Sunday, December 1, 2013

Three Tax-Savvy Ways to Donate Appreciated Stock / Shares Can Make a Smart Gift to Family or Charities

Carolyn T Geer for the Wall St Journal writes:  Flush from this year's big stock rally? It's a good time to be generous. Here are three tax-efficient ways to spread the wealth:

Give appreciated stock to individuals: You can give up to $14,000 each to any number of recipients this year without incurring federal gift taxes. That's up from $13,000 in 2012, and it's in addition to payments you make directly to medical providers or schools for qualified expenses on behalf of family members or others.
If you are married, you and your spouse each can give $14,000 to as many people as you like. (For those keeping track, these "annual" gifts don't count against your lifetime gift and estate-tax exclusion, currently $5.25 million.)

Bulging portfolios and higher capital-gains tax rates for many make this a good year to give appreciated stock. The value of the gift is the stock's market value on the day it's given. The recipient assumes your original cost basis in the stock and the accompanying capital-gains tax liability, but the gains could escape taxation entirely if the recipient is in the 10% or 15% income-tax bracket.

The top tax rate on qualified dividends and long-term capital gains rose to 20% this year from the Bush era's 15%. Add the new 3.8% surtax on net investment income, and high earners face a 60% increase in their capital-gains tax. For those in the 10% and 15% income-tax brackets, the long-term capital-gains rate remains at 0%.

As long as you and your giftee own the stock for a combined period of more than a year, the gains typically will be considered long-term. (Short-term gains are taxed at higher, ordinary-income tax rates.) Note: If the giftee is under 24, some of the gain could be taxed at his or her parent's rate under the "Kiddie Tax," says Mark Luscombe, principal federal tax analyst for Wolters Kluwer.

onate appreciated stock to charity: You also can give appreciated stock to charity. If you've held it for more than one year you may take a charitable tax deduction for the market value of the stock, and neither you nor the charity has to pay capital-gains taxes when the stock is sold. The combination can result in a bigger deduction (and more tax savings) for you and a bigger gift for the charity than if you sell the stock, pay the taxes, and donate the net proceeds.

In general, the amount of your deduction is limited to 30% of your adjusted gross income, but you can carry forward amounts above that for up to five years. New this year: an overall limit on itemized deductions. Congress reinstated the "Pease" limitation, which reduces your total itemized deductions by 3% of the amount that your adjusted gross income exceeds $250,000 (for single filers) or $300,000 (for joint filers).

So a couple earning $400,000, or $100,000 above the threshold, would take a $3,000 haircut on their total deductions. If their noncharitable deductions totaled less than $3,000, Pease would cut into any charitable deductions, according to an analysis by Vanguard Group. But if this couple had $50,000 in state and local taxes to deduct, Pease would reduce that to $47,000, and charitable donations would be unaffected.

Vanguard and other big financial companies accept donations of publicly traded stock in their "donor-advised funds," vehicles that let you contribute and book a tax deduction today but distribute the money over time to the charities of your choice. At Fidelity Charitable, long-term appreciated stock made up 54% of contributions through the end of October, up from 48% through September and matching the percentage of stock contributions for all of 2012, reports Amy Danforth, senior vice president of Fidelity Charitable.

Donate distributions from retirement accounts:  
If you are at least 70½ by year's end you can have all or part of the distribution from an individual retirement account made directly to charity (up to $100,000 per taxpayer per year). You won't get a charitable deduction, but you won't owe income tax on the IRA distribution either. Note: Contributions to donor-advised funds don't qualify.

The sun is again poised to set on this "qualified charitable distributions" rule. Congress temporarily extended it for 2013, as in past years. Barring fundamental tax reform in 2014, this and other regularly expiring provisions will probably be extended, says Mr. Luscombe, but perhaps not until late in the year.

Posted on 8:04 AM | Categories:

FreshBooks Review - A Cloud-Based Accounting Software

Financial Memos writes: FreshBooks is one of many cloud accounting apps that have entered the market over the past few years. While cloud accounting has not grown as quickly as cloud solutions have in other industries, recent arrivals on the market show that the trend is definitely upward. After Quickbooks Online, FreshBooks is the most popular cloud-based accounting software in North America with nearly 5 millions users. 

When it comes to usability and based on online reviews, FreshBooks has one of the cleanest interfaces. The navigation is right on the top of the screen and I have to admit that the designers have done a fantastic job.  The frontpage shows the recent activity and includes shortcuts that you can use to create invoices, record expenses, track time spent on projects, export financial reports and much more.

But enough with the way that FreshBooks looks! If you are a small business owner, an accountant that is serving a client or a bookkeeper, it’s the functionality that you would be most interested in. So, what can FreshBooks offer to you?

