Taxpayers know that there are tax deductions out there to be utilized to reduce the taxes paid on your income. Most are aware of the common deductions, but there are many deductions that simply get overlooked by most taxpayers.
Gifts to charity is a good place to start. Most taxpayers know that when you give a gift of money or items to a qualified charity, you can deduct the value of this gift, with proper documentation. One common item that gets missed is the miles that you drove or out-of-pocket expenses you paid for the charities benefit.
Most taxpayers also consider mortgage interest. Though less taxpayers are claiming the interest on their mortgage (due to no longer taking itemized deductions with the increase in the standard deduction), mortgage interest still remains a large deduction. An additional deduction that is sometimes missed are the points associated with refinancing your mortgage. Additionally, when you pay-off or refinance a mortgage that has points still remaining, you can deduct those points in full. Be aware that using the same lender for another mortgage often means that the remaining points simply get rolled into the new mortgage and are therefore not deductible.
Most of the time, children are considered to be an extension of their parents when it comes to legal application until the age of majority. Therefore, many taxpayers are surprised to learn their child is a separate taxpayer, even as a minor. If your child has enough income, he or she has an obligation to file a return and pay the tax. In some cases, you may include their income on your tax return; in others, they’ll have to file their own tax return, or you will have to file a separate return on their behalf. Whether this is required depends on both the amount and source of the minor’s income.
The first thing to look at is their earned income. Earned income is defined in general as taxable employee pay, long term disability benefits, and self-employment net income, as well as other less common sources. A minor who may be claimed as a dependent must file a return once their income exceeds their standard deduction. Starting in 2018, the standard deduction for a dependent child is total earned income plus $350, up to a maximum of $12,000. Thus, a child can earn up to $12,000 without paying income tax.
In 1993, then President Bill Clinton sought to find a support system to aid the rapid growth in the workforce, which was increasingly made up of women with families. The Family and Medical Leave Act (FMLA) was passed “to balance the demands of the workplace with the needs of families.” This Act allowed both women and men to participate in work, but also protect them if a medical need arose. Under this Federal Act, employers with fifty of more employees were required to provide up to twelve weeks to attend to serious health conditions of the employee, a parent, spouse or child. It also provided for pregnancy and care of a newborn, adopted child or foster child.
In order to qualify, the employee needed to have worked in the business for at least twelve month and worked at least 1,250 hours over the past twelve months. (In 2008, different requirements and time periods were given to active duty families. This leave was unpaid leave, and merely protected the employee’s right to benefits during the leave and return to their job or one of equal level, compensation and benefits. Note that highly compensated employees have more limited rights when it comes to FMLA. Read More
You had a great idea and now you’ve put it in motion as a business. And while income recognition is easy to determine, qualified business deductions can be a bit harder. So… what are the most common tax deductions for small businesses?
Any materials you utilize for marketing your business and the cost of developing these can be deductible. This can be advertisements in print or media, brochures, branded promo items, events or trade shows. Non-branded gift cannot be deducted.
Business insurance that is intended to protect your business as well as medical insurance that is paid by the business for its employees. Auto related insurance falls under a different set of guidelines. A portion of your vehicle expense can be taken related to the business use of the vehicle, unless standard mileage is taken instead.
Depreciation and Section 179 expenses on capitalized business assets such as computers, office furniture, tools and equipment, and the like. Leasehold improvements and other real estate related capital expenses cannot be taken under Section 179. Special depreciation rules have been approved by the IRS in certain years that speed up depreciation life in qualified assets.
It used to be that the term “Section 1031 Exchange” or even “Like-Kind Exchange” was uncommon except in certain circles. But as the idea of tax strategies have reached more and more taxpayers coupled with the housing market’s fluctuation in recent years, 1031s have become increasingly commonplace.
So, what is a 1031 Exchange? In its broadest terms, a 1031 Exchange is the trade of one investment property for another. When most people think of trading one property for another, we think in terms of selling one property, paying any applicable taxes and then buying a new property in a separate transaction. With the 1031, this is not the case. If your transaction meets the 1031 requirements, you will have limited to no tax due at the time of the exchange. In other words, you are changing your investment without cashing out or recognizing capital gains. This is a good strategy for someone that wants to remain an investor but may no longer have an interest in their current property portfolio. As there is no limit on the number of times you can perform a 1031 exchange, the investment you originally had will continue to grow tax deferred until such time as you eventually sell. This can provide time to create a sound plan and tax strategy for paying the long-term capital gain rate at the time of sale.
