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Showing posts from December, 2013

Super Last Minute Business Tax Moves

Time is running out for 2013 and for last minute tax moves.  Here are a few tips for business owners.
Timing is everything:
How does 2013 look for your business and you personally?  Also, what do you expect for 2014? These questions are important because, for example, if you know 2014 will be much better than 2013 then you may want to time profits so that you take more income in 2013 and then you will have less in 2014.  Why would you want to do this?  Perhaps you expect 2014 to be so much better that it may put you into higher tax brackets and/or cause other taxes to "kick in" like the Net Investment Income Tax, The Alternative Minimum Tax, or the Additional Medicare Tax.  Of course it could be the other way around too and you may want to delay profits into 2014.  Either way these are timing opportunities that you can take advantage of.  Realize you will have to report the income but when you report it can affect how much in taxes you will pay.
So how do you delay or acceler…

The Alternative Minimum Tax and Your Tax Return

What in the world is the Alternative Minimum Tax (AMT)?  Even the IRS does not try to explain it in detail for the lay person.  Basically, it is an attempt by the government to make sure individuals and corporations that benefit from certain exclusions, deductions, or credits pay at least a minimum amount of tax.  It is crazy because the Alternative Minimum Tax requires your taxes be calculated twice in two different ways to make sure someone does not benefit too much from the tax provisions.

How is the Alternative Minimum Tax computed? According to the IRS the following is the general calculation:
Start with taxable income for regular tax purposesEliminate or reduce certain exclusions, deductions and credits that are allowed in computing the regular taxSubtracting the AMT exemption amount (it's calculation would require another post)Subtracting AMT foreign tax credit The IRS notes the AMT exemption amount and AMT rate are set by law.  For capital gains and certain dividends, the…

Last Minute Year End Tax Moves - Timing Opportunities

As 2013 comes to a close quickly, what can you still do to reduce your taxes for 2013?

Does your income fluctuate from year-to-year?  Perhaps you expect changes to income tax rates or income taxes or whatever the government wants to disguise them as.  In some cases you can benefit by timing your income or losses so you take less income in a year when your effective tax rate will be higher and defer the income until the following year when your tax rate will be lower.  The same rational applies to cash flow issues.  These are timing opportunities to minimize your taxes in a particular year.

Types of opportunities to defer income and taxes:

Capital GainsSalary from your businessIncome in your businessPurchasing Capital AssetsTaking a Retirement DistributionPaying Bills in your BusinessPaying Real Estate Property TaxesMaking Charitable Contributions
Here is a tip for business owners; a cash basis business can accelerate bill payments into 2013 without coming out of pocket with the cash …

How Are You Affected by the new Net Investment Income Tax

If you have Net Investment Income and your Adjusted Gross Income exceeds the set thresholds you may have to pay the Net Investment Income Tax.  The tax is 3.8% on the lower of your Net Investment Income or your Adjusted Gross Income that exceeds the threshold.

First, what is Net Investment Income?   Generally it includes but is not limited to:

interestdividendscapital gainsrental and royalty incomenon-qualified annuitiesincome from businesses involved in trading of financial instruments or commoditiesbusinesses that are passive activities to the taxpayer (within the meaning of section 469) The calculation of Net Investment Income is reduced by certain expenses properly allocable to the income.
What is Adjusted Gross Income for this tax? Adjusted Gross Income for the purpose of the Net Investment Income Tax is the adjusted gross income (Form 1040, Line 37) adjusted for some amounts excluded from gross income under different provisions of the tax code.
Thresholds for Adjusted Gross Inco…

The Additional Medicare Tax and Your Tax Return

Alert: This Additional Tax Will Surprise You at Tax Time:  Surprise, you owe more than you expected.  It can be disturbing when expectations are not met especially when it means more money out of your pocket.  That can happen this year due to the Additional Medicare Tax.

The Additional Medicare Tax: The Additional Medicare Tax is an additional tax or surtax on your wages, compensation or self-employment income that exceed certain thresholds.  The thresholds are: $250,000 for couples filing jointly$200,000 for individuals, even individuals filing Head of Household, and Qualified Widows$125,000 for married persons filing separately The tax is an additional .9% on qualified wages, compensation or self-employment income.
Employers are required to withhold the additional .9% from wages it pays to an individual in excess of $200,000 in a calendar year, without regard to the individual's filing status or wages paid by another employer.
Your Surprise: Since employers are only required to wi…

Living Outside the U.S.? You May Be Able to Exclude Foreign Earned Income On Your Tax Return

If you are a U.S. citizen or resident alien of the United States residing and working outside the U.S. you should be concerned about the taxes implications.  The country you are living in may want to tax that income and in the U.S. you are required to report all your worldwide income so you could face double taxation on that income.  The U.S. however has some provisions that are meant to protect you from the double taxation.  One of which is the Foreign Earned Income Exclusion.

The Foreign Earned Income Exclusion allows you, if you meet the requirements, to exclude up to a certain amount of foreign earned income.  First of all, realize this exclusion is just for foreign earned income which means income that you earn by working as an employee or in your business while in a foreign country.  This does not include unearned income like investment or passive income even if you are living in another country.

To qualify you must have foreign earned income, your tax home must be in a forei…

What You Can and Can't Do On Your Tax Return: It Depends on Facts and Circumstances

Answers to tax questions seem like they should be simple and they should be in most cases.  However, the way the US Tax Code is written the answer can vary depending on your particular situation.  The answer for Johnny down the street won't necessarily be the same for you and your circumstances.

At a recent IRS Seminar it was repeated often that the answers to questions about tax situations always "depends on facts and circumstances."  So as my first blog post you need to realize that my posts will contain general information and what applies to your tax situation "depends on facts and circumstances."  So to get a real answer to your tax questions you will need to take time to give a tax professional like myself the full picture of your situation.  It is better to have a CPA tax professional that you talk to regularly who can get to know your situation and what you want to accomplish and advise you accordingly than it is to go it alone and then hire a CPA to b…