Friday, February 8, 2013
BILL
BISCHOFF for the Wall St. Journal writes:Last month’s fiscal-cliff legislation included lots of tax
provisions. Media attention has focused heavily on changes that affect
individuals. But the new law also provides some valuable tax-saving breaks for
businesses. Here’s the most important stuff to know for your outfit’s 2013 tax
year.
The $500,000 and $250,000 allowances are reduced if your business
places in service over $2 million worth of assets that would otherwise qualify
for Section 179 deductions. This phase-out rule usually only affects larger
businesses.
Warning: Unlike 50% bonus depreciation
deductions (explained below), Section 179 deductions cannot exceed the
taxpayer’s business taxable income calculated before the Section 179
deductions. In other words, Section 179 deductions cannot create or increase an
overall business tax loss for the year. Special rules apply to unincorporated
businesses (sole proprietorships, partnerships, and LLCs) and S corporations.
Consult your tax pro for details about how the Section 179 deduction rules work
and whether your business can benefit.
50% First-Year Bonus Depreciation for New Assets
The new law extended 50% first-year bonus depreciation for an
additional year to cover qualifying new (not used) business assets that are
placed in service during calendar year 2013. The 50% bonus-depreciation
write-off is on top of the first-year depreciation deduction allowed under the
“regular” rules. Therefore your business can deduct over half the cost of
qualifying new assets in Year 1 instead of writing them off over a number of
years.
For many small businesses, the single most important element of
the 50% bonus depreciation deal is the $8,000 increase in the maximum allowable
first-year depreciation deduction for cars, light trucks, and light vans.
* For new cars, the maximum first-year depreciation deduction for
2013 will be about $11,300 (the IRS has yet to announce the exact figure).
Without the new law, the maximum deduction would have been $8,000 less. To
claim the maximum deduction, you must use the car 100% for business. The
deduction is proportionately reduced if you use it over 50% for business but
less than 100%.
* For new light trucks and light vans, the maximum first-year
deduction for 2013 will be about $11,500. Without the new law, the maximum
deduction would have been $8,000 less. To claim the maximum deduction, you must
use the vehicle 100% for business. The deduction is proportionately reduced if
you use it over 50% for business but less than 100%.
Key point: Unlike Section 179
deductions, your business can claim 50% bonus depreciation deductions even if
it has little or no taxable income for the year. Therefore, bonus depreciation
deductions can create or increase a so-called net operating loss (NOL) for the
year. If your business has an NOL for the 2013 tax year, you can carry the NOL
back to 2012 and/or 2011 and recover some or all of the income taxes paid for
those years.
Special First-Year Depreciation Rules for “Heavy” Vehicles
If you buy a business vehicle with a gross vehicle weight rating
(GVWR) above 6,000 pounds, it’s generally treated as a truck (as opposed to a
passenger vehicle) for tax purposes. Truck treatment is much more favorable,
because the maximum first-year depreciation deductions for cars, light trucks,
and vans will only be a little over $11,000 this year (as explained earlier).
100% Gain Exclusion for Qualified Small Business Corporation Stock
The fiscal cliff legislation extended the temporary 100% federal
income tax exclusion for gains from sales of qualified small business
corporation (QSBC) stock issued in 2013. However, don’t get too excited just
yet. QSBC shares must be held for more than five years to be eligible for the
gain exclusion privilege, so we are talking about gains from stock sales that
occur years from now. That said, the 100% gain exclusion is obviously a great
deal if you qualify. If you’re thinking about injecting new capital into your
business this year, consult your tax adviser to see if you can position yourself
to take advantage of this tax-saving opportunity.
Tax-Free Transit and Parking Deals for Employees
For 2013, your company can provide employees with up to $245 per
month in tax-free transit passes. In addition, you can give employees up to
$245 per month tax-free for parking. The advantage of such a program for your
employees is obvious. The advantage for your company is these amounts are
exempt from federal employment taxes (unlike wage payments).
If you don’t want the company to pay for these fringes, you can
offer employees a salary reduction arrangement instead. Under this alternative,
each employee could set aside up to $245 per month for transit passes and up to
$245 per month for parking. These amounts are subtracted from the employee’s
taxable salary. On the employee side of the deal, this arrangement allows for
most or all commuting costs to be covered with before-tax dollars. On the
company’s side of the deal, you don’t have to pay federal employment taxes on
the salary reduction amounts. It’s a win-win proposition.
10 Overlooked Tax Breaks
Kay Bell for BankRate.com writes: The goal of every taxpayer is to make sure the Internal Revenue Service gets as little as possible. For that to happen, you need to take every tax deduction, credit or other income adjustment you can. Here are 10 tax breaks -- some for itemizers only, others that any filer can claim -- that often get overlooked but could save you some tax dollars.
You can't deduct the value of your time spent volunteering, but if you buy supplies for a group, the cost of that material is deductible. Similarly, if you wear a uniform in doing your good deeds, for example as a hospital volunteer or youth group leader, the costs of that apparel and any cleaning bills also can be counted as charitable donations.
So can the use of your vehicle for charitable purposes, such as delivering meals to the homebound in your community or taking the Boy Scouts or Girls Scouts troop on an outing. The IRS will let you deduct that travel at 14 cents per mile.
Remember, too, the dual nature of the credit's name: child and dependent. If you have an adult dependent who needs care so that you can work, those expenses can be claimed under this tax credit.
These added medical expenses will be even more valuable on your 2013 tax return. Beginning this tax year, a health care reform act provision now requires you have medical expenses of more than 10 percent of your adjusted gross income before you can deduct them.
Self-employed taxpayers who are not covered by any other employer-paid plan, for example, one carried by a spouse, can deduct 100 percent of health insurance premiums as an adjustment to income in the section at the bottom of Page 1 of Form 1040.
The lifetime learning credit could provide some students (or their parents) up to a $2,000 credit.
Don't forget the American opportunity tax credit, which offers a dollar-for-dollar tax break of up to $2,500. This education tax break was created as part of the 2009 stimulus package as a short-term replacement for the Hope tax credit, and was extended through tax year 2017 as part of the American Taxpayer Relief Act of 2012, also known as the "fiscal cliff" tax bill.
The bad news is that the tax credit is just a third of what was previously available. You also now must pay attention to specific spending limits, such as $150 for high-efficiency furnaces and boilers, $300 for air conditioners and heat pumps and $200 for replacement windows. And the overall $500 tax credit cap applies to anyone who received any previous energy tax credit since Jan. 1, 2005.
But if you qualify, the tax break is a tax credit, giving you a dollar-for-dollar reduction of your tax bill. And when it comes to taxes, every dollar saved helps.
1. Additional charitable gifts
Everyone remembers to count the monetary gifts they make to their favorite charities. But expenses incurred while doing charitable work often aren't counted on tax returns.You can't deduct the value of your time spent volunteering, but if you buy supplies for a group, the cost of that material is deductible. Similarly, if you wear a uniform in doing your good deeds, for example as a hospital volunteer or youth group leader, the costs of that apparel and any cleaning bills also can be counted as charitable donations.
So can the use of your vehicle for charitable purposes, such as delivering meals to the homebound in your community or taking the Boy Scouts or Girls Scouts troop on an outing. The IRS will let you deduct that travel at 14 cents per mile.
2. Moving expenses
Most taxpayers know they can write off many moving expenses when they relocate to take another job. But what about your first job? Yes, the IRS allows this write-off then, too. A recent college graduate who gets a first job at a distance from where he or she has been living is eligible for this tax break.3. Job hunting costs
While college students can't deduct the costs of hunting for that new job across the country, already-employed workers can. Costs associated with looking for a new job in your present occupation, including fees for resume preparation and employment of outplacement agencies, are deductible as long as you itemize. The one downside here is that these costs, along with other miscellaneous itemized expenses, must exceed 2 percent of your adjusted gross income before they produce any tax savings. But the phone calls, employment agency fees and resume printing costs might be enough to get you over that income threshold.4. Military reservists' travel expenses
Members of the military reserve forces and National Guard who travel more than 100 miles and stay overnight for the training exercises can deduct related expenses. This includes the cost of lodging and half the cost of meals. If you drive to the training, be sure to track your miles. You can deduct them on your 2012 return at 55.5 cents per mile, along with any parking or toll fees for driving your own car. You get this deduction whether or not you itemize, but you will have to fill out Form 2106.5. Child, and more, care credit
Millions of parents claim the child and dependent care credit each year to help cover the costs of after-school day care while Mom and Dad work. But some parents overlook claiming the tax credit for child care costs during the summer. This tax break also applies to summer day camp costs. The key here is that the camp is a day-only getaway that supervises the child while the parents work. You can't claim overnight camp costs.Remember, too, the dual nature of the credit's name: child and dependent. If you have an adult dependent who needs care so that you can work, those expenses can be claimed under this tax credit.
