Saturday, November 30, 2013

Income Tax Implications of The Healthcare Reform Act - Obama Care

On March 23, 2010 President Obama signed the Landmark Health Care Reform Act and was immediately challenged in court. The result was that many people were left confused about the law and its' effect your personal bottom line and taxes in particular.
The new law which incorporates a slew of new regulations and requirements for businesses and individuals is intended to increase the number of people covered by medical insurance and by doing so reduce the cost for everyone. The Health Care Reform Act commonly referred to as Obama Care is being phased in over the course of eight years with the vast majority of the law in place by the end of 2014.
One of the ways the law is intended reduce costs is through the creation of state-based exchanges. These exchanges allow lower income individuals and families to purchase coverage by taking advantage of cost sharing. Small businesses may also purchase insurance through the state exchanges and take advantage of similar cost benefits. The state exchanges will be available to individuals and families who are between 133-400% of the federal poverty level which is incomes from about $23,050. to $92,200 for a family of four.
The Health Care Reform Act, Obama Care does require that individuals without employer provided health coverage purchase their own or be subject to a tax penalty. The penalty for not purchasing coverage is based on income and therefore varies. The tax penalty will be eased into effect and at its' maximum will run from $695 to $2,085. per year. For a family of four with a household income of $50,054. the average tax penalty will be about $1,251. per year.
The majority of households, estimates range from 70-80%, who do not have some form of employer based health coverage will be eligible for premium support and as such will have access to state exchanges. The average family of four with a household income of $50,000 a year will pay about $3,400 a year for insurance.
The cost for an average family of four breaks down as follows:
Household Income: $50,000.
Total Cost of Insurance: $17,853.
Tax Credit: $14,468.
Final Cost to Taxpayer: $3,385.
The Henry Kaiser Family Foundation website provides a great tool to calculate your actual cost for health insurance beginning with the year 2014. The health reform subsidy calculator allows you to put in your family income, size and your age and calculates exactly what your costs will be.
In most cases businesses who employ more then 50 people, full-time, will be required to provide health insurance coverage under this law. The law states that if you have more then 50 full-time employees and at least one of them receives the premium support tax credit a fee (tax penalty) of $2,000 per full-time employee (excluding the first 30) will be assessed. This applies only to employers who do not offer health coverage already.
For employers who do offer coverage but still have a full-time employee who receives a premium support tax credit the employer will have to pay a tax penalty of $3,000. for each full-time employee receiving a credit or $2,000. per employee, excluding the first 30, whichever is less.
It is important to note that all the tax penalties for employers pertain to full-time employees only. For example a business with 100 employees of which only 49 are full-time is exempt from providing coverage.

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Wednesday, November 27, 2013

Education Tax Credits

Find out how you or your child can get a tax credit for going to college or some other post-secondary education institution. Get even more information by typing "education center" in the search field at

Sunday, November 24, 2013

Taxes and Tax Haven

What Is Nonresident Tax
If you go to the definition of what is a nonresident tax, it is a return that comes to a state of which you are not a natural resident of. You might be working in an another state or country or you could make earnings in another state for which you need to file a nonresident tax return. If you fall into any of these categories, you might need to be clear about nonresident tax a bit more. You will then need to figure out the amount of income that you make in the nonresident state as well as the income that you make in the home state. Most of the federal returns even include the nonresident tax returns. Thus, it is necessary to complete one's federal returns and then make a separate effort to file in nonresident tax returns. The legalities of filing nonresident tax returns may vary from country to country.
So how do you go about listing your income and deductions? In most states you need to first list out the total income as per the federal return in one column while in the other column one needs to write in the income that comes in as a nonresident. The total in both columns needs to be considered in order to calculate the percentage of the non-resident income as per the total income. Every state has its own laws by which one needs to allocate the taxable income or one's tax liability accordingly.
What are Tax Havens
In such cases one often seeks out tax haven. These are countries like Anguilla, Nevis, British Virgin Islands, Singapore Hong Kong, Mauritius and other countries. Over the last two decades the number of tax havens has increased. These have evolved as most people search them out in order to protect their interests. The advancement of technology and communication has allowed these tax havens to come within reach of many people and they can avail of the benefits of storing their money and saving tax liabilities on them.
Their Characteristics
So what kind of services can you expect from a tax haven? They usually have the following characteristics:
• They are usually financial centers based offshore
• It can be a country or an organization that offers business services even to non nationals
• The business services consist of offshore trusts, registration of vessels, investment funds management, offshore foundations, offshore banking and others
• It is a legal as well a safe means of reducing one's tax liabilities
When the economy is struggling and people are reeling under effects of low income and high tax liabilities, tax haven come to the rescue. People can resort to the offshore banking services of tax havens and get their money secured and away from unwanted tax liabilities. However, before one decides to approach such a country or organization, it is best to refer to the legal guidelines of their own country or state to understand the legalities involved.

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Thursday, November 21, 2013

Why You Should Outsource Tax Preparation?

To outsource tax preparation you can utilize companies that specialise in such services and partner with them to create customizable and workable solutions. Such firms do more than simply prepare tax returns; they provide the full gamut of services that ensure efficiency through a thoroughly defined process, underscored by qualified, experienced and expert staff. The process begins with data gathering, then planning and analysis of the company data, and then to producing relevant output in a systematic format that meets compliance and regulatory standards.
Services Provided
The usual tax preparation services offered include preparation of income tax returns for partnerships, companies and individuals. Also included are fiduciaries, non-residents, exempt organizations, preparation of estate and gift tax returns, and sales and use tax returns for states. Clients' expectations must be met when they outsource their tax preparation. The company is expected to examine the client's balance sheets, and appropriately classify its items. Additionally, P/L items must be effectively classified and analyzed based on a customer's request. Sales tax liability services are often a common request by firms that outsource tax preparation.
The Importance of Software
Customers in this day and age expect that the company hired will utilize software in the preparation of their tax returns and expect every request made to the company to be satisfied. Fortunately, tax preparation outsourcing companies are accustomed to using the latest software such as Lacerte, Ultra Tax, ProSeries, Drake Software, Prosystem FX, CCH, TaxWorks, TaxWise, Turbo Tax, ATX and Go-system in order to satisfy their clients' needs. The software provides a reliable platform for timely, well-organized and precise preparation of clients' tax returns.
Know How and Expertise
The company is obligated to provide professional capability in two key areas; these are individual and business tax preparation. Clients that outsource it demand that the staff of the outsourcing company is qualified, licensed, and possess in-depth knowledge of corporate and partnership income tax. Staff at the company must also be experts in the effective use of current tax preparation software and are exposed to continuous training in new software to ensure that they remain current and on the cutting edge of their craft.
Information Security and Privacy
When you outsource tax preparation, privacy is a key factor to consider. Tax preparation outsourcing companies are required to ensure that their client's information privacy is a high priority. The companies must demonstrate their commitment to confidentiality regarding client information. When you outsource tax preparation it is important to ensure that the company you choose operates in accordance with a thorough security policy to provide you with a guarantee of the protection of your information, especially in the area of offshore taxation services. Find out what best practice mechanisms they put in place to ensure your privacy. One of the best scenarios for protection is to implement a paperless office. This is enhanced by a dual monitoring system with state of the art firewalls and access control lists that are maintained and monitored. Check out the levels of security for machines and networks. Ask about point-to-point data links and make sure their employees sign a non-disclosure agreement. Once these measures are in place you can be sure about the privacy of your data.