There are so many software solutions, both cloud-based and self hosted, that can create invoice and track whether there are payments that are due. However, that’s not what a complete accounting package should be limited to.

Freshbooks is much more than just an invoicing solution. You can of course invoice your customers, receive and record payments but you can also perform other tasks such as expense tracking, reports generation, tax calculation and much more.  

You can connect FreshBooks with your bank or your credit card and start tracking and recording your expenses automatically. That’s something useful for the small business owners that do their own bookkeeping and prefer to spend more time running their business than record transactions all day long.

FreshBooks Time Tracking Feature Review 

One of the most useful features that FreshBooks offers is the time tracking. I think it’s a fantastic tool since it allows companies that offer services for example to track how much time each member of a team spends on a project and compare the cost incurred to the revenue that the client generates. You can understand that this is very crucial since accepting loss making jobs can not be part of a long term strategy. Freshbooks also offers the opportunity to directly charge and invoice a client based on the billable hours spent on a project. That is a fantastic feature for accountants, designers, lawyers and many other professionals that sell services and charge by the hour.

Financial Reports and Taxes
Another important feature that Freshbook offers is the ability to generate reports that should included in the analysis of every small business owner. You can run monthly income statement reports and track sales and expenses, understand your margins and be able to see what expenses you should be cutting.

Speaking of expenses, FreshBooks can also run an expenses report so that you can save them in excel files, plot graphs or create pivot tables to see how much you are spending and where.

Another report that you can generate is the aging report. The debtor aging report can basically tell you how much your clients owe to you and if there are amounts that are past their due date (and how long). You should be keeping track of such things and you should never let your sales turn into bad debt. The best thing to do is invoice fast and cash in faster!

FreshBooks and Third Party Addons
In my opinion, what sets FreshBooks apart from other accounting cloud-based software is the ability to integrate it with third party professional software. The list of addons that are supported is endless but briefly, you can integrate FreshBooks with CRM software such HighRise or Batchbook, specialized time-tracking software such as ChronoMate, marketing tools such as MailChip, workforce management tools, project management software and the list goes on!

Finally, something that every business owner should be looking (actually before looking into anything else) relates to data security. FreshBooks is a cloud-based software which means that you have no control over the way that your data are stored on the FreshBooks servers. The goods news is that you can export your data. In addition, FreshBooks creates backups and stores them in different locations. They use RackSpace (a big name in the hosting industry) with very big clients such as GE and Cisco so that you can be sure that your data will be safely stored.
Posted on 8:04 AM | Categories:

Tax Deduction Tips for Commission Sales

Mike Parker for Demand Media/AZ Central writes: When it comes to commission sales, one is reminded of the adage that it takes money to make money. Fortunately the Internal Revenue Service lets you write off some of your costs for generating commissions. Which costs you can write off depends on whether they are employee business expenses or expenses you incurred as a small-business owner.

Record Keeping

Don't rely on your memory to keep track of your expenses, especially if you pay some bills with cash. Even small amounts add up over time. Develop a record-keeping system that works for your situation, and update it regularly. In most cases the IRS doesn't care what kind of record-keeping system you use, as long it clearly shows your income and expenses. Keep receipts in a dedicated folder to substantiate your deductions. If the IRS questions a deduction, the burden of proof resides with you.

Mileage Log

With the price of gasoline continually rising, you can't afford to not deduct your car expenses. If you use your car to visit job sites or clients, you can claim a deduction of 55.5 cents per mile for the 2012 tax year, but you must keep a written record of your mileage. You have the option of claiming your actual expenses, such as fuel, oil, maintenance, repairs and licenses, instead of using the standard mileage rate. If you use the actual expenses method, you'll need to keep records and receipts documenting your expenses. You can't deduct any car expenses for which you were reimbursed. You also can't deduct mileage for commuting to and from your regular place of business.

Gifts to Clients

The Jackson Hewitt tax service website identifies client gifts as one of its top 50 most overlooked tax deductions. You can deduct up to $25 per person for gifts that you give to the company that are intended for the eventual use or benefit of an individual or group of individuals. For example, you can deduct the cost of a $25 fruit basket that you gave to a client for his personal use. If you provided four $25 fruit baskets to the company that were taken home by four different employees, you could deduct $100 -- $25 for each individual gift.

Employee Business Expenses


If you incur business expenses while generating commission sales as a business owner, all of your allowable expenses are deductible on Form 1040, Schedule C, regardless of whether you itemize your deductions or claim the standard deduction. If you incur the same expenses as an employee, you can deduct a portion of your allowable expenses as an employee business expense, provided you itemize your deductions on Form 1040, Schedule A. As an employee you can only deduct the amount of your business and other miscellaneous expenses that exceed 2 percent of your adjusted gross income.
Posted on 8:04 AM | Categories:

Can I Deduct Traditional IRA Contributions?

