Schedule C vs. C-EZ / Even if your self-employment income isn't very much, you still have to report it to the IRS / Depending upon your earnings and expenses, you may be able to file a much simpler form.

Kay Bell for Bankrate writes: New role, new tax chores
When you own an unincorporated small business by yourself, the IRS considers you a sole proprietor. This means you have some extra tax-filing work to do.
Your business earnings (or losses) are included as part of your individual income tax filing. To determine just how much to report on your Form 1040 (and you must use the long form), you itemize your operational income and expenses on either Schedule C or Schedule C-EZ.
As the name indicates, the C-EZ is a streamlined version of the more-detailed Schedule C. So when can -- and should -- you use one form over the other?

Take heed of the title

Guidance comes from the form names. Schedule C is titled "Profit or Loss from Business." The EZ is "Net Profit from Business." If you report a business loss, you can't use the short form.
The IRS also requires a Form C-EZ filer to operate only one business. If you run two or more sole proprietorships, you must file a Schedule C for each.

Schedule C-EZ also is acceptable if you:

• Have business expenses of $5,000 or less.
• Use the cash method of accounting.
• Do not have inventory at any time during the year.
• Never hire an employee.
• Do not depreciate any business property.
• Do not claim expenses for business use of your home.
• Do not carry over passive activity losses from an earlier tax year.

Don't trade ease for savings

If you meet all of these requirements, then filing the simpler Schedule C-EZ probably will make your business tax life much easier.
But don't opt for simplicity just to cut down on your tax-filing duties.

If your home office is indispensable to your firm's operation, claim the deduction and use Schedule C. What it costs you in time to complete the longer form could more than repay you in tax savings.
The IRS won't penalize you for taking every legitimate business deduction you can. Don't penalize yourself by using the wrong form.

Five key questions for taxpayers

Shelly Schwartz for CNBC writes: Taxpayers looking to keep more of their money from Uncle Sam this year need to start with a detailed, financial plan.

To that point, anyone who believes they can wait until December to start planning their tax strategy should think again.

Financial advisors stress that now is the time to get serious and that creating a tax planning "to do" list is important. Here are five key questions that taxpayers need to get answers to in order to help them plan their year-end tax strategy.

1. When should I start to plan my year-end tax strategy?

Anywhere from September through November, taxpayers should be thinking about year-end tax planning, financial experts say. It's essential to be able to plan ahead so that you know where you are, tax-wise.

2. What can I do now to lower my current year tax bill? 

Taxpayers looking to keep more of their money from Uncle Sam will need to start with a detailed plan. Strategies that work include deferring year-end bonuses until January 2014, delaying the exercise of incentive stock options and postponing receipt of distributions beyond the required minimum from individual retirement accounts.

3. Have there been income tax changes that will directly impact me in 2014?

Yes, especially for high-income earners. For 2013, married couples filing jointly with taxable income greater than $450,000 will face a new 39.6 percent top marginal income tax rate, plus a bump to 20 percent, up from 15 percent, on qualified dividend and long-term capital gains. Joint filers earning more than $250,000 will also be subject to a new 3.8 percent Medicare surtax on net investment income.

4. Should I sell underperforming stocks to offset capital gains? 

It's a good idea to consult with a financial expert on this subject. Investors can minimize their capital gains tax bite by selling stocks and mutual funds that have lost in value before the end of the year. The Internal Revenue Service allows investors to offset capital gains with capital losses dollar for dollar.

5. What are some tax-break options if I make charitable donations?

Charitable contributions made to qualified organizations may help lower a tax bill. It's key to know which form to file to claim a charitable contribution, or how to itemizedeductions. Investors can also donate appreciated property instead of cash to a charity, which yields double the bang for the buck. This occurs because an individual can deduct the property's fair market value on the date it gifts and avoid paying capital gains tax on the appreciation. It is a good idea to speak with a financial professional to help ensure your giving pays off on your return.

5 Tax Issues to Consider Before Buying US Property

David McKeegan for WorldPropertyChannel.com writes:  Buying property in the U.S. may 

seem easier than in many other countries. The real estate markets are open and there is 

generally no ban on foreign investment in property (personal or corporate). But beware - U.S. 

real estate markets can be complicated, depending upon where the property is located.  Each 

state has its own rules and regulations for property transfer-- that means 50 different sets of 

rules!  It pays to be well-educated at the start, particularly as the purchase relates to U.S. taxes 

for expats. Tax implications are often ignored in the buying process but certainly should be on 

your radar. 

