Don't overload on company stock
Don't invest too much of your 401(k) plan contributions in your company's stock. Remember, even if the company is doing well now, things can change. And if the worst happens and you lose your job, you don't want to lose your retirement savings too. If your employer used company stock for the matching contribution, you may have no choice. But at least you can select other investments for your own contributions.
Hiring family in the family business can cut taxes
As the summertime school vacation season approaches, young family members may be looking for a job - and having a hard time finding one. Hire them in your family business, and you get a double benefit: helping the kids gain valuable experience and garnering tax breaks for your company.
Here's what you need to know.
Classify workers properly
Don't subject your business to tax penalties by misclassifying an employee as an independent contractor. The IRS is aware that employers prefer to treat workers as independent contractors to avoid paying fringe benefits and payroll taxes. If you're not absolutely sure how to treat a given worker, contact us.
In this issue:
The Month of May:
Happy Independence Day! While we look forward to the fireworks that mark the month, there could be fireworks for millions when the IRS tries to take back health care Premium Tax Credits at the end of the year. If you are using the Health Exchange for your insurance you will want to be aware of this tax risk. There is also news on two other fronts, first the newly announced Taxpayers' Bill of Rights and potential payment relief for those with student loan debt. All this and an article exploring the status of home affordability round out this month's newsletter.
As always, should you know of someone who may benefit from this information please feel free to forward this newsletter to them.
Age (not death!) and Taxes
Age does matter, when it comes to tax obligations
One of the elements that make our Federal Tax Code so hard to follow is that different laws apply to you based on your or your dependents’ age. To help you navigate through some of this maze here is a chart that outlines key ages and how it applies to your tax obligation.
A Tip on Tip Reporting
If you are like millions of taxpayers in the service industry, you may receive tips. The tax code is clear; if you receive tips you must report them as income. Some employers have systems to make this easy, while others do not. Here are some suggestions:
Proper tip reporting has three components.
2015 Health Savings Account Limits
The savings limits for the ever-popular Health Savings Accounts (HSA) are now set for 2015. The new limits are outlined here with current year amounts noted for comparison purposes.
An HSA is a tax advantaged savings account to pay for qualified health care costs. The contributions are made on a pre-tax basis. There is no tax on the funds contributed, the interest earned, or investment gains as long as the funds are used to pay for qualified medical, dental, and vision expenses. To qualify for this tax-advantaged account you must be enrolled in a “high deductible” health insurance program as defined by HSA rules.
In this issue:
The Month of May:
With the end of tax filing and the start of summer why not focus on new beginnings? Included in this month's newsletter are some ideas to help find summer employment and some suggestions on the benefits of creating a good accounting system for your small businesses.
Wonder what the IRS has in store for audits? Consider reviewing the article on audit statistics and a new area of focus within the agency on alimony reporting compliance.
Should you know of someone who may benefit from this information please feel free to forward this newsletter to them.
Picture this; for the past few years you have picked up your tax return and have had a small but nice refund. Now imagine your surprise, when next year, you are required to send in a fairly big check to settle your tax bill. Believe it or not, this message is almost as hard to deliver to a taxpayer as it is to hear it. Here are some tips to help ensure tax changes do not come as a surprise to you.
The U.S. Treasury Department recently released an audit report revealing a disturbing level of non-compliance in alimony reporting on tax returns. This non-compliance will result in vast increase in tax return reviews now and in the years to come. Here is what you need to know.
The Treasury Inspector General for Tax Administration (TIGTA) recently conducted an Audit of 2010 tax returns that claimed an alimony deduction. What they found:
Camarillo Award Program Honors the Achievement
CAMARILLO June 20, 2014 -- DiSabatino CPA has been selected for the 2014 Best of Camarillo Award in the Certified Public Accountants category by the Camarillo Award Program - the second consecutive year!
Small Businesses: Plan for Lower Section 179 Expense
Top-line: In 2014, the annual expense limit for Section 179 is now $25,000, down from $500,000 in 2013. You will need to plan accordingly.
Section 179 of the tax code allows businesses to immediately expense qualified capital purchases versus depreciating (recovering) their cost over time. Qualified purchases can be new or used equipment and certain software placed in service during the year. This benefit can be maximized as long as total qualified asset purchases by your business do not exceed $200,000 (formerly $2 million) during your 2014 tax year.
Indirect IRA Rollovers. Change is Coming
Topline: When rolling over funds from one IRA to another (typically Traditional IRAs, Roth IRAs, SEP IRAs and Simple IRAs), it is best to use a direct rollover versus an indirect rollover. As confirmed in a recent tax court ruling, taxpayers are limited to ONE INDIRECT rollover per 12 months. This limit applies no matter how many IRA accounts you own.
Many taxpayers have numerous Individual Retirement Accounts (IRAs). You can move funds from one qualifying account to another without paying taxes on the rollover as long as you follow the rollover rules. If the rules are not followed, the funds are deemed a distribution and taxes plus a potential early withdrawal penalty may be owed. There are two primary methods for rolling over the funds from one account to another:
Direct Rollover. Using this method, the taxpayer never takes possession of the rollover funds. Instead, one institution transfers the funds out of one account and sends them directly to the institution that has the receiving account. Since the taxpayer never takes possession of the funds, there is little chance the IRS would see the transfer as a distribution.
Indirect Rollover. In this case, the funds are withdrawn from the IRA and sent to the account holder. The account holder then deposits the same amount into the new account. As long as the transfer takes place within 60 days, it is a valid transfer and no taxes are owed. The taxpayer bears the burden of proof that the transfer was completed within the required timeframe.