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Monday, November 18, 2013

Filing Taxes - Home Mortgage Interest Tax Deduction

How Homeowners Can Get The Maximum Tax Refund.
Owning a home. Ask any homeowner what's so great about owning versus renting, and most will say "the tax deductions!" That's right because all homeowners who itemize their taxes are able to deduct 100% of their mortgage interest and property taxes from their income tax returns. But how do you get the maximum tax refund for homeowners? If you don't own a home yet, there may be good reasons, but the advantages of owning a home far outweigh renting. There are really only two reasons not to own a home-you may live rent free with your parents or friends or perhaps you are planning on moving in 3 years or less. Even if you are single, but plan on staying in the area for more than 3 years, consider buying a home.
The major tax incentive to owning a home is that it allows you to deduct the interest you pay for your mortgage. This is usually the biggest tax break for most people, because a significant amount of your house payment goes toward interest during the early years of a mortgage. The major advantages of being a homeowner when tax season comes around?
Deductible mortgage interest including "points" when you buy your home.
Deductible property taxes on your return.
Deductions for improvements made to your home when you sell.
Up to $500,000 in tax free capital gains profit when you sell your home.
To get the maximum tax refund for homeowners you will have to use Form 1040 and itemize your deductions. If you're in a 28% tax bracket, the government effectively subsidizes about a third of your borrowing costs, making your home more affordable. Also, your closing costs and points are tax deductible, and hundreds of thousands of dollars of any capital gains profit that you realize when you sell your home are exempt from income taxes.
At tax time, it's critical to know what you're entitled to, so you can claim it. So, here are five essential tax tips to get the maximum tax refund for homeowners.
1. Fill out the long form at least once and learn to itemize your deductions.
Nearly 40% of homeowners lose out on the number one tax advantages every year when they fail to itemize their income taxes. If you own a home and otherwise have a fairly simple return, it might be tempting just to take the standard deduction or file Form 1040A. In some cases where your mortgage, property taxes and income are low enough, the standard deduction may be a larger deduction than your itemized deductions. But you'll never know unless you fill out both forms at least once.
So before you start filling in Form 1040A or 1040EZ, get your paperwork together and answer the questions on tax software like TurboTax, which will automatically do the math on whether itemizing or taking the standard deduction will result in the lowest tax bill.
Why do the extra work? You can only pay less tax, never more by filling out the longer Form 1040.
2. Home office deduction.
The average home office deduction is over $3,000. Of course there are special IRS rules on what you can claim as a home office. The space you claim as your home office cannot be exempted from capital gains tax when you sell your home. Visit the website for complete details.
3. Tax relief for loan modifications, foreclosures and short sales.
The Making Home Affordable ® Program (MHA) ® is an important part of the Obama Administration's comprehensive plan to stabilize the U.S. housing market by helping homeowners get mortgage relief and avoid foreclosure. To meet the various needs of homeowners across the country, Making Home Affordable ® programs offer a range of solutions that may be able to help you take action before it's too late. You may be able to refinance and take advantage of today's low mortgage interest rates and reduce your monthly mortgage payments.
While the long-term housing outlook began improving in 2011, loan modifications are projected to be the peaking this year. Distressed homeowners who are on the brink of a short sale, loan modification or foreclosure should be aware that normally, any mortgage balance that is wiped out by one of these outcomes is taxed as what the IRS calls Cancellation of Debt Income, or CODI.
Under the Mortgage Debt Forgiveness Relief Act of 2007, the IRS is currently not charging income taxes on CODI incurred through a loan modification, short sale or foreclosure on most residences through 2012. But banks are taking many months, or even years, to work out new mortgages. If you see any of this happening in your future, don't put things off. Get free advice from a housing expert atMakingHomeAffordable.Gov. or call 888-995-HOPE (4673) to speak with an expert.
4. The tax consequences of a refinance or property tax appeal.
Homeowners everywhere are working on applying for a lower property tax bill on the basis of the last few years' decline in their home's value. Those who have equity have tried to refinance their existing home loans into the 4% to 5% rates of the last few years. These strategies offer some of the biggest savings today. But here's a small warning for homeowners who are able to cut these costs. Property taxes and mortgage interest, the very costs you're minimizing, are also the basis for the major tax benefits of being a homeowner. So plan ahead for your tax deductions to go down along with your taxes and interest.
5. Don't forget the closing costs.
If you bought or refinanced your home, you may be focused on your mortgage interest and property tax deductions that you forget all about your closing costs. Remember that any origination fees or discount points that were paid to your mortgage lender at closing are tax deductible on your return. When you finance a home, you may pay what are called "points." Points lower the interest rate on your mortgage by effectively prepaying a portion of the interest at closing. Points are paid by the borrower to the lender as part of the loan deal, and they are a percentage of the loan. Points may also be called loan origination fees, maximum loan charges, loan discount or discount points. If you can't figure out exactly what you paid, look for your HUD-1 settlement statement. It is full of line item credits and debits that you should have received from your escrow provider or title attorney at closing.
Helpful Hint:There are two things you can count on when you become a homeowner: You get more tax breaks, and your taxes get more complicated. Whether you've purchased a single-family home, townhouse or condominium, tax breaks are available to you. It's time to get familiar with tax forms because that's where you will have to provide all the details about your new tax-deductible expenses.
Don't forget PMI premiums on your tax return. PMI is private mortgage insurance premiums on certain mortgages. If you make a down payment of less than 20%, you are generally required to carry private mortgage insurance. This type of insurance is paid for by the buyer but protects the lender in case the borrower stops paying on the loan. PMI premiums can be deducted if the mortgage was issued after 2006. This deduction may be changed in 2012 so check the IRS website for current information.
Final Thought: There are also huge tax savings on the gain when you sell. If you are going to live in your home for at least 5 years considering buying a home just for this reason. When you sell your home, the amount of your gain from the sale is tax-free if you meet the criteria. If you are married, you can have up to $500,000 profit on the sale, and you won't have to pay tax on the earnings. If you are single, you can earn up to $250,000 profit without paying any federal tax. There's only one catch: You have to own and occupy your home for at least two of the past five years. Visit for more information.

