Friday, June 7, 2013

Get lucky: 13 tax moves in '13 / Strategy: Here are 13 ways to cut taxes midway through the year.

Business Management Daily writes: Actually, luck has little to do with it. Good tax planning is about putting yourself in the best possible position.   Strategy: Here are 13 ways to cut taxes midway through the year. Several of these tax breaks were extended by the American Taxpayer Relief Act (ATRA) passed at the beginning of this year.

1.  Harvest capital gains or losses. Have you already picked off winners from securities sales in 2013? Any capital losses realized between now and the end of the year can offset those capital gains plus up to $3,000 of ordinary income. (Any remaining loss is carried forward to 2014). Reminder: The maximum 15% tax rate on long-term capital gains jumps to 20% for single filers with income above $400,000 and joint filers with income above $450,000. Short-term gains for taxpayers above these thresholds are taxed at rates reaching as high as 39.6%.
Tip: You might also have to pay a 3.8% Medicare surtax on certain investment income.

2.  Stay within vacation home boundaries. If you rent out your vacation home when you’re not using the place, you can generally use your expenses to offset rental income. But you can’t claim a loss on the deal if your personal use of the home exceeds the greater of 14 days or 10% of the time the home is rented out. Don’t cross the 14-day/10% limit this summer.
Tip: If you spend a day fixing up the home, it doesn’t count as a “personal use” day, even if the rest of the family comes along strictly for pleasure.

3. Pile on equipment purchases. Under Sec­­tion 179 of the tax code, you can currently deduct up to $500,000 of qualified business property placed in service this year (subject to a phaseout threshold of $2 million). These thresh­­olds were extended through 2013 by ATRA. Absent any new legislation, the maximum Section 179 deduction will plunge to $25,000 next year (with a $200,000 phaseout threshold).
Tip: ATRA also preserves 50% bonus depreciation for qualified property placed in service before 2014.

4. Dust off charitable deductions. As a general rule, you can deduct the fair market value (FMV) of property you donate to a qualified charitable organization if you’ve owned the property for more than a year.
Tip: Organizations like the Salvation Army and Goodwill provide guidelines for valuing used clothing, furniture and other items.

5. Cool off with an energy credit. The 10% residential energy credit, which had technically expired after 2012, was revived retroactive to 2012 and extended through 2013. It covers energy-saving improvements installed in your home this summer like central air conditioning and advanced main air circulating fans, as well as insulation materials; exterior windows and skylights; exterior doors; natural gas, propane and oil water heaters or furnaces; water boilers; electric heat pump water heaters; biomass stoves; and certain metal roofs.
Tip: A lifetime credit maximum of $500, as well other specific limits, applies to qualified expenses.

6. Enjoy tax perks for business trips. If you travel away from home, you may deduct your travel expenses—including airfare, lodging and 50% of the cost of meals—when the primary purpose of the trip is business-related. But the number of days spent on business vs. pleasure is crucial, so watch how you spend your time. Keep it heavily weighted toward business activity.
Tip: If your spouse accompanies you, his or her expenses are generally not deductible, but you may still deduct what it would have cost you to travel alone if that’s more than half the cost.

7. Dodge the ‘wash sale’ rule. The wash sale rule has nothing to do with laundry. Essentially, if you acquire securities within 30 days before or after selling “substantially identical” securities at a loss, you can’t deduct the loss on your 2013 tax return.
Tip: Alternatively, you could buy the securities first and wait at least 31 days to sell the original shares.

8. Seek out dividend-paying stocks. Generally, qualified dividends continue to be taxed at a maximum 15% rate, although a 20% rate applies above the same income thresholds as for long-term capital gains. Add dividend-paying stocks to your portfolio if you can benefit from the 15% rate.
Tip: To qualify for the favorable tax rate, you must meet a 61-day holding period.

9. Shoot for tax breaks on the links. If you entertain clients at your country club before or after holding a “substantial business meeting” with them, you can deduct 50% of expenses such as greens fees, cart rentals, club rentals, and 50% of your meals and drinks. (But no deduction is allowed for country club dues even if you use the club often for business entertaining.)
Tip: If the client is from out-of-town, the business discussion can take place the day before or after the entertainment.

10. Sign up for worker credits. The Work Opportunity Tax Credit (WOTC) for hiring disadvantaged workers, which technically expired after 2011, was revived by ATRA retroactive to 2012 and extended through 2013. Normally, the WOTC is equal to 40% of the first $6,000 of wages (maximum $2,400 credit per qualified worker).
However, if your firm hires qualified individuals age 16 or 17 for the summer, it may also benefit from a credit equal to 25% of the first $3,000 of wages (maximum credit of $750 per qualified worker).
Tip: The summertime credit only applies to services performed between May 1 and Sept. 15.