Most of us have heard of the term Alternative Minimum Tax, Alt Min Tax, or AMT. But what is it? Alternative Minimum Tax is a tax system that parallels the standard tax systems and adds an additional level of taxation to baseline income tax for certain individuals, corporations, estates and trust. Traditional tax is adjusted for certain items and computed differently for AMT. Some of these items are depreciation, medical expenses, state taxes, certain mortgage interest, real estate and personal property taxes. AMT was first introduced in 1969 when Congressed determined that a portion of the population with high incomes, roughly one-hundred-fifty-five million taxpayers, were able to utilize tax deductions and other tax breaks to the point where they were paying almost nothing in taxes. The Reagan Administration created what we currently know as Alternative Minimum Tax that included more widespread exemptions and deductions while eliminating some of the investment deductions that only applied to the very wealthy.
As technologies advance and real estate costs increase, more and more companies are moving towards allowing workers to telecommute. With the advantages of having remote employees, comes the question of how these employees interact with the company resources. While many companies choose to provide workers with computers and cellular phones, technology allowances have also become a method by which companies request that the employee provide his or her own technology. Additionally, many workers prefer to utilize their own devices for work, even if the company does not provide reimbursement. Many companies have welcomed this drive in their employees as it lowers their own costs, as well as provides an increase in productivity. With any remote system accessing company data, security and legal compliance become risk factors that must be analyzed.
When we are working, taxes are a part of daily life and influence the considerations that we take in our spending habits. Once we start thinking about retiring, we often forget to add in taxes as a component to our thought process. It is important to understand your tax situation in retirement prior to retiring so that you will be ready when the time comes to pay on the taxes due.
1. Social Security
When we think about retirement, Social Security tends to be the first thing that comes to most people’s minds. An individual’s Social Security is funded by reducing a portion of their paychecks as taxation payable towards the Federal Insurance Contributions Act, better known as FICA taxes, as well as their employer paying in matching taxes from their own funds. For the self-employed, both sides of FICA are paid through self-employment taxes based upon the Self-Employment Contributions Act of 1954 (SECA) by the self-employed individual. Social Security was originally created through the Social Security Act of 1935, to ensure basic rights to each person as they aged, became unemployed, and for under working age children. While it has gone through several changes since President Roosevelt first signed it into law, the idea behind Social Security remains the same.
The Tax Cuts and Jobs Act (TCJA), signed by President Trump in Dec. 2017, has significant implications for how businesses will assess the choice of entity. Prior to reform, partnerships were a very common choice of entity, but with the new provisions in TCJA, the C corporation has become an appealing option once again (but with some caveats).
The assessment by the National Law Review provides details on these significant developments in choice of entity. In general it makes a helpful point: the entity choice will continue to involve a number of considerations, such as the makeup of the investor base, capitalization structure, borrowing requirements, likelihood of distributing earnings, state tax environment, compensation and benefit considerations, participation of owners in the business, presence of foreign operations, and sale or exit strategies.
Every year the IRS issues its “Dirty Dozen” report to highlight the biggest scams that the public needs to avoid.
The IRS has released the following press release:
This year’s “Dirty Dozen” list highlights a wide variety of schemes that taxpayers may encounter throughout the year, many of which peak during tax-filing season. The schemes can run the gamut from simple refund inflation scams to technical tax shelter deals. A common theme throughout these: Scams put taxpayers at risk. Read More
If you’ve formed certain habits related to how you handle meals, entertainment, transportation, and parking as it relates to your business and taxes, the time to change those habits has come.
As this report notes, tax reform law commonly referred to as H.R. 1 Tax Cuts and Jobs Act of 2017 has changed the deductibility of certain meals, entertainment and transportation expenses. Before 2018, a taxpayer could deduct 50 percent of business meals and entertainment and 100 percent of meals provided through an in-house cafeteria or meals provided for the convenience of the employer (i.e., also known as a de minimis fringe benefit). Read More
After a lengthy process, Congress and the President did what they had to do in late December 2017 to put into law one of the most significant pieces of legislation in decades: the Tax Cuts and Jobs Act (TCJA). The Act put into place a number of provisions that will affect Not for Profit Organizations. Note the following areas of tax impact that the provisions of the TCJA brought in relation to Not For Profit Organizations, as noted in Yeo Yeo:
- Changes the computation of unrelated business taxable income (UBIT) if an organization has more than one unrelated trade or business. It’s possible that more nonprofits will have to pay UBIT. As Nolo explains: