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Why the Details Matter...

Author: Keith Huggett

If you don’t pay attention to the details, the tax consequences of a sale may be different from what you expect. For example, if you bought the same security at different times and prices and want to sell high-tax-basis shares to reduce gain or increase a loss to offset other gains, be sure to specifically identify which block of shares is being sold.

And when it gets close to year end, keep in mind that the trade date, not the settlement date, of publicly traded securities determines the year in which you recognize the gain or loss.

Finally, consider the transaction costs, such as broker fees. While of course such costs aren’t taxes, like taxes they can have a significant impact on your net returns, especially over time, because they also reduce the amount of money you have available to invest.

If you have questions about the potential tax impact of an investment sale you’re considering — or all of the details you should keep in mind to minimize it — please contact us.

Tax Day 2015 is Gone. Time to Ask These Three Questions.

Author: Keith Huggett

 Yes, Tax Day has come and gone for this year, but the memory of your tax return is likely still fresh. So before you move on, consider the following three questions that may point you toward areas you want to work on before next April 15 rolls around. 

 Do I need to start my tax filing earlier?

Ideally, you should engage in tax planning year-round. As your trusted advisors, we can help you identify tax savings strategies throughout the year, so set up an appointment to talk to us about how we can help you mitigate tax obligations and make sure that you are taking full advantage of the tax savings available to you.

 It’s also worth noting that the introduction of new tax reporting requirements related to the Affordable Care Act added considerable complexity to many individual returns this year. This, combined with delays in receiving tax documents from employers and other entities compressed the amount of time available to file returns. For the future, this means that the earlier you start getting your tax documents in order the more likely it is that your return can be filed promptly. The best strategy is to file (or better yet scan and electronically store) your receipts and any other documents you’ll need at tax time as they come in to avoid having to rush to meet tax deadlines.

 Does my tax withholding need an adjustment?

Once you are done filing your taxes, the answer to this question becomes quite obvious. If you found yourself in the position of writing a large, unanticipated check to the United States Treasury Department, you may wish to look at how much tax you are withholding through your employer. Or, if you are self-employed, you should consider increasing your estimated tax payments. On the other hand, if you are receiving a big tax refund, you may want to consider reducing your withholding or estimated tax payments to increase your take-home pay or to fund additional investments in eligible tax-sheltered retirement savings plans.

 Is my retirement strategy effective?

On the topic of retirement savings plans, your tax return clearly shows whether you made the maximum allowable contribution to tax-advantaged retirement savings accounts. If you didn’t in the 2014 tax year, you may want to consider increasing your contributions now so you can reduce your taxable income on next year’s return while also improving your financial future.

Give Yourself a Last Minute Gift: Year End Tax Planning

Author: Keith Huggett

It’s the most wonderful time of the year—and for many of us, it is also one of the busiest. While adding one more thing to your to-do list—like year-end tax planning—may induce a feeling of overload, it really is one task you shouldn’t skip, because it can give you the gift of a lower tax bill next April.

Here are a few tips to help you end 2014 with the good feeling of knowing that you are in good shape for the coming tax season.

Act now to accelerate deductions and manage your income for the current year. Depending on what your income level is this year, you may want to defer some income (through investments or other tax-deferral vehicles) if you think it will help keep you from reaching a higher tax bracket or if your income will be near the thresholds for the additional Medicare tax ($250,000 if married and filing jointly; $200,000 if single; and $125,000 if married and filing separately). On the deduction side, you may be able to accelerate your state and local income tax payments, real estate taxes, interest payments, or business investments, so think about paying these obligations before next year is here so you can claim the deduction on your 2014 tax return.

Keep up with estimated tax payments. Having the dates for estimated tax payments on your calendar is important—including the fourth 2014 estimated tax payment due this January 15. By calculating this payment and the first one due for 2015 (April 15 next year) you will have a preliminary idea of what your tax liabilities will be, giving you an idea of how much you'll need to set aside to make these payments.

Check your withholding and estimated tax payments now while you have time to fix a problem. If you’re in danger of an underpayment penalty based on the calculations you made above, try to make up the shortfall now instead of waiting until your next tax payment. If you need assistance handling delinquent taxes or other tax issues, contact our firm for professional guidance.  

Now is the time to apply for health care tax exemptions. If you do not have health insurance, the Affordable Care Act mandates that you must pay the "shared responsibility payment" with your federal taxes. Exemptions are available, however, the process to qualify for one (which must be approved by the Health Insurance Marketplace) can take several weeks. Now is the time to apply.

