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5 Things to Consider After Divorce

Author: Jenny Shilling

When you were married it was supposed to last forever.  Sometimes "Happily Ever After" just isn't in the cards.  When your marriage doesn't last, there are many tax implications for both parties involved.  Living in a community property state can also make your taxes more complex.  Here are 5 things you should consider after your divorce is finalized.

1. Claiming your children as dependents. Deciding which parent will claim your children is critical.  After 2009, a parent must relinquish their claim for a tax exemption by filing IRS Form 8332.  This should not be taken lightly.  The parent who is able to claim a child as their dependent receives a deduction of $3,900 on their tax return. A tax payer is able to apply this deduction for all children living at home between the ages of 6 months and 19 years, or 24 if the child is a full-time college student.
2. Your new filing status.  When you were married you had the ability to choose between two filing statuses, Married Filing Joint (MFJ) or Married Filing Separately (MFS).  When your divorce is finalized your filing status reverts back to Single status.  The ability to file as Head of Household is a possibility if you have been living apart from your spouse for 6 weeks and contribute more than half of the money to support the household. Being able to file as Head of Household can bring about bigger tax savings, so review your situation–or have an experienced, qualified tax professional review your situation–carefully. If you are uncertain about what your filing status is, the IRS provides a handy questionnaire.
3. Receiving or Paying Alimony. While receiving alimony may be a benefit to a spouse who is not working, looking for work, or who makes less than their former spouse it is important to remember than alimony is taxable income to the recipient. Increasing your income may also have an effect upon your tax bracket and your tax liability.
4. Divvying up your Assets. Certain assets bring with them certain tradeoffs. If you own your home, a decision must be made concerning selling the home or receiving it as part of the divorce settlement.  If the house is sold, any gain must be divide in half between you. If the house is received as part of the divorce settlement, the receivor is able to deduct the mortgage interest. Discussing how the receipt or sale of  assets will affect your tax return with a qualified tax professional will enable you to know tax benefits or disadvantages you will receive or give up.
5. Retirement. When splitting up your retirement benefits be sure to obtain a qualified domestic relations order (QDRO) in order to secure treatment of these assets as your personal retirement assets and not those of your former spouse.

Changes in your life may affect your taxes.

Author: Keith Huggett

Mid-year is the perfect time for tax planning. The following are some events in your life that can affect your tax return. Acting promptly, and being prepared for change by planning ahead can lessen any unpleasant surprises at tax time:

• Are wedding bells in your future? Did you divorce or become a widow(er)?
• Have you changed your employment? Did your spouse start a new job?
• Has your income level changed?
• Did you have a gain from the sale of stocks or bonds?
• Did you invest in or sell a rental property?
• Did you start up a new business? Did you sell a business?
• Did you buy or sell a home?
• Are you retiring this year?
• Were you able to refinance your home or take out a second home mortgage this year?
• Did you receive an inheritance this year?
• Do you have children? Do you have a tax-advantaged savings plan in place?
• Are you taking advantage of your tax-advantaged retirement savings?
• Have you purchased any new equipment for your business?
• Are you planning to purchase a new vehicle for your business and dispose of the old one? It makes a significant difference whether you sell or trade-in the old vehicle.
• Do you have documentation to prove your cash and non-cash charitable contributions?
• Are you making your estimated tax payments? Do you need to make estimated tax payments?
• Do you have substantial investment income or gains from the sale of investment assets? If so, you may be hit with the 3.8% surtax on net investment income and need to adjust your advance tax payments.
• Did you make any unexpected withdrawals from your IRA or pension plan?
• Have you stayed abreast of the new changes to the tax laws?

Planning for Your Future Doesn't Get a Vacation

Author: Keith Huggett

The weather's warm, the lake is calling...but wait! So is your tax bill.  Summertime is the perfect time to revisit your tax plan.  I know it's not quite as much fun as throwing out your fishing line and bringing in the perfect trout, but it is a necessary evil.  Here are some tips that may help you benefit in the end:

1. Look at your retirement plan.

• Elective contributions – the ones you ask your employer to withhold from your paycheck – these lower your current-year taxable income. 
• Compare the amount you’re currently depositing in your account to the maximum allowed, and make adjustments to spread the impact over the rest of the year.
• ​The maximum 401(k) contribution for 2014 is $17,500. 
• If you’re 50 or older this year, add an additional $5,500.