In a recent court case, the IRS put their foot down on unlimited INDIRECT transfers of funds.* In their ruling they stated that a taxpayer is entitled to make one indirect transfer per 12-month period regardless of the number of IRA accounts. Any additional transfers are not valid and will be deemed a distribution from your IRA.
Some taxpayers were using a number of rollovers of the same dollar amount from account to account to give themselves a short-term loan. In the tax case, the defendant removed funds from one IRA. He used the money for a couple of months. He then took the same amount from a second IRA and replaced the money originally removed from the first IRA. He then took the same amount from a third IRA to replace the funds in the second IRA. Finally, the last IRA had its funds replaced. Effectively giving him use of the funds for up to 120 days. The court ruling effectively eliminated the ability to make these kinds of transfers.
The court ruling creates a change in the IRA indirect rollover rules beginning on January 1, 2015. Effective that date, you may only conduct one indirect IRA rollover per 12 month period. IRS publications will be revised to reflect this change.
Because of this, it is best to employ a direct rollover of funds from one IRA to another using a qualified financial trustee to avoid any potential problems. This ruling does not apply to all conversions and rollovers. Please contact the financial institution receiving the rolled over funds for details on their process to ensure it is handled correctly.
*Source: T.C. Memo 2014-21 Bobrow vs Commissioner IRS
Please give us a call to discuss these and other profit-boosting ideas for your business.
DiSabatino CPA
Michael DiSabatino
651 Via Alondra Suite 715
Camarillo, CA 93012
Phone: 805-389-7300
ww.sharpcpa.com
This publication provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, rewritten or redistributed without permission, except as noted here. All rights reserved.
Annual Tax-Exempt Filing Due May 15th
If you are involved in a tax-exempt organization or know someone who is, this is a reminder that the annual filing requirement is quickly approaching.
The rule: Every tax-exempt organization must file an annual return (990 series) on the 15th day of the fifth month following their year end. That means calendar based charitable groups have until May 15th to file.
The penalty: If the organization does not file their annual return for three consecutive years, they automatically have their tax-exempt status revoked.
Who should worry: Any tax exempt organization except churches and church related organizations. So soccer booster clubs, PTAs, youth sports organizations, community organizations and more need to do this every year.
The small organizations: If your average annual receipts are $50,000 or less, you can simply file Form 990-N (e-postcard).
Privacy: Remember not to include your Social Security number with any filings. Often these tax Forms are in public domain. So any private information is available for identity thieves.
What’s Your Status? The IRS offers an online tool to check the status of your organization. Here is the link. A quick check of organizations you are members of can lead to a quick phone call to ensure they get their filings done.
Please give us a call to discuss these and other profit-boosting ideas for your business.
DiSabatino CPA
Michael DiSabatino
651 Via Alondra Suite 715
Camarillo, CA 93012
Phone: 805-389-7300
ww.sharpcpa.com
This publication provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, rewritten or redistributed without permission, except as noted here. All rights reserved.
Keeping the Tax Underpayment Penalty at Bay
With the 2013 tax year behind you, now is the time to plan appropriately to make sufficient estimated tax payments. An underpayment of estimated tax may apply if you still owe $1,000 or more in additional tax after accounting for withholdings and estimated payments made throughout the year. Remember, to avoid underpayment penalties you are required to prepay either;
Leaving a Job? Don't Take a Tax Surprise with You
An inevitable part of life is a changing jobs. Now a recent Supreme Court decision clarifies that severance payments you receive when you leave your job are wages and subject to employment taxes. So how might this impact you?
All employees and employers pay FICA taxes. There are two components;
Social Security. Social Security tax rates are 6.2% for the employee and 6.2% for the employer (total 12.4%) on the first $117,000 of wages in 2014.
Medicare. Medicare tax is 1.45% for the employee and another 1.45% for the employer (total 2.9%). There is also a potential Obamacare surcharge if your wages exceed $200,000 single and $250,000 married.
Many employers who pay a severance check to employees when they leave have classified these checks as other, non-wage, income. This allows both the employer and employee to save on paying these FICA taxes.
Virtual Currency...Every Bit Counts
In recent Internal Revenue Service Notice 2014-21, virtual currencies like Bitcoin have been classified as property. The IRS is aware of the growing popularity of this medium of exchange and that it is not considered legal tender by any government. The IRS notice hopes to clarify how you must treat your use of this new technology. The outcome for users is not good. Here is what you need to know;
You must take care to plan your retirement plan withdrawals to avoid a potential 10% early withdrawal penalty. Unfortunately, each retirement account type has different rules. Here are some tips for Roth IRAs.
Roth IRA accounts differ from other IRAs in that your contributions are made in after-tax dollars. If you follow the Roth IRA rules, your withdrawals of any earnings in the account can be tax-free. Generally, to take advantage of the tax-free distribution from a Roth IRA:
In this issue:
The Month of May:
With the 2013 Tax filing season behind us, the 2014 tax planning season is just beginning. Included this month are two areas where advanced planning can reduce your tax bill. There is also an update from the IRS on the tax treatment of virtual currencies like Bitcoin for those of you using or contemplating their use. A checklist of ideas on how to improve security of your identity rounds out this month's newsletter.
Should you know of someone who may benefit from this information please feel free to forward this newsletter to them.
In this issue:
In the News:
For the month of April:
April 15th: Tax Returns Due
April 15th: 1st Quarter 2014 estimated tax payments due
appy tax filing month. To help celebrate, this month's newsletter includes a fun tax quiz. In addition, there are articles outlining state revenue department's new strategy of harassing out-of-state businesses to collect their sales/use tax for them and an article outlining the risks children can place on parents with their internet behavior.
Should you know of someone who may benefit from this information please feel free to forward this newsletter to them.
