Wednesday, January 15, 2014

Are Pets Tax Deductible? 6 Tax Breaks for Pet Owners

Paul Sisolak for GoBankingRates.com writes: Your family of ferrets or school of goldfish might not be tax exempt, but if you’re dead set on getting a tax refund this year, look into some of the options below. Some might sound outside the realm of the animal kingdom — your dog or cat as a business write-off? — but qualify, nonetheless. And it’s easier than getting a set of paw prints to sign that W-2.

1. Moving the family pets

No pet is an island — at least to the taxman. Pets are property like any other household belonging, and can be taxed as such if you’re relocating, since moving costs are sometimes deductible. It might sound strange to lump Rover and Checkers in with your ottoman, sofa and dining room set, but when they’re tax exempt, who’s complaining?

2. Pet food

Is your dog or cat master of its own domain, keeping your property free of pests and unwanted vermin? Then their food comes tax-free.
Kiplinger wrote about the story of a couple who was allowed to write off the cost of cat food used to attract feral felines on their junkyard property. The wild cats reciprocated by hunting snakes and rats on the premises, making the junkyard safer for customers. Though the peculiar case went to tax court, IRS officials agreed in the end that the nomadic ninja cats could eat tax-free.

3. Guard dogs

“BEWARE OF DOG.” He’s tax exempt, with exceptions. Fifi the poodle with a badge won’t fly with the IRS. Entrepreneur Magazine says that the best tax-exempt guard dogs are the ones who look and play the part — pit bulls or German shepherds are naturally intimidating canines with a penchant for making good watchdogs, and thus, can qualify for the tax-free club.
Your dog must also be actually guarding something, like a gated home or valuable property. In this case, it’s the dog’s services, not the dog itself, being deducted.

4. Animal adoption fees

It’s generally believed that donations made to nonprofits such as churches and other charities are tax deductible. This is true, to an extent. Fees paid, or donations made, to animal shelters are not deductible — rescue organizations need initial funding to pay for operational costs like feeding the animals in their care.
Added donations, however, are technically tax-free. If you’re interested in adopting a pet in need of a loving home, this is a good way to welcome a new family member and make a tax deductible gift in one.

5. Service animals

Seeing-eye dogs and others with special training are tax exempt as per the IRS. This doesn’t mean that training your dog to fetch snacks for you while you veg out on the couch means living tax-free. By law, service dogs are licensed by their owners with special documentation and neck tags from a doctor.

6. Leader of the pack

Being a professional dog is hard work that deserves a tax break. If your pet also works in show business — think pageant presenters or agility trainers — they might be tax deductible. Experts emphasize that if your dog is a well-trained Lassie, it must be documented, business-related and a reasonable expense.
Remember, the 2014 IRS tax deadline is Tuesday, April 15, so there’s plenty of time to configure your pets into your filing schedule. You might find your relationship is full of love, and free of taxes.
Posted on 4:15 PM | Categories:

10 new tax traps to watch out for in 2014

Kay Bell for Bankrate.com writes: Taxpayers can ring in 2014 knowing that they don't have to wait on Congress to finalize tax laws affecting their 2013 returns. The American Taxpayer Relief Act of 2012 that was finally enacted on Jan. 2, 2013, made many tax laws permanent and extended other provisions through 2013. But the tax-related celebrations are likely to be short-lived. Here are 10 tax traps you need to watch out for in 2014.

1. Get ready to wait early in the year.

The federal government shut down for 16 days last October, but taxpayers are still paying for it. The IRS says Jan. 31, 2014, is the earliest it will be ready to process individual tax returns. That date might even be pushed back to Feb. 4 in order for the agency to complete system updates and tests, which were interrupted by the shutdown. The IRS promises to make an official announcement of the filing season start date as soon as it knows for sure. You can go ahead and submit your return electronically as soon as you're ready; your e-filer will hold it until the IRS is ready to accept returns. If, however, you file a paper return, the IRS encourages you to wait until Jan. 28 (or later) to mail it.

2. Get ready to wait later in the year.

Every year or so, some temporary tax provisions are renewed by Congress. In recent years, however, lawmakers have let the laws expire and then renewed them retroactively, most recently in the American Taxpayer Relief Act of 2012, also known as the "fiscal cliff" tax bill. Expect a replay in 2014. Fifty-five tax provisions expire on Dec. 31, 2013. This doesn't affect your 2013 tax return, but tax planning for 2014 will be a different story. Consideration of extenders has been complicated by possible overall tax reform and budget considerations. Uncle Sam could bring in billions by letting some or all of the extenders fade away. That would mean, however, that individual taxpayers would lose such popular tax breaks as the itemized deduction for state and local sales taxes, the above-the-line deductions for tuition and fees and educators' out-of-pocket classroom expenses. The consensus is that Congress will take up the extenders in 2014, but whether that will be before or after the Nov. 5 midterm election is unclear. The longer lawmakers wait, the harder it will be to plan and implement your 2014 tax strategy.

3. Watch for added taxes if you're wealthy.

The American Taxpayer Relief Act of 2012 was not kind to wealthier taxpayers, and they will find out the extent of the damage when they file their 2013 returns.
In addition to paying a top ordinary tax rate of 39.6 percent if, as a single filer, your taxable income is more than $400,000 ($450,000 for married couples filing jointly), you could face added taxes. The most dreaded is the new net investment income tax of 3.8 percent, also known as the Medicare surtax because the money goes toward that health coverage program for older Americans. The tax applies to either your modified adjusted gross income or net investment income, whichever is lower, if you earn more than $200,000 as a single taxpayer or $250,000 as a married joint return filer. The net investment income tax will not only take a bite out of taxpayers' bank accounts, but also cause headaches for high-income earners and their tax professionals working through the tax regulations. Topping it off, single taxpayers who make more than $250,000 and jointly filing couples making more than $300,000 will see their personal exemptions and itemized deduction total reduced.

4. Sign up for medical insurance.

The Affordable Care Act will continue to roll out in 2014, meaning that uninsured individuals have some choices to make that could have tax implications. Enrollment for health insurance under Obamacare, as the health reform act is popularly known, goes through March 31, 2014. If you don't buy an insurance plan, you could face a penalty. The charge for 2014 is either 1 percent of your yearly household income or $95 per uninsured adult and $47.50 per child, up to $285 for a family. You pay whichever amount is higher. If you get insurance for part of the year, your penalty will be prorated. You'll pay the penalty when you file your 2014 tax return in 2015. If you're getting a refund, the IRS will subtract your ACA penalty from the amount you were to get back. If your refund isn't large enough to cover the penalty, the IRS will send you a bill. Ignore that and the tax agency will take the amount out of future tax refunds.

5. File jointly if you're a same-sex married couple.

Married same-sex couples now have the same federal tax filing responsibilities as heterosexual couples. Following the Supreme Court invalidation of the Defense of Marriage Act, the IRS instructed same-sex married couples to file jointly or as a married couple filing separately even if the state where they live does not recognize their marriage. This will simplify same-sex couples' federal filings, but if they must pay state income taxes, depending on their state's law, they could still face filing two state returns as single taxpayers.

6. Claim the simplified home office deduction.

The recession has prompted many workers to start their own businesses, many of which are run from their homes. There's good filing news for these entrepreneurs. For 2013 returns filed in 2014, the IRS is now offering a simplified home office deduction. The new optional deduction is $5 for each square foot of home office space, up to a maximum of 300 square feet. That comes to a maximum $1,500 annual home office deduction. The IRS estimates that this option will save home-office filers who claim it's an estimated 1.6 million hours of paperwork and record keepings collectively. Instead of filling out Form 8829, you'll use a worksheet in the Schedule C instruction book and enter your simplified home-office deduction amount on Schedule C. While the new deduction option will be welcomed by many, note that the requirements to qualify as a home office still apply. For instance, the office space must be used regularly and exclusively for business.

7. Keep an eye on IRS troubles.

The IRS is proposing new regulations for groups seeking 501(c)(4) nonprofit status. This designation was the focus of a Treasury Inspector General for Tax Administration investigation of IRS handling of Tea Party-affiliated organizations seeking the preferable tax status. The IRS is proposing limits on these so-called social welfare groups' spending on political campaign-related activities. Expect continued debate on the groups' activities and IRS oversight before any final regulations are issued. Also look for Congress to restart hearings into IRS activity in the tax-exempt organization area as the 2014 election campaigns heat up. And stay tuned for any changes John Koskinen, a retired corporate restructuring expert who was confirmed Dec. 20, by the Senate as IRS commissioner, might make in his new job.