Maximize “above-the-line” deductions. Above-the-line deductions are valuable because you deduct them before you calculate your Annual Gross Income or AGI. They are allowed in full and make it less likely that your other tax benefits will be limited. Common above-the-line deductions include traditional IRA and health savings account (HSA) contributions, moving expenses, self-employed health insurance costs and alimony payments.

Make the most of retirement account tax savings. In addition to any 401(k) contributions you may make if you are employed, depending on your income, you may want to make contributions to other retirement accounts—or start one if you haven’t already. Traditional retirement accounts like an individual retirement account (IRA) still offer some of the best tax savings. Contributions reduce taxable income at the time that you make them, and you don’t pay taxes until you take the money out at retirement. The 2014 contribution limits for an IRA are $5,500 ($6,500 for those 50 years of age and older). If you have questions about your investment strategy and tax savings contact us for assistance.

With just a few weeks left in 2014, now is the ideal time to look at your current financial situation and plan for the future, in addition to starting to get your tax documentation in order. If you have any questions, please contact us—we are happy to help you.

What You Need To Know About Tax Planning

Author: Keith Huggett

You're now somewhere in your mid twenties to thirties. Your career is taking shape, you may be considering purchasing a home. You may even be starting a side business or starting to invest. As you begin to bring in more earnings, you may find that you are paying out more in taxes. It's important to be prepared for this, so plan ahead!

• Automobile Expenses - When you are travelling for business, you can take the standard mileage deduction in most cases (as a self-employed person or as an employee), when you drive to the doctor, during a deductible move, or when you’re volunteering for a charitable organization. The standard deduction for use of a car in 2014 is 56 cents per mile for business miles, 23.5 cents per mile for medical or moving purposes, and 14 cents per mile driven in service of charitable organizations.  You will need to keep a mileage log with the date, distance driven and purpose of the trip.
• Bad Debts - As your wealth grows you may encounter people or businesses wanting to borrow from you. If you can’t get them to repay, you had an actual debt, and if you made efforts to collect, you may be able to deduct the bad debt as a short-term capital loss.
• Capital Gains & Losses - Plan ahead before you sell! If you’re selling any capital asset at a gain, pay attention to the minimum holding period for a long-term capital gain if possible. If you sell an asset one year or less after you purchase it, you have a short-term gain. Hang on until “more than” one year; for example, one year and one day, and it’s a long-term gain.
• Exemptions for Dependents -Every child you claim as a dependent reduces your 2014 taxable income by $3,950. You’ll get that full-year exemption, even if your child is born on New Year’s Eve. Don’t forget to claim qualifying foster children, a child who lives with you but is away at school, and in some cases a child you support who lives with the child’s other parent, and possibly your parents who you support, or nonrelatives who live with you.
• Retirement Planning -If your employer has a retirement plan, be sure to sign up for it as soon as you qualify.You should contribute an amount equal to the amount your employer will match.
• Interest -The deduction for home mortgage interest is a powerful incentive to buy a home.You can deduct interest on up to $1,000,000 total acquisition debt on your main and secondary home.
• Job Hunting -Looking for a new job can be expensive, especially if you pay agency fees or you travel to interview for a job. If your total miscellaneous itemized deductions, including job-hunting expenses, exceed 2% of your adjusted gross income, you may qualify for deductions.
• Buying or Selling a House - The sale of a residence is not usually a taxable event. If you and your spouse have lived in the residence for more than two out of the last five years you may qualify for the $250,000 exemption ($500,000 if married filing jointly).
• Home Office Deductions - If you qualify, you deduct $5 per square foot for up to 300 square feet, for a maximum simplified home office deduction of $1,500.
• Self Employment Income -Whether you make some freelance income on the side, or you’ve left the corporate world completely and are running your own show, you may be self-employed in the eyes of the IRS. If so, you’ll pay self-employment tax, at 15.3% of your net income, on your income tax return. On the bright side, you should be able to take business deductions such as computer expenses, vehicles, home office, etc.
  
  
• Zero Tax Refund -With proactive tax planning, and the help of The Tax Office,Inc., you can have just the right amount of tax withheld and make the best estimate for your quarterly tax payments, if necessary.That way, you have neither a big tax bill nor a windfall when you file your tax return.