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Friday, November 15, 2013

End of 2013 Tax Tips for Small Business Owners

There are only a few weeks left of the tax year. It's time to start planning for next year- and for tax season! Below are a few ways a small business owner can save money on taxes.
Track your mileage
The IRS mileage rate this year 56.5 cents/mile, meaning you get a deduction for.565 x the number of miles you travel for business. This is a good deal and is better than taking car expenses such as insurance and repairs, given the high cost of gas. Take advantage of this deduction, especially if you travel a lot for business! As with anything else keep a log of your miles so you have a record. You can use a day planner or notebook, or if you have a smart phone check out the app "Mile Bug". It's free and you don't have to deal with pen and paper when you're on the road.
Meals & Entertainment expenses
As long as you discuss business before, during, or after a meal with a prospect or client, you get a deduction for half of the bill. There must be a business purpose for the expense. Networking events are a good example because your goal is to build your network and ultimately, make a sale. Also if you have employees, and you buy them lunch, you can deduct 50%. These expenses tend to be scrutinized by the IRS, so substantiate everything in case you get audited. You could use a "Neat" scanner if you don't like to have paper clutter your desk- it scans your receipts and organizes them for you. Also, check out the free smart phone apps iSpending or Pocket Expense as another option.
Capital expenses
If you're thinking of buying a new computer or other business equipment, may want to do so before 12/31/13. This is a good way to lower your taxable income while also updating your business equipment- as long as you were going to do it anyway! We never advocate spending money for the sake of spending money, or to avoid taxes. There should always be a valid business purpose for the expenditure. That being said, if you are in the market for some new equipment, you get to take a 179 deduction. As long as your earnings are greater than the cost of the asset you get to take full deduction for business equipment!
Travel Expenses
If you go out of state to attend business conferences you are allowed to deduct 100% of your airfare, car rental, gas, meals, and other travel expenses that you incur. This includes conference dues also. Remember that all professional dues are deductible on your tax return.
Home Office
If you work at home you can take a deduction for your home office as long as you use the room only for an office and not as a guest room. The IRS is very strict in its guidelines for taking this deduction so read the rules on before taking this one. If you can take it, it means you also get to take the proportion of your home mortgage interest, home insurance, utilities, etc. also. For example, say the square footage of your home office is 15% of your house- you get to deduct 15% of your home expenses on your schedule c! Talk with your tax professional about your particular situation.
Independent Contractors
Throughout the course of the year you may have hired outside work for consulting or other services. Keep track of who you pay and how much. If you paid someone over $600 then you have to issue them a 1099. This requires you to get the forms (Staples has them) and print them out and mail them, and there is a deadline to do it in the beginning of the year. If you use QuickBooks it's very easy to pull a report of all 1099 eligible vendors. You should ask contractors to send a completed W-9 form with their tax id so you can enter this in your accounting system. Then print out the forms and send a copy to the contractor and one to the state, and the federal government. For more information and deadlines, check out
Now is the time to talk with your tax advisor about what you can expect to pay on 4/15/14. Especially if you own a small business, don't wait and wonder. You don't want to receive a nasty surprise come tax day, and not have the cash to cover the bill! 