•  If you are currently setting aside money to pay for your child's college expenses in a taxable account, you could open a 529 plan instead.

• Broaden your tax-planning focus to include family members. 
  ​For instance, say your parents or children are in a lower tax bracket than you are. Employing them in your sole proprietorship can provide net tax savings.

•  Recordkeeping is essential. 
  • ​Examples of tax breaks that may be disallowed if you cannot provide proof include: charitable contributions, gambling losses, vehicle costs, and travel and entertainment expenses. 
• ​If you neglected to start tracking these expenses at the beginning of the year, get going now.
• Using your smartphone to assist you with recordkeeping is a simple trick. There are many apps out there that can help you keep track of mileage and receipts, just to name a few.

• Keep your college student qualified as your dependent by monitoring the “support” test. 
  • The rule: Generally, your child cannot provide over one-half of his or her own support during the year.
  • Other relatives may qualify as your dependents, including parents in nursing homes.

These are just a few tips that can assist you with your mid-year tax planning.  There are still many other options available to you that may reduce your year-end tax bill.  If you have questions regarding tax planning, as always the Specialists at The Tax Office, Inc., suggest you speak to a professional. We are here to help you in any way that we can. Please, contact us with your questions. Our goal is to help you grow your business.

Tax Planning Begins with Form W4

Author: Keith Huggett

When you are filling out your form W4 - Employee's Withholding Allowance Certificate, tax planning may or may note be the first thought in your mind. Usually it's about whether or not you'll be receiving a refund in April. While getting that refund is always nice, your goal should be to break even.

When you being employment you will be setting up your inital withholdings on your Form W4. It is important to review your W4 annually as your situation can change from year to year.  There are many different circumstances that can cause you to change your withholdings:

• Getting married or divorced
• Having children
• Buying or selling a home
• Changes in your contributions to your retirement or education savings accounts
• Changes in your employment

Figuring our just how much to withhold can sometimes be as complicated as preparing a tax return.  Your tax preparer may offer a service called a "W4 review", where he or she will go over your W4 with you, suggesting where you might make changes.  This can result in adjustments to your withholdings or estimated tax payments, depending upon your situation.  A W4 review is just the first step on the road to planning for your future.

From there, your tax preparer can plan ahead for the next tax year by creating a projected tax return. After figuring out your projected tax liability, simply use the withholding calculator provided by the IRS or your tax preparer's suggestions for your withholdings.  Your W4 form can be changed as needed.

Should you have any questions on W-4s, withholding,  or any other tax topic, our specialists at the Tax Office, Inc. are here to provide you with the answers. You can contact us, or ask us a question on our Facebook page.

Year End is Coming, Have You Planned For It?

Author: Keith Huggett 

Back in January, our Congress and President worked together to put into place the American Taxpayer Relief Act of 2012. With it, they extended several tax credits through the end of December 2013.  Unless they act again, many credits will expire at the end of this year.  Are you prepared for how this may affect your tax return?  Some of the expiring credits include:

• Qualified Mortgage Debt- up to $2 million dollars (married filing jointly) or $1 million for married filing separately, could be excluded from income.
• Educator Expenses - Teachers, instructors, counselors, principals and aides for kindergarten through 12th grade, can deduct up to $250 of out-of-pocket costs.
• State & Local Taxes can be deducted in lieu of State Income Tax.
• Fringe benefits for mass transit were made equal to those of parking, allowing you to exclude from your income a certain amount for transportation.
• Making your home more energy efficient and "going green" allowed a credit of 10% of the amount paid for structural improvements to your home.
• If you have hired an employee in 2012 from a specific targeted group, you may qualify for the Work Opportunity Tax Credit (WOTC). 
• Research & Development Credit
• Tuition & Fees - Individuals can claim an above-the-line deduction for tuition and fees for qualified higher education expenses.
• The 100% exclusion on the gain from the sale of small business stock has been retroactively reinstated and extended through December 31. 2103.
  

