IRS

20% Tax Deduction for Small Biz owners!!!

January 2, 2018 by mrice

Small business owner??

Good News for 2018!

Section 199A of the new tax code lets you claim a deduction against your IRS 1040 taxable income of 20%These new rules can really put big money in your pocket. But there is a lot of fine print, limitations, rules, and no, you will not be able to file for this deduction on a post card. Sorry.

1. Do you qualify for the new 20% write-off? You’re in luck if you operate your business as a sole proprietorship, partnership, or S corporation. To qualify for the deduction you need taxable income below a certain dollar ceiling. Lets discuss specifics for your small business.

2. What is “qualified business income”? Qualified business income refers to the net of qualified items of income, gain, deduction, and loss, from your qualified trades or businesses. The definition in neither simple nor easy. Some significant limitations apply so I strongly suggest we talk.

3. What if you exceed the income limits? There are ways you can benefit even if the IRS thinks you’re earning too much.

2017 Year End Tax Tips!

December 26, 2017 by mrice

Tax Tips 2017!

I hope this note finds you well. As 2017 draws to a close, I wanted to send out some end of year tax tips, along with some articles that may be of interest.

Big changes in store for 2018, with, in the final analysis, some winners and some losers.

For a excellent article on some of the sweeping tax changes that will be in place for 2018, see this article-

https://www.thebalance.com/trump-s-tax-plan-how-it-affects-you-4113968

2017 YE Tax Planning Tips

1) To deduct your property tax payments on your 2017 taxes, try to pay them in 2017, even though some may not be due until 2018. In addition, the deduction for many State and local taxes is capped at $10,000 for 2018, and the deduction for our personal exemptions is eliminated, so take them in 2017 while you still can!

2) If you cannot make a deductible IRA contribution in 2017, consider a nondeductible IRA and convert to ROTH if you don’t have a separate IRA. Never pay tax on that money again. There is some fine print on this one, so be sure to review it with me first.

3) If your itemized deductions are less than your increased standard deduction will be for 2018, consider making your 2018 charitable giving in 2017.

4) Capital Loss Harvesting. If you have a net capital gain in your investments this year, consider selling some investments that would generate a loss before year end. Doing so could reduce the amount net gains exposed to Capital Gain taxes. Remember, if you sell stock to realize these losses, you’re prohibited from purchasing substantially similar stock, or you risk losing the recognition of the loss under the wash sale rules.

5) The difference between death and taxes is that death doesn’t get worse every time congress meets-Will Rodgers

6) Social Security wage base is raised to $128,400 for 2018. If you have W2 income in excess of this amount, FICA taxes won’t be withheld for amounts earned over the wage base in 2018. As usual there is no cap on the 1.45% medicare tax application.

7) FAST ACT legislation- If you owe over $50,000 to the IRS your passport could be revoked or not issued.

8) Declutter your life by donating household items and clothing to charity and taking the fair value as a deduction for 2016.

9) Make sure you are on your way to maximizing your Retirement Plan contributions to your 401k, IRA or deferred pension plan.

10) Flexible spending accounts, also called flex plans, are fringe benefits which many companies offer that let employees steer part of their pay into a special account which can then be tapped to pay child care or medical bills. The advantage is that money that goes into the account avoids both income and Social Security taxes. The catch is the notorious “use it or lose it” rule. You have to decide at the beginning of the year how much to contribute to the plan and, if you don’t use it all by the end of the year, you forfeit the excess. With year-end approaching, check to see if your employer has adopted a grace period permitted by the IRS, allowing employees to spend 2017 set-aside money as late as March 15, 2018. If not, you can do what employees have always done and make a last-minute trip to the drug store, dentist or optometrist to use up the funds in your account.