8. Pay attention to tax preparer regulation.

The IRS effort to regulate professional tax preparers will continue in 2014, both in the court system and on Capitol Hill. The agency wants to register all tax preparers who aren't already subject to certain standards (that is, attorneys, Enrolled Agents or CPAs) and require they pass competency exams and take continuing education classes. The IRS believes this will help reduce incorrectly and fraudulently filed returns. Three tax pros filed a federal lawsuit against the IRS, winning the first court round. An appellate court decision is pending. Meanwhile, legislation has been filed in the House to give the IRS statutory authority to regulate tax preparers. Senate Finance Committee Chairman Max Baucus also has suggested such preparer oversight in his tax reform working drafts. A final decision on tax preparer standards could come in 2014, affecting taxpayers who seek professional help in fulfilling their tax responsibilities.


9. Watch out for tax reform.

The last overhaul of the federal tax code was in 1986. Will we finally see major changes in the Internal Revenue Code in 2014? Probably not. Will we hear a lot of talk about tax reform? Yes. It is an election year and talk of taxes makes for good campaign ads. Rep. Dave Camp, R-Mich., and Sen. Max Baucus, D-Mont., are insistent that there will be some tax reform before they leave the chairmanships of, respectively, the House Ways and Means and Senate Finance committees. Both have led a cross-country tour to solicit public input on tax reform, as well as set up a website on the topic. Camp has focused on 11 specific tax reform working groups. Baucus also has coordinated tax reform option papers and recently released some of his ideas in discussion drafts.

10. Take advantage of inflation tax adjustments.

One thing we do know for sure for 2014, inflation had a nominal effect on around 40 tax provisions. Most notable is that income brackets were widened a tad, meaning you can earn a bit more next year without being bumped into a higher tax bracket. Most people claim the standard deduction, and those amounts for each filing status in 2014 were increased slightly, as was the personal exemption amount, going from $3,900 to $3,950. However, the amounts you can contribute to your workplace pension plan and individual retirement account in 2014 have stayed the same as in 2013.
Posted on 4:15 PM | Categories:

Deductible vs. Nondeductible Business Expenses

Jeff Franco for Demand Media/AZ Central writes:  The Internal Revenue Code provides a fairly general two-pronged test that taxpayers must satisfy for each business expense for which they take a deduction on a tax return. These two requirements are that the expense be ordinary, or that it’s commonly incurred by other business owners within the same industry, and that it be a necessary expense, meaning it’s helpful to your business.
Immediately Deductible
There are a large number of business expenses that can be deducted on the tax return covering the year in which the expense was paid, or if you are accounting under the accrual method, the year in which it was incurred. These expenses typically cover items such as rent, employee salaries, utilities, office supplies, state and local taxes, insurance payments as well as a long list of others. Generally, expenses that are immediately deductible tend to cover goods and services that are used or consumed in the short term.

Deductible Over Time

When you purchase assets for your business, such as vehicles, equipment or even real property, you can’t take a deduction for the entire acquisition cost in the same year the expense is paid or incurred. Instead, these types of expenses, which are referred to as “capital expenses,” are deducted over time as required under the revenue code for the particular category of assets. For example, when you purchase business equipment, you will report a depreciation deduction on your return each year for a portion of its acquisition cost. Moreover, this requires referencing the class life for the asset in the revenue code, which is the number of years you can allocate the cost over. However, Internal Revenue Code Sec. 179 may allow you to fully deduct a certain amount of asset purchases in a single tax year rather than through multi-year depreciation deductions.

Deductible When Sold

For small-business owners who manufacture products or purchase wholesale inventory for resale, the cost of manufacturing or purchasing your products isn’t deductible until they are sold to consumers. On business tax returns, you’ll see this referred to as “Cost of Goods Sold” or COGS. Calculating your COGS can be somewhat intricate, but you essentially determine your annual deduction by taking the value of your inventory at the beginning of the year, adding manufacturing costs and purchases to that amount and then subtracting the value of your ending inventory value as of the last day of the tax year.

Nondeductible Personal

Whenever an expense doesn’t satisfy the “ordinary and necessary” requirements of deductibility, it’s probably safe to assume that it’s nondeductible. But if you’re still unsure, you should consider whether you benefit personally by the expense. If an expense is purely for personal purposes, such as the purchase of a family car that you don’t use in the business, the cost won’t be deductible as a business expense. However, if it’s the only car you own and you use it for both business and personal purposes, you can deduct the portion of car expenses that you can allocate to business use based on the ratio of business miles driven to the total number of miles you put on the car during the year.
Posted on 4:14 PM | Categories:

Take Advantage of Tax-Deferred Accounts for Health-Care Costs / Health savings accounts and flexible spending accounts let you set aside pre-tax dollars to pay out-of-pocket medical expenses.

Editors of Kiplinger's Personal Finance write: Whether you're employed by a large corporation, a small company or you work for yourself, chances are you can funnel money through a special tax-deferred account that can save you one-third or more on your health care costs.

Your employer may let you contribute to a flexible spending account or health savings account, or you may be able to open an HSA on your own. Both accounts let you use tax-free money for medical expenses, but they each have very different rules.

Flexible spending accounts

In a flexible spending account, money is deducted from your paycheck on a pretax basis to pay for out-of-pocket expenses, such as insurance co-payments and deductibles, as well as for qualified medical costs that may not be covered by your health insurance plan -- for instance, orthodontia, elective surgery, eyeglasses and contact lenses. You can also use the money for out-of-pocket costs for prescription drugs, but you can no longer use the money for non-prescription medications.

Contributions to an FSA are not subject to federal income or social security and medicare taxes. Funneling money through a plan can save you one-third or more on your health care costs.

The drawback is that any money committed to the plan but not spent by the end of the year is forfeited. (A modification gives a company the option of offering its employees a grace period of two and a half months in which they can use up the money in the account.) Starting in 2013, you can only contribute up to $2,500 per year to an FSA.

The use-it-or-lose-it rules for flexible-spending accounts cut two ways. The entire amount you designate to your FSA is available starting January 1, even though your contributions are spread throughout the year. So if you use the whole amount then leave your job before the end of the year, your employer has to eat the difference.

Health savings accounts

Because insurance costs are so high, it makes sense for healthy individuals and families to go with a high deductible health insurance policy and stash the premium savings in a health savings account (HSA). These plans became available in 2004 and are available both for the self-employed and company employees.

To qualify for an HSA in 2013, you must purchase a health policy with an annual deductible of at least $1,250 for self-only coverage or $2,500 for a family. This policy must be your only health insurance and you are not eligible to make new contributions to an HSA if you've signed up for Medicare. Once the policy is in place, you may set up an HSA and contribute up to an amount that is indexed annually for inflation. For 2013, you can contribute up to $3,250 if you have self-only coverage, or $6,450 if you have family coverage. People who are 55 or older can contribute an extra $1,000. See IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans for annual amounts.

Money you put into the account can be deducted on your tax return regardless of whether you itemize deductions. Earnings in the account grow untaxed, just as in a 401(k) or IRA. But unlike retirement plans, you can dip into an HSA at any age -- tax-free -- to pay for medical expenses, including your policy deductible and co-payments. You can also use the money tax-free for many charges that are not typically covered by health insurance, such as prescription drugs, vision and dental care and a portion of your long-term-care insurance premiums.

Unlike flexible spending accounts, HSAs allow unspent money to be rolled over from year to year. You will owe income tax on earnings if funds are used for non-health-care purposes, and a 20% penalty will be imposed on any nonqualified withdrawal before age 65.

You can't have an HSA if you use a flexible-spending account to pay health care costs with pretax dollars or if you have other medical coverage (say, through a spouse's policy). However, if your FSA restricts reimbursements to wellness care (such as annual physicals) and vision and dental care, you can have an HSA, too.

After age 65, any money that's left in the HSA may be withdrawn penalty-free for any purpose, but earnings not used to pay medical bills will be taxed.
Posted on 4:14 PM | Categories:

Xero Share Price Hits New Record with a $5.39 Billion