We have just posted the October 2012 issue of the ONLINE ADVISOR newsletter on our website. Here are a few headlines from that issue. To read any of these articles, click on the link at the end of this e-mail.
WHO PAYS "ENOUGH" IN TAXES?
A recent poll by the Pew Research Center revealed that 58% of those surveyed felt the rich don't pay enough in taxes. 26% said the rich pay their fair share, and 8% said the rich pay too much.
KNOW THE TAX DIFFERENCE BETWEEN ALIMONY AND CHILD SUPPORT
Divorce is a sad experience for all concerned. The last thing you want to think about is taxes, but tax issues are important.
DEVELOP AN EARLY-WARNING SYSTEM FOR PROBLEM ACCOUNTS
If you extend credit to your customers, some losses are inevitable. So unless you are willing to forgo the credit part of your sales, you have to figure out ways to control your bad debt losses.
INSURING YOUR TEEN DRIVER: HOW TO CONTROL THE COST
Your child is approaching 16 years old and for the past several years, he or she has reminded you (daily, it seems) of this inevitability. You, on the other hand, have been trying to expunge the thought that a teenager -- a teenager! -- will soon be driving one of your vehicles.
Just click on the link to read the full articles.
Wednesday, October 10, 2012
September Online Advisor
Here are a few headlines from that issue. To read any of these articles, click on the link at the end of this e-mail.
DEADLINE APPROACHING FOR TAX-EXEMPT ORGANIZATIONS
Here's an important reminder for small nonprofit organizations: If your organization had its tax-exempt status revoked for failing to file an annual return from 2007 through 2009, the IRS is giving you a chance to get reinstatement.
CAPITAL GAINS AND LOSSES: NEW YEAR-END STRATEGY
The end of the year is the traditional time for securities investors to "harvest" capital losses for federal income tax purposes. But there's an added wrinkle in 2012: Due to pending tax law changes, you might try to reap more capital gains than losses.
TIPS ON GETTING A BANK LOAN FOR YOUR BUSINESS
Getting a bank loan for your business may be more difficult than usual in today's economy. However, if you give your bank a thorough, organized, and well-supported loan proposal, you'll increase your chances of getting the money your business needs.
HAVE YOU PROTECTED YOUR FAMILY?
Would your family be financially secure if tragedy struck? Before you answer, consider the following areas.
Just click on the link to read the full articles.
DEADLINE APPROACHING FOR TAX-EXEMPT ORGANIZATIONS
Here's an important reminder for small nonprofit organizations: If your organization had its tax-exempt status revoked for failing to file an annual return from 2007 through 2009, the IRS is giving you a chance to get reinstatement.
CAPITAL GAINS AND LOSSES: NEW YEAR-END STRATEGY
The end of the year is the traditional time for securities investors to "harvest" capital losses for federal income tax purposes. But there's an added wrinkle in 2012: Due to pending tax law changes, you might try to reap more capital gains than losses.
TIPS ON GETTING A BANK LOAN FOR YOUR BUSINESS
Getting a bank loan for your business may be more difficult than usual in today's economy. However, if you give your bank a thorough, organized, and well-supported loan proposal, you'll increase your chances of getting the money your business needs.
HAVE YOU PROTECTED YOUR FAMILY?
Would your family be financially secure if tragedy struck? Before you answer, consider the following areas.
Just click on the link to read the full articles.
July Online Advisor
Here are a few headlines from that issue. To read any of these articles, click on the link at the end of this post.
SUPREME COURT UPHOLDS HEALTH CARE LAW
On June 28, the Supreme Court ruled that the "Patient Protection and Affordable Care Act of 2010" was constitutional, including the provision in the law requiring individuals to have health insurance coverage starting in 2014.
CANCELLED DEBT MAY BE CONSIDERED TAXABLE INCOME BY THE IRS With the recent economic downturns experienced by many taxpayers, there is a tax concept that is very important: cancellation of debt.
You would think that the cancellation of debt by a credit card company or mortgage company would be a good thing for the taxpayer. And it can be, but it can also be considered taxable income by the IRS.
STARTING A BUSINESS? DON'T MAKE THESE MISTAKES According to the Small Business Administration, a third of small businesses fail within the first two years. Over half fail in the first five years.
So if you're thinking about starting a small business, it pays to take an honest look at yourself, your business idea, and the marketplace.
WHAT ARE YOUR OPTIONS FOR TAKING SOCIAL SECURITY BENEFITS?
When should you start taking social security? If you're approaching retirement and are eligible for social security, you have three broad options for drawing your benefits: start early, wait until your "full" retirement age, or hold out a few years longer to qualify for the monthly maximum.
Just click on the link to read the full article.
SUPREME COURT UPHOLDS HEALTH CARE LAW
On June 28, the Supreme Court ruled that the "Patient Protection and Affordable Care Act of 2010" was constitutional, including the provision in the law requiring individuals to have health insurance coverage starting in 2014.
CANCELLED DEBT MAY BE CONSIDERED TAXABLE INCOME BY THE IRS With the recent economic downturns experienced by many taxpayers, there is a tax concept that is very important: cancellation of debt.
You would think that the cancellation of debt by a credit card company or mortgage company would be a good thing for the taxpayer. And it can be, but it can also be considered taxable income by the IRS.
STARTING A BUSINESS? DON'T MAKE THESE MISTAKES According to the Small Business Administration, a third of small businesses fail within the first two years. Over half fail in the first five years.
So if you're thinking about starting a small business, it pays to take an honest look at yourself, your business idea, and the marketplace.
WHAT ARE YOUR OPTIONS FOR TAKING SOCIAL SECURITY BENEFITS?
When should you start taking social security? If you're approaching retirement and are eligible for social security, you have three broad options for drawing your benefits: start early, wait until your "full" retirement age, or hold out a few years longer to qualify for the monthly maximum.
Just click on the link to read the full article.
Impact of Obamacare
Here are some of the new taxes you are going to have to pay for Obamacare:
A 3.8% surtax on "investment income" when your adjusted gross income is more than $200,000 ($250,000 for joint-filers). What is "investment income?" Dividends, interest, rent, capital gains, annuities, house sales, partnerships, etc. Taxes on dividends will rise from 15% to 18.8%--if Congress extends the Bush tax cuts. If Congress does not extend the Bush tax cuts, taxes on dividends will rise from 15% to a shocking 43.8%.
A 0.9% surtax on Medicare taxes for those making $200,000 or more ($250,000 joint). You already pay Medicare tax of 1.45%, and your employer pays another 1.45% for you (unless you're self-employed, in which case you pay the whole 2.9% yourself). Next year, your Medicare bill will be 2.35%. For the partners, you will pay an additional .9% on the excess over 250,000 if you are married.
Flexible Spending Account contributions will be capped at $2,500. Currently, there is no tax-related limit on how much you can set aside pre-tax to pay for medical expenses. Next year, there will be. If you have been socking away, say, $10,000 in your FSA to pay medical bills, you'll have to cut that to $2,500.
The itemized-deduction hurdle for medical expenses is going up to $10,000. Right now, any medical expenses over $7,500 per year are deductible. Next year, that hurdle will be $10,000.
The penalty on non-medical withdrawals from Healthcare Savings Accounts is now 20% instead of 10%. That's twice the penalty that applies to annuities, IRAs, and other tax-free vehicles.
A tax of 10% on indoor tanning services. This has been in place for two years, since the summer of 2010.
Starting A 40% tax on "Cadillac Health Care Plans" in 2018.Those whose employers pay for all or most of comprehensive healthcare plans (costing $10,200 for an individual or $27,500 for families) will have to pay a 40% tax on the amount their employer pays. The 2018 start date is said to have been a gift to unions, which often have comprehensive plans.
A "Medicine Cabinet Tax" that eliminates the ability to pay for over-the-counter medicines from a pre-tax Flexible Spending Account. This started in January 2011.
A "penalty" tax for those who don't buy health insurance. This will phase in from 2014-2016. It will range from $695 per person to about $4,700 per person, depending on your income.
A tax on medical devices costing more than $100. Starting in 2013, medical device manufacturers will have to pay a 2.3% excise tax on medical equipment. This is expected to raise the cost of medical procedures.
So those are some of the new taxes you'll be paying that will help pay for Obamacare.
Note that these taxes are both "progressive" (aimed at rich people) and "regressive" (aimed at the middle class and poor people). The big ones--the 3.8% investment income hike and the Medicare tax increase--only hit you if you're making more than $200,000 a year. The rest hit you no matter how much you're making.
A 3.8% surtax on "investment income" when your adjusted gross income is more than $200,000 ($250,000 for joint-filers). What is "investment income?" Dividends, interest, rent, capital gains, annuities, house sales, partnerships, etc. Taxes on dividends will rise from 15% to 18.8%--if Congress extends the Bush tax cuts. If Congress does not extend the Bush tax cuts, taxes on dividends will rise from 15% to a shocking 43.8%.
A 0.9% surtax on Medicare taxes for those making $200,000 or more ($250,000 joint). You already pay Medicare tax of 1.45%, and your employer pays another 1.45% for you (unless you're self-employed, in which case you pay the whole 2.9% yourself). Next year, your Medicare bill will be 2.35%. For the partners, you will pay an additional .9% on the excess over 250,000 if you are married.
Flexible Spending Account contributions will be capped at $2,500. Currently, there is no tax-related limit on how much you can set aside pre-tax to pay for medical expenses. Next year, there will be. If you have been socking away, say, $10,000 in your FSA to pay medical bills, you'll have to cut that to $2,500.
The itemized-deduction hurdle for medical expenses is going up to $10,000. Right now, any medical expenses over $7,500 per year are deductible. Next year, that hurdle will be $10,000.
The penalty on non-medical withdrawals from Healthcare Savings Accounts is now 20% instead of 10%. That's twice the penalty that applies to annuities, IRAs, and other tax-free vehicles.
A tax of 10% on indoor tanning services. This has been in place for two years, since the summer of 2010.
Starting A 40% tax on "Cadillac Health Care Plans" in 2018.Those whose employers pay for all or most of comprehensive healthcare plans (costing $10,200 for an individual or $27,500 for families) will have to pay a 40% tax on the amount their employer pays. The 2018 start date is said to have been a gift to unions, which often have comprehensive plans.
A "Medicine Cabinet Tax" that eliminates the ability to pay for over-the-counter medicines from a pre-tax Flexible Spending Account. This started in January 2011.
A "penalty" tax for those who don't buy health insurance. This will phase in from 2014-2016. It will range from $695 per person to about $4,700 per person, depending on your income.
A tax on medical devices costing more than $100. Starting in 2013, medical device manufacturers will have to pay a 2.3% excise tax on medical equipment. This is expected to raise the cost of medical procedures.
So those are some of the new taxes you'll be paying that will help pay for Obamacare.
Note that these taxes are both "progressive" (aimed at rich people) and "regressive" (aimed at the middle class and poor people). The big ones--the 3.8% investment income hike and the Medicare tax increase--only hit you if you're making more than $200,000 a year. The rest hit you no matter how much you're making.
Convert Traditional IRA into Roth IRA
Here's the best scenario for this idea: Your traditional IRA is (or was) loaded with equities and has still not fully recovered from the beating taken during the 2008/2009 stock market meltdown. So your account is now worth less than it once was. Correspondingly, the tax hit from converting your traditional IRA into a Roth IRA right now would also be less than it would have been at the market peak. Why? Because a Roth conversion is treated as a taxable liquidation of your traditional IRA followed by a nondeductible contribution to the new Roth IRA. While even the reduced tax hit from converting is unwelcome, it may be a small price to pay for future tax savings. After the conversion, all the income and gains that accumulate in your Roth IRA, and all withdrawals, will be totally free of any federal income taxes - assuming you meet the tax-free withdrawal rules. In contrast, future withdrawals from a traditional IRA could be hit with tax rates that are higher than today's rates.
Of course conversion is not a no-brainer. You have to be satisfied that paying the up-front conversion tax bill makes sense in your circumstances. In particular, converting a big account all at once could push you into higher 2012 tax brackets, which would not be good. You must also make assumptions about future tax rates, how long you will leave the account untouched, the rate of return earned on your Roth IRA investments, and so forth. If the Roth conversion idea intrigues you, please contact us for a full analysis of the relevant variables.
DON'T OVERLOOK ESTATE PLANNING
For 2012, the unified federal gift and estate tax exemption is a historically generous $5.12 million. However, the exemption will drop back to only $1 million in 2013 unless Congress takes action. In addition, the maximum federal estate tax rate for 2013 and beyond is scheduled to rise from the current 35% to a painfully high 55%. Therefore, planning to avoid or minimize the federal estate tax should still be part of your overall financial game plan. Even if you already have a good plan, it may need updating to reflect the current $5.12 million exemption and the uncertainty about next year's rules. Contact us for specifics.
Nine Tax Breaks That May Vanish
Tax breaks come and tax breaks go. But this year is different.
Strategy: Prepare for the possible loss of several critical tax winners at the end of 2012. These include the "Bush tax breaks" that were initially passed a decade ago. On the other hand, certain other tax provisions are likely to be extended, including the annual "patch" for the alternative minimum tax (AMT) and tax incentives for energy-saving home improvements.
Here's a quick rundown of nine key tax breaks for individuals and small business owners slated for the endangered list.
1. Tax rates: Absent any legislative action, tax rates will be higher in 2013. the income levels for all tax brackets will be adjusted upward and the "marriage penalty" for joint filers will become harsher. In addition, the two top tax rates of 33% and 35% will replaced by rates of 36% and 39.6%, respectively.
2. Capital gains and dividends: For 2012, the maximum tax rate for long-term capital gains and qualified dividends is 15% (0% for certain low income investors). Beginning in 2013, the maximum rate for long-term capital gains will increase to 20% (10% for low income investors), while qualified dividends will be taxed at ordinary income rates reaching as high as 39.6% (see No.1).
3. Higher education credit: Parents who send their children to college can claim (subject to certain restrictions) the American Opportunity Tax Credit, formerly known as the Hope scholarship credit. The maximum credit for 2012 is $2,500. But the maximum is scheduled to revert to $1,800 (the time for the Hope Scholarship credit) in 2013.
4. Section 179 deductions: Currently, a small business can write off a maximum of $125,000 of qualified property (inflation-indexed to $139,000 in 2012), although the maximum deduction is reduced on a dollar-for-dollar basis for purchases above a threshold of $500,000 (inflation-indexed to $560,000). The maximum is schedules to drop back to $25,000 in 2013 with a $200,000
phase out threshold.
5. Bonus depreciation deductions: As a complement to Section 179, you may also qualify for 50% bonus depreciation on qualified property placed in service in 2012. Without any extension, bonus depreciation will disappear completely next year.
6. Phaseouts of deductions: Previously, up to 80% of the most popular deductions, including deductions for charitable gifts, mortgage interest and state and local taxes, could be "phased out" under a special rule for high-income taxpayers. A similar rule applied to dependency exemptions. The phaseout rules were gradually reduced and finally repealed in 2010. But they will be back
with a vengeance in 2013.
7. Child tax provisions: Several favorable tax provisions, including the child tax credit, the dependent care credit (i.e., the "child care credit") and the adoption credit will be scaled back in 2013. Generally, the provisions will revert to limits established prior to 2010.
8. Payroll tax holiday: The 2% Social Security tax holiday for employees, was extended through 2012. Barring another extension, in 2013 employees will have to pay the full 6.2% tax on wages up to the Social Security tax ceiling.
9. Estate and gift tax breaks: Several estate and gift tax provisions will "sunset" after 2012. This includes the generous $5 million estate tax exemption (inflation-indexed to $5.12 million in 2012), a top estate tax rate of 35%, portability of exemptions between the estates of spouses and corresponding benefits for gift and generation skipping taxes. Generally, the law will return to
the way it was before the Economic Growth and Tax Relief Reconciliation Act of
2001 (EGTRRA).