6. Mortgage refinance points
When you buy a house, you get to deduct the points paid on the loan on your tax return for that year of purchase. But if you refinance your home loan, you might be able to deduct those points, too, as long as you use refinanced mortgage proceeds to improve your principal residence.7. Many medical costs
Taxpayers who itemize deductions know how difficult it often is to reach the 7.5 percent of adjusted gross income threshold required before you can claim any medical expenses. It might be easier to clear that earnings hurdle if you look at miscellaneous medical costs. Some of these include travel expenses to and from medical treatments, insurance premiums you pay for from already-taxed income and even alcohol- or drug-abuse treatments.These added medical expenses will be even more valuable on your 2013 tax return. Beginning this tax year, a health care reform act provision now requires you have medical expenses of more than 10 percent of your adjusted gross income before you can deduct them.
Self-employed taxpayers who are not covered by any other employer-paid plan, for example, one carried by a spouse, can deduct 100 percent of health insurance premiums as an adjustment to income in the section at the bottom of Page 1 of Form 1040.
8. Retirement tax savings
The retirement savings contribution credit was created to give moderate- and low-income taxpayers an incentive to save. When you contribute to a retirement account, either an individual retirement account (traditional or Roth) or a workplace plan, you can get a tax savings for up to 50 percent of the first $2,000 you put into such accounts. This means you get a $1,000 tax credit, which is a tax break that directly reduces dollar for dollar any tax you owe.9. Educational expenses
The Internal Revenue Code offers many tax-saving options for individuals who want to further their education. The tuition and fees deduction can help you take up to $4,000 off your taxable income and is available without having to itemize.The lifetime learning credit could provide some students (or their parents) up to a $2,000 credit.
Don't forget the American opportunity tax credit, which offers a dollar-for-dollar tax break of up to $2,500. This education tax break was created as part of the 2009 stimulus package as a short-term replacement for the Hope tax credit, and was extended through tax year 2017 as part of the American Taxpayer Relief Act of 2012, also known as the "fiscal cliff" tax bill.
10. Energy-efficient home improvements
Generous tax breaks for for energy-efficient home improvements expired at the end of 2010, but some homeowners still might be able to pocket a tax credit of up to $500 on their 2012 and 2013 returns, again thanks to a provision in the fiscal cliff bill, for a few common residential energy upgrades.The bad news is that the tax credit is just a third of what was previously available. You also now must pay attention to specific spending limits, such as $150 for high-efficiency furnaces and boilers, $300 for air conditioners and heat pumps and $200 for replacement windows. And the overall $500 tax credit cap applies to anyone who received any previous energy tax credit since Jan. 1, 2005.
But if you qualify, the tax break is a tax credit, giving you a dollar-for-dollar reduction of your tax bill. And when it comes to taxes, every dollar saved helps.
10 States With The Best Tax Breaks For The Wealthy
Mandi Woodruff and Megan Durisin for Business Insider write: There's no better evidence of the growing chasm between America's rich and poor than state tax rates. On average, the nation's lowest-income residents pay tax rates that are twice as high as the wealthiest 1 percent of taxpayers, according to a new report by The Institute on Taxation and Economic Policy. That includes state, income, property and sales taxes, of which the rich pay 5.6 percent of their income and the bottom 20 percent of earners pay 11.1 percent each year. Using ITEP data, along with data from the Tax Foundations' latest State Business Tax Climate Index, we've compiled a list of the ten states with the best tax rates for the wealthy and, consequently, the largest tax gaps between the rich and the poor.
10. Alabama
Rounding out the best states for the wealthy is
Alabama, one of several Southern states that are overwhelmingly friendly to
high earners.
The wealthiest 1 percent pay just 3.8 percent of
their income in taxes, while the poorest
taxpayers shell out 10.2 percent. The middle class isn't far behind, with 9.4
percent paid in taxes on average.
Individual income taxes: The Tax Foundation ranked Alabama the 18th
best state for income taxes.
Wealthy resident: Marguerite Harbert, widow of the late
construction and energy mogul, John Murdoch Harbert III, is worth $1.4 billion.
9. Indiana
In Indiana, the wealthiest 1 percent of
taxpayers see 5.4 percent of their income eaten up by taxes, while the
lowest earners part with 12.30 percent.
Middle-income residents shell out 10.7 percent
to taxes.
Individual income taxes: The Tax Foundation ranked Indiana the 10th
best state for income taxes.
Wealthy resident: Gayle Cook, member of board of directors of
medical device firm Cook Group, is worth $3.4 billion.
8. Pennsylvania
Pennsylvania's wealthy pay 4.4 percent of their
total income toward taxes,
while the poorest 20 percent pay more than twice that rate –– 12 percent.
The middle class parts with nearly 10 percent of
their take-home pay.
Individual income taxes: The Tax Foundation ranked Alabama the 12th
best state for income taxes.
Wealthy resident: Hansjorg Wyss, chairman of Swiss medical
device manufacturer Synthes Holding AG, is worth $7 billion.
7. Arizona
Arizona has one of the higher tax rates for the
wealthy, but it still only takes 4.7 percent of their income on average.
On the other hand, the poorest residents
pay 12.9 percent of their pay, followed by the middle class, which pays 9.7
percent.
Individual income taxes: The Tax Foundation ranked Arizona the 17th
best state for income taxes.
Wealthy residents: Bruce Halle, Sr., founder of the Discount
Tires empire.
6. Tennessee
Southern states dominate the list of best states
for the wealthy, and Tennessee is no exception.
The wealthiest 1 percent of residents pay just
2.8 percent in taxes, while the poorest 20
percent part with 11.2 percent of their income. Middle-income taxpayers shell
out 8.6 percent in total.
Individual income taxes: The Tax Foundation ranked Tennessee the
8th best state for income taxes.
Wealthy residents: Singer Leanne Rimes and Thomas Frist, Jr.,
founder of the Hospital Corporation of America.
5. Texas
Everything's bigger in Texas, including the tax
gap between the rich and poor.
The state's wealthiest 1 percent, who earn an
average of $1.4 million, pay about 3 percent of their annual earnings in state
and local taxes, while the poorest 20
percent, who earn $11,400, spend 8.5 percent of their income on taxes.
Individual income taxes: The Tax Foundation ranked Texas the 7th
best state for income taxes.
Wealthy residents: More than 30 members of the Forbes 400 have a
Texas address. Among them are Walmart heiress Alice
Walton and Kinder Morgan CEO Richard Kinder.
4. Illinois
In Illinois, the wealthiest 1 percent,
with average earnings of $1.5 million, pay 4.9 percent of their income toward
state and local taxes.
The lowest-earning 20 percent pay 13.8 percent
of their average $10,100 annual salary in taxes.
Individual income taxes: The Tax Foundation ranked Illinois the
13th best state for income taxes.
Wealthy residents: Billionaire real estate investor Sam Zell and
hedge fund billionaire Ken Griffin.
3. South Dakota
South Dakota's richest 1 percent, with an
average income of $1.1 million, pay 2.1 percent of their income in taxes, while the lowest-earning 20 percent, with
average incomes of $11,200, pay five times as much.
Individual income taxes: The Tax Foundation ranked South Dakota No.
1 best state for income taxes (tied with Florida, Alaska, Washington, and
Nevada).
Wealthy residents: No members of the Forbes 400 call South Dakota
home.
2. Florida
The richest 1 percent of Floridians, with an
average income of $1.6 million, pay 2.3 percent of their earnings on taxes while the
poorest 20 percent, making an average of $10,300, pay 13.2 percent of their
income toward taxes.
Individual income taxes: The Tax Foundation ranked Florida the No. 1 best
state for income taxes (tied with South Dakota, Alaska, Washington, and
Nevada).
Wealthy residents: Billionaire William Koch, Donald Trump, and
Carnival Cruises CEO Micky Arison.
1. Washington
Washington is the place to be for wealthy
residents looking for the cushiest tax rates.
The top 1 percent, who make an average of $1.1
million, pay about 2.8 percent of their income toward state and local taxes
each year. But those in the bottom 20 percent of the income bracket, with an
average salary of $11,500, pay 16.9 percent toward state and local taxes.
Individual income taxes: The Tax Foundation ranked Washington the No. 1
best state for income taxes (tied with South Dakota, Alaska, Florida, and
Nevada).
Wealthy residents: Microsoft's Bill Gates and Amazon CEO
Jeff Bezos.
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