While you are encouraged to contact an experienced real estate agent and an expert tax 

accountant, we have compiled five tips to help you begin the process:

1. Planning to borrow to buy? According to U.S. Census results, 70 percent of homes in the U.S. are mortgaged. Mortgages are also a large chunk the banking industry. It will take a lot of documentation to obtain a mortgage from a U.S. bank, but the mortgage rates are low and the interest paid on the loan is tax deductible on your U.S. taxes, if you have any taxable income, or if you should choose to rent. There are additional benefits to mortgaging property with a U.S. bank: most banks require the proper transfer of title; property insurance; and escrow accounts that pay property taxes and insurance. This saves you the hassle of dealing with these individually. Additionally, your mortgage provider will provide you with an annual statement for tax purposes detailing all aspects of your transactions.


2. You will pay property taxes in the U.S. The U.S. tax system is separate for property taxes. In many states, you will pay higher taxes if you are not a permanent resident, so make sure you look into your tax rate as a non-U.S. resident. Don't assume the taxes paid by the seller will be the same as yours. If the property is a rental property - the tax will reduce your taxable income on the property for U.S. tax purposes. 


3. Will you have to file U.S. taxes?  Maybe, maybe not! This is a complicated question, but here are some general thoughts. Nonresident aliens are taxed on U.S. investment income and their U.S. trade or business income (Sec. 871); so depending upon the purpose of your purchase, you may not be required to file income tax returns, i.e. if it is a pied-a-terre. If you plan to rent, there is possibility of filing as a business or a trade, which allows all deductions and losses from the activity to be claimed on your U.S. taxes.  Otherwise, the real estate income is subject to the flat 30 percent withholding tax levied on a gross basis. So you may want to consider renting the property for a portion of the year, as it could defer some of the holding costs of your property without adding taxes.


4. Should I use a corporation to buy property?  The real answer to this depends upon your purpose for purchasing. A foreign corporation that earns investment income in the United States or conducts a U.S. trade or business must file a U.S. tax return. The rules governing U.S. taxation of a foreign corporation's income parallels those for nonresident aliens; but keep in mind that in addition to the regular tax, foreign corporations are also subject to the alternative minimum tax, accumulated earnings tax, and personal holding company tax. The main advantage of using a corporation is liability protection, which is important in a country that has over 90 percent of the world's lawyers!


5. How long can I spend in the U.S.?  If you are planning to buy a home in the U.S. and spend time there, this issue really affects your taxes. Remember, the rules for residency in the US are different for paying taxes than for any other purpose. The U.S. has a two pronged question that determines residency - a physical presence test and a lawful residency test.  If you pass either - you are a resident of the U.S. for tax purposes. The physical presence test can get complicated, but it boils down to the days you spend on U.S. soil. If you stay in the United States for 31 or more days during the current calendar year and a total of 183 or more days during the current and the two preceding tax years, you have presence. (Those 183 days are calculated on a weighted basis.... each day in the current year is weighted one, each day in the first preceding year is weighted one-third, and each day in the second preceding year is weighted one-sixth.)  Having presence in the U.S. means you will be ineligible for tax deductions and exclusions given to those having a primary residence overseas. These deductions and exclusions are critical to reducing U.S. taxes for expats looking to avoid double taxation (being taxed on income in both their home and host country). So if you plan to reside primarily overseas, it is important to carefully calculate the number of days you spend in the U.S. to protect those tax credits! Note- this is a different Physical Presence Test to the one used to gauge your expat tax status.

Buying property in the U.S. can be a great experience, and afford you the best of both worlds -- 

living abroad while maintaining a property in your home country. It simply takes the proper 

planning, understanding and consideration for all factors to ensure it's the right financial choice 

for you. 

10 Tax Commandments....To Keep IRS Away

Robert W. Wood for Forbes writes: 10 Tax Commandments? I won’t suggest taxation and religion are similar, at least not to most people. But certain tax rules are nearly inviolate, and ignoring them can bring lightning-bolt-out-of-the-sky consequences. These 10 rules may not be commandments in the biblical sense, but they are important all the same.

1. Everything is Income. The IRS taxes all income from any source, whether in cash or in kind. Lottery winnings? Taxed. Gambling winnings? Taxed. You name it, it’s taxed. If you find a diamond ring, you pay tax on its fair market value even if you don’t sell it. And offsets or deductions are rarely as inclusive as the income.

2. Forms 1099 Really Count. Those little tax forms you get in January are keyed to your Social Security number. The IRS always gets a copy. Pay attention to them—the IRS sure does.