11. Give generous gifts to grads. Generally, you can claim a $3,900 dependency exemption for a child graduating from college if you provide more than half of the child’s support. Figure out where the half-support mark will be for your child in 2013. If a generous graduation gift puts you over the top, do it.
Tip: The usual “gross income” test for dependency exemptions doesn’t apply to a child who is under age 19 or is a full-time student under age 24.

12. Send the kids to day camp. If you pay someone to watch a child under age 13, you may qualify for the dependent care credit. The credit for most parents is equal to 20% of the first $3,000 of qualified expenses for one child; $6,000 for two or more children. The cost of day camp in the summer months qualifies.
Tip: No credit is available for overnight camp.

13. Avoid underpayment penalties. Generally, you must make timely payments of tax through any combination of withholding and quarterly “estimated tax” payments. But you won’t be hit with a penalty if you pay at least 90% of your current tax liability or 100% of the previous year’s tax liability (110% if your adjusted gross income was more than $150,000 last year).
Tip: The second quarterly installment due date is June 15 (only two months after the first one).
Posted on 6:33 AM | Categories:

Can Your Smartphone Replace Your Financial Advisor and Accountant?

Preetam Kaushik  for Mainstreet writes:   Let's be honest: accounting and finance management are not exactly the most exciting activities in life, to put it lightly. But it sure does pay to keep track of your money, a process made all the easier by your smartphone. So can apps do away with your accountant and become your very own finance manager?

It's a question you'll have to answer yourself based on your proficiency in accounting and finance, but here's our list of some of most popular options out there.

Mint: a mobile app for the extremely popular free online personal finance management site of the same name, this little fella lives up to the reputation of its parent site. It has the same layout and design aesthetics of the website, with a simple and colorful design that is easy on the eye. With a focus on accessibility, the app and the site make for a fluid user experience. Its various tools allow you to track your expenses, keep watch on your savings, manage your bills and budgets and overall, keep on top of your finances.

Quickbooks: this is one of the more hardcore accounting software options out there and stands as the bread and butter for professional accountants. For experienced business owners as individuals who know their book-keeping, QuickBooks Pro offers one of the best software suites that money can buy. And it doesn't come cheap either. Quickbooks offers a great online cloud service where you get a more hardcore and professional version of Mint with access to a lot of extra features, flexibility and access of other online services like Payroll.

Xero: a double entry accounting app that is tailor-made for small businesses. Much less complex than QuickBooks, it has seen steady growth here in the U.S. in the past couple of years. With a clean, clutter free-user interface, excellent on screen help features, incisive report making capabilities, and the ability to export your financial reports to excel, PDF and Google Drive, Xero has made a mark for itself. This web based app also has a separate personal finance version for individuals as well.

EasyMoney: an Android-only app that will set you back $10, this personal finance manager boasts features that could very well make it worth your money. Notable features include a screen widget for real-time transaction inputs, the ability to categorize transactions under multiple categories, and tools that can import check book registers and photograph and import data from receipts. Along with that, you get the usual range of utilities that analyze your spending patterns and provide bill alerts and such.

These were just a few of the many, many accounting and financial management apps that are available for Smartphones and tablets. They vary in price, quality and features provided. The rise of touch technology means that there is a general trend towards GUIs with clear and simple layouts with easy navigation options. The most versatile apps tend to be those with cloud-based services. But then again, there are also standalone apps which tend to focus on a few aspects of finance management. The focus seems to be on harnessing the full capabilities of a Smartphone or tablet to bear on the task of bringing your finances in order.  But at the end of the day, it is all on you...

It is not that easy to make money. Holding onto money earned is an even harder endeavor. Accounting and finance management apps are basically sophisticated tools designed with aim of assisting you in maintaining your books and more importantly keeping your personal eye on your finances or that of your business. They cannot change you into a professional accountant or manage your finances on their own. Just buying a long range rifle doesn't automatically make you a sharpshooter now, does it? Or, having a fully stocked kitchen doesn't guarantee that you will be a professional chef. In other words, we are still quite far away from the day when you can download an app from some store and then fire your accountant or finance manager. Let the professional handle their job. But for small businesses and working professionals to keep a healthy watch on their finances, these apps can be very productive tools--a more productive utilization of computing power than gaming and social media anyways.
Posted on 6:33 AM | Categories:

How to Make Form W4 a Tax Planning Tool

Bonnie Lee for Fox Business writes:  With the economic recovery on a steady path, many taxpayers are looking back at the Great Recession and its impact on incomes, housing and retirement plans and wondering exactly how best to complete Form W4 – Employee’s Withholding Allowance Certificate.

Form W4 is a good tax planning tool. By dictating how many exemptions to claim, you control the size of your paycheck and the amount of money from each check that will be paid to the IRS and to your state’s taxing agency, if you live in a state that levies income tax.

 If you claim too many exemptions, your check will be higher but you may find yourself owing a large tax liability at year end. Over the years I’ve had the misfortune of helping folks who didn’t claim properly and found themselves in trouble. It can be devastating, credit-ruining, and very expensive to crawl out from under.

On the other hand, if you claim too few exemptions, your check will be smaller and you may receive a substantial refund from the IRS. But here’s the thing with those large refunds: conventional wisdom states that you are giving an interest-free loan to the government for the year. Some folks don’t really care about that and consider it forced savings account that can be used to purchase a new gadget or take a vacation when the refund check arrives. Besides, it’s not like the banks are paying competitive rates on savings these days.

There is also the possibility of claiming “exempt” on line 7 of the form, which works if you will have no filing requirement. This applies to students, part timers making very small incomes, some retired individuals making very little money and with no other sources of income. But naturally, it’s complicated. So check the IRS Filing Requirements to find out where you stand.

Otherwise, to determine how many exemptions you should take, complete the worksheet on page 1 of Form W4. Claiming exemptions for filing status of Head of Household and for number of dependents is a great start to deciding how many exemptions will work for you.

However, there are other factors to consider. Let’s say you are single with three children and can claim the Head of Household status. According to the worksheet, you will be able to claim five exemptions. This may work out as a break even for you next April 15. However, there may be other factors to consider. Perhaps you are also running an online business on the side making a few grand extra every month. That money will be taxable and if you are not making estimated tax payments to cover these extra taxes then you should adjust your withholdings from five perhaps down to zero. Then again, what if you are using the extra monies from your self-employment to pay for your health insurance or fund your IRA account? If so, those are deductions that will substantially reduce your tax liability. My best advice is that if you are also self-employed speak with a tax professional to help you determine the correct number of exemptions to claim.
Page 2 of Form W4 takes into consideration the lowering of your tax bill via your ability to claim itemized deductions and other adjustments to income. It also includes a worksheet for families that have two earners or if you have more than one job.

You might want to pull out a copy of your prior year tax return in order to complete these sections.
Tax law is a very complex subject and can be tricky for even a professional tax person much less the average taxpayer. If you get confused with all the worksheets and caveats and exceptions and rulings, then I suggest you ask a tax professional to help you complete the worksheet and determine the safest approach to withholding for you.

Posted on 6:33 AM | Categories:

3 Kid-Friendly Tax Breaks

Sandra Block for Kiplinger writes: Although tax day thankfully occurs only once a year, tax-changing events, such as marriage, divorce and the birth of a child, happen year-round. Any of these events could call for a midyear adjustment in the number of allowances you claim on your Form W-4. You should also start keeping track of expenses that will help you qualify for family-friendly credits, including:

Adoption tax credit. For 2013, this credit is worth up to $12,970 in adoption-related expenses per eligible child. A credit is more valuable than a deduction because it delivers a dollar-for-dollar reduction in your tax bill. The credit is no longer refundable, so if it exceeds the amount of your tax liability, you won’t get a check for the extra amount. You can, however, carry over unused credits for up to five years.

If you’re in the process of adopting, keep a scrupulous record. Not only will it ensure you can claim the maximum credit you’re due, it will also help you answer questions from the IRS. Because this credit is so large, it tends to attract extra scrutiny, so be prepared to substantiate all of your expenses.

Child- and dependent-care credit. You may qualify for this credit to help defray the cost of paying someone to care for children under age 13 while you work or look for a job. The credit is worth up to $3,000 for the care of one child or $6,000 for two or more children. The credit is a percentage of the amount spent on child care and gradually decreases as income increases. Families that earn more than $43,000 can claim only 20% of deductible costs.
Posted on 6:32 AM | Categories:

Tax Deductions for Inventory

Fraser Sherman, Demand Media writes: Buying, making and storing inventory all cost your business money. Fortunately, many of your inventory-related expenses are deductible when tax time rolls around. Even if you can't sell your inventory, you may be able to squeeze some extra deductions out of it by selling it cheap or giving it away. 

Cost of Goods Sold

The money you spend buying raw materials or finished goods for your inventory is a business expense, along with the labor, shipping and overhead. Rather than deduct these expenses directly, you write them off as the cost of goods sold. If, say, you start the year with $10,000 in inventory, spend $5,000 to get more and end the year with $8,000 in inventory, your cost is $15,000 less $8,000 -- $7,000. That's your deduction.

Storage Space

If you store your inventory in your house, you can take a write-off for the business use of your home. If say, you devote 12 percent of your house to storage, you can deduct 12 percent of your mortgage interest, utilities, property taxes and some of your other expenses. Your home has to be your only place of business, where you use the storage space regularly, to claim the deduction. As of 2013, you can use a simpler formula -- $5/square foot -- to calculate a deduction.

Donations

If some of your inventory just isn't moving, you may be better off donating it to charity. Your deduction is either the fair market value of the donation or the cost of the donated inventory, whichever is less. If you're a sole proprietor you don't get to write the donation off as a business expense. Instead, you take it as a personal expense, itemizing it on Schedule A. The same rule applies if your business is a partnership.


Cheap

An alternative to donating your inventory is to sell it at a loss. The IRS allows you to take a write-off for inventory that isn't worth full value -- it's damaged or there's a newer model already out, for instance -- but you need evidence of the lessened value. You can do that by marking it down, then claiming a loss when it doesn't sell. Another approach is to sell it at a discount to companies that resell goods cheaply.
Posted on 6:32 AM | Categories:

Boox review: intuitive, easy-to-use accountancy service / Accessible from any internet-connected computer, Boox is intuitive, easy-to-use and certainly suitable for contractors.

Santhie Goundar for PC Advisor writes: Boox is an online accountancy service aimed at contractors, freelancers, locums and certain micro-businesses. At a monthly fee of £69.50 (excluding VAT; price is £83.40 including VAT), this cloud-based software comes with a dedicated client accountant to answer users’ queries and provide assistance.  

The company displays its mission statement as ‘to deliver a great value, efficient and effective online accountancy service to UK-based contractors and freelancers, providing a personal service through a regular consultative advice which continually exceeds customer expectations.

Boox also assists the self-employed in incorporating their businesses and completing self-assessment tax returns, although users will pay extra for these additional services. 

Boox prides itself on the speed and time-saving benefits of its services – the company incorporation service, for instance, boasts a 24-hour turnaround – and this is evident in its accountancy service upon logging in to the website.

The Home dashboard shows the user their latest accounts-related messages and the company financial position at a glance, with a graphical representation of monthly sales, expenses, and sales-minus-expenses (for many, this will be profit).

It will also give figures showing the tax liabilities for VAT, PAYE/NIC, corporation tax, and VAT savings for those businesses signed up to the flat rate scheme.
For those in a hurry, there is a ‘quick invoice/expense’ function on the home page for those who simply want to log in, raise a quick invoice to a client or quickly record an expense in their accounts and log back out again.

It’s easy to amend or view the details later when logging back in and working through the main accounting tabs – in addition to the Home dashboard, there are also tabs marked Invoices, Expenses, Pay Yourself (although there are currently no functions to pay any staff), Banking, Taxes, My Boox (where you can contact your personal accountant or amend your company’s details), Reports, and Help. It should therefore be quite easy to work out what one needs even for the most inexperienced self-employed user.

Those not familiar with accounts will find a number of features very useful. For example, there’s the calendar with system-generated records of the date that quarterly VAT returns are due, and the breakdown of sales and expenses expressed in a number of ways. This can be both graphical and numeric for users who process information in different ways, and different ways to pay yourself, deal with banking, taxes. There’s even a Help function to show you how to use the software, although most of it is quite easy to work out.

The only thing you should be aware of that might be confusing at first is that the horizontal ‘drop-down menus’ underneath the main accounting tabs are for the accounting tab one has hovered over, rather than the tab selected. But it’s a very tiny point and really shouldn’t detract from the ease of use and easy-to-understand functionalities this service offers.


  • Ease of Use: We give this item 7 of 10 for ease of use
  • Features: We give this item 8 of 10 for features
  • Value for Money: We give this item 8 of 10 for value for money
  • Overall: We give this item 8 of 10 overall
A solid accountancy service accessible from any internet-connected computer, Boox is intuitive, easy-to-use and certainly suitable for contractors. In fact any self-employed individual with a personal service company will find it useful. Available from £69.50 plus VAT per month, the service includes a personal accountant available to handle users’ accounting affairs. With a 14-day free trial available, you should find it reasonably straightforward to get set up, do your accounts, and obtain professional assistance when needed.
Posted on 6:32 AM | Categories: