order to avail tax deductions on health insurance in this regard, you need to note that you will only be able to deduct your private health insurance premiums on your federal income taxes if they are greater than 7.5 percent of your adjusted gross earningsA tax deduction can also be seen in long term health care. The number of adults who need long term health care is on a sharp rise. With the constant increase in health care expenditure, it seems that every single year, insurance coverage is getting lesser with respect to the total expenses for health care. Here, if you can comply with certain qualifications, then you can deduct the cost of long term health care on the returns of your income tax. There are certain long term medical care expenses that are deductible. These include the costs incurred for diagnosis, medical treatment, healing and preventing an ailment. Certain drugs that need a prescription are also deductible. With respect to long term medical care, the expenses include the cost incurred on nurses or certain care facilities on a long term basis, provided these have been prescribed specifically by a doctor. Health insurance payments can be deducted by you in the total expense, but again you would not be allowed to take health insurance deduction pertaining to life and disability.While availing the benefits that tax deductions can do to health insurance, you need to make a note that all deductions should be the expenses paid during the year of tax filing from January 1 to December 31. In case you are mailing a payment on the last day of a year, that is the 31st of December then it will surely be considered to be the expenditure for that particular calendar year.

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.
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