3. Pay Taxes Later. Most tax planning involves timing. You want to accelerate tax deductions. Conversely, try to defer tax payments, subject to constraints such as the constructive receipt doctrine. Under constructive receipt, if you have a legal right to pay but say “pay me later,” it’s taxed now.

4. Reply to Every IRS Notice. Keep a good record. Often, fighting the IRS is about attrition. But don’t fight over small tax bills. If you get a small tax bill, pay it. Don’t risk an audit or bigger dispute by fighting over small dollars.

5. Don’t Talk To the IRS if They Visit. If the IRS comes to your home or business, you have the right to decline to speak with them. Ask them to talk to your lawyer. Take their card and be polite but firm. Usually you can’t effectively represent yourself, and it’s not worth the risk that you’ll say the wrong thing.

6. Keep Records and Watch the Statute. The usual IRS statute of limitations is 3 years after you file your return. If you understate your income by 25% or more, the IRS gets 6 years. You can probably throw out most tax records after 7 years, but keep copies of your tax returns forever.

7. Avoid Amending Tax Returns. Amended returns have a high audit rate especially if they request a refund. The IRS says you “should” amend your return if you discover a mistake after it’s filed. However, the only time you really must amend is if you knew when you filed your original return that it was false. If you decide to amend, you can’t cherry-pick which items to fix. The amended return must correct everything, not just the items in your favor.

8. Don’t Explain or Attach Too Much. Timely file your tax returns even if you can’t pay. Payment can come later, and might be the subject of an IRS installment agreement. Penalties will likely be smaller if you file on time.

Keep your returns concise. If an explanation or disclosure is needed, keep it succinct. Attachments to tax returns should be limited to tax forms and, where needed, plain sheets of paper listing additional deductions, income, etc. Don’t attach other documents. If the IRS wants documents it will ask.

9. Be Careful With Big Refunds and Foreign Accounts. Getting a big refund can make your return stick out. Consider applying some of the refund to the current year’s tax payments rather than asking for the cash. You’ll have a lower profile with an initial or amended return.

Another sensitive item is foreign bank accounts. They may generate income but you won’t receive a Form 1099. Still, reporting them is key. If balances exceed $10,000 in the aggregate any time during the year, you also must file a Treasury Form TDF 90-22.1, also known as an FBAR, separate from your tax return. These days the scrutiny is high. How you transition from past reporting failures is delicate.

10. Hire a Professional. Handling a tax case by yourself is usually a mistake. Hire an accountant or lawyer to handle it. Even simple audits can go awry or extend into other areas if you aren’t careful. Whether you need practical advice about a tax refund too good to be true, about independent Contractor vs. employee status, or why tax opinions are valuable, get some professional advice. And don’t wait until the last minute.

Solo 401(k) Gives Startup A Loan Source

• AUSTIN KILHAM for the Wall St Journal writes:  
At 54, the client left his job and six-figure salary at a large professional services company. He wanted to start his own business in the same sector, but wasn't sure he had all the capital he would need to get established.

As something of a last resort, he thought he might tap some of the nearly $1 million he had saved in a 401(k) and then rolled over into an individual retirement account. He turned to his long-time financial planner, Christopher Kimball, who manages $65 million for 120 clients at CK Financial Services in Lakewood, Wash.

"It's scary to leave an established company and strike out on your own, so I wanted to make sure he knew what his options were," says Mr. Kimball, who recounted the story. "Even if he had to dip into retirement savings I wanted him to access money without IRS penalties or income tax."

Because the client wasn't yet 59 1/2, he would face a 10% penalty on top of income tax for direct withdrawals from the IRA. So Mr. Kimball suggested creating a new one-participant 401(k) plan, also known as a Solo 401(k) or Uni-k plan, and then rolling a portion of the IRA assets into it. The accounts let participants borrow up to 50% of their funds, up to $50,000, as long as the loans are paid back with interest within five years.

Mr. Kimball recommended funding the new IRA with $100,000 from his IRA. That way, the client would have access to the maximum loan amount should he need it. He advised his client to leave the remaining $900,000 in the IRA, where he could pay the 10% penalty to withdraw additional funds should he need more than the $50,000 borrowed from his 401(k).

If the client ended up not needing a loan from his 401(k), the $100,000 would simply continue to grow tax-free until his retirement. That flexibility was especially appealing to the client, who had been concerned about his options for financing a business while still protecting his long-term financial security. "Finding capital and enough cash flow to start a business is nerve-racking," says Mr. Kimball.

Ultimately, it turned out that the client's business was profitable from the beginning and he didn't need money from his new 401(k). But he was happy to have had a safety net.