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Tuesday, November 12, 2013

Certified Public Accountants Take Notice of Changes for the 2013 Tax Year

The end of 2013 is approaching quickly and it is time to start thinking about taxes once again. Experienced tax preparers and Certified Public Accountants are gearing up for the upcoming tax season.
*For those of you tax payers who fall into the higher-income bracket, there is a new federal income tax rate of 39.6% on taxable income levels greater than $400,000, married filing jointly $450,000 and separately $225,000. In addition to the added tax rate, these taxpayers are subject to a new 20% maximum (up 5% from last year) on long-term capital gains and qualified dividends.
*Personal and dependency exemptions may be phased out and itemized deductions limited for those taxpayers with a gross income of more than $250,000, $300,000 for married folks filing jointly and $150,000 filing separately).
Now is the time to make an appointment with your tax preparer and evaluate the 2013 tax year. Will your income see two new Medicare tax increases this year? Have you taken full advantage of retirement savings plans? Traditional IRAs and 401(k)s provide the opportunity to contribute funds pretax to reduce your 2013 income. Funds contributed to Roth IRAs and Roth 401(k)s are contributions which are made tax free. If you haven't already maxed out your contributions, you will want to devise a plan to get as much as possible in before the end of the year. Retirement savings plans which include employer contributions will close at the end of the year while others will generally remain open until your tax return is due. Your CPA will help you work out a payment plan in order to take full advantage of these programs before their deadlines.
There are some key provisions which are due to expire to end this year. Plan accordingly with your Certified Public Accountant.
*The increased Internal Revenue Code Section 179 expense limits and provisions for 'bonus' depreciation will end this year.
*The 100% exclusion of capital gains earned from the sale or exchange of qualified small business stock will not apply to small business stock issued or acquired after the end of the 2013 tax year. Check with your CPA to make sure certain requirements qualify and are met.
*This is the last year to make qualified charitable distributions for up to $100,000 from an IRA directly to a charity if you are older than 70 1/2.
*Beginning in 2014, the above-the-line deductions for qualified higher education expenses will no longer be available. This includes the $250 out-of-pocket classroom expenses which were typically paid by education professionals.
* The 2013 tax year is also the last year that taxpayers can elect to deduct state and local sales in itemized deductions.
Take up your 2013 tax-year considerations with your Certified Public Accountant in order to maximize any return and minimize liabilities. Since some of these will take careful planning, the sooner you set up a meeting the better. Address any other concerns at this time as well.
It will be an interesting tax year with Healthcare a big concern for many. If you haven't found a program for yourself or your family, check with your CPA to find out how the tax penalty may affect your situation. Give your CPA a call today and set up an appointment to start your 2013 tax season off in the right direction.

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Saturday, November 9, 2013

Entrepreneur's Relief - Capital Gains Tax (CGT)

Before the rate of Capital Gains Tax (CGT) was raised from 5% or 10% to 18% or 28%, small businesses were promised some sort of concession would be announced. We were expecting a form of retirement relief to be announced, but a brand new"Entrepreneur's Relief" was introduced instead.
Entrepreneur's relief is available to most, including individuals, trustees (in some circumstances), but not to limited companies.
You can claim Entrepreneur's Relief when you sell all of your business, or even shares in your own company after 5th April 2008. The capital gain, when entrepreneur's relief is applied, is taxed at an effective rate of 10%, instead of 18% or even 28%.
There are, however, some stiff limitations to entrepreneur's relief:
1. You must be selling all, or a material part, of your business, including: 
  • Selling shares in a qualifying company. The shareholder MUST own at least 5% of the ordinary voting shares, as well as having been an officer or employee of said company
  • Selling the whole of your business
  • Selling partnership interest
If you sell the assets, without selling the actual business, or ceasing to trade, then this will not qualify for the relief. For example, if an accountant sold part of their practice, entrepreneur's relief would not apply.
2. You need to have owned the assets/shares for at least a year prior to the sale.
3. The business must be defined as a trading business, which means that, for example, a property letting business would not qualify. A furnished holiday letting company, however, would.
4. Entrepreneur's relief only applies to capital gains made after 6th April 2008. Taxpayers are restricted under certain conditions to claiming this relief on lifetime gains up to £10 million worth of gains (£5 million prior to 6th April 2011, £2 million prior to 23rd June 2010, and £1 million prior to 6th April 2010.) For capital gains realised before 6th April 2010, and exceeding £1 million, no additional relief is given.
It may also be possible to claim relief where gains are deferred as a result of either the Enterprise Investment Scheme, or Venture Capital Trust investments.
When a material disposal relates to the sale of shares, or a partnership share, the person who is disposing is also able to claim relief against any gains made in the disposal of an asset that is used in the business. This later disposal can happen as long as 3 years after the original disposal. However, the relief is restricted if rent is charged on the property.

Wednesday, November 6, 2013

Sunday, November 3, 2013

Standard Or Itemized?

Find out how to decide whether you should take the standard deduction or itemize your deductions. For even more information, go to