Seven summertime tax-savers

Seven summertime tax-savers

Summer is here and so are tax-saving opportunities. Here are seven suggestions for cutting your tax bill.

1.                  Rent out your vacation home. If you own a second home, rent it out this summer when you're not using it. Generally, you can offset the rental income with rental-related expenses, leaving you with little or no tax liability.

2.                  Harvest capital gains or losses. Use your semi-annual portfolio review to spot investments with built-in capital gains or losses that can offset transactions from earlier in the year. Any excess capital loss can be deducted against $3,000 of ordinary income in 2015.

3.                  Hire your kids. Does your child need a summer job? Hire her to work in the family business. The wages earned will be taxed using your child's lower tax bracket.

4.                  Send the kids to camp. Are you the working parent of under-age-13 children? You may be able to claim a tax credit for the cost of day camp. Just remember, overnight camps don't qualify.

5.                  Combine pleasure with business. When you travel out of town for business reasons, you can deduct the full cost of your airfare, even if you spend time sightseeing while you're away. Expenses for side trips aren't deductible.

6.                  Entertain business customers. Generally, you can deduct 50% of the cost of entertaining customers before or after a substantial business discussion. This includes golf outings or an evening of dinner and drinks.

7.                  Host a staff get-together. The usual 50% limit on entertainment deductions doesn't apply to summer barbecues and picnics if the entire staff is invited. In that case, you can write off 100% of the cost.

Contact us for details on these and other summertime tax-saving ideas.

Safeguard records before a disaster strikes

Safeguard records before a disaster strikes

There's never a good time to plan for a disaster. There's never a better time either. So why wait? Instead of having to reconstruct personal and business records in the aftermath of an unexpected calamity, safeguarding documents before you suffer a loss will make it easier to claim casualty deductions and other tax breaks.

Here's an overview of some of the paperwork to include in your disaster preparedness plan and why you'll need it.

1.                  Purchase and acquisition information. The amount of a casualty loss is generally the lesser of your adjusted basis or the reduction in your property's fair market value due to the casualty. With the exception of gifts, inheritances, and certain other property, adjusted basis typically equals what you paid for your assets plus improvements, reduced by depreciation or other reductions.

Tip: Make duplicates of titles, mortgages, closing papers, and receipts or scan them into digital form. Store the originals and the copies in separate locations, preferably in fire- and water-proof containers.

2.                  Prior-year tax returns. When your loss occurs in a presidentially declared federal disaster area, you can amend an already filed prior-year federal return to claim the deduction and the resulting tax refund.

3.                  Detailed inventory. As a general rule, you're required to reduce the amount of your personal property casualty losses by $100. In addition, losses must exceed 10% of your adjusted gross income (except in federal disaster areas). A list of your possessions, supplemented by photographs or a video, is essential for maximizing your deduction.

We're here to help you with pre-crisis management and recovery planning for your personal and business assets. Please call if you would like to schedule a review.

Tax tips for that first job

Tax tips for that first job

Out of school and into the workforce. If the expression describes you or a family member this summer, filling out Form W-4 properly can make your first job less taxing.

Here's why: The amount of federal income tax withheld from your wages depends on how you complete IRS Form W-4, the "Employee's Withholding Allowance Certificate," which tells your employer your marital status and the number of withholding allowances you're claiming.

Withholding allowances are similar to the number of dependents you have. Claiming more allowances generally reduces the income tax deducted from your paycheck, but you can only claim the number you're entitled to.

Think too much tax will be withheld? As long as you expect to work no more than 245 days for all employers during 2015, you might want to consider making a written request to have your federal withholding calculated using an alternative method. The "part-year employment method" of withholding can boost your net pay. Just be sure to complete a new Form W-4 next January.

Caution: Estimate your annual income carefully. Form W-4 affects only the amount of tax withheld, not the total tax that will be due with the tax return you'll file at the end of the year.

You may also be entitled to tax breaks such as above-the-line deductions for moving expenses and student loan interest. Please call for information and advice.

Consider taxes when you change jobs

Consider taxes when you change jobs

Taxes may be the last thing on your mind when you're changing jobs, but overlooking their impact could mean missed tax-saving opportunities. Issues to consider include:

*                    Your retirement plan. Distributions from retirement plans are generally taxable and may also be subject to an early withdrawal penalty. The penalty would also apply to amounts withheld for income taxes. When you leave a company, any unpaid 401(k) loan is also considered a taxable distribution if you don't repay the loan according to the terms of your plan.

Planning tip: Have the money in your retirement account transferred directly into another qualified plan or an IRA. A direct rollover avoids automatic income tax withholding and income taxes.

*                    Job-hunting expenses. You can deduct the costs of looking for a new job in your present line of work, even if you don't get the job. Typical expenses include travel to job interviews, resume costs, and employment agency fees. You must itemize your deductions, and your total miscellaneous deductions must exceed 2% of your adjusted gross income.

*                    Moving expenses. If you meet two tests, you can deduct the costs to move your household and personal effects, including your in-transit travel expenses and storage expenses.

First, the distance from your old home to your new workplace must be at least 50 miles farther than the distance from your old home to your old workplace.