Mr. Kimball says the bottom line is that most clients aren't familiar with retirement account tax law and can miss a lot of money-saving opportunities. "That's why it's important that advisers are aware of these tax provisions," he says, "because it helps clients maximize the money in their pocket."

Sage slips on competition concerns as rival Xero targets UK / Analysts say Sage could lose market share to new entrant in key cloud accounting market

Over in the U.K. we read the Market Forces Live Blog @ The Guardian writes:  Sage has lost more than 3% on growing competition fears.   New Zealand based rival Xero was in London this week to outline its plans for the UK accounting software market, Sage's key strength. Analysts at Morgan Stanley issued an underweight rating on Sage after hearing what Xero had to say:

We attended the Xero analyst briefing in London, where Xero presented its strategic plan for the UK and global cloud accounting market, with a cloud offering that appears more developed than Sage's in terms of global coverage, user base, scale of investment to date, integration and ease of use. We remain concerned about Sage's ability to maintain dominant share in this fast-growing market.

Xero provides cloud accounting software for small businesses and has become a world leader in online accounting, with 200,000 customers and expecting 80% revenue growth in 2014 (versus Sage's expectation for 4%). It highlighted that 60% of customer wins come from incumbent accounting platforms (Sage, Intuit, etc.). This figure illustrates the risks incumbent vendors face, in our view, as cloud understanding and adoption increases in the small business customer base.

The company highlighted that a total of 1,256 accounting practices have adopted Xero in the UK. This compares to 82 practices that have adopted Sage One. This has driven customers of above 22,000 in the UK for Xero, versus the 12,000 customers Sage has reported on Sage One.

Where could we be wrong? Sage has a dominant position in the UK and a leadership position in several Continental European markets. Accounting software is sticky, so Sage has time to respond – in the UK due to its dominance and in Europe where software as a service demand is lower. Sage could use its strong market position, cash flow and balance sheet to become more competitive in this market, reducing scope for new entrants to take share.

Meanwhile Credit Suisse issued an underperform note and identified other problems for Sage as well as Xero:

Three pieces of news this week serve as a useful reminder that Sage remains at risk from cloud providers. At the large-end, Netsuite is actively looking to take market share, at the smaller end we continue to see Sage as a laggard to more innovative competitors such as Xero, while Intuit has reiterated guidance for 10%-12% growth, materially faster than the 3%-4% growth that is expected at Sage.

Netsuite has commissioned YouGov to survey 531 ERP [Enterprise Resource Planning] users. The key criticism of Sage is that only 13% of Sage customers can access their software online, less than half the average of every other software company mentioned in the survey. The midmarket only accounts for around 15% of Sage revenues and Netsuite has a 'confrontational' marketing style. So these comments likely overstate the risks to Sage. Nevertheless, it is hard to argue with the divergence in growth rates between the two companies, and Netsuite is obviously taking share.

All this has conspired to send Sage 12.5p lower to 334.6p.

Heading in the other direction was Shire, which has slipped recently on growth worries. Its shares have now recovered 14p to £25.03, with Morgan Stanley (again) saying:

Shire's shares have come under pressure this week due to fears that Vyvanse script trends are underperforming expectations. However, we believe a strong performance in [ulcerative colitis drug] Lialda combined with cost flexibility will allow Shire to comfortably meet its 2013 profit guidance.

Charitable giving tied to state tax write-offs

Elaine S. Povich, Pew/Stateline  and USA Today writes: States that have tinkered with one of the most sacrosanct of all tax write-offs – state income tax deductions and credits for charitable contributions – have seen their local charities suffer the backlash. Their decisions offer insight for other states and for federal officials who are contemplating reducing or eliminating tax incentives for charitable giving.

Tax incentives for charitable giving directly affect donations, particularly from high-income donors, according to Jon Bakija, an economics professor at Williams College. "Tax incentives for charitable donations in the U.S. succeed in causing donations to increase, probably by about as much or more than they cost in terms of reduced tax revenue," he wrote in a paper published recently by the journalSocial Research.

"This strengthens the case for the tax subsidies for donations," he wrote.

But states and the federal government covet the revenue.

President Obama proposed in his fiscal 2014 budget capping federal tax deductions, including for charitable contributions, to 28% for the wealthiest taxpayers, those in the top 2%. This would raise $529 billion from 2014-2023, according to the nonpartisanTax Policy Center, which used administration data. In general, taxpayers can now deduct up to 50% of adjusted gross income for cash donations, up to 30 percent for property and up to 20% for appreciated capital gains donations.