Bonnie Conrad for Demand Media / Chron writes:  When you contribute money to a traditional IRA, you can take an immediate tax deduction. The immediate deduction lowers the true cost of the money and helps you save even more. As of 2011, you can contribute up to $5,000 to a traditional IRA, but not all taxpayers are eligible for such an account; as such, it's important to check your eligibility before making a contribution.

Other Retirement Plan

If you are covered by a retirement plan like a 401k or 403b, you need to be aware of the income limitations for traditional IRA accounts. Single taxpayers covered by such plans can only take a full deduction for a traditional IRA if their adjusted gross income is $56,000 or less. Those taxpayers can get a partial deduction if their income falls between $56,001 and $66,000. The deduction phases out completely at $66,000.

As of 2011, married taxpayers who are covered by retirement plans at work can take the full deduction if their adjusted gross income is $90,000 or less. Married couples can take a partial deduction if their combined income falls between $90,001 and $110,000. Once their income rises above the $110,000 threshold, however, they can no longer take a deduction. Always check the IRS website for up-to-date income limitations before making an IRA contribution.

No Retirement Plan

If you are a single taxpayer who is not covered by a retirement plan at work, you need not worry about income limits. As of 2011, you can take the full deduction for a traditional IRA regardless of your income level if you're not covered by a retirement plan. That means you can contribute up to $5,000 to a traditional IRA and deduct the amount you contribute from your taxes. If you are 50 years of age or older, you can contribute an extra $1,000, for a total of $6,000.

Married couples do face some restrictions when contributing to a traditional IRA, however. There is no income restriction if neither spouse is covered by a retirement plan, but if one spouse has access to a plan the income limit for full deductibility is $169,000 in adjusted gross income. A partial deduction is available to those who make between $169,001 and $179,000, and the deduction phases out completely above that income level.

Tax Planning

If you are close to the income limits for a traditional IRA, it is a good idea to do some tax planning ahead of time before you make your contribution. If you think you might no longer be eligible, it makes sense to wait until the final income numbers are in before you make your IRA contribution for the year. If you are used to making your IRA contribution in monthly installments, you can make that money contribution to a money market fund instead. Once you know whether or not you are eligible, you can put that money in your traditional IRA or into another retirement fund if you are no longer eligible for the IRA.

Roth IRA


If you are not eligible for a traditional IRA deduction, consider contributing to a Roth IRA. The Roth IRA does not provide up front deductibility the way a traditional IRA does, but it provides the advantage of tax-free withdrawals during retirement.
Posted on 8:03 AM | Categories:

Simple Tax Deductions

Neil Kokemuller for Demand Media / OpposingViews writes: Understanding the common and simple tax deductions available to you when you file taxes can save you hundreds or thousands of dollars. Despite the fact that nearly 70 percent of homes in the U.S. are occupied by owners, potentially creating significant deduction opportunities, most taxpayers take the standard IRS deduction amounts because they are simpler to claim and require less organization and effort at return time.

Home Deductions

Tax deductions don't get any simpler than mortgage interest and property taxes. These are common expenses for homeowners that often alone exceed the standard deductions of $5,950 for single filers and $11,900 for married people filing jointly. Your mortgage lender should send a statement in January showing what you've paid in mortgage interest and what has been paid in property taxes on your behalf. Second-home mortgage interest and home equity loan and line of credit interest are also commonly deductible.

State and Local Taxes

Another simple tax deduction that most people could take is the amount of income taxes you paid to state and local taxing authorities. In essence, the IRS gives filers who live in states that collect income taxes a discount. This includes the majority of income earners. Claiming these deductions is a simple matter of maintaining records of what you pay, which can usually be found on your year-end W-2 form from your employer. Tax preparation software programs often sync your federal and state returns electronically to simplify this process.

Charitable Giving

Being generous also makes for a simple tax deduction. Any money or valuables you donate without strings to a 501(c)(3) nonprofit organization is deductible. This includes money you give to churches. It also includes valuables and clothing you donate to the local Goodwill or Salvation Army. While claiming this deduction is simple, you do need to plan ahead and keep receipts and records of all giving. Nonprofits often provide receipts for financial gifts. For donations of items, you often need to keep a record of what you donated and get a dated receipt at the time of drop-off.


Job Expenses

Though it requires a bit more record-keeping and organization, you can also claim expenses paid toward your job or profession. This includes money spent on industry publications or professional conferences. Professional liability insurance is also deductible. Teachers can normally deduct supplies purchased personally for job use. Additionally, keep track of travel and services for resume and cover letter writing as you can deduct costs incurred when hunting for a job. Most such miscellaneous expenses can be deducted to the extent they exceed 2 percent of your adjusted gross income, which you will figure out on your tax form.
Posted on 8:03 AM | Categories: