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Date: 10/12/2015 3:30 PM UTC

The Internal Revenue Service has gotten much leaner lately. The Center on Budget and Policy Priorities recently estimated that funding for enforcement is 20% below where it was in 2010.

But if you think hard times at the IRS mean easy times for tax filers, think again. Like so many things, the tax filing process has come to rely on more automation and fewer discerning human beings. That means all you need to do is befuddle one computer program, and you could be in trouble.

"Robo-audits" of taxpayers are increasingly common, said James Keller, executive editor with the tax and accounting business of Thomson Reuters, and are going to "become a bigger and bigger deal" when it comes to tax time.

That means it's more important than ever to leave no guesswork on your returns, because computers aren't capable of giving taxpayers any benefit of the doubt.

To reduce your likelihood of an audit come tax time, here are some common reasons IRS auditors and their computers may be suspicious about your return:

• Typos and bad math: If the form you get from your employer says one number and you input a different figure into TurboTax, you could open the door for an IRS audit. Common sources of IRS inquiries are "W-2s or 1099s that do not agree with the return," said John Piershale, a certified financial planner at Piershale Financial Group in Crystal Lake, Ill. To save yourself some headaches, double-check your numbers and income sources when you file.

• A big one-time change: "The IRS now uses an electronic statistical sampling system to select returns for audits," Piershale said. In layman's terms, that means any items outside the usual range for American taxpayers or even from your previous personal filings could trigger a red flag with the IRS.

• Doubled dependents: If there have been changes in your household situation, make certain any dependents are claimed on only one taxpayer's return. "Claiming dependents that have been claimed by someone else or have already filed a return and have claimed themselves" is a common source of audits, said Paul Dunham, tax managing director at business services firm CBIZ.

• Odd itemized deductions: "If a taxpayer has an unusually high amount of itemized deductions given their income levels, an audit is potentially more likely," Dunham said. Claiming any deductions but not including proper documentation can rub the tax man (or robot) the wrong way.

• More than $1 million in income: "As one might expect, the higher the adjusted gross income, the more likely the taxpayer is going to be audited," Dunham said. He points to IRS audit statistics that show roughly half of audits occur to those reporting $1 million or more in income.

• Zero income: Dunham points out that another red flag is the lack of any income, particularly self-employed individuals running their own business. In some cases, unprofitable businesses are either simply set up to reap the benefits of tax breaks or are significantly underreporting income – neither of which sits well with the IRS.

What happens if you legitimately fall into one of these categories through no fault of your own? For starters, tax experts agree you should never forgo tax benefits simply for fear of an audit; Truthful taxpayers acting in good faith have nothing to fear.

Secondly, remember the initiation of an IRS enquiry is nothing personal – and in fact, that impersonal nature is what prompts many audits.

"In an odd way, your income tax return is presenting your financial picture to somebody that you don't know," said Keller of Thomson Reuters. He said the IRS sends "millions and millions" of Automated Correspondence Exam notices each year based on computer algorithms that simply see something they can't make sense of. Thus, the simplest way to defuse the threat of an audit is simply to promptly respond and set the record straight.

"Make it easy for the IRS to track what they're seeing," Keller said. He recommended that anyone who gets a notice should "include a copy of what the IRS sent to them, maybe come up with a little spreadsheet or calculation that shows how you came up with the numbers – make it easy for the IRS to take a look at it and say, 'Either that's correct or that looks reasonable, so we're going to move on to the next case.' "

In fact, there's nothing wrong with sending along a pre-emptive explanation with tax forms when you know you have a situation that is unique.

"If I feel that the numbers are going to be out of whack at face value, I think it's a good idea to attach an explanation," Keller said. "As long as you're being honest and upfront, I don't think that's going to hurt you."

The bottom line is transparency and honesty, providing documents and explanations when necessary, so the IRS realizes you're not part of the problem.

"If people take a common-sense approach and look at it as presenting info to somebody that doesn't know you, stuff can go a lot smoother that way," Keller said.


From: US Today

Posted by sboyarcpa

Date: 9/29/2015 3:41 PM UTC

For every parent that posts a panicked “In Search Of: Help with Nanny Taxes!” plea on parenting listservs, there are countless others who are looking the other way. And its not just the parents. Even though the taxes are in the caregiver’s long-term financial interest, the immediate loss of wages to taxes has many sitters requesting to be paid off the books.Nanny Taxes

One thing that galls some parents is the idea that they are paying taxes for a full-time nanny and are also expected to do the same for an irregular babysitter. It’s helpful to get over the notion that, although its short hand is “nanny tax,” this does not only pertain to a full time Mary Poppins, but, perhaps, to the neighborhood Kristy, Mary Anne, Claudia and Stacey too.

According to the I.R.S. Household Employer’s Tax Guide for 2014, if you pay more than $1,900 annually or $1,000 a quarter to a person working in your home you need to pay employment taxes. This requires a family to withhold Social Security and Medicare (FICA) and to pay a matching portion. State and federal unemployment insurance taxes may also be due.

Many parents feel they are being taxed by going to work and again by coming home to pay the caregiver. Some tax advisors point out that there could be greater compliance if the threshold were higher – something closer to $3,000 or $5,000 a year. If you’re paying for part-time child-care at $18 to $22 an hour, let alone full-time care, you’ll reach the threshold pretty quickly. Even with a more informal sitter, by the time you go out for date-night every Saturday while the same sitter comes by, you’re up to the $1,900 annual limit.

Of course, you don’t have to manage this yourself. A thriving cottage industry has developed providing tax services for families employing caregivers. Companies like Paychex or Homepay offer services specific to paying in home caregivers and can process your payroll and roll out tax forms for you. But unless you have a full-time or heavy part-time caregiver for your children, this will not be a worthwhile household expense.

For those with a sitter, hired-hand, mother’s helper — or any of the other titles we use to try to avoid the more professionalized “nanny” — here are some questions to aid in evaluating your tax responsibility.

Do You Have an Employee or Independent Contractor? If you control what work is done and how it is completed, you have hired an employee. It doesn’t matter whether the worker is paid hourly, weekly or by the job. The contractor, by contrast, is someone who has their own company and contracts with you for appointments, such as a lawn-care company, house cleaner or a home-health aid. An outside individual who cares for your children in your home is an employee and generates taxable income.

Does Your Caregiver Reach the Wage Threshold? The requirements to pay Social Security and Medicare kick in after you have paid a caregiver $1,900 for 2014, or $1,000 in any quarter of 2013 and 2014. You are required to report and pay taxes on that person’s 2014 wages.

What Will You Need From Your Caregiver? Your sitter will need to provide you with a Social Security number or an Individual Taxpayer Identification Number (ITIN), a completed I-9 form, a completed federal W-4 form and state income tax withholding form (if you live in a state with income taxes).

What’s the Benefit of Paying the Taxes? The real benefit is for your sitter. The point of the taxation is to provide your caregiver with Social Security income and Medicare coverage upon retirement. It will also provide your sitter with unemployment benefits and a verifiable employment history.  But there’s also a benefit to you: possible tax breaks to offset the cost of taxes and a clear conscience.

What’s the Danger of Paying Off the Books? Let’s say, after working with you for a while without you paying taxes on your caregiver’s wages, you part ways with your sitter. Should the caregiver do something like apply for unemployment benefits, a review may find that your family didn’t file any tax returns or pay into the state unemployment insurance fund. The caregiver is denied benefits and you’re facing questions.

From: Forbes

Posted by sboyarcpa

Date: 8/25/2015 6:54 PM UTC

images

When you purchase a new rental or commercial property with investment intent, you must allocate a portion of the purchase price to improvements and the remaining amount to land. The reason for this practice is that you cannot depreciate land, only improvements. This makes sense because dirt lasts forever.

Depreciation is the reduction in value of a property over time due to the particular wear and tear on the asset. Residential properties (1-4 units) are depreciated over 27.5 years, while commercial properties (5+ units and commercial buildings) are depreciated over 39 years.

This reduction in value is a current expense, yet no money comes out of your pocket. Sounds like a pretty awesome deal, right? You get to reduce your reported income by your annual depreciation expense without actually paying for anything!

But what is depreciation really? Do you think the IRS, our favorite government agency, would let you have it that easy? I’ll give you a hint: the answer starts with the letter “N” and ends with “O.”

In actuality, depreciation is similar to an interest free deferred loan with no time restrictions. You see, when you sell a property that you have been depreciating, you have to pay a thing called “depreciation recapture taxes” at a 25% rate. This 25% rate is multiplied by the total value of depreciation you have taken over the property’s hold period. So the income you are “sheltering” each month really isn’t being sheltered like you think it is, as you will eventually have to pay a portion of it back. Without prior knowledge (or having a good accountant), you could be in for quite the surprise!

I’m going to walk you through three scenarios of taxpayers in different marginal tax brackets: the 15% bracket, the 25% bracket, and the 28% bracket. I’ll then provide you with three ways to avoid depreciation recapture taxes.

The Taxpayer in the 15% Bracket

Dave buys a single family rental for $100,000 and determines that his improvement ratio is 90%. Therefore, his improvements are valued at $90,000 (0.90 x $100,000) and will be his cost basis for depreciation. Dave’s annual depreciation will be $3,723 ($90,000/27.5).

Assuming that his annual depreciation brings his Net Operating Income (NOI) to $0.00 each year, Dave saves $491 annually (0.15 x $3,723). If Dave holds the property for ten years and then sells it, his ten years’ worth of depreciation will have saved him $4,910, a solid savings indeed.

But what Dave doesn’t realize, likely because Dave didn’t consult with a real estate savvy accountant, is that Dave has to repay the total depreciation taken at a 25% rate. The total amount of depreciation Dave took over ten years was $32,730, meaning his recapture taxes amount to $8,183. Annual depreciation actually costs Dave $3,273.

Depreciation Recap 1

The Taxpayer in the 25% Bracket

Dave buys a single family rental for $100,000 and determines that his improvement ratio is 90%. Therefore, his improvements are valued at $90,000 (0.90 x $100,000) and will be his cost basis for depreciation. Dave’s annual depreciation will be $3,723 ($90,000/27.5).

Assuming that his annual depreciation brings his Net Operating Income (NOI) to $0.00 each year, Dave saves $818 annually (0.25 x $3,723). If Dave holds the property for ten years and then sells it, his ten years’ worth of depreciation will have saved him $8,183.

The total amount of depreciation Dave took over ten years was $32,730, meaning at a 25% rate, his recapture taxes amount to $8,183, which is a net $0 savings. Because Dave consulted with a real estate savvy accountant, Dave knew he would owe nothing in depreciation recapture taxes and was essentially getting an interest free loan on his money.

Depreciation Recap 2

The Taxpayer in the 28% Bracket

Dave buys a single family rental for $100,000 and determines that his improvement ratio is 90%. Therefore, his improvements are valued at $90,000 (0.90 x $100,000) and will be his cost basis for depreciation. Dave’s annual depreciation will be $3,723 ($90,000/27.5).

Assuming that his annual depreciation brings his Net Operating Income (NOI) to $0.00 each year, Dave saves $916 annually (0.28 x $3,723). If Dave holds the property for ten years and then sells it, his ten years’ worth of depreciation will have saved him $9,164.

The total amount of depreciation Dave took over ten years was $32,730, meaning at a 25% rate, his recapture taxes amount to $8,183, which amount to a savings of $982. Basically, the IRS loves Dave so much they decided to pay him a premium for the money they were lending him over the past ten years. And who said the IRS doesn’t care about us?!

Depreciation Recap 3

We Can Make This More Complicated

Due to inflation, the real value of your annual savings will diminish. So in order to increase the accuracy of our model, to “break even” in respect to inflation, you will need to account for the reinvestment of your savings from depreciation at somewhere around a 2.5% annual rate of return.

Additionally, we can break the model out on a monthly basis rather than an annual basis to gain a clearer picture of what is actually going on. We can model what would happen if we reinvest our annual savings into various investment vehicles over the hold period to develop a strategy that makes sense and best utilizes depreciation savings. But that’s all beyond the scope of this article.

Moral of the Depreciation Story

Being in a low tax bracket actually hurts the taxpayer in respect to depreciation expense. Fifteen percent Dave should have tried to minimize his annual depreciation expense, which really boils down to how much of the purchase price he allocates to improvements vs. land. If Dave’s research could have supported a higher land valuation, he would have been better off to go that route.

This can be a double edged sword, though. If Dave’s rentals push him into the 25% tax bracket, Dave will then want to take more depreciation, as seen in the next scenario.

On the other end of the spectrum, 28% Dave fares quite well in respect to depreciation and should try to utilize the highest improvement ratio he can support to shelter even more of his income per month. Since 28% Dave only pays the IRS back at a 25% rate, he will come out on top.

And of course 25% Dave is just excited to get an interest free loan. He thought lenders did away with that years ago.

Avoiding Depreciation Recapture Taxes

There are three good methods of avoiding depreciation recapture taxes.

The first option is to utilize a 1031 exchange. Doing so will allow you to defer paying depreciation recapture taxes, as a 1031 exchange allows you to roll the depreciation into the next property. The downside here is that you are merely deferring your depreciation recapture tax liability and will have to pay the recapture taxes upon the sale of the exchanged property at some point in the future.

The second option is to never sell your properties and pass them on to your heirs. When your heirs inherit your investment property, they receive a “stepped-up basis” equal to market value at the date of death, or if they elect this option, the market value six months after the date of death. This means that your heirs will not have to pay your depreciation recapture taxes or capital gains from your original purchase price.

To illustrate, let’s assume you pass on a fully depreciated property to your heirs. Over the years, you benefitted from $90k of depreciation, and if you would have sold, you would have owed $22,500 in depreciation recapture taxes. Due to the stepped-up basis your heirs receive, that depreciation is wiped clean, and their cost basis will be the fair market value at the date of death. Even better, if it’s still a rental, they can begin depreciating it all over again.

The third option (which is not so popular) is to sell the property at a loss. Gains are calculated by subtracting the property’s adjusted basis from the selling price. Adjusted basis generally means original purchase price plus improvements, less depreciation and amortization.

So if you bought a property for $100,000 and you have taken $5,000 worth of depreciation, your adjusted basis is $95,000. If you sell the property for $95,000, you will have a $0 gain and will not have to pay recapture taxes on that $5,000 of depreciation.

There are many other ways to utilize tax deferred strategies to avoid depreciation recapture taxes and capital gain taxes, but can be complicated to explain and so are beyond the scope of this article. The important thing to note is that something as small as depreciation can have lasting impacts on your bottom line and is critically important to plan for in your overall investment strategy.

From: Here

Posted by sboyarcpa

Date: 8/18/2015 7:36 PM UTC

It may be hard for someone in their twenties or early thirties to start thinking about retiring, especially when there is so much interesting stuff to check out on Facebook, Instagram, or Twitter; but this is exactly the time that a Millennial should start preparing for retirement if one wants to have the chance to nail retirement without having to save a lot of money each year. Listen up, Millennials (or Generation Y, if you prefer): One Direction may sing “Live While You’re Young”, but if you started saving for retirement while you are young, then you can chill when you’re old.

retirement

The foundation of retirement investing is based off the concept of tax deferral. Tax deferral means that you can postpone taxes on any earnings you make on the money in your tax-deferred accounts. That means your money is growing each year without having to remove any funds to pay tax. For example, if you contributed $2,000 to a Traditional IRA each year for 10 years and averaged a 7% annual rate of return, assuming a 25% income tax rate, your Traditional IRA would be worth $31,291, whereas if you invested the funds personally, you would have just $23,468. Now, imagine that instead of contributing over 10 years, you contributed over 30 years. Assuming the same facts, your Traditional IRA would be worth $244,692 versus just $183,519. Pretty impressive numbers for just saving around $5 a day. If a Traditional IRA was used, you would eventually have to pay the taxes on the income deferred. But here’s the good news. You may be in a lower tax bracket in retirement, so the taxes you pay will be less than if you had paid them during your working years, and you only pay tax on the amount you withdraw from your tax-deferred accounts. The rest of the money in your tax-deferred account continues to grow tax-deferred—and compounding interest continues to work its magic over time. Of course, you could always open a Roth IRA, assuming you satisfied the income limitations, and all your income and gains would be tax-free, assuming you were over the age of 59 ½ when you took a Roth IRA distribution and the Roth IRA had been open at least 5 years.

The thing with tax deferral is that, generally, the earlier you start, the greater the tax deferral power will be. This is exactly why today is a perfect time for Millennials to start saving for retirement and kick-start their tax deferral clock. Of course, it is never too late to start saving for retirement, which bolds well for Generation X and baby boomers, but Millennials are at the perfect age to take advantage of the amazing power of tax deferral. Much has been made of the enormous impact that student loans and a soft job market has had on Millennials, and how it has hurt their ability to save for retirement. This is all true, but the power of tax deferral can help you retire in style by just saving $5 a day – that’s one less Grande Cappuccino at Starbucks each day. Not a huge sacrifice for potentially having hundreds of thousands of dollars when you retire. They key is starting early, which gives the Millennials a huge advantage over Generation X and the baby boomers. Take a look.

Let’s assume that Dylan is 25 years old and saves $5 a day or $1,825 a year, which he contributes to a Roth IRA. Let’s also assume that Dylan was able to save $1,825 a year until he reached the age of 70. Not a very unrealistic assumption. Let’s also assume that Dylan was able to average 7% annually on his investments, which is actually below the average S&P 500 return since its inception through 2014, which is close to 10%. Let’s further assume that the tax rate stayed static at 25%. Based on the facts, Dylan would have $557,997 in his Roth IRA at age 70, versus just $419,498 had he made the investments personally.

Millennial-Retirement

Now let’s take Susan, who is 45 years old, and has not yet started saving for retirement. If she was able to contribute $5,000 a year to a Roth IRA until she reached the age of 70, then, assuming the same 7% rate of return as Dylan and the same 25% tax rate, Susan would have $338,382 in her Roth IRA at age 70, but only $253,787 if she made the investments personally.

As you can see, from a retirement standpoint, Dylan is much better off than Susan because he started contributing at a young age. Dylan’s Roth IRA contributions equaled $82,125, whereas Susan’s contributions equaled $125,000; yet, because her Roth IRA funds has less tax deferral power behind it, her Roth IRA was close to $219,000 less than Dylan’s. Now, even if Susan earned a 9% rate of return on her investments instead of 7%, that would only increase Susan’s Roth IRA to $461,620, still almost $100,00 less than Dylan’s.

The Millenniums or Generation Y folks are certainly the most savvy and well informed generation ever, but if they just added the concept of “tax deferral” to their vocabulary to go along with Tweet, Face-time, or photobomb, they could also end up being the richest generation.

From: Forbes

Posted by sboyarcpa

Date: 7/28/2015 3:51 PM UTC

Accounting can cause headaches for small business owners. It's the back-office tasks that never cross your mind when deciding to run your own business, and yet they suck up your time and make running a successful business that much harder. But there’s hope, and it starts with getting organized. Here are some tips to help business owners trying to tackle their accounting:

financial-success-investing

Keep it separate. That new backpack for your kids isn't a business expense, but your business credit card was handy so you used it. Sure, you can pay back your business for a personal expenditure, or the other way around, but if you're going to do it right you actually have to record an accounting transaction. Things get complicated fast, and you don't need that headache. By keeping separate bank and credit card accounts for business and personal, you'll save yourself hours of work and make it easy to keep track of deductible expenses in one place. Some applications can automatically handle the behind-the-scenes accounting for crossover expenses, but even so, we recommend handling business and personal finances as independently as possible.

 

Call in a pro. Since the days of the abacus, accountants have been trusted and respected allies to small business owners everywhere. Their intimate knowledge of the profession as well as tax laws in their jurisdiction will save you money almost every time. I know how tempting it can be to save a buck and do it yourself, but it’s almost never more cost-efficient in the end. An accountant will almost always find more deductions and keep you penalty-free. On that note, the cleaner your records, the fewer billable hours you’ll have to pay, so make sure you’re organized year-round. But when things get technical or taxes are due, save yourself the money, time and headaches and call in a trusted professional.

 

Pencil it in. Actually, use a pen. A permanent marker even. Set aside about 15 minutes every week — that’s the equivalent of just one Facebook visit every seven days — to organize your finances, and don’t let other things take priority during this time.  You'll have more insights into your business, be able to make more informed financial decisions and have everything organized when tax time approaches. Something always feels more pressing than your finances. But when you find the time every week, you'll feel your stress levels — now and at year-end — fall fast.

 

Consider your people. When you’re looking for insights into your businesses spending, don’t forget to properly track what is likely one of your biggest expenses: labor. Whether you’re paying a full staff or you’re the only one on the payroll, make sure you’re tracking the costs of wages, benefits, overtime and any other costs associated with labor. By tracking your spending on labor, perks and benefits, you may find you have more money to incentivize your employees — or that you’re outspending your budget. Either way, doing the math now can help you make better decisions later.

 

Finally, don’t forget to get paid. This one seems pretty obvious, but you would be shocked at how many small business owners don’t properly track invoices and customer payments. If you’re not keeping proper records that you can make sense of at a glance, it could be months before you realize you have outstanding invoices. You could be collecting payments late, or missing some altogether. Make sure you’re properly tracking all payments due and recording when each invoice is paid, how long customers generally take to pay, and which customers you’ve had difficulties collecting payments from in the past.

Referenced From: http://www.forbes.com/sites/theyec/2012/10/24/5-simple-tips-to-keep-your-small-business-finances-in-order/

Posted by sboyarcpa

Date: 7/28/2015 3:33 PM UTC

A startup budget serves as a road map for building any type of business. Yet, it’s a delicate balance. Taking a few risks during the startup’s launch is a great strategy (and generally reaps success in the end), but maintaining a budget is just as vital.

All in all, setting a realistic budget is a game changer for any startup. It helps entrepreneurs stay on track and keep their eyes on the ultimate goal.

business-budget

If a startup budget is constantly tweaked and never followed, then deep financial trouble may be up ahead. Here are four reasons why all entrepreneurs--big and small--should have a realistic startup budget.

1. A set budget helps you stay focused. Calculating every cost in the present and future for a startup can be overwhelming, especially when there are unforeseeable expenses. However, mapping out specific costs (and, of course, setting aside funds for emergencies, too) is the best approach.

“The exercise of thinking through what will be required before beginning a project (i.e., counting the cost) is pretty ancient wisdom,” said Scott Peeples, the co-founder of peerfit. “It's not just about estimating expenses either; it can end up shaping the strategy of the whole company.”

From staffing to machinery, entrepreneurs should estimate their startup budget. Having a set budget maintains focus on what or what not to spend, reinforces the startup’s progress and perseveres toward the end goal.

2. It’s OK to adjust your budget but stick to it. Because life doesn’t always allow people to stick to their intended goal, flexibility is key. Sometimes startup owners need to readjust their budget more than once, and that’s OK. But it’s also best to readjust focus and keep the budget in mind.

“My budget was always very loose and flexible,” said Toby Sembower, the founder and CEO of Digital Brands. “What was most important to me was that I get to work with the most talented people possible and in the best work setting possible.”

Creating a startup budget is a dynamic process that fluctuates as much as the initial goal and company do. However, adjusting the budget is just as important as sticking to the original plan. Be open to change, but remember to stick to the revamped budget.

3. Avoid a half-built business. Running out of funds is one of the worst repercussions when an entrepreneur doesn’t set or stick to his or her budget. Half-built businesses aren’t worth much to the entrepreneur or business world, so prioritizing costs helps avoid this doomed scenario.

Budgeting is all about moderation, so startup founders should balance both their budget and spending habits. Sometimes the budget needs to be larger, or the founder should cut back on some expenses.

“The obvious consequence of failing to make a budget is the increased probability of running out of resources to meet your objective-, like ending up with a half-built house,” Peeples said. “Track your cash flow and adjust your budgets every quarter. Learn from the numbers.”

4. Don’t dig yourself into a debt hole. Having an unlimited startup budget may seem like an ingenious idea at the time, but startup owners will dig themselves into an abysmal debt hole in the end. Businesses that set a realistic budget steer clear if that trap.

A startup business may flourish while accruing debt, but success and profitability diminish once that debt needs to be reimbursed. Calculate each expense more than once, and determine what should be the startup’s best (and most realistic) budget. It’s better to catch costly expenses in the beginning rather than in the end when swimming in a pool of debt.

“Creating a detailed budget will force you to make decisions on what’s most important, and what’s not, in spending that money,” Sembower said. “Costs can get out of hand very quickly if you’re not adhering to a budget, which could leave you short on working capital for opportunities (or costly problems) that may arise.”

From: http://www.entrepreneur.com/article/247342

Posted by sboyarcpa

Date: 6/24/2015 3:09 AM UTC

Expecting to pop the question—or answer the question? The tax benefits of marriage are most likely are the furthest thing from your mind.

marriageBut personal finances loom large in married couples' lives. And here's the good news: Married couples get some nice perks in the tax arena. So to add to all the marital blessings that await you, here are a few tax benefits to enjoy:

  • Your spouse could be a tax shelter. Couples whose incomes are widely different benefit when they get married and file jointly. For instance, a bride with taxable income of $90,000 a year would pay $18,383 in federal tax on her 2014 return, while her fiancée, with taxable income of $25,000 a year would pay $3,300. Filing jointly, they'd pay $20,426.50, a savings of $1,256.50. "The two incomes are netted together, so you're in a lower bracket," explains Gregg Wind, a partner at Wind and Stern, a CPA firm in Los Angeles.

Where couples suffer from a "marriage penalty" is when both spouses have income that is just about the same. In that case, they may want to file separately. "Newlyweds should try it both ways to see what works best," says Mary Kay Foss, a CPA with Sweeney Kovar, accountants and advisers in Danville, Calif.

  • You could begin to itemize. If you haven't been able to take deductions on your tax return before, marrying someone who does—say, because of a home mortgage or small business—makes you eligible to itemize, too. Charitable contributions, state income tax, employee expenses—all can potentially be deducted.
  • You can establish an IRA even if you don't work. If you're not working—say, you're a student or an at-home parent—the IRS says you can't establish an IRA. But getting hitched allows you to open an IRA as a non-working spouse.
  • You can pass on more, tax-free. If you and your intended are so lucky has to have hefty savings and investments, you could benefit from the "portability" of the lifetime gift tax exclusion, which is $5.43 million in 2015. In short, individuals are allowed to give away up to $5.43 million, tax-free, while alive or upon their death. But a relatively new tax rule lets your spouse inherit the remaining, unused portion of your exclusion, which could lead to big estate-tax savings for your heirs. Read more on this in "Step 3" of our article, "How to create a bulletproof estate plan."
  • You can save on tax preparation expenses. Filing jointly, you'll pay a preparer for just one return, Wind notes. "It can take less time and be less expensive," he notes.
But getting married has tax pitfalls as well. For instance, filing jointly leaves you on the hook financially if your spouse turns out to owe. In extreme cases, spouses who claim they knew nothing about a partner's financial can file for "innocent spouse relief" with the IRS.

But let's hope it doesn't come to that. Before you walk down the aisle, have some frank conversations with your spouse-to-be. One study showed that married couples' early arguments about money were a top predictor of divorce. Get on the same page about taxes and other money topics now to ensure a happy, long marriage together.

From: http://www.consumerreports.org/cro/news/2015/02/tax-benefits-of-marriage/index.htm

Posted by sboyarcpa

Date: 5/21/2015 1:59 PM UTC

Starting a brand new business usually requires the expenditure of money on things like:

  • legal and accounting fees
  • licenses, permit, and other fees
  • the cost of investigating what it would take to create a successful business, including research on potential markets or products
  • advertising costs, including advertising for your business opening and creating a business website
  • office rent and utilities paid before the business begins operating
  • rental of business equipment such as computers and office supplies
  • costs for employee training before the business opens, and
  • expenses related to obtaining financing, suppliers, customers, or distributors.

Once your business begins, the cost of all of such items are deductible as business expenses. However, they are not so easily deducted if they are incurred before your business starts. Such business start-up expenses are capital expenses—costs that you incur to acquire an asset (a business) that will benefit you for more than one year. Normally, you can’t deduct these types of expenses until you sell or otherwise dispose of the business. However, a special tax rule allows you to deduct up to $5,000 in start-up expenses the first year you are in business, and then deduct the remainder, if any, in equal amounts over the next 15 years. (I.R.C. § 195.)

Example: Diana Drudge is sick of her office job. She decides to start a fashion design business. Before her business begins, she spends $20,000 of her life savings on advertising. Her business finally starts on July 1, 2014. Because such advertising is a start-up expense, she can’t deduct the full cost in her first year of business—instead, she can deduct $5,000 of the expenses the first year she’s in business and the remaining $15,000 in equal installments over 15 years (assuming she’s in business that long). This means she may deduct $1,000 of the remaining $15,000 for each full year she’s in business, starting with the first year. However, Diana’s business is open for only six months her first year, so she may deduct only $500 of the $15,000 that year, plus the initial $5,000 she’s entitled to. Her total first year total deduction is $5,500.

Obviously, you want to spend no more than the first-year ceiling on start-up expenses so you don’t have to wait 15 years to get all your money back.

Special Rules for Some Expenses

There are some costs related to opening a business that are not considered start-up expenses. Many of these costs are still deductible, but different rules and restrictions apply to the way they are deducted.

Inventory

The largest expense many home business people incur before they start their businesses is for inventory—that is, buying the goods (or the materials to make them) that they will sell to customers. For example, if you decide to start an eBay business selling items you buy at flea markets, you would treat the items you purchase for resale as inventory. You deduct the cost of inventory as it is sold or if it become unsalable.

Long-Term Assets

Long-term assets are things you purchase for your business that will last for more than one year, such as computers, office equipment, cars, and machinery. Long-term assets you buy before your business begins are not considered part of your start-up costs. Instead, you must treat these purchases like any other long-term asset you buy after your business begins: You must either depreciate the item over several years or deduct the cost in one year under Section 179. However, you can’t take depreciation or Section 179 deductions until after your business begins.

Research and Development Costs

The tax law includes a special category for research and development expenses. These are costs a business incurs to discover something new (in the laboratory or experimental sense), such as a new invention, formula, prototype, or process. They include laboratory and computer supplies, salaries, rent, utilities, other overhead expenses, and equipment rental, but not the cost of purchasing long-term assets. Research and development costs are currently deductible under Section 174 of the Internal Revenue Code, even if you incur them before the business begins operations.

Organizational Costs

Costs you incur to form a partnership, limited liability company, or corporation are technically not part of your start-up costs. However, the rule for deducting these costs is the same as for start-up expenses. (I.R.C. § 248.) But, if you form a one-member LLC, you get no deduction at all if your start-up expenses exceed $5,000

When Does a Business Begin?

Once your business begins, the same expenses that were start-up expenses before your business began become currently deductible business operating expenses. For example, supplies you purchase after your business starts are currently deductible operating expenses, but supplies you buy before your business begins are start-up expenses.

So, just when does a new business begin? The courts have held that a new business begins for tax purposes when it starts to function as a going concern and performs the activities for which it was organized. (Richmond Television Corp. v. U.S., 345 F.2d 901 (4th Cir. 1965).) The IRS says that a venture becomes a going concern when it acquires all of the assets necessary to perform its intended functions and puts those assets to work. In other words, your business begins when you start doing business, whether or not you are actually earning any money.

For example, if your business involves providing a service to customers or clients— such as accounting, consulting, financial planning, or law—your business begins when you first offer your services to the public. No one has to hire you; you just have to be available for hire. For example, a consultant’s business begins when he or she is available for hire by clients.

If you’re a knowledge worker—for example, a writer, artist, photographers graphic designer, computer programmer, app developer—your business begins when you start using your business assets to make saleable products. The products don’t have to be completed, nor do sales have to be solicited or made. Thus, an inventor’s business begins when he or she starts working on an invention in earnest, not when the invention is completed, patented, or sold. Likewise, a writer’s business begins when he or she starts working on a writing project.

From: https://www.mileiq.com/blog/deducting-expenses-to-start-a-new-business/

Posted by sboyarcpa

Date: 5/21/2015 1:53 PM UTC

Unfortunately, minimizing the tax burden of your sale isn't as simple as hiring a top-notch tax professional a few weeks before your closing. Some of the tax moves discussed below take time. So get up to speed on these tax strategies now and talk to the experts--a business broker, your accountant, a tax expert--to get your tax minimization plans in place sooner rather than later.

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Tips for Minimizing Postsale Tax Liability

Regardless of whether you're selling a sole proprietorship or a corporation, it's important to understand the tax implications of the sale long before you pull the trigger on your business exit. There are several tax strategies.

  • Conversion to an S corp

    To avoid double taxation, consider converting your C corp to an S corp prior to sale. Although restrictions may apply, by converting to an S corp, shareholders are taxed for the gain on the sale, but the corporation avoids paying corporate-level tax. This significantly reduces the total tax liability on sale proceeds. But it can't be done overnight--this conversion needs to be made 10 years prior to the sale of your business.
  • An installment sale

    An installment sale is one of the most common tax-deferment strategies for sellers of small businesses. In an installment sale, the buyer purchases either stock or assets using an installment promissory note, committing to pay a portion of sale proceeds over time. Sellers do not permanently avoid tax on sale proceeds, but this strategy delays taxes until payments are received and helps spread out the tax burden.
  • An ESOP sale

    Employee stock ownership plan, or ESOP, sales enable sellers to defer payment of tax on the sale of stock. As long as the ESOP owns at least 30 percent of the company’s stock postsale and the seller invests proceeds in qualified securities, it's possible to create a tax strategy that defers the payment of taxes through a managed account. This creates a permanent tax savings for your estate following your death.
  • Qualified small business stock exception

    There is a provision in tax law that allows for an exclusion of gain from the sale of qualified small business stock, or QSBS. As of January 1, 2014, the QSBS exclusion is set at 50 percent for the sale of C corp stock in a company with total gross assets of $50 million or less. Be aware that other restrictions may apply and an AMT tax preference can further limit your tax savings. Talk with a tax professional to see if this could be an option for you.

The only thing worse than paying tax on the sale of a business is paying too much tax. Given the amount of money that changes hands in a typical business transaction, even small actions can significantly increase the size of your bank account when you exit your company. By working closely with a tax professional in the months or years leading up to the sale, you can improve your tax position and lay the groundwork for more money in the long run.

From: http://www.inc.com/curtis-kroeker/plan-to-sell-your-company-someday-slash-your-taxes-now.html

Posted by sboyarcpa

Date: 5/21/2015 1:37 PM UTC

We are all targets and we are all vulnerable. Criminals across the country and around the globe - small-time thieves and devious computer hackers - are working around the clock to steal your money and your personal information. There's nothing you can do to guarantee you won't get taken, but there are many things - some of them very simple - that can reduce the risk.

2d274907920175-150302-scams-1009_27b30f4fd2b70407f70561fffc39e482.today-inline-largeJoe Raedle / Getty Images

Con artists and disreputable companies will do or say whatever it takes to get what they want. So you need to be vigilant. Because once you wire off your money or give a crook your Social Security number, the damage is done. Life in the digital age does not come with an "undo" button.

With most scams the warning signs are there, if you look for them - let's review the rules:

Be skeptical

Question everything: phone calls, mail solicitations, email offers, links on social media. Don't take things at face value. Con artists know how to make their scams look and sound legitimate. They can doctor pictures, copy logos, fake testimonials. It's also easy to "spoof" caller ID and create fake websites.

Think it through and check it out before you respond in any way. A phone call or quick web search could keep you from losing thousands of dollars or giving out very personal information. You can check out companies and offers with the Better Business Bureau, Federal Trade Commission and National Fraud Information Center.

Guard your personal information

Fraudsters use a variety of tricks to get you to divulge account numbers and passwords. They send bogus emails designed to look like it's from your bank and make calls pretending to be with your credit card company.

There's always a reason why they need your personal information. A common ruse is for a phone bandit to ask for your account number and PIN to solve a computer problem or to stop fraudulent transactions spotted on your account.

It doesn't matter what they say - hang up! Those who need your account numbers, PINs or passwords already have them. They'd never call you or send you an email asking for them. When in doubt, contact the company in question by phone - use a number you know to be legitimate, from your statement or the phone book - and ask what's up.

Your Social Security number is the key to your life. A thief can use it to steal your money and your identity. Social Security numbers are also used to access many financial and medical records. So guard that number and only give it out when absolutely necessary to someone you know and trust.

Beware of counterfeit checks

When you sell something online, never accept a check that's made out for more than the agreed-upon price. Fraudsters will do that and instruct you to wire back the extra amount. The check may look legit, but it's counterfeit. The bank may tell you the check has "cleared" and the money is in your account, but once that check is found to be bogus - which could take weeks - the bank will withdraw those funds from your account. That means you'll be left holding the bag for all the money you wired off.

Take your time

Don't let anyone rush you into making a purchase. The buy-now-or-else approach is designed to keep you from comparison shopping. Don't fall for it. If they're really offering a bargain, they don't have to high-pressure you into buying on the spot. If the sales person tells you the price won't be good if you walk out the door - turn around and leave.

Get it in writing

Verbal promises don't count. It doesn't matter what the salesperson tells you, the only thing that matters is what's written down. Most sales contracts specifically state that verbal promises are not binding. That's why you need to read, understand, and agree to the terms before you sign any contract.

Be wary of all links and attachments

It's so easy to click on a link in a text, email, or social media post. It's so tempting to open an email attachment, especially when the message says it's a shipping invoice or some other document you'd want to see.

Fraudsters count on curiosity and that instant response to load malicious software onto computers, smartphones and other mobile devices. And with shortened URLs, you really don't know where that link will take you - maybe a malicious site run by the crooks.

Unless it's something you're expecting and know for sure who it came from, don't open that attachment and resist the temptation to click any links.

If you've really won a prize - it's free!

Never pay to play a contest or to claim a prize. If the contest is legitimate, you're not required to buy anything or pay any money to get your prize - that's the law. You don't have to send in a processing fee, pay shipping or handling charges, or provide your credit card or bank account numbers for any reason. And if you owe taxes on your prize, you pay them to the government, not the contest promoter.

Remember: You can't win a contest you didn't enter. If someone says you did, they're lying.

Don't be fooled by free merchandise offers or money back guarantees

Free is good, but be skeptical of ads that offer to send you a free sample. The initial product may be free, but they'll probably make you pay for shipping and handling. To cover that charge, you'll need to provide your credit or debit card number. Some dishonest companies then sign you up for additional monthly purchases - whether you realize it or not - which can be hard to stop.

A money-back guarantee is designed to get you to make a purchase you might otherwise skip. That guarantee is only as good as the company that offers it. Sometimes the rules are so restrictive it's impossible to get a refund. For example, simply opening the package might void the offer. If you are allowed to return the product, you can expect to pay to ship it back.

Use a credit card for online and mail order purchases

A credit card gives you better fraud protection than a debit card - credit cards are governed by different federal rules. With a credit card, you can dispute an unauthorized charge and the credit card company must take that charge off your bill while it investigates. That's not always the case with a debit card. You can also dispute a credit card charge if the merchandise doesn't arrive or if it's defective and the company won't help you.

 

From: http://www.today.com/money/10-simple-tips-avoid-getting-scammed-t6111

Posted by sboyarcpa

 

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