Second, you must work full time in your new location for at least 39 weeks during the 12 months following your move. The time test doesn't apply if you're laid off from your new job or later transferred for your employer's benefit.

*                    Residence sale. You can exclude from taxation up to $250,000 of gain ($500,000 for joint filers) if you own and occupy a home as your principal residence for at least two of the five years preceding its sale. If you sell your home due to a change in employment, you can still exclude part of the gain even though you don't meet the ownership and use tests.

To discuss the tax issues relating to a job change, call us. We are here to help.

Track use of your vacation home to maximize tax breaks

Track use of your vacation home to maximize tax breaks

If you own a vacation home (some boats and recreational vehicles also qualify) that you also rent out to others, keep track of who uses it during the year to maximize your tax breaks.

* Meet the rules and receive tax-free income. If your home is rented for 14 or fewer days during the year, you don't have to report the income. You can generally deduct mortgage interest and real estate taxes as itemized deductions, but you can't deduct any other rental expenses.

* Limit your personal use, and deduct all your rental expenses. If you limit your personal use to not more than 14 days or 10% of the time the home is rented, all rental expenses are deductible.

* Offset your rental income with your rental expenses. If you use the property for more than 14 days or 10% of the number of days it's rented, the rules change. Your rental deductions (except for taxes and mortgage interest) are limited to the amount of your rental income.

Example: You stayed in your vacation home 20 days last year. It was rented at fair market value for 190 days. In this example, your personal use exceeded the 10% limit (19 days). Your rental deductions are limited to the rental income you received.

* Convert the property to your residence, and the gain when you sell may be tax-free. If you use your vacation home as your principal residence for two out of the five years before you sell it, you may exclude up to $250,000 of gain ($500,000 for married couples) from your income. However, you will have to pay tax on gain to the extent of certain depreciation previously taken after May 6, 1997.

The rules are complex, but a basic understanding of the rules and good recordkeeping will help you get the best tax breaks from your vacation home. Give us a call if you would like more information.

IRS launches new "Misclassification Initiative

IRS launches new "Misclassification Initiative

How you classify your workers – as "independent contractors" or "employees" – matters a great deal to the IRS. The IRS is aware that employers prefer to treat workers as independent contractors to avoid paying fringe benefits and payroll taxes. The IRS estimates that 80% of workers who are classified as independent contractors are actually employees. About 100 new auditors have been hired with the specific task of investigating misclassifications, and the government is estimating that the crackdown will generate at least $7 billion in revenue over the next ten years. For guidance in classifying your workers, contact our office.

IRS publishes help for ID theft

IRS publishes help for ID theft

The IRS website contains useful information on how to avoid becoming a victim of identity theft, plus steps to take if you do become a victim.

Here are the warning signs that you may have had your identity stolen:

1.      The IRS notifies you that more than one tax return was filed using your social security number.

2.      You're notified that you owe additional tax or you've had collection actions taken against you for a year you did not file a tax return.

3.      IRS records indicate you received wages from an employer unknown to you.

If you become a victim, the IRS recommends that you take the following steps:

1.      File a police report.

2.      File a complaint with the FTC.

3.      Contact one of the three credit bureaus to place a fraud alert on your account.

4.      Close any financial accounts opened without your permission.

5.      Respond immediately to any IRS notice, according to the instructions given.

6.      Complete IRS Form 14039 "Identity Theft Affidavit."

7.      Continue to pay your taxes and file your tax return, even if by paper.

IRS announces third quarter interest rates

IRS announces third quarter interest rates

The IRS has released the interest rates on tax over payments and underpayments for the third quarter of 2015. The interest rates on over payments will be 3% for individuals and 2% for corporations. Corporate over payments

 over $10,000 will have a 0.5% interest rate. The rate charged on underpayments will be 3%; though large corporate underpayments will be charged 5%.

Filing deadline extended in 2016

Filing deadline extended in 2016

Next year, taxpayers will get a few extra days to file their 2015 income tax returns. The District of Columbia will be observing Emancipation Day on April 15, 2016, the usual filing deadline. Because April 16 and 17 fall on a weekend, the 2016 filing deadline is moved to the next business day which is April 18. Taxpayers in Maine and Massachusetts will have until April 19, 2016, to file because these two states observe Patriot's Day on Monday, April 18.

Public safety heroes’ law passed

Public safety heroes’ law passed

A new law, the "Don't Tax Our Fallen Public Safety Heroes Act," was signed on May 22, 2015, to clarify the tax treatment of federal and state benefits for public safety officers killed or injured in the line of duty. Under the law, such benefits will not be subject to federal income tax.

Supreme Court rules on ACA subsidies

Supreme Court rules on ACA subsidies

On June 25 the Supreme Court issued its ruling in the King v. Burwell case, holding that federal subsidies for health insurance could be provided whether the insurance was purchased through a state exchange or a federal exchange.  Challengers to the ACA subsidies maintained that the law’s language allowed for subsidies only when insurance was purchased through a state exchange and not through a federal exchange.  34 states had not set up an exchange, relying instead on the federal exchange. Subsidies offset the cost of health insurance for low and moderate income people who aren’t covered by an employer’s plan, Medicaid, or Medicare.