TAX TIP OF THE DAY... pay less tax on early retirement
Taxpayers are usually penalized on early retirement distributions before age 59 1/2... sometimes up to 50%!!! But there are many exceptions and tricks that can help you out. Here are 8 of my favorite "tricks" too minimize the penalty: 1) Rollover funds to an IRA first. IRAs have more exceptions. 2) use funds for college expenses 3) use funds for excessive medical, dental, vision 4) use funds to help with certain home purchases 5) treat as a non-taxable loan by returning the funds within 60 days 6) treat as part of an annual distribution plan of at least 5 years 7) take credit for YOUR OWN CONTRIBUTIONS - PA & Local 8) elect to pull out your contributions FIRST - PA & Local SHARE WITH A FRIEND. If you need any help... www.baboiancpa.com TAX TIP OF THE DAY... deduct interest paid
Mortgage interest is a given. But add these 7 additional types of interest: 1) on certain RV and boat loans 2) credit card interest for partial business and rental use 3) loans for the purchase of investments 4) on debt & credit cards used to purchase schooling & supplies beyond high school 5) on vehicle loans for partial business and rental use 6) home equity loans for any use 7) certain loans from family members As always, there are some great tricks and lousy limitations with these deductions. For example... a special loophole allows you to deduct 100% of business credit card interest, even though the original charges included a personal big screen TV & Christmas gifts from December 2012. SHARE WITH A FRIEND. If you need any help... www.baboiancpa.com TAX TIP OF THE DAY... don't pay tax twice on employee stock option gains.
Starting in 2014, 1099-B forms report INCORRECT cost info which could easily result in overstated taxable capital gains. Solution: add to the cost basis the amount of taxable benefit already taxed on the W-2. If you do it right, the taxable capital gain should be close to zero. SHARE WITH A FRIEND. If you need any help... www.baboiancpa.com TAX TIP OF THE DAY... contractors using subs
If you are a PA contractor using subs, the attached document may SCARE the heck out of you. Don't panic. Just change your contracts with subs today! Act 72 affects certain PA contractors (construction, repairs, demolition) who use subcontractors. First determine if your business is covered by Act 72. If yes, you should immediately change your contracts with subs in order to avoid harsh penalties. Click here... for full details. SHARE WITH A FRIEND. If you need any help... www.baboiancpa.com TAX TIP OF THE DAY... deliver your new baby by 12/31!
Congratulations. It's a boy, girl... NO, it's a tax dependent!!! Babies born as late as December 31 result in a FULL YEAR's worth of tax breaks. Save an average of $1,600 to $2,000. Twins... double these numbers! So get that social security number processed asap at the hospital. You are going to need it for your 2015 tax return. Certain parents save much more... lower income parents, parents with 1 older child in daycare, single "Head of Household" parents, adopted babies with finalization before 12/31. SHARE WITH A FRIEND. If you need any help... www.baboiancpa.com TAX TIP OF THE DAY... firearms carried for protection.
Work deductions must be ordinary and necessary BASED UPON THE CIRCUMSTANCES. You MAY or MAY NOT be able to pass this test based upon inherent dangers of your job duties, job location, late night hours or if you work mostly alone. You can never deduct based upon a perceived danger while driving to work since commuting is not deductible. *******************This post is not a political statement. I'm not telling you to pack. This post is for those that are already LEGALLY carrying now.**************** These are examples that may pass the above test: law enforcement, security, remote warehouse, convenience store, overnight shift workers, truckers, any geographic location with above average crime stats, small offices, professions subject to revenge & anger (defense attorneys, related to divorce & family decisions, etc.). Once you have cleared the above ordinary and necessary test, you can deduct the business portion of the following: 1) firearm cost 2) firearm storage safe 3) firearm ammunition 4) firearm safety and proficiency training 5) related permits and fees 6) related legal fees to obtain employer clearance to carry I suggest discussing your deduction eligibility with a tax professional. SHARE WITH A FRIEND. If you need any help... www.baboiancpa.com TAX TIP OF THE DAY... how to beat IRS letters.