Strategy: Prepare for the possible loss of several critical tax winners at the end of 2012. These include the "Bush tax breaks" that were initially passed a decade ago. On the other hand, certain other tax provisions are likely to be extended, including the annual "patch" for the alternative minimum tax (AMT) and tax incentives for energy-saving home improvements.
Here's a quick rundown of nine key tax breaks for individuals and small business owners slated for the endangered list.
1. Tax rates: Absent any legislative action, tax rates will be higher in 2013. the income levels for all tax brackets will be adjusted upward and the "marriage penalty" for joint filers will become harsher. In addition, the two top tax rates of 33% and 35% will replaced by rates of 36% and 39.6%, respectively.
2. Capital gains and dividends: For 2012, the maximum tax rate for long-term capital gains and qualified dividends is 15% (0% for certain low income investors). Beginning in 2013, the maximum rate for long-term capital gains will increase to 20% (10% for low income investors), while qualified dividends will be taxed at ordinary income rates reaching as high as 39.6% (see No.1).
3. Higher education credit: Parents who send their children to college can claim (subject to certain restrictions) the American Opportunity Tax Credit, formerly known as the Hope scholarship credit. The maximum credit for 2012 is $2,500. But the maximum is scheduled to revert to $1,800 (the time for the Hope Scholarship credit) in 2013.
4. Section 179 deductions: Currently, a small business can write off a maximum of $125,000 of qualified property (inflation-indexed to $139,000 in 2012), although the maximum deduction is reduced on a dollar-for-dollar basis for purchases above a threshold of $500,000 (inflation-indexed to $560,000). The maximum is schedules to drop back to $25,000 in 2013 with a $200,000
phase out threshold.
5. Bonus depreciation deductions: As a complement to Section 179, you may also qualify for 50% bonus depreciation on qualified property placed in service in 2012. Without any extension, bonus depreciation will disappear completely next year.
6. Phaseouts of deductions: Previously, up to 80% of the most popular deductions, including deductions for charitable gifts, mortgage interest and state and local taxes, could be "phased out" under a special rule for high-income taxpayers. A similar rule applied to dependency exemptions. The phaseout rules were gradually reduced and finally repealed in 2010. But they will be back
with a vengeance in 2013.
7. Child tax provisions: Several favorable tax provisions, including the child tax credit, the dependent care credit (i.e., the "child care credit") and the adoption credit will be scaled back in 2013. Generally, the provisions will revert to limits established prior to 2010.
8. Payroll tax holiday: The 2% Social Security tax holiday for employees, was extended through 2012. Barring another extension, in 2013 employees will have to pay the full 6.2% tax on wages up to the Social Security tax ceiling.
9. Estate and gift tax breaks: Several estate and gift tax provisions will "sunset" after 2012. This includes the generous $5 million estate tax exemption (inflation-indexed to $5.12 million in 2012), a top estate tax rate of 35%, portability of exemptions between the estates of spouses and corresponding benefits for gift and generation skipping taxes. Generally, the law will return to
the way it was before the Economic Growth and Tax Relief Reconciliation Act of
2001 (EGTRRA).
Thursday, December 8, 2011
Business Entertainment at Home
As many of you know, a business can generally deduct 50% of entertainment and meal expenses that either follow or precede a substantial business discussion with a client. If a client visits from a distant location, the entertainment may take place the day before or after the meeting.
Strategy: Host a house party within the time restraints. The cost of home entertainment attributable to your business guests is deductible even if you never actually discuss business during the get together. For this purpose, business guests may include your client, his or her associates, you and your employees and everyone’s spouses.
Tip: If you throw a holiday bash for all employees, you can deduct 100% of the cost, regardless of the location of the party. You must however include the entire workforce.
Strategy: Host a house party within the time restraints. The cost of home entertainment attributable to your business guests is deductible even if you never actually discuss business during the get together. For this purpose, business guests may include your client, his or her associates, you and your employees and everyone’s spouses.
Tip: If you throw a holiday bash for all employees, you can deduct 100% of the cost, regardless of the location of the party. You must however include the entire workforce.
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