What You Need to Know if You Get Laid Off

Author: Keith Huggett

When you get laid off from your job, considering the tax implications involved is the last thing on your mind. Being laid off is stressful enough on its own, but finding out that you owe taxes can double the amount of stress you are feeling.  Here are some tips to help you through as you manage your time between jobs.

Paying Taxes on Unemployment - According to the IRS all unemployment benefits are taxable. By opting for the voluntary income tax withholding of 10% can help you be certain that your tax liability is covered.

Your most pressing issue following a layoff is making sure you have enough funds to pay your necessary expenses. Once you know where you stand financially, you can start planning your taxes for retirement and other important phases of your life.

Using your IRA Account - If you find yourself coming up short of funds you may consider using your Roth IRA account as a backup.  This can cause some issues with your taxes in the future. In most cases, you'll have to pay a 10 percent penalty on any retirement distribution  you take before the age of 59 1/2. If your retirement contributions were tax-deferred, which means that they were not taxed at the time of the contribution, you may also have to pay backup tax withholding of 20 percent.

Starting a New Business - If you are considering becoming your own boss, there are tax implications there as well.  While you are able to write off your startup business expenses, you are now required to pay self employment tax on your net earnings. By putting some money away during the year or by making estimated tax payments each quarter you can stay ahead of your self employment taxes.

Managing your budget following a layoff can be very stressful. Start organizing your tax information early and always seek out professional tax assistance if you need guidance. With the proper planning, you can get through your layoff without adding to your tax burden.

Tax Planning, Myths, & Conjecture

Author: Keith Huggett

Year after year changes occur to our tax code, making it more complex and often incomprehensible to most people.  Sadly, an auditor will not accept the excuse of ignorance as a viable defense against penalties, interest, and/or additional taxes.  While your goal, and that of your qualified tax professional, is to save as much as possible, it gets more difficult to do so every year.

Consulting a professional tax preparer can benefit you in several ways.  Not only are you able to get your taxes prepared, you also have the opportunity to invest in tax planning, outsourced back office support systems, and possibly CFO or other business services.  The qualified tax professional has years of experience with tax preparation, attends many different tax seminars each year, read scores of journals, magazines, and monthly tax tips, among other things, to correctly interpret the changing tax code.

Taking an active roll in your tax planning can often provide new insights into the complexity of our tax code and how it can be used strategically for your benefit.  However, the tax code and its myriad changes from year to year can often generate a lot of folklore and misinformation that also leads to costly mistakes.  Here are 5 common business tax misconceptions:

1. All Start-Up Costs Are Immediately Deductible
   
   Business start-up costs refer to expenses incurred before you actually begin operating your business. Business start-up costs include both start up and organizational costs and vary depending on the type of business.
   
   Starting in tax year 2011, you can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs paid or incurred after October 22, 2004. The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Any remaining costs must be amortized.
2. Overpayment of Taxes Will Lower Your Chance of Audit
   The IRS doesn't care if you overpay your taxes. They are only interested in you if underpay your taxes. It is never a good idea to knowingly or unknowingly overpay the IRS. The best way to lower your chance of being audited is to properly document your expenses and make sure you are getting good advice from your tax accountant.
3. Your Business Structure Can Allow Additional Deductions
   Self-employed individuals (sole proprietors and S Corps) qualify for many of the same deductions that incorporated businesses do. Choosing the right business structure has more applications than just affecting your tax deductions.  Choosing the wrong structure can be a costly expense.
4. Taking the Home Office Deduction will Result in Audit
   As long as you keep excellent records that satisfy IRS requirements, audit is not an automatic result from claiming the home office deduction. Due to the proliferation of home offices, tax officials cannot possibly audit all tax returns containing the home office deduction. There are always other red flags to be concerned about which may lead to an audit.
   
   
5. Filing for an Extension Grants an Extention to Pay
   Extensions enable you to extend your filing date only.  If you do not pay your taxes on time, you will be assessed penalties and interest from the date your taxes are due.

A tax headache is only one mistake away, whether it's a missed payment or filing deadline, an improperly claimed deduction, or incomplete records and gaining understanding how the tax system works is beneficial to any business owner, whether you run a small to medium sized business or are a sole proprietor. Working with a professional tax consultant can catch these errors and many more.  Don't get caught unaware, prepare now. The tax planning professionals at The Tax Office, Inc., can assist you with any tax questions that you may have. Contact us today.