1) Understand that most IRS letters are incorrect. You don't owe $5,122. 2) Don't waste time calling. Respond in WRITING. 3) Be a brat. Keep responding with the same answer until you get your way. 4) Don't get bullied! Sometimes it takes 4 letters to get your way. 5) DO NOT PAY. Let them adjust for your comments and rebill if you still owe. 6) Skim the 8 page letter looking for the 1 paragraph that states what their problem is. Are they right, wrong, or partially right? 7) If this is a simple matter, respond with your explanation. Keep your response simple and all taxpayers should sign and date. 8) Request penalty abatement even if you were wrong and owe them tax. SECRET WEAPON: If you have not had IRS penalties over the past 3 years, you qualify for the "first-time penalty abatement" provision. The IRS will not offer this UNLESS YOU ASK FOR IT. This post refers specifically to IRS letters... not PA or Local tax letters which have different strategies. For more complicated matters, get professional help. SHARE WITH A FRIEND. If you need any help... www.baboiancpa.com TAX TIP OF THE DAY... Obamacare enrollment for 2016
If you purchase health insurance from the Marketplace (Obamacare web site), you may receive a "subsidy". The amount of the subsidy is determined by how you answer certain questions during the application process... family size and income. 1) family size... only include household members that you are claiming on your tax return as dependents. Include dependents even if you are not purchasing Marketplace insurance for them. 2) income... they are referring to 2016 income. 3) income... generally, it's your prediction of 2016 adjusted gross income which is at the bottom of 1040 page 1. 4) you have the option to take any subsidy in advance (reduces each monthly premium) or to wait and get any subsidy with your 2016 tax return refund. Why would you wait? If you are uncertain as to your 2016 # of household members or 2016 income, you might want to wait to prevent from having to re-pay any excess subsidy erroneously given to you. I suggest taking the subsidy in advance due to a glitch in the repayment rules that could save you money. 5) settle up the subsidy with the 2016 tax return... the true amount of any subsidy is determined when you actually file your 2016 tax return. If they underpaid you, you get the rest with your refund. If they overpaid you, they deduct it from your refund. The enrollment process is very frustrating to most people. It's a little like getting into a taxi and the taxi driver asks you to predict how many miles to your Baltimore airport destination. He makes you pay up front based upon your estimate. If your income is low enough, the taxi driver will discount your fare. Once you arrive at the airport, the taxi driver tells you how many miles he actually drove.... his taxi fare and discount now changes. So you have to settle up based upon the actual charge. Either you owe him or he owes you. SHARE WITH A FRIEND. If you need any help... www.baboiancpa.com TAX TIP OF THE DAY... should I hire an employee?
Forwarding this post is a great holiday gift for a small business owner. Many small business owners come to the conclusion that it is impossible to succeed because most of their profits get paid back out in taxes, insurance and other admin fees. So how do successful businesses do it? What is their secret? It's like diagnosing a stalled automobile... First, review your pricing. Second review your advertising. Third review your tax minimization strategy. Let's assume that you are happy with all three... read on. THE SECRET WEAPON... The next step to catapulting a business to the next level is hiring an employee to take over admin. duties. If you can push a few time consuming items off your plate, then you can spend more time doing what drives sales... selling to even more customers, servicing just 3 more customers per day, returning calls to hot leads, etc. If you can answer YES to all of these questions, it's time to consider hiring an employee: 1) Do you have duties that you could train an assistant to do on their own? (telephone, scheduling, answering questions, paperwork) 2) Are you consistently running behind on returning customer inquiries, invoicing customers, completing work in the pipeline? 3) Are you losing work because your completion date is too far out for potential customers? 4) Are you able to forecast how many more billable hours or additional invoiced dollars you could receive if you no longer had to complete the admin. duties from 1) above. 5) Do you have enough admin. work to give a part-time employee at least 25 hrs per week of work? Did you answer yes to all of the 5? Then read on... The last step is most crucial. THIS IS NOT A DO IT YOURSELF PROJECT. You can't just pay people. There are rules, applications, matching taxes, insurance requirements and penalties. Discuss the issue further with your CPA. SHARE WITH A FRIEND. If you need any help... www.baboiancpa.com |
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AuthorDavid S. Baboian, CPA Archives
February 2018
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