Four Steps to Lower Taxes for the Self-employed

January 5, 2017 by mrice

When you are self-employed, your business profits are taxed to you at federal rates as high as 39.6%. Add self-employment taxes, which in 2016 will amount to 15.3% of the first $118,500 of your net self-employment earnings plus2.9% of any earnings over that amount. Then there’s an additional 0.9% Medicare surtax on earnings in excess of $200,000 ($250,000 if married filing jointly). At tax rates like these, it pays to take steps to reduce your tax burden.

Step One: Deduct Business Expenses

Be sure you have an organized system for recording your expenses. To be deductible, a business expense must be “ordinary” (common and accepted in your trade or business) and “necessary” (helpful and appropriate for your trade or business). Since personal expenses are generally not deductible, it’s smart to have a separate business bank account and use a separate credit card for business purchases.

Step Two: Deduct Health Insurance Premiums

You may qualify to deduct premiums paid for medical, dental, and qualified long-term care insurance coverage for you, your spouse, and your dependents.* The coverage may include children who haven’t reached age 27 by the end of the year, even if you don’t claim them as dependents on your tax return.

Unlike health insurance premiums paid for employees, the self-employed health insurance deduction won’t save you self-employment taxes. However, it will lower your taxable income. You must meet certain requirements to qualify for the deduction.

Step Three: Deduct Retirement Plan Contributions

Funding a retirement plan can also save you significant tax dollars. Within limits, plan contributions will be tax deductible.** Several types of plans may be suitable for you as a self-employed taxpayer, including a simplified employee pension (SEP) plan, a savings incentive match plan (SIMPLE), or a solo (individual) 401(k) plan. Each plan has specific features and requirements that you will want to weigh carefully before making a choice.

Step Four: Engage in Proactive Tax Planning

Don’t be reactive, plan to reduce your tax bill. This starts early in the year by spending some time reviewing your situation with a knowledgable Tax Advisor

Don’t deal with tax issues on your own. Call us right now to find out how we can provide you with the answers you need.

* Dollar limits apply to the deduction for long-term care insurance premiums.

** Although deductible for income-tax purposes, contributions to your own retirement plan account do not reduce earnings subject to self-employment taxes.

Guidelines to Use Your Vacation as a Tax Right Off

December 26, 2016 by mrice

How would you like Uncle Sam to pay for part of your vacation? Sound unlikely? If you combine your vacation with a business trip, you may be able to deduct some of your expenses. Pay attention to the rules, though. Expenses must meet certain requirements before they’re tax deductible.

General Guidelines

As long as your primary reason for making the trip is business, you generally can deduct the cost of your transportation to and from your destination. You’ll generally be able to deduct food (within limits) and lodging costs only for the days you actually spend on business.

Bring the Family

You can bring your family along, too. While you can’t deduct their food, lodging, or airfare, you can write off your own expenses, including the single-occupancy rate for lodging on days when you’re conducting business. If you and your family travel by car, you can also deduct the full cost of transportation. Just be sure to keep detailed records.

Is an S Corporation Loss Deductible?

December 15, 2016 by mrice

Business owners aren’t in business to lose money. So there’s not much to like about a nonprofitable year. For a shareholder in an S corporation, however, a down year can have an upside — the corporate loss may give rise to a personal tax deduction.

Standing between an S shareholder and the loss deduction is a tricky tax computation known as “adjusted basis.” Under the tax law, a shareholder’s loss deduction is limited to the shareholder’s adjusted basis in his/her corporate stock and in any debt the company owes the shareholder.

What is adjusted basis, anyway? Essentially, it’s a figure that tracks the shareholder’s investment in the company for tax purposes. The basis number changes every year to account for any money flowing between the company and the shareholder — distributions, capital contributions, loans, and loan repayments — as well as for the shareholder’s allocated share of corporate income or loss.

If a net operating loss is anticipated for the year, S shareholders should find out whether they will have enough basis to benefit from the projected loss deduction. If not, it may be possible to increase basis by making a contribution to capital or by loaning the company money before year-end. When you give us a call today, our tax professionals can offer guidance so that the transaction will pass IRS muster.

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