Small companies get additional time for reporting benefits

June 30, 2011

Small companies get additional time for reporting benefits

 The IRS has just announced that small companies will get an additional year before being required to report the value of employee health benefits on their employees’ W-2 forms.

 Health reform legislation passed in 2010 included a requirement that employers report on W-2 forms the value of health coverage they provide to employees. The IRS had already provided relief for all businesses by making reporting optional for 2011 W-2 forms.

 Now, small companies that file fewer than 250 W-2s need not report the value of benefits until filing 2012 W-2 forms early in 2013.

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Will the dreaded AMT affect you?

June 27, 2011

With the attention surrounding the alternative minimum tax (AMT) year after year, you may be wondering if you’ll be snared by it in 2011. What can cause you to owe the tax?

 The answer lies in items that are treated differently when calculating the AMT than they are when figuring your regular tax. Certain itemized deductions fall into this category. For instance, under the regular federal income tax computation, you can claim an itemized deduction for medical and dental expenses in excess of 7.5% of adjusted gross income.

 For the AMT, these expenses must exceed 10% of your adjusted gross income, which means your deduction is limited even more.

 Another example: Taxes, including real estate taxes, state income taxes, and sales taxes, are not allowed under the AMT calculation.

 The same restriction applies to miscellaneous itemized deductions such as investment expenses and employee business expenses.

 Your mortgage interest deduction may differ for AMT purposes, too. Why? Interest you pay on home equity loans is generally not deductible unless you use the loan proceeds to buy, build, or improve your primary or second residence.

 Don’t itemize? The standard deduction is also not allowed for the AMT calculation. That’s one reason it can sometimes make sense to itemize even when your standard deduction is higher.

 In addition to the items mentioned here, the IRS form used to compute your AMT liability includes other adjustments that may affect you. Give us a call for an AMT review. We can help with planning suggestions and strategies you may be able to implement before year-end.

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Tax tips when you change jobs

June 24, 2011

Planning to change employers this year? As you look forward to starting your new job, you’re probably not thinking about taxes. But actions you take now can have an impact next April – and beyond.

 Here are three tax-smart tips:

 * Roll your retirement plan. You may be tempted to cash out the balance in your employer-sponsored plan (such as a 401k). But remember that distributions from these plans are generally taxable.

 Instead, ask your plan administrator to make a direct rollover to your IRA or another qualified plan. If you’re under age 59½, this decision also avoids the additional 10% penalty on early distributions. Bonus: Your retirement money will continue to grow tax-deferred.

 * Adjust your withholding. Assess your overall tax situation before you complete Form W-4 for your new employer. Did you receive severance pay, unemployment compensation, or other taxable income? You might need to increase your withholding to avoid an unexpected tax bill when you file your return.

 * Keep track of your job-related expenses. Unreimbursed employment agency fees, résumé preparation costs, and certain travel expenses can be claimed as itemized deductions.

 Are you moving at least 50 miles to your new job? You may be able to reduce your income even if you don’t itemize. Eligible moving expenses are an above-the-line deduction.

 More tax issues to consider when you change jobs include stock options, employment-related educational expenses, and the sale of your home. Give us a call. We’ll be happy to help you implement tax-saving strategies.

 

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Should you lease or buy business equipment?

June 20, 2011

It’s not easy to decide whether it’s wiser to buy or lease a piece of business equipment. For most business owners, the first impulse is to buy. But there may be times when leasing is preferable.

 * Capital conservation. Purchases normally require a 10% to 20% down payment, whereas equipment leases require a smaller down payment. Additionally, “soft costs” such as shipping, installation, and warranties can be built into the lease.

 * Obsolescence. If the equipment becomes obsolete before the end of its useful life, leasing the equipment may allow for a “turn back” or upgrade at the end of the lease, thereby keeping the technology current and minimizing repair and replacement costs.

 * Urgency. For expensive equipment that is required immediately, leasing might be the best way to obtain it quickly. If you purchase, you might be tied up with your lender for some time, providing financial statements necessary for loan approval.

 * Deductions. If you find that you’re unable to expense the equipment, a lease might allow for a shorter deduction period compared to depreciation.

 Sold on leasing? Don’t be. Buying has its advantages also.

 * Immediate deduction. You may be able to immediately deduct up to $500,000 of the cost of qualified equipment in the year of purchase, using the first-year expensing rules. That’s significant and can reduce your taxes substantially.

 * Appreciation. Some equipment actually increases in value over time. Buying such equipment can create future wealth.

 * Useful life. The equipment may be valuable and productive long after the lease has expired. Purchasing will allow you to continue to use that equipment and avoid the need to return or upgrade it at the end of the lease term.

 For help in deciding whether to lease or buy, give us a call.

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Add tax savings to your summer plans

June 17, 2011

Summertime fun can be made even more enjoyable by adding tax savings. Here are some tax-saving ideas to consider.

 * If you have summer travel plans and the primary purpose of your trip is business, you can deduct all the travel costs to and from your business destination and all other business-related costs even if you add on a few extra days for pleasure. You can’t deduct costs related to the pleasure portion. Including a spouse or friend on your trip is permissible, but you can’t deduct the additional costs for that person.

 * If you itemize your deductions, you can deduct the mortgage interest and property taxes paid for your vacation home. A boat or RV can qualify as a vacation home if it has sleeping quarters, cooking facilities, and a bathroom. If a retreat also serves as rental property, you can control your tax deductions by changing the number of days you use it for vacation.

 * If you and your spouse work, the cost of sending your children to a summer day camp may qualify for the child care credit.

 * If you own a business, consider hiring your child for the summer. Your child can earn up to $5,800 tax-free this year, and your business is entitled to a deduction for the wages paid. You must pay your child a reasonable wage for the work performed.

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Consider taxes if you rent out your vacation home

June 14, 2011

Planning to rent out your vacation getaway? When it comes to taking advantage of the tax benefits, timing is an important factor.  Here are two points to remember.

 * The fourteen-day-or-ten-percent test. The IRS applies this test to determine if you use your vacation home as a personal residence. If you stay in the home more than 14 days or 10% of the total days it’s rented in a calendar year (whichever is greater), the general rule is you’re using it as your home.

 Why does it matter? Because treating a vacation home as your personal residence affects your rental deductions. You’d include all the rent you receive as income on your tax return. But related expenses are generally limited to the amount of that income, meaning you can’t offset other income with a loss. Note that time spent in your vacation home by family members and certain others can count as personal use.

 * The less-than-fifteen exception. Rent out your vacation home for less than 15 days during the taxable year, and the income is yours, tax-free. You don’t even have to report it on your return. Just be aware that any expenses related to the rental are nondeductible. If you itemize, you can still deduct qualified mortgage interest and real estate taxes on your vacation home.

 Other tax rules, such as passive activity and capital gains reporting, can also impact the decision to rent out your vacation home. Give us a call before you put up that “For Rent” sign. We’ll be happy to review your options under the tax rules.

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Tax breaks can help when disaster strikes

June 10, 2011

Tax breaks can help when disaster strikes

 Recent events here and abroad are reminders that disasters can occur at any time – often with staggering human and financial costs. If you’re an unlucky victim of a disaster, you may receive help from insurance and federal disaster aid. But the tax code also offers some relief. You may be able to take an itemized deduction for part of your loss. In tax terms, it’s a “casualty loss,” and it can also apply to events such as a car crash, a house fire, or theft. Here are the basics.

 * The loss or damage must be due to an unexpected and sudden event. Losses due to slow deterioration over the years, such as rot, rust, or insect damage, don’t qualify.

 * Your tax deduction won’t equal your total loss. You must subtract any insurance or other reimbursement. Then you must also deduct $100 for each loss and 10% of your adjusted gross income.

 * Your loss may also be limited by your adjusted basis in the property. That’s generally what you paid for it, plus or minus any improvements or previous losses.

 * In a widespread disaster, the area may be classified a “Presidentially declared disaster area.” If that happens, you have a special option. You can claim your casualty loss against the current year’s taxes. Or you can amend the previous year’s return and claim your loss against that year’s taxes. That usually generates a faster refund, but it may change the amount of your deduction.

 If you suffer a casualty loss, please contact us. We’ll explain the rules and help you claim the maximum possible tax benefit.

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Reminder: Second estimated tax payment is due June 15

June 7, 2011

June 15, 2011, is the due date for making your second installment of 2011 individual estimated tax. Your check to the United States Treasury should be accompanied by Form 1040-ES. June 15 is also the due date for calendar-year corporations to make their second quarter 2011 estimated tax payment.

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