Tuesday, January 10, 2012
Quickbooks can do much more than you think
QuickBooks Can Do Much More Than You Think
No, you'll never max out all of its features, but here are some tips on tools that extend QuickBooks' usefulness – and save you time.
Zero In On Key Report Figures
You've undoubtedly created reports that were so lengthy that you got tired of scrolling up and down to find totals for each individual section. QuickBooks lets you collapse and expand reports to see primary totals only, but this command affects the entire report.
If you want to just collapse a section or two, here's how you do it. As an example, go to Reports | Company & Financial | Balance Sheet Standard. In QuickBooks 2012, you'd click the Excel button (your version may say Export). Indicate that you want to create a new worksheet and click Advanced. This window opens:
Figure 1: The Advanced Excel Options window displays the formatting tools you can carry over from QuickBooks and the features in Excel that you want to be active.
Make sure that )Auto Outline (allows collapsing/expanding) is checked, then click OK and start the export. When your report opens as an Excel spreadsheet, you'll notice that there is a series of vertical lines to the left of your data, and a group of numbers that corresponds to them running above horizontally.
Figure 2: Excel's Auto Outline feature adds tools to the left of your data that let you collapse and expand subsections.
To collapse a section so that only the totals show, click on the minus (-) sign next to the line that should remain (in this example, it's Total Checking/Savings). Do the same for Total Accounts Receivable and Total Other Current Assets. Then scroll down and do the same thing for the other asset subtotals. Here's what you'll see:
Figure 3: As you can see, the minus (-) signs have turned into plus (+) signs, which allows you to expand the rows back to their original states.
Auto Outline is a very useful feature, but there's more than one way to implement it. And its availability and operation can vary in different versions of both Excel and QuickBooks. We can help you master this, as well as other QuickBooks-to-Excel tools.
Hidden Gems
Here are some other less-commonly-used QuickBooks features that you may want to try:
• Getting ready to send an invoice but want to check a related transaction from the same job a few months ago? You could use the Find tool, which is a seriously underused feature that can often answer a question quickly. But that takes a few clicks. Instead, just hit Ctrl + L, and that Customer/Job screen pops open in the Customer Center. Click Ctrl + E from that screen to see the Edit Job dialog box.
• CTRL+Y on transaction screens opens the Transaction Journal, which shows you the behind-the-scenes debits and credits. If the Account column is truncated, click and drag the little diamond symbol to the right.
• QuickBooks offers numerous helpful payroll reports, but it also transfers your data into Excel for more comprehensive views of your employee compensation information over customizable date ranges. Go to Reports | Employees & Payroll | Summarize Payroll Data in Excel and More Payroll Reports in Excel.
Figure 4: Summarize Payroll Data in Excel is actually a series of reports, available by clicking this navigational bar at the bottom of the screen.
• Allowing multiple windows in QuickBooks and tired of clicking the little x repeatedly to start with a clean slate? Click Window | Close All. This drop-down menu also displays the list of open windows; click on one to go there.
• There may be no more frustrating task than reconciling your bank accounts. If you're using online banking, consider doing this more than once monthly. Also, don't let QuickBooks do an automatic adjustment for a considerable discrepancy unless it was a mistake made by a financial institution: Click the Undo Last Reconciliation button and try to find the error. And don't forget about the Leave button. You may do better attacking it later.
• If you occasionally need to enter a transaction for an entity that isn't a customer, vendor or employee, go to Banking | Other Names List. You can add, edit and delete these, as well as converting them to customers, vendors or employees.
There's more than one way to do a lot of things in QuickBooks. We can tell you about more, and evaluate your workflow to see how else we can improve your accounting experience.
Thursday, October 6, 2011
Four Key Points About Bonus Depreciation
Due to the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, business owners may be able to take advantage of renewed "bonus depreciation" deductions this year. In fact, this tax break is bigger than ever. The IRS recently issued new guidelines for bonus depreciation and expanded some provisions in the law.
Background: Previously, you could benefit from 50% bonus depreciation, coordinated with Section 179 deductions and regular depreciation deductions, for qualified new property placed in service before 2011. "Qualified property" includes property with a cost recovery period of 20 years or less, qualified leasehold improvement property, and certain software and water utility property.
The 2010 Tax Relief Act reinstated and improved the bonus depreciation tax break. It authorizes the following:
*100% bonus depreciation deduction for qualified property placed in service from September 9, 2010, through December 31, 2011 (through 2012 for certain other property).
*50% bonus depreciation for qualified property placed in service from January 1, 2012, through December 31, 2012.
The new IRS ruling addresses a number of issues related to 100% bonus depreciation. Here are four key points:
1. Step-down to 50% bonus depreciation: Under one previous law, you could "step down" from 50% bonus depreciation to 30% bonus depreciation if it suited your needs. For instance, postponing depreciation deductions may have been advantageous in your situation. But there is no step-down provision in the 2010 Tax Relief Act. The new ruling allows business owners to step down from 100% to 50% bonus depreciation in 2011.
2. Component depreciation: If you began to manufacture, construct or produce property before September 9, 2010, the components may qualify for 100% bonus depreciation. In other words, you can benefit for faster write-offs for qualified parts of the property. The new ruling explains how to elect the faster deductions for qualified components.
3. Restaurant and retail improvement property: Under prior law, qualified restaurant and retail improvement property was not eligible for 100% bonus depreciation. But the IRS says in the new ruling that these properties may fall within the definition of "qualified leasehold property." Thus, property with a "dual character" may qualify for enhanced deductions.
4. Business vehicles: The "luxury car" rules limit annual deductions for business vehicles. Generally, the first-year depreciation deduction is increased by $8,000 as a result of 100% bonus depreciation. Therefore, business car owners may be able to claim a maximum deduction of $11,060 ($11,160 for a light truck or van) placed in service in 2011. The actual deduction is based on the percentage of business use. However, this effectively slows down the deductions that may be claimed in subsequent years.
The new ruling provides a special "escape hatch" based on a calculation involving 50% bonus depreciation. If this election is made, business owners may claim deductions over the usual cost recovery period for business vehicles.
Final point: The new ruling clarifies the rules relating to 100% bonus depreciation, but this remains a complex area of the law. Taxpayers must follow strict procedures regarding special elections. It is recommended that you obtain professional assistance from your tax advisers.
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TAX ADVICE DISCLAIMER: In accordance with IRS Circular 230, any tax advice included in this communication, including attachments, is not intended or written to be used, and cannot be used by you or any other person or entity, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, nor may any such advice be used to promote, market or recommend to another party any transaction or matter addressed within this communication. If you would like such advice, please contact us.
Background: Previously, you could benefit from 50% bonus depreciation, coordinated with Section 179 deductions and regular depreciation deductions, for qualified new property placed in service before 2011. "Qualified property" includes property with a cost recovery period of 20 years or less, qualified leasehold improvement property, and certain software and water utility property.
The 2010 Tax Relief Act reinstated and improved the bonus depreciation tax break. It authorizes the following:
*100% bonus depreciation deduction for qualified property placed in service from September 9, 2010, through December 31, 2011 (through 2012 for certain other property).
*50% bonus depreciation for qualified property placed in service from January 1, 2012, through December 31, 2012.
The new IRS ruling addresses a number of issues related to 100% bonus depreciation. Here are four key points:
1. Step-down to 50% bonus depreciation: Under one previous law, you could "step down" from 50% bonus depreciation to 30% bonus depreciation if it suited your needs. For instance, postponing depreciation deductions may have been advantageous in your situation. But there is no step-down provision in the 2010 Tax Relief Act. The new ruling allows business owners to step down from 100% to 50% bonus depreciation in 2011.
2. Component depreciation: If you began to manufacture, construct or produce property before September 9, 2010, the components may qualify for 100% bonus depreciation. In other words, you can benefit for faster write-offs for qualified parts of the property. The new ruling explains how to elect the faster deductions for qualified components.
3. Restaurant and retail improvement property: Under prior law, qualified restaurant and retail improvement property was not eligible for 100% bonus depreciation. But the IRS says in the new ruling that these properties may fall within the definition of "qualified leasehold property." Thus, property with a "dual character" may qualify for enhanced deductions.
4. Business vehicles: The "luxury car" rules limit annual deductions for business vehicles. Generally, the first-year depreciation deduction is increased by $8,000 as a result of 100% bonus depreciation. Therefore, business car owners may be able to claim a maximum deduction of $11,060 ($11,160 for a light truck or van) placed in service in 2011. The actual deduction is based on the percentage of business use. However, this effectively slows down the deductions that may be claimed in subsequent years.
The new ruling provides a special "escape hatch" based on a calculation involving 50% bonus depreciation. If this election is made, business owners may claim deductions over the usual cost recovery period for business vehicles.
Final point: The new ruling clarifies the rules relating to 100% bonus depreciation, but this remains a complex area of the law. Taxpayers must follow strict procedures regarding special elections. It is recommended that you obtain professional assistance from your tax advisers.
[View Article List] [Go Back]
TAX ADVICE DISCLAIMER: In accordance with IRS Circular 230, any tax advice included in this communication, including attachments, is not intended or written to be used, and cannot be used by you or any other person or entity, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, nor may any such advice be used to promote, market or recommend to another party any transaction or matter addressed within this communication. If you would like such advice, please contact us.
Monday, April 18, 2011
Ann G. Chiang, CPA
Ann G. Chiang, CPA
Thank you for the opportunity to service you. Thank you for following my retirement plan to save you taxes.
Thank you for the opportunity to service you. Thank you for following my retirement plan to save you taxes.
Friday, February 18, 2011
First-Time Homebuyer closing costs-401K withdrawal
First-Time Homebuyer Expenses. The 10-percent additional tax does not apply if the individual uses the IRA distribution for certain expenses of a first-time homebuyer. Only $10,000 during the individual's lifetime may be withdrawn without a penalty for this purpose. Qualified expenses include acquisition costs, settlement charges and closing costs. The principal residence may be for the individual or the individual's spouse, child or grandchild, or an ancestor of the individual or the individual's spouse. In order to be considered a "first-time homebuyer," the person buying the residence (and spouse, if married) must not have had an ownership interest in a principal residence during the two-year period ending on the date that the new home is acquired ( Code Sec. 72(t)(2)(F)). 165
Bill takes a hardship distribution from his 401(k) plan on April 1, 2011. In order to satisfy one of the safe harbor requirements, Bill will not be able to make any elective deferrals or after-tax contributions to the plan until October 1, 2011 (i.e., six-month suspension of contributions).
Bill takes a hardship distribution from his 401(k) plan on April 1, 2011. In order to satisfy one of the safe harbor requirements, Bill will not be able to make any elective deferrals or after-tax contributions to the plan until October 1, 2011 (i.e., six-month suspension of contributions).
Thursday, January 27, 2011
Cutting the "Kiddie Tax" Down to Size
Tax Tips are not a substitute for legal, accounting, tax, investment or other professional advice. Always consult with your trusted accounting advisor before acting upon any Tax Tip.
The "kiddie tax" is a bit of a misnomer. This tax provision may actually apply to children well into their twenties. Nevertheless, with some advance planning, you can minimize or even eliminate the tax damage.
Basic rules: Income is generally taxed at the tax rate of the individual who receives it. For example, if you are in the 35% tax bracket, your top dollars are taxed at the 35% rate. On the other hand, if your child is in the 10% bracket, the child pays tax at a maximum rate of only 10%.
However, a special rule applies to younger children who receive unearned income above an annual threshold. In this case, the excess is taxed at the top tax rate of the child's parents. Thus, instead of being taxed at the 10% rate, your child may be taxed at the 35% rate on the excess.
The annual threshold is adjusted for inflation, but increases have been small or nonexistent. For 2011, the threshold is $1,900, the same as it was in 2010 and 2009.
Another problem: Initially, the kiddie tax only applied to children under age 14, but the limit has been raised several times. Currently, the age limit is 19, or age 24 for a full-time student if the child doesn't have earned income in excess of half of his or her annual support. In other words, if your dependent child is in college, the kiddie tax most likely still applies.
How can you lessen the impact? Although every situation is different, here are four ideas to consider:
1. Keep your child's unearned income below or near the $1,900 threshold. For instance, you might wait until next year to give your child some income-producing property. This technique works especially well if you do not expect your child to pay the kiddie tax in 2012.
2. Utilize tax-deferred investments that don't produce current income. This may include investments in growth stock and U.S. Savings Bonds. Similarly, if the child buys certificates of deposit (CDs) or Treasuries that will not mature until next year, you can avoid or minimize the kiddie tax for 2011.
3. Allocate a portion of your child's investment portfolio to municipal bonds ("munis") or muni bond funds. Generally, the income received from these investments is completely free from federal income tax, so your child can pocket any amount without kiddie tax worries.
4. Hire your child to work for your company. Because the wages constitute earned income, this will not trigger any kiddie tax complications. As long as the child is paid a reasonable salary for the services performed, your company can deduct the wages. This is a good way to help a child save money for college without adverse tax consequences.
Final advice: Keep one eye on your child's portfolio and the other on the kiddie tax. But take all the relevant factors--not just taxes--into account when you make investment decisions.
The "kiddie tax" is a bit of a misnomer. This tax provision may actually apply to children well into their twenties. Nevertheless, with some advance planning, you can minimize or even eliminate the tax damage.
Basic rules: Income is generally taxed at the tax rate of the individual who receives it. For example, if you are in the 35% tax bracket, your top dollars are taxed at the 35% rate. On the other hand, if your child is in the 10% bracket, the child pays tax at a maximum rate of only 10%.
However, a special rule applies to younger children who receive unearned income above an annual threshold. In this case, the excess is taxed at the top tax rate of the child's parents. Thus, instead of being taxed at the 10% rate, your child may be taxed at the 35% rate on the excess.
The annual threshold is adjusted for inflation, but increases have been small or nonexistent. For 2011, the threshold is $1,900, the same as it was in 2010 and 2009.
Another problem: Initially, the kiddie tax only applied to children under age 14, but the limit has been raised several times. Currently, the age limit is 19, or age 24 for a full-time student if the child doesn't have earned income in excess of half of his or her annual support. In other words, if your dependent child is in college, the kiddie tax most likely still applies.
How can you lessen the impact? Although every situation is different, here are four ideas to consider:
1. Keep your child's unearned income below or near the $1,900 threshold. For instance, you might wait until next year to give your child some income-producing property. This technique works especially well if you do not expect your child to pay the kiddie tax in 2012.
2. Utilize tax-deferred investments that don't produce current income. This may include investments in growth stock and U.S. Savings Bonds. Similarly, if the child buys certificates of deposit (CDs) or Treasuries that will not mature until next year, you can avoid or minimize the kiddie tax for 2011.
3. Allocate a portion of your child's investment portfolio to municipal bonds ("munis") or muni bond funds. Generally, the income received from these investments is completely free from federal income tax, so your child can pocket any amount without kiddie tax worries.
4. Hire your child to work for your company. Because the wages constitute earned income, this will not trigger any kiddie tax complications. As long as the child is paid a reasonable salary for the services performed, your company can deduct the wages. This is a good way to help a child save money for college without adverse tax consequences.
Final advice: Keep one eye on your child's portfolio and the other on the kiddie tax. But take all the relevant factors--not just taxes--into account when you make investment decisions.
Home-office Deductions: Terms of Tax Endearment
Tax Tips are not a substitute for legal, accounting, tax, investment or other professional advice. Always consult with your trusted accounting advisor before acting upon any Tax Tip.
If you operate a business out of your home, you may be able to write off a portion of your everyday living expenses. But tax deductions for home-office expenses are not automatic.
Basic rules: Home-office expenses are deductible on your 2010 tax return if you use part of the home "regularly and exclusively" as either the principal place of your business or a place to meet or deal with patients, clients and customers in the normal course of business. Also, you may deduct expenses attributable to a detached structure--such as a garage or shed--used in connection with your business.
If you are an employee, the home office must be used for the convenience of the employer. Keep your employment contract as proof of the condition.
The basic rules are relatively straightforward, but several key terms require further explanation.
Regular and exclusive use: To meet this requirement, you must use a specific area of your home only for business reasons. The specific area can be a room or even an identifiable space within a room. It does not have to be permanently enclosed, but doing so strengthens your tax position.
If you use the office portion of the home occasionally or sporadically for personal reasons, the personal use "taints" the home office. Thus, no deductions are allowed.
Note that certain exceptions apply for day care centers and facilities for the aged or disabled. Furthermore, if a home is a principal place of business and a specific area is used for inventory or product storage, the area qualifies for depreciation deductions if it is used regularly for business.
Principal place of business: If you are self-employed and work exclusively from home, it is obvious that your home office is your principal place of business. But this determination is not always so clear cut. For instance, you might perform some business functions at home, but spend most of your time visiting clients, customers or patients at other locations.
The law in this area seesawed back and forth for years, but you can currently qualify for home-office deductions if you perform administrative and management functions at home and you have no other fixed business location for these functions. Administrative and managerial activities may include
*billing and invoicing
*keeping books and records
*ordering supplies
*setting up appointments
*researching and writing reports
However, you are not disqualified if you arrange to have administrative or managerial duties performed at other locations. For example, you might outsource payroll duties or handle customer inquiries on your laptop in hotels or airports. Similarly, you will not be penalized if you spend more time on the road than at home.
Convenience of employer: An employee is entitled to deduct home-office expenses only if he or she is specifically required by the employer to maintain a home office. Thus, a dedicated worker who brings work home nights and weekends usually does not qualify. It does not matter if the work at home results in a benefit to the employer--it must be an absolute condition of employment. In addition, keeping a home office must be justified by the nature of the job.
Contact a professional tax adviser for the application of these tax rules to your personal situation.
If you operate a business out of your home, you may be able to write off a portion of your everyday living expenses. But tax deductions for home-office expenses are not automatic.
Basic rules: Home-office expenses are deductible on your 2010 tax return if you use part of the home "regularly and exclusively" as either the principal place of your business or a place to meet or deal with patients, clients and customers in the normal course of business. Also, you may deduct expenses attributable to a detached structure--such as a garage or shed--used in connection with your business.
If you are an employee, the home office must be used for the convenience of the employer. Keep your employment contract as proof of the condition.
The basic rules are relatively straightforward, but several key terms require further explanation.
Regular and exclusive use: To meet this requirement, you must use a specific area of your home only for business reasons. The specific area can be a room or even an identifiable space within a room. It does not have to be permanently enclosed, but doing so strengthens your tax position.
If you use the office portion of the home occasionally or sporadically for personal reasons, the personal use "taints" the home office. Thus, no deductions are allowed.
Note that certain exceptions apply for day care centers and facilities for the aged or disabled. Furthermore, if a home is a principal place of business and a specific area is used for inventory or product storage, the area qualifies for depreciation deductions if it is used regularly for business.
Principal place of business: If you are self-employed and work exclusively from home, it is obvious that your home office is your principal place of business. But this determination is not always so clear cut. For instance, you might perform some business functions at home, but spend most of your time visiting clients, customers or patients at other locations.
The law in this area seesawed back and forth for years, but you can currently qualify for home-office deductions if you perform administrative and management functions at home and you have no other fixed business location for these functions. Administrative and managerial activities may include
*billing and invoicing
*keeping books and records
*ordering supplies
*setting up appointments
*researching and writing reports
However, you are not disqualified if you arrange to have administrative or managerial duties performed at other locations. For example, you might outsource payroll duties or handle customer inquiries on your laptop in hotels or airports. Similarly, you will not be penalized if you spend more time on the road than at home.
Convenience of employer: An employee is entitled to deduct home-office expenses only if he or she is specifically required by the employer to maintain a home office. Thus, a dedicated worker who brings work home nights and weekends usually does not qualify. It does not matter if the work at home results in a benefit to the employer--it must be an absolute condition of employment. In addition, keeping a home office must be justified by the nature of the job.
Contact a professional tax adviser for the application of these tax rules to your personal situation.
2011 Common Benefits of a Business
Tax Tips are not a substitute for legal, accounting, tax, investment or other professional advice. Always consult with your trusted accounting advisor before acting upon any Tax Tip.
2011 Business Plan
As you approach the start of another year, you need to project a positive attitude for your business. One way to get things off on the right foot is to draw up a business plan for 2011 and make sure it is properly executed.
Essentially, a "business plan" is a blueprint for running the company on an annual basis. But a comprehensive plan can do much more than that. Here are several benefits you may typically realize from a business plan:
*The plan can provide a needed sense of direction. It will show you where you are, where you're going and how to get there. Of course, the plan does not have to be "unchangeable." For instance, new developments may require slight deviations from your original plan. However, your business decisions probably will be more solid if they are made within the framework of the original plan. If something is way off base, it should raise suspicions.
*A plan forces management to be proactive instead of reactive. Frequently, business managers in small companies tend to "put out fires" as problems arise. Committing a business plan to writing requires a great deal of discipline, but going through the process is worth it. For example, you can poke holes in a hastily conceived plan once you see it in black and white.
*Advance planning usually leads to better communication. For one thing, the process will force you to crystallize your vision of the company. For another, it encourages input from the personnel involved with the planning. This kind of dialogue may be particularly vital, especially in small firms. Reason: The employees have a chance to engage in valuable give-and-take with management.
*A business plan may give you instant credibility in your industry or profession. It can be especially impressive to creditors and the lending officers of the banks you deal with. And it may satisfy a psychological need for you and your company to be taken seriously.
*The plan may be used to help raise capital for the company. For instance, by focusing on accounts receivable in your business plan, you may be able to free up additional funds. Furthermore, a lender will likely require you to present a business plan plus cash projections to obtain a loan.
How do you construct a business plan? In general, most plans include the following: a statement of objectives, strengths and weaknesses, position in the marketplace, future direction, critical issues and so forth.
Generally, it helps to obtain the assistance of an experienced professional. However, there is no magic formula. It's your plan, so you can shape it into a format that seems right to you. In fact, you probably will make changes in the plan's format from year to year. The important thing is to touch all the bases essential to your particular line of work.
Reminder: Use your business plan as guidance--but do not treat is as the "bible." Feel free to modify the plan regularly during the course of the year as circumstances dictate. Your business advisers can provide the necessary assistance in this area.
2011 Business Plan
As you approach the start of another year, you need to project a positive attitude for your business. One way to get things off on the right foot is to draw up a business plan for 2011 and make sure it is properly executed.
Essentially, a "business plan" is a blueprint for running the company on an annual basis. But a comprehensive plan can do much more than that. Here are several benefits you may typically realize from a business plan:
*The plan can provide a needed sense of direction. It will show you where you are, where you're going and how to get there. Of course, the plan does not have to be "unchangeable." For instance, new developments may require slight deviations from your original plan. However, your business decisions probably will be more solid if they are made within the framework of the original plan. If something is way off base, it should raise suspicions.
*A plan forces management to be proactive instead of reactive. Frequently, business managers in small companies tend to "put out fires" as problems arise. Committing a business plan to writing requires a great deal of discipline, but going through the process is worth it. For example, you can poke holes in a hastily conceived plan once you see it in black and white.
*Advance planning usually leads to better communication. For one thing, the process will force you to crystallize your vision of the company. For another, it encourages input from the personnel involved with the planning. This kind of dialogue may be particularly vital, especially in small firms. Reason: The employees have a chance to engage in valuable give-and-take with management.
*A business plan may give you instant credibility in your industry or profession. It can be especially impressive to creditors and the lending officers of the banks you deal with. And it may satisfy a psychological need for you and your company to be taken seriously.
*The plan may be used to help raise capital for the company. For instance, by focusing on accounts receivable in your business plan, you may be able to free up additional funds. Furthermore, a lender will likely require you to present a business plan plus cash projections to obtain a loan.
How do you construct a business plan? In general, most plans include the following: a statement of objectives, strengths and weaknesses, position in the marketplace, future direction, critical issues and so forth.
Generally, it helps to obtain the assistance of an experienced professional. However, there is no magic formula. It's your plan, so you can shape it into a format that seems right to you. In fact, you probably will make changes in the plan's format from year to year. The important thing is to touch all the bases essential to your particular line of work.
Reminder: Use your business plan as guidance--but do not treat is as the "bible." Feel free to modify the plan regularly during the course of the year as circumstances dictate. Your business advisers can provide the necessary assistance in this area.
Wednesday, December 29, 2010
The Clock Is Ticking: Ten Last-minute Tax Moves
Quick ways to reduce your 2010 tax liability
Although there are precious few days left in the year, it is still not too late to cut your 2010 tax bill. But you may have to move fast. Here are ten prime tax-saving ideas to consider.
1. Capital gains and losses: If you are showing a net capital gain for the year, you may realize losses from security sales to offset the gain, plus up to $3,000 of ordinary income. Conversely, if you are showing a net loss, any gains are tax-free up to the amount of the loss. Reminder: The maximum tax rate on net long-term capital gain in 2010 is 15%.
2. Charitable donations: If you give to charity via credit card, the gift is deductible in 2010 as long as it is posted by the credit card company before the end of the year. It does not matter if you actually pay off the charge in 2011. Make sure that all charitable donations are properly substantiated.
3. State and local taxes: If you prepay next year's state and local taxes, you can increase your current deduction. However, do not prepay if you expect to owe the alternative minimum tax (AMT) this year, because these taxes are not deductible for AMT purposes.
4. Dependency exemptions: If your child is younger than 19, or a full-time student younger than 24, you can generally claim a $3,650 dependency exemption for the child if you provide more than half of his or her support. You might give some end-of-year support--perhaps a generous holiday gift--to push you over the threshold.
5. Medical expenses: Medical expenses are deductible to the extent your annual total exceeds 7.5% of your adjusted gross income (AGI). If you have cleared this threshold in 2010, you can schedule routine medical or dental examinations for December. Otherwise, you might postpone these visits.
6. Miscellaneous expenses: Similarly, you can deduct miscellaneous expenses only to the extent the annual total exceeds 2% of your AGI. Therefore, you might pay certain expenses--like safe deposit box fees or tax advisory fees--to maximize your deduction for 2010.
7. Energy credits: The tax law provides a residential energy credit for certain energy-saving installations made in 2010. If you qualify, you can claim a 30% credit up to $1,500 this year (reduced by the amount of the credit claimed in 2009).
8. 401(k) contributions: There is still time to boost your retirement nest egg by allocating part of your last paycheck to your 401(k) account. If you have cleared the Social Security wage base of $106,800 for 2010, you can use the payroll tax savings without reducing your take-home pay.
9. Hybrid vehicles: If you are in the market for a hybrid vehicle, make your purchase before 2011. You may be entitled to a special tax credit. Caveat: Credits are phased out for several popular models.
10. Mutual funds: Generally, it is beneficial to sell mutual fund shares before the fund declares dividends (the ex-dividend date) to avoid tax. Similarly, you may acquire shares after the ex-dividend date has passed.
Depending on changes in the tax law, you might bypass some of these ideas. Of course, everyone's situation is different. Obtain professional assistance in this area before you take any action.
Although there are precious few days left in the year, it is still not too late to cut your 2010 tax bill. But you may have to move fast. Here are ten prime tax-saving ideas to consider.
1. Capital gains and losses: If you are showing a net capital gain for the year, you may realize losses from security sales to offset the gain, plus up to $3,000 of ordinary income. Conversely, if you are showing a net loss, any gains are tax-free up to the amount of the loss. Reminder: The maximum tax rate on net long-term capital gain in 2010 is 15%.
2. Charitable donations: If you give to charity via credit card, the gift is deductible in 2010 as long as it is posted by the credit card company before the end of the year. It does not matter if you actually pay off the charge in 2011. Make sure that all charitable donations are properly substantiated.
3. State and local taxes: If you prepay next year's state and local taxes, you can increase your current deduction. However, do not prepay if you expect to owe the alternative minimum tax (AMT) this year, because these taxes are not deductible for AMT purposes.
4. Dependency exemptions: If your child is younger than 19, or a full-time student younger than 24, you can generally claim a $3,650 dependency exemption for the child if you provide more than half of his or her support. You might give some end-of-year support--perhaps a generous holiday gift--to push you over the threshold.
5. Medical expenses: Medical expenses are deductible to the extent your annual total exceeds 7.5% of your adjusted gross income (AGI). If you have cleared this threshold in 2010, you can schedule routine medical or dental examinations for December. Otherwise, you might postpone these visits.
6. Miscellaneous expenses: Similarly, you can deduct miscellaneous expenses only to the extent the annual total exceeds 2% of your AGI. Therefore, you might pay certain expenses--like safe deposit box fees or tax advisory fees--to maximize your deduction for 2010.
7. Energy credits: The tax law provides a residential energy credit for certain energy-saving installations made in 2010. If you qualify, you can claim a 30% credit up to $1,500 this year (reduced by the amount of the credit claimed in 2009).
8. 401(k) contributions: There is still time to boost your retirement nest egg by allocating part of your last paycheck to your 401(k) account. If you have cleared the Social Security wage base of $106,800 for 2010, you can use the payroll tax savings without reducing your take-home pay.
9. Hybrid vehicles: If you are in the market for a hybrid vehicle, make your purchase before 2011. You may be entitled to a special tax credit. Caveat: Credits are phased out for several popular models.
10. Mutual funds: Generally, it is beneficial to sell mutual fund shares before the fund declares dividends (the ex-dividend date) to avoid tax. Similarly, you may acquire shares after the ex-dividend date has passed.
Depending on changes in the tax law, you might bypass some of these ideas. Of course, everyone's situation is different. Obtain professional assistance in this area before you take any action.
Tuesday, November 16, 2010
State Tax Law
Although a state may wish to boost its economy by adopting some of the business incentive provisions, they cannot afford to create deeper revenue shortfalls. How the states respond to legislation impacts taxpayers in 2010 and subsequent years. This is especially true regarding a state's treatment of bonus depreciation and the increased Code Sec. 179 deduction which may also impact a decision to accelerate AMT and investment credit. The state's treatment of these and many other provisions should be a significant consideration when tax planning.
Future Legislation-Capital Gains
The Obama administration has proposed to increase the income and capital gains tax rates on single individuals with income of more than $200,000 and married couples with income exceeding $250,000. For S corporation shareholders, partners and sole proprietors who recognize income on their individual returns, following the traditional year-end planning maxim of deferring income into the next year may not be a positive tax strategy. Deferring too much income into 2011 could result in income taxed at a higher rate. These and other individual tax planning issues are discussed in, 2010 Year-End Tax Planning for Individuals.
Sole proprietors.
Sole proprietors have additional unique tax planning considerations. For a complete discussion on tax planning for the self-employed, see, Planning 2010: Tax Consequences for Self-Employed Individuals.
Health Insurance Deduction for purposes of self-employment tax. The 2010 Jobs Act amends Code Sec. 162(l)(4) to allow a deduction for self-employed health insurance costs in computing "net earnings from self-employment" for the 2010 tax year. Generally, the health insurance deduction does not reduce the income base for purposes of the Social Security Act. However, for purposes of calculating self-employment tax and the self-employment tax deduction, self-employed individuals may deduct health insurance costs incurred in 2010 for themselves, their spouses, their dependents, and (effective March 30, 2010) any of their children who as of the end of the tax year have not attained age 27.
Health Insurance Deduction for purposes of self-employment tax. The 2010 Jobs Act amends Code Sec. 162(l)(4) to allow a deduction for self-employed health insurance costs in computing "net earnings from self-employment" for the 2010 tax year. Generally, the health insurance deduction does not reduce the income base for purposes of the Social Security Act. However, for purposes of calculating self-employment tax and the self-employment tax deduction, self-employed individuals may deduct health insurance costs incurred in 2010 for themselves, their spouses, their dependents, and (effective March 30, 2010) any of their children who as of the end of the tax year have not attained age 27.
2010 Year End Tax Planning for Businesses:
Tax planning for year-end 2010 presents new challenges for business taxpayers to reduce or defer federal income tax liability. Although traditional planning techniques remain fundamentally important considerations this year, there are new opportunities with recent legislation and changes in the tax laws. In addition, tax planning is complicated when considering the effective dates for many popular tax incentives, and anticipating those tax laws that may be put to a vote in Congress before year's end.
Alternative Minimum Tax for Businesses
The alternative minimum tax (AMT) is not a challenge reserved solely for the individual taxpayer. A corporation (or LLC that is taxed as a corporation) that is not a "small business corporation" may be required to pay AMT if:
(1) the corporation's taxable income (before any net operating loss deduction) plus AMT adjustments and tax preference items is more than $40,000 (or the corporation's allowable exemption amount, whichever is lower), or
(2) the corporation claims a general business credit, the qualified electric vehicle credit, or the credit for a prior year minimum tax.
The AMT income tax rate for businesses is a flat 20 percent.
(1) the corporation's taxable income (before any net operating loss deduction) plus AMT adjustments and tax preference items is more than $40,000 (or the corporation's allowable exemption amount, whichever is lower), or
(2) the corporation claims a general business credit, the qualified electric vehicle credit, or the credit for a prior year minimum tax.
The AMT income tax rate for businesses is a flat 20 percent.
Wednesday, October 27, 2010
Primary Residence-Capital Gain Exclusion
Generally, the home one lives in most of the time is one’s principal residence; it can be a house, houseboat, mobile home, cooperative apartment, or condominium.
In order to exclude gain on the sale of a home, a taxpayer generally must have owned and lived in the property as his or her main home for at least two years during the
five-year period ending on the date of sale. The maximum gain that can be excluded is $250,000 for individuals and $500,000 for married couples filing jointly.
In order to exclude gain on the sale of a home, a taxpayer generally must have owned and lived in the property as his or her main home for at least two years during the
five-year period ending on the date of sale. The maximum gain that can be excluded is $250,000 for individuals and $500,000 for married couples filing jointly.
IRA to Roth Conversion
The $100,000 modified adjusted gross income limitation and the joint return limitation are repealed for tax years beginning after 2009. Code Sec. 408A(c)(3). Thus, a taxpayer can convert an eligible retirement plan to a Roth IRA as long as the amount contributed to the Roth IRA satisfies the definition of a qualified rollover contribution.
A taxpayer has a traditional IRA with a value of $100, consisting of deductible contributions and earnings. He does not have a Roth IRA. The taxpayer converts the traditional IRA to a Roth IRA in 2010. As a result, $100 is includable in gross income. Unless the taxpayer elects otherwise, $50 of the income is included in income in 2011 and $50 in 2012. Later in 2010, the taxpayer takes a $20 distribution, which is not a qualified distribution and all of which is attributable to amounts includable in gross income as a result of the conversion. Under the accelerated inclusion rule, $20 is included in income in 2010. The amount included in income in 2011 is the lesser of $50 (half the income resulting from the conversion) or (2) $70 (the remaining income from the conversion), or $50. The amount included in income in 2012 is the lesser of $50 (half the income resulting from the conversion) or (2) $30 (the remaining income from the conversion, or $30.
A taxpayer has a traditional IRA with a value of $100, consisting of deductible contributions and earnings. He does not have a Roth IRA. The taxpayer converts the traditional IRA to a Roth IRA in 2010. As a result, $100 is includable in gross income. Unless the taxpayer elects otherwise, $50 of the income is included in income in 2011 and $50 in 2012. Later in 2010, the taxpayer takes a $20 distribution, which is not a qualified distribution and all of which is attributable to amounts includable in gross income as a result of the conversion. Under the accelerated inclusion rule, $20 is included in income in 2010. The amount included in income in 2011 is the lesser of $50 (half the income resulting from the conversion) or (2) $70 (the remaining income from the conversion), or $50. The amount included in income in 2012 is the lesser of $50 (half the income resulting from the conversion) or (2) $30 (the remaining income from the conversion, or $30.
Friday, March 26, 2010
Donation: Clothing & Household Items
Any donations of clothing and household items that are made to a charitable organization are not deductible unless the donated items are in "good " or better condition. IRS may deny a deduction for any item that has minimal monetary value. Donor of such items should be prepared to prove both the condition and the value of the donated items. Only one exception to this rule: If a single donated item is not in at least good condition, but it is worth more than $500, it is deductible, so long as a qualified appraisal is obtained at the time of the donation.
Wednesday, February 10, 2010
The Making Work Pay Credit
The Making Work Pay Credit provides employees, including the self employed, with up to a $400 tax credit ($800 for married people filing jointly). The credit is 6.2% of earned income and phases out
at modified AGI of $75,000 to $95,000 for singles or $150,000 to $190,000 for married people filing jointly. In 2009, taxpayers will receive the credit through a reduction in employee withholding and self-employed required estimated tax payments.
at modified AGI of $75,000 to $95,000 for singles or $150,000 to $190,000 for married people filing jointly. In 2009, taxpayers will receive the credit through a reduction in employee withholding and self-employed required estimated tax payments.
Offset Capital Gains with Losses
Net capital losses are fully deductible against capital gains. If your capital losses exceed your capital gains, you can deduct up to $3,000 in net capital losses against ordinary income ($1,500 if married filing separately) or your total net loss as shown in 1040 Schedule D, Capital Gains and Losses, whichever is less. Any remaining capital losses may be carried over to future years.
Individual Retirement Account (IRA )
You may contribute up to $5,000 to fund a traditional or Roth IRA in 2009. Individuals age 50 or older by the end of 2009 can make an additional catch-up contribution of $1,000. If your spouse does not work for compensation, you can contribute to either a traditional IRA or Roth IRA for your spouse based on your own earnings, with the same dollar
limits applying. However, the maximum aggregate that can be contributed to a Roth IRA is reduced by contributions made to other IRAs. Traditional IRA contributions may be deductible depending on your modified AGI and whether you or your spouse (if filing jointly) is covered by an employer-sponsored retirement plan. Roth IRA contributions are not deductible, but the earnings accumulate tax deferred and may be withdrawn tax free if you meet the qualified distribution requirements.
For 2009, eligibility to contribute to a Roth IRA is phased out as modified AGI rises from $105,000 to $120,000 if single, head of household or married filing separately and not living with spouse at any time in 2009; and $166,000 to $176,000 if married filing jointly or qualifying widow(er). Married taxpayers who file separately and lived with a spouse at any time in 2009 cannot contribute to a Roth IRA if their income is $10,000 or more. Qualified dividend income from a domestic or qualified foreign company is taxed at a top rate of 15% (zero for taxpayers in the 10% or 15% tax brackets in 2009).
limits applying. However, the maximum aggregate that can be contributed to a Roth IRA is reduced by contributions made to other IRAs. Traditional IRA contributions may be deductible depending on your modified AGI and whether you or your spouse (if filing jointly) is covered by an employer-sponsored retirement plan. Roth IRA contributions are not deductible, but the earnings accumulate tax deferred and may be withdrawn tax free if you meet the qualified distribution requirements.
For 2009, eligibility to contribute to a Roth IRA is phased out as modified AGI rises from $105,000 to $120,000 if single, head of household or married filing separately and not living with spouse at any time in 2009; and $166,000 to $176,000 if married filing jointly or qualifying widow(er). Married taxpayers who file separately and lived with a spouse at any time in 2009 cannot contribute to a Roth IRA if their income is $10,000 or more. Qualified dividend income from a domestic or qualified foreign company is taxed at a top rate of 15% (zero for taxpayers in the 10% or 15% tax brackets in 2009).
Mortgage Debt Forgiveness
If you still have mortgage liability after foreclosure, any amount forgiven by the lender is generally ordinary income. However, for debt discharged on or after January 1, 2007, and before January 1, 2013, the debt forgiveness is treated as tax free if the property is your primary residence. The limit on qualifying debt is $2 million ($1 million for a married person filing separately).
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