Just Say "I Do"

Author: Keith Huggett 

With the legal definition of marriage changing, there will be changes in the tax laws regarding marriage as well. As it stands currently, there are both benefits and setbacks to being married in the tax code, depending on how much you earn and how you file.

Married, filing jointly allows married couples to use the most-favored tax-rate table to prepare their taxes.  However, you also have the option to file separately.  The only way to find out which way saves you more money is to run the numbers through your tax return.

At this point, how much you and your spouse earn determines how much you can save.  If you earn more than your spouse, you can save more.  If you and your spouse both earn high wages, you can expect to pay more in income taxes.  Over the years, our lawmakers have tried to balance out the penalty of being married and earning high wages.

As a married couple, you also have an IRA advantage. If your spouse is "jobless" and has no compensation - wages, salaries, fees, commissions, tips, bonuses, or self-employment income, you can contribute to an IRA on his/her behalf. Also, the income limits that apply to your IRA contribution when you are in a qualified retirement plan increase if you are married.

If you are planning on selling your home, as a single tax payer, you qualify to exclude up to $250,000 of the sale profits. If married, that amount doubles to $500,000.  However, you and your spouse must both pass the required "use" test and one of you must pass the "ownership" test.

Death comes to us all, and the IRS wants their part of it.  Should you accumulate enough cash, investments, and property during your lifetime, it will fall to your heirs to pay the estate taxes. Federal estate and gift tax rules benefit married couples.  For the 2013 tax year, an individual's estate qualifies for an exclusion of up to $5.25 million from estate taxes.  If you are married, you and your spouse get to exclude double that amount for up to $10.5 million from estate taxes.

Citizenship has it's benefits too, as we all know. If you are married, the unlimited marital deduction allows you to pass assets to your spouse with no federal estate or gift taxes as long as he/she is a United States citizen.  

As you can see, marriage can affect your taxes in both a positive and negative way depending on your earnings throughout your life, even unto your death.  Proactive tax planning along the way can help you get the most out of your earnings and required tax payments.  The Tax Office, Inc. and their tax specialists can assist you with tax planning, estate planning and any additional questions you may have.  Please contact us today.

Being Prepared Can Save Money

Author: Keith Huggett

Most people only pay attention to taxes in April and at the end of the year, but spending a little time on midyear tax planning can help your business save a bundle. If you wait until the last minute to take advantage of tax breaks for small businesses, you might miss the boat. Plan ahead and you might even be able to give bigger bonuses this year.

Midyear tax planning might save you some money in one or several of the following ways:

• Purchase new equipment: One of the requirements for taking a write-off on equipment expenses is that it must be in service before the end of the year. This means that any new equipment that is purchased in late December and not delivered until January won't make the cut for this year.
• Start a retirement plan: In order to take a deduction on some retirement plans, you have to have the plan set up by a specific date. However, you can often make deductible contributions to the plan until the date your taxes are due, which gives you even more opportunity to save.
• Upgrade employee medical plans: Health plan premiums are generally deductible, as are employer contributions to health savings accounts. If you don't currently offer medical benefits and want to, get a plan in place well before the end of the year to maximize your tax benefits.
• Review estimated quarterly tax payments: Although you probably set estimates for the final two quarters of the year, midyear tax planning gives you an opportunity to revise those figures if necessary. If you are having a good year, you may want to increase your estimated payment to avoid penalties. If your income is less than last year, reducing your payments accordingly will keep more cash available for your business.

An Enterprising Endeavor!

Author: Keith Huggett

Starting a new company is exciting, but business taxes can sneak up on you if you don't plan ahead. It's easy to get caught up in the enthusiasm of launching a new company, but keeping your books in order from day one can save you a lot of money in the long run.

Follow these tips to help you stay on top of your business taxes:

• Work with a tax expert. If you do not already have experience with business taxes, work with a financial professional who does. Tax mistakes can be costly and these expensive errors are entirely avoidable if you know what you are doing.
• Select the right business entity. There are several types of business entities and the one that makes the most sense for your company will depend on a variety of factors. This is the type of decision that your tax adviser can help you with.
• Set your books up properly. Depending on the type of business you have, you will have to set up your chart of accounts to account for certain contributions or expenses. For example, if you invest in the company, it is important to categorize this amount as a capital contribution and not as taxable income for the business.  You can also choose to outsource your accounting services entirely. Your tax adviser can provide information about this services as well.
• Don't forget about estimated quarterly tax payments. As a business owner, you have to make quarterly payments based on your estimated earnings. Your tax adviser can help you estimate this amount. Underpaying can result in penalties, while overpaying takes cash out of your pocket unnecessarily.
• Take the home office deduction. If you work exclusively from a home office you are eligible to take a tax deduction on the associated expenses. Your tax adviser can help you calculate the correct amount so you do not overestimate -- or underestimate -- the deductions you are entitled to.

Simple Steps To Pay Less

Author:

When you own or manages a small business you are often called upon to handle many different jobs all at the same time, the most import of which is to keep money flowing smoothly into the coffers.  One way to accomplish this is to pay out less in taxes. Here are a few simple strategies that may help:

1. When first forming your business, give careful consideration to the business structure you choose. The tax ramifications can be significant. You have the choice between a sole proprietorship, a partnership, corporation, or a limited liability company.
2. When purchasing equipment for your business, remember that you are allowed to deduct the entire cost of certain depreciable equipment in the year it is purchased. While most business equipment is depreciated over several years, small businesses are allowed this Section 179 deduction each year, with certain dollar limits. If your total equipment purchases exceed a certain amount for the year, the expensing option phases out, and the deduction is also limited to the amount of your taxable income for the year.
3. Because sel employed taxpayers are required to pay taxes through estimated payments, you want to be certain that you are sending timely payments in adequate sums. Late or inadequate payments mean that you will be assessed penalties and interest charges.
4. Knowing the difference between an "employee" and an "independent contractor" means avoiding penalties from the IRS too. Outsourcing your payroll can alleviate this all too common headache.
5. Remember that the IRS is not your bank. When cashflow runs tight, that skimping on your payroll taxes is not an option. If you pay your suppliers and then your employees, and you leave off the payroll taxes, the IRS will take steps to minimize the liability as quickly as possible. Whether or not you own the company, you could be determined to be a "responsible person." This means that the IRS can hold you 100% responsible for the payroll deficiency. 

Government Compromise - Am I Safe Now?

Author: Keith Huggett 

The Fiscal Cliff has been averted! What does this mean for you, the small business owner and taxpayer?  Initially, it means that while some things have changed, they were not the drastic changes we all feared would happen on January 1st.

Payroll taxes are going to rise on wage-earners by 2%, going from 4.2% to 6.2%, thus yielding a smaller paycheck.   The payroll tax will apply only to the first $113,700 of earnings in 2013. This will effect every employed person in our country. For a closer look at 2013 Income Tax Withholding rates a paper is available at the Tax Office Inc.

Personal Income Tax rates for individuals earning more than $400,000 or $450,000 for families will increase to 39.6%.  Anyone below those income levels will retain the tax rate they held during the Bush-era tax rates.  

The above mentioned income levels also apply to Capital Gains & dividends.  If you earn $400,000 individually, or $450,000 as a family, the tax rate on capital gains & dividends increases from 15% to 20%. Anyone below those income levels are taxed at 15%.

The Alternative Minimum Tax (AMT) was patched in such a way to avoid raising taxes. The income exemption levels are now set at $33,750 for individuals and $45,000 for married, filing joint.  The patch on AMT is also now indexed for inflation going forward.

For individuals making over $250,000, and married couples making over $300,000, there will be limitations in the personal exemptions and itemized deductions they can take. Those with incomes above $422,500 will not qualify for a personal exemption.

Last but not least, the Estate Tax has been adjusted from 35% to 40% with a $5 million exemption level. This threshold has been indexed for inflation going forward.

Now is the time to see your tax specialist. Make the necessary adjustments to your tax plan. Plan ahead, act now. The Tax Office, Inc., are specialists in proactive tax planning, payroll, small business planning. Contact us today!