Surprise! The Mutual Fund Tax Trap
Too often taxpayers receive a tax surprise at year-end due to actions taken by a mutual fund they own. What can add insult to injury is the unsuspecting taxpayer who recently purchases the shares in a mutual fund only to be taxed on their recent investment. How does this happen and what can you do about it?
Reducing the Savings Account Tax Burden
Money you place in traditional savings accounts is already taxed by both the Federal and State governments. These after-tax deposits lower the amount you have available for savings. Lower deposit amounts also mean lower earnings potential. Then Interest earned on your savings is also taxed. What can you do to lessen this tax burden?
1. Leverage tax-advantaged retirement accounts. Use 401(k), 401(b) and similar programs to deposit pre-tax money into retirement accounts. This way your initial deposits are larger because they have not yet been subject to income tax. This will provide higher earnings on your savings because of the pre-tax contributions. The downside? Your benefits and contributions will be taxed when you withdraw the funds.
Businesses that want to adopt a SIMPLE retirement plan for 2014 generally have until October 1 to do so.
Don't incorporate your business without first checking the long-range tax and nontax considerations. Call us for details.
If you hold a capital asset for more than one year, your gain or loss is long-term. If held for one year or less, it is short-term.
Almost everything you own and use for personal or investment purposes is a capital asset and taxable if sold at a gain.
You can't deduct job hunting expenses if you are looking for your first job or for a job in a different line of work.
If you moved this summer, be sure to update your address with the IRS. Use Form 8822 "Change of Address."
Social Security: know the variables . Do your math
Determining the best time and best way to take Social Security Benefits can make a big difference in the amount you receive over the balance of your lifetime. Your personal Social Security benefits strategy often has no one right answer. What is prudent, however, is running calculations prior to making your benefit decision. Here are some things to consider.
Full retirement age. Your full Social Security Retirement benefit can be claimed when you reach your target retirement age. This is age 66 for those born between 1943 and 1954. Those born after 1954 have their full retirement age increase by two months per year until full retirement age becomes 67 years old for those born in 1960 or later.
The tax code is filled with tax breaks to offset the cost of education. This includes programs like the Lifetime Learning Credit, the American Opportunity Credit, the Saver’s Credit, student loan interest deductibility, and the on-again off-again Tuition Deduction. Lost in all these options is the long-standing Coverdell Education Savings Account (ESA). Is it worth considering in your educational funding mix?
No, you're probably not saving enough
How much money did you save last year? If you didn't save at least 10% of your earnings, you didn't save enough. If your savings in 2013 fell short, the only solution is to take charge of your financial future right now and start saving more money.
Saving money doesn't have to be hard work. In fact, many successful savers have found simple ways to cut spending and increase their savings. Here are some tips to help you get started and stay on track.
Are you a working parent looking for ways to ease the burden of child care expenses? There are several tax-saving strategies available to you.
First, there's the dependent care tax credit, a direct reduction to your tax liability.
Final Deadline for 2013 Personal Tax Filing!
October 15, 2014 is fast approaching, therefore the deadline to file your personal tax returns that were placed on extension is coming!
How well do you know your customers? Which ones are the most profitable? Which ones take most of your time? It's worth taking the time to find out. If your business is like most, the 80-20 rule applies. That is, 80% of your profits come from 20% of your customers.
If you can identify that top 20%, you can work hard to make sure this group remains satisfied customers.
If you do volunteer work for a charitable organization and have not kept track of your out-of-pocket expenses, you might be passing up an excellent opportunity to lower your tax bill. To qualify, your unreimbursed expenses must relate directly to the charity, and you must itemize your deductions on your tax return. Here is a brief rundown of some possible deductions.
Lifestyle Audits. A thing of the past?
The word “audit” is enough to raise anyone’s blood pressure. If the IRS agent then tells you they want to see bank accounts and personal records you may need a heart monitor. Should this happen to you, you could be in a process known as a lifestyle audit.
The lifestyle audit was a tool used by auditor’s to ascertain if the income you claim on your tax return can support how you live.
Kids Summer Jobs... Good for IRA / Roth IRA
If your children have earnings from summer or after-school jobs, encourage them to open IRA accounts.
Sitting on a piece of investment property that you would like to sell? By structuring the transaction as a tax-deferred exchange, you can delay paying taxes on the full amount of the gain realized.
Also known as a "like-kind exchange" or a "1031 exchange," these transactions are only available for investment or business assets.
Many mutual fund companies allow you to switch funds without a penalty or commission, as long as you stay within their family of funds. There's a catch though.
Understanding Tax Terms: Depreciation Recapture
One of the more unpleasant surprises that can hit a taxpayer occurs when you sell personal property, rental property or assets from your small business. This tax surprise is often associated with depreciation recapture rules.
Depreciation recapture refers to reducing the cost of an asset sold by prior period’s depreciation expense to determine whether taxes are owed on the sale of an asset and to determine the type of tax that must be paid on the sale of the asset.
IRS Takes Steps to Reduce Fraud
In its ongoing effort to tackle the increase in fraud and identity theft at the IRS, there are a number of security enhancements announced to deal with the problem.
The problem: Would be thieves set up a deposit account at a local bank. They then file numerous tax returns claiming refunds early in the tax filing season. The tax returns request the refunds be sent to this single bank account. The account is then electronically drained of the stolen funds and the thieves are long gone.
2014 Capital Gain Refresher
As you investigate opportunities for managing your investment portfolio in 2014, remember to pause and plan for the effect of tax laws. Here are some important rules to consider.
Capital gain tax rates. For 2014, the tax rate you'll pay on gains from sales of assets depends on your taxable income and how long you've owned the investment. Gains on assets owned a year or less are taxed at the same rate as your ordinary income.
Should you incorporate your business?
One of the first decisions you face as a new business owner is whether or not to incorporate the business. The biggest advantage of incorporating is limitation of your liability. Your responsibility for debts and other liabilities incurred by a corporation is generally limited to the assets of the business. Your personal assets are not usually at risk, although there can be exceptions to this general rule. The trade-off is that there is a cost to incorporate and, in some cases, tax consequences.
A vital business document: the buy/sell agreement
Every business should give serious consideration to how the company would deal with the death, disability, or departure of one of the owners.
Like a will, a buy/sell agreement (also known as a business continuity contract) spells out how assets and other business interests will be distributed should an owner quit, become disabled, or die.
Thought Provoking Shorts - August 2014