With states and the federal government looking for revenue to plug budget gaps, several proposals have emerged to cap or eliminate tax deductions for charitable giving. Donations to religious institutions and other nonprofits that serve the poor and educational entities generally qualify.

In its massive tax overhaul in 2011, Michigan scrapped almost all tax credits, including those for charitable donations to food banks, homeless shelters and community foundations. Now, as the state tries to recover from the recession and unemployment is high, advocates say those charities which could help the poor and jobless are hurting as donations decreased.

Hawaii tried something similar in 2011, capping all itemized deductions at $25,000 for individuals and $37,500 for heads of households. These limits applied only to state tax returns for taxpayers with incomes above $100,000 for individuals and $150,000 for households. But the state reversed course and allowed deductions for charities this year after the charities screamed foul and produced data that showed revenue the state gained was offset by the cost to communities to do the work formerly done by charities.

Among other states that have addressed these deductions:

• New York enacted a 2013-2014 budget that extends a limit on tax deductions, including charitable contributions. State taxpayers with adjusted gross incomes of more than $10 million are limited to a 25% itemized deduction, and taxpayers with adjusted gross income of more than $1 million and less than $10 million are limited to a 50% state tax deduction. The state estimated that the tax change would pick up an extra $100 million annually.
• Vermont is expected to take up restrictions on the charitable deduction in its 2014 legislative session's discussion of overall tax reform. Proposals to cap itemized deductions (including charitable deductions) at 2.5 times the standard deduction, or $29,750 total for a married couple, were developed in the 2013 session.

• Missouri restored seven tax credits in 2013 for charitable contributions to food pantries, crisis nurseries, child advocacy centers and pregnancy resource centers among others, after letting them expire over several years as a cost-saving measure.
• Kansas reduced itemized deductions this year but made an exception for charities.
• North Carolina, in its 2013 tax reform plan, capped itemized deductions at $20,000 but made an exception for the charitable deduction. Tax reform sponsor Sen. Bob Rucho, a Republican, said his original idea was to cut all deductions and credits, including for donations to charities, to "make sure the government wasn't picking winners and losers in the tax code." He said that plan would have lowered people's taxes dramatically, which meant they could "choose a charitable contribution, save the money or buy something" with the extra money.

Michigan eliminated three tax credits in 2011: those for gifts to community foundation endowments, gifts to food banks and homeless shelters and donations to educational and library facilities. In announcing his budget that year, Gov. Rick Snyder said a "shared sacrifice" would help the state's economy and "ultimately will benefit citizens, families and communities through the economic growth and job creation that is generated."

A study by the Johnson Center at Grand Valley State University, however, found the number of $400 donations to Michigan community foundations fell 51%, the number of $200 donations dropped 28% and the number of all donations $400 and below decreased an average of 27% – a total loss of more than $1.15 million just for the foundations.

Rob Collier, executive director of the Council of Michigan Foundations, said elimination of the tax credit was devastating and cost all types of charities $50 million in 2012. "We had trained Michiganders to write a $400 check, knowing they would get a $200 credit," he said. "All of a sudden, it's like 'we're going to get rid of it.' We knew we were going to lose some giving here, and we did."

The move to limit the write-offs for charitable contributions does not appear to be linked to a political party. Michigan's tax credits were started under a Republican Gov. John Engler, and eliminated under Snyder, another GOP governor.

After Hawaii Gov. Neil Abercombie, a Democrat, saw the fallout from his state's deduction cap, he signed a bill passed this year by the Democratic-controlled legislature lifting the cap.

The cap was expected to bring in about $12 million to the Hawaii treasury, according to Mallory Fujitani, of the Hawaii Department of Taxation. But the provision cost charities $50 million to $60 million in lost donations, according to Tim Delaney, president and CEO of the National Council of Nonprofits. That forced the state or local communities to try to make up the difference, he said, which was often impossible due to lack of funds.

"For every dollar the state was bringing in, it was losing five dollars in donations," Delaney said. "It's very difficult for elected officials to say, 'oops I goofed.' They had the political courage to come out and say we really blew it."

Some argue that charitable giving is not necessarily tied to tax incentives.

Subsidyscope, a project of The Pew Charitable Trusts (the parent organization ofStateline), said in a 2009 study that while charitable deductions are an incentive "some of the giving would have taken place whether or not a tax subsidy was available to donors."

"What we learned in the states is that the charitable deduction is not just a nice thing for taxpayers, it's vital to the communities," said David L. Thompson, vice president of public policy at the National Council of Nonprofits. "All politicians from across the political spectrum have come to the same conclusion that we are hurting our communities by discouraging giving to charities."