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Tax Implications of the Health Care Act
The July 2012 Supreme Court ruling upholding what's collectively referred to as the "Affordable Care Act" (ACA) or "Health Care Act" has resulted in a number of changes to the US tax code. As such there are a number of tax implications for individuals and businesses. With that in mind, let's take a closer look at what it might mean for you.
Refundable Tax Credit
New Rules for HSAs and Archer MSAs
Medicare Part D
Increase in AGI Limit for Deductible Medical Expenses
Health Coverage of Older Children
Medicare Tax Increases for High Income Earners
Also starting in 2013, there is a new Medicare tax of 3.8 percent on investment (unearned) income for single taxpayers with modified adjusted gross income (MAGI) over $200,000 ($250,00 joint filers). Investment income includes dividends, interest, rents, royalties, gains from the disposition of property, and certain passive activity income. Estates, trusts and self-employed individuals are all liable for the new tax.
Exemptions are available for business owners and income from certain retirement accounts, such as pensions, IRAs, 401(a), 403(b), and 457(b) plans, is exempt.
Small Business Health Care Tax Credit
Additional Tax on Businesses Not Offering Minimum essential Coverage
Excise Tax on High Cost Employer-Sponsored Insurance
Excise Tax on Medical Devices
Indoor Tanning Services
If you need assistance navigating the complexities of the new health care act, don't hesitate to call us. We're here to help.
Paying Off Debt the Smart Way
Being in debt isn't necessarily a terrible thing. Between mortgages, car loans, credit cards, and student loans, most people are in debt. Being debt-free is a worthwhile goal, but most people need to focus on managing their debt first since it's likely to be there for most of your life.
Handled wisely, that debt won't be an albatross around your neck. You don't need to shell out your hard-earned money because of exorbitant interest rates or always feel like you're on the verge of bankruptcy. You can pay off debt the smart way, while at the same time saving money to pay it off faster.
Assess the Situation
First, assess the depth of your debt. Write it down, using pencil and paper, a spreadsheet like Microsoft Excel, or a bookkeeping program like Quicken. Include every financial situation where a company has given you something in advance of payment, including your mortgage, car payment(s), credit cards, tax liens, student loans, and payments on electronics or other household items through a store.
Record the day the debt began and when it will end (if possible), the interest rate you're paying, and what your payments typically are. Add it all up, painful as that might be. Try not to be discouraged! Remember, you're going to break this down into manageable chunks while finding extra money to help pay it down.
Identify High-Cost Debt
Yes, some debts are more expensive than others. Unless you're getting payday loans (which you shouldn't be), the worst offenders are probably your credit cards. Here's how to deal with them.
Save, Save, Save
Do whatever you can to retire debt. Consider taking a second job and using that income only for higher payments on your financial obligations. Substitute free family activities for high-cost ones. Sell high-value items that you can live without.
Do Away with Unnecessary Items to Reduce Debt Load
Do you really need the 800-channel cable option or that dish on your roof? You'll be surprised at what you don't miss. How about magazine subscriptions? They're not terribly expensive, but every penny counts. It's nice to have a library of books, but consider visiting the public library or half-price bookstores until your debt is under control.
Never, Ever Miss a Payment
Not only are you retiring debt, but you're also building a stellar credit rating. If you ever move or buy another car, you'll want to get the lowest rate possible. A blemish-free payment record will help with that. Besides, credit card companies can be quick to raise interest rates because of one late payment. A completely missed one is even more serious.
Pay With Cash
To avoid increasing debt load, make it a habit to pay with cash. If you don't have the cash for it, you probably don't need it. You'll feel better about what you do have if you know it's owned free and clear.
Shop Wisely, and Use the Savings to Pay Down Your Debt
If your family is large enough to warrant it, invest $30 or $40 and join a store like Sam's or Costco. And use it. Shop there first, then at the grocery store. Change brands if you have to and swallow your pride. Use coupons religiously. Calculate the money you're saving and slap it on your debt.
Each of these steps, taken alone, probably doesn't seem like much. But if you adopt as many as you can, you'll watch your debt decrease every month. If you need help managing debt give us a call. We can help.
Tax Planning for Small Business Owners
Tax planning is the process of looking at various tax options in order to determine when, whether, and how to conduct business and personal transactions to reduce or eliminate tax liability.
Many small business owners ignore tax planning. They don't even think about their taxes until it's time to meet with their accountants, but tax planning is an ongoing process and good tax advice is a valuable commodity. It is to your benefit to review your income and expenses monthly and meet with your CPA or tax advisor quarterly to analyze how you can take full advantage of the provisions, credits and deductions that are legally available to you.
Although tax avoidance planning is legal, tax evasion - the reduction of tax through deceit, subterfuge, or concealment - is not. Frequently what sets tax evasion apart from tax avoidance is the IRS's finding that there was fraudulent intent on the part of the business owner. The following are four of the areas most commonly focused on by IRS examiners as pointing to possible fraud:
Tax Planning Strategies
Countless tax planning strategies are available to small business owners. Some are aimed at the owner's individual tax situation, and some at the business itself, but regardless of how simple or how complex a tax strategy is, it will be based on structuring the strategy to accomplish one or more of these often overlapping goals:
In order to plan effectively, you'll need to estimate your personal and business income for the next few years. This is necessary because many tax planning strategies will save tax dollars at one income level, but will create a larger tax bill at other income levels. You will want to avoid having the "right" tax plan made "wrong" by erroneous income projections. Once you know what your approximate income will be, you can then take the next step: estimating your tax bracket.
The effort to come up with crystal-ball estimates may be difficult and by its very nature will be inexact. On the other hand, you should already be projecting your sales revenues, income, and cash flow for general business planning purposes. The better your estimates, the better the odds that your tax planning efforts will succeed.
Maximizing Business Entertainment Expenses
Entertainment expenses are legitimate deductions that can lower your tax bill and save you money--provided you follow certain guidelines.
In order to qualify as a deduction, business must be discussed before, during, or after the meal and the surroundings must be conducive to a business discussion. For instance, a small, quiet restaurant would be an ideal location for a business dinner. A nightclub would not. Be careful of locations that include ongoing floor shows or other distracting events that inhibit business discussions. Prime distractions are theater locations, ski trips, golf courses, sports events, and hunting trips.
The IRS allows up to a 50 percent deduction on entertainment expenses, but you must keep good records and the business meal must be arranged with the purpose of conducting specific business. Don't hesitate to call us if you need assistance with recordkeeping requirements.
Important Business Automobile Deductions
If you use your car for business such as visiting clients or going to business meetings away from your regular workplace you may be able to take certain deductions for the cost of operating and maintaining your vehicle. You can deduct car expenses by taking either the standard mileage rate or using actual expenses.
The mileage reimbursement rates for 2012 is 55.5 cents a mile for business, 14 cents per charitable mile and 23 cents for moving and medical miles.
If you own two cars, another way to increase deductions is to include both cars in your deductions. This works because business miles driven is determined by business use. To figure business use, divide the business miles driven by the total miles driven. This strategy can result in significant deductions.
Whichever method you decide to use to take the deduction, always be sure to keep accurate records such as a mileage log and receipts. If you need assistance figuring out which method is best for your business, please contact us.
Increase Your Bottom Line When You Work At Home
The home office deduction is quite possibly one of the most difficult deductions ever to come around the block. Yet, there are so many tax advantages it becomes worth the navigational trouble. Here are a few common tips for home office deductions that can make tax season significantly less traumatic for those of you with a home office.
Try prominently displaying your home phone number and address on business cards, have business guests sign a guest log book when they visit your office, deduct long-distance phone charges, keep a time and work activity log, retain receipts and paid invoices. Keeping these receipts makes it so much easier to determine percentages of deductions later on in the year.
Section 179 expensing allows you to immediately deduct, rather than depreciate over time, up to $139,000, with a cap of $560,000, in 2012 worth of qualified business property that you purchase during the year. The key word is "purchase". Equipment can be new or used and includes certain software. All home office depreciable equipment meets the qualification. Also, if you purchase more than $139,000 in equipment, you can expense the first $139,000 then depreciate the rest. In addition, a "Bonus Depreciation" of 50 percent is allowed on qualified assets (new equipment only--no used equipment and no software) placed in service during 2012.
Some deductions can be taken whether or not you qualify for the home office deduction itself. If you'd like to meet with us to learn more about home office deductions, please give us a call.
Protect Your Business With The Right Insurance
Starting a business is expensive and the capital that you've poured into your company can disappear in an instant if, say, a major weather event damages your offices or one of your products injures someone.
Having the right kind of insurance is critical to your business, which is why multiple insurance policies should be in place before you even open your doors for business. In addition, they should be reviewed every year or, when a business change occurs such as stocking new products or moving to a new location.
Commercial Business Insurance
Commercial Property Insurance policies protect your office and its contents from damage caused by natural disasters, fires, or vandalism. They are either all-inclusive or risk specific.
Product Liability Insurance is necessary if you manufacture or sell products and safeguards you if a product defect causes injury to someone.
For protection against lawsuits related to negligence claims, you need to consider both General Liability Insurance and Professional Liability Insurance.
Other types of insurance your business might need include:
Workers' Compensation Insurance (administered by individual states) and Unemployment Insurance (under certain conditions) are mandatory in the United States. Some states require employers to provide other types of insurance. For example, if any of your employees are located in California, Hawaii, New Jersey, New York, Puerto Rico, or Rhode Island you will be required to provide Disability Insurance. Disability Insurance is a benefit provided to employees who are unable to work because of illness or injury.
Employers are not required to provide Life, Medical, and Dental Insurance for employees.
Make Sure You Get the Correct Insurance for Your Business
Your insurance company will be your ally if you encounter legal problems because of an accident or injury that happens to someone on your property, to an employee doing business for you, or if a service you provide causes harm to someone.
Avoid lawsuits by making sure you have the right insurance for your business. If you need help figuring out which insurance is best for you, then give us a call now.
Seven Tax Tips for Students with a Summer Job
Is your child a student with a summer job? Here's what you should know about the income your child earns over the summer.
A summer work schedule is sometimes a patchwork of odd jobs - which makes for confusion come tax time. Contact us if you have any questions at all about income your child earned this summer season.
Eight Tips to Determine if Your Gift is Taxable
If you gave money or property to someone as a gift, you may owe federal gift tax. Many gifts are not subject to the gift tax, but there are exceptions. Here are eight tips you can use to figure out whether your gift is taxable.
1. Most gifts are not subject to the gift tax. For example, there is usually no tax if you make a gift to your spouse or to a charity. If you make a gift to someone else, the gift tax usually does not apply until the value of the gifts you give that person exceeds the annual exclusion for the year. For 2012 the annual exclusion is $13,000 (same as 2011).
2. Gift tax returns do not need to be filed unless you give someone, other than your spouse, money or property worth more than the annual exclusion for that year.
3. Generally, the person who receives your gift will not have to pay any federal gift tax because of it. Also, that person will not have to pay income tax on the value of the gift received.
4. Making a gift does not ordinarily affect your federal income tax. You cannot deduct the value of gifts you make (other than deductible charitable contributions).
5. The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. The following gifts are not taxable gifts:
6. You and your spouse can make a gift up to $26,000 to a third party without making a taxable gift. The gift can be considered as made one-half by you and one-half by your spouse. If you split a gift you made, you must file a gift tax return to show that you and your spouse agree to use gift splitting. You must file a Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, even if half of the split gift is less than the annual exclusion.
7. You must file a gift tax return on Form 709, if any of the following apply:
8. You do not have to file a gift tax return to report gifts to political organizations and gifts made by paying someone's tuition or medical expenses.
Questions about the gift tax? Call us. We have the answers.
Farm Income and Deductions: 10 Key Points
If you cultivate, operate or manage a farm for profit, either as an owner or a tenant you have farm income--at least in the eyes if the IRS. A farm includes livestock, dairy, poultry, fish, fruit, and truck farms. It also includes plantations, ranches, ranges and orchards. If you manage a farm for profit, here's what you need to know when it comes to your federal income taxes.
1. Crop insurance proceeds. You must include in income any crop insurance proceeds you receive as the result of crop damage. You generally include them in the year you receive them.
2. Sales caused by weather-related condition. If you sell more livestock, including poultry, than you normally would in a year because of weather-related conditions, you may be able to postpone reporting of the gain from selling the additional animals until the next year.
3. Farm income averaging. You may be able to average all or some of your current year's farm income by allocating it to the three prior years. This may lower your current year tax if your current year income from farming is high, and your taxable income from one or more of the three prior years was low. This method does not change your prior year tax, it only uses the prior year information to determine your current year tax.
4. Deductible farm expenses. The ordinary and necessary costs of operating a farm for profit are deductible business expenses. An ordinary expense is an expense that is common and accepted in the farming business. A necessary expense is one that is appropriate for the business.
5. Employees and hired help. You can deduct reasonable wages paid for labor hired to perform your farming operations. This includes full-time and part-time workers. You must withhold Social Security, Medicare and income taxes for employees.
6. Items purchased for resale. You may be able to deduct, in the year of the sale, the cost of items purchased for resale, including livestock and the freight charges for transporting livestock to the farm.
7. Net operating losses. If your deductible expenses from operating your farm are more than your other income for the year, you may have a net operating loss. You can carry that loss over to other years and deduct it. You may get a refund of part or all of the income tax you paid for past years, or you may be able to reduce your tax in future years.
8. Repayment of loans. You cannot deduct the repayment of a loan if the loan proceeds are used for personal expenses. However, if you use the proceeds of the loan for your farming business, you can deduct the interest that you pay on the loan.
9. Fuel and road use. You may be eligible to claim a credit or refund of federal excise taxes on fuel used on a farm for farming purposes.
Give us a call if you need more information about farm income and deductions.
Failure to File or Pay Penalties: Eight Facts
The number of electronic filing and payment options increases every year, which helps reduce your burden and also improves the timeliness and accuracy of tax returns. When it comes to filing your tax return, however, the law provides that the IRS can assess a penalty if you fail to file, fail to pay or both.
Here are eight important points about the two different penalties you may face if you file or pay late.
1. If you do not file by the deadline, you might face a failure-to-file penalty. If you do not pay by the due date, you could face a failure-to-pay penalty.
2. The failure-to-file penalty is generally more than the failure-to-pay penalty. So if you cannot pay all the taxes you owe, you should still file your tax return on time and pay as much as you can, then explore other payment options. Call us if you need to set up payment options.
3. The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes.
4. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
5. If you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of 1/2 of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes.
6. If you request an extension of time to file by the tax deadline and you paid at least 90 percent of your actual tax liability by the original due date, you will not face a failure-to-pay penalty if the remaining balance is paid by the extended due date.
7. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty. However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
8. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.
If you haven't filed your tax return yet, don't wait any longer. Give us a call today. We're here to help.
Maintain Balanced Inventory Levels with QuickBooks
It seems so simple in theory. Don't overstock goods because you'll tie up too much money and perhaps need a clearance sale to get rid of the excess. On the other hand, don't let yourself run out of anything and lose orders.
In practice -- especially if you stocks dozens or hundreds of items -- it's impossible to ensure this if you're managing your inventory manually. Guesswork can be costly.
It's a complex element of accounting, but QuickBooks comes equipped with a handful of reports that can keep you on track. They don't teach you how to balance your inventory to improve profitability, but we can help with that.
Figure 1: Be sure to enter a figure in the Reorder Point field so QuickBooks can remind you to reorder.
Building Precise Records
There's a critical number in your item records that must be completed: Reorder Point. You'll see it at the bottom of the Edit Item window (click Lists | Item Lists and double-click on the correct entry or click New in the Item drop-down list). Without it, QuickBooks can't alert you when you're running low.
QuickBooks also tells you how many items are currently on hand. If you had reached the reorder point and created a purchase order, you'd see a number under On P.O.
Ideally, you would do this when you're first adding item records, but you can go back at any time and add it.
Running reports regularly will keep you apprised of your inventory status. To see what QuickBooks offers, click Reports | Inventory or go to the Report Center. Select Inventory Valuation Summary. You can also see this report in detail, but if you carry a lot of inventory, it's difficult to get a birds' eye view. Do run it, though, if you want to see the transactions that affected your inventory's value.
Figure 2: The Inventory Valuation Summary does just what the name says.
In addition to what's pictured here, this report displays columns for Sales Price, Retail Value and % of Total Retail. As always, you can click Customize Report to change the date range.
Figure 3: This report provides a real-time update of the status of every inventory item.
The Inventory Stock Status by Item report should be consulted frequently. It tells you exactly where all of your items are in the pipeline.
Watch for checkmarks in the Order column; they appear when you've hit or exceeded your specified reorder point. Three other important figures populate columns in this report: the number on purchase order, the date the next shipment should arrive and average sales per week.
Reminders can come in quite handy here. To set them up, go to Edit | Preferences | Reminders | Company Preferences. And you'll find the most comprehensive view of your items in the Inventory Center. Go to Vendors | Inventory Activities | Inventory Center. This screen also provides quick access to commonly-used reports.
Figure 4: The Inventory Center tells you everything you want to know about your items.
Automate Your Inventory Reporting
Here's a quicker way to grab your reports:
If you operate a product-based business, the success of your company depends in large part on your ability to find the sweet spot: neither too much nor too little inventory. It's an ongoing, daily challenge. Let us know if we can provide guidance for this critical balancing act.
Tax Due Dates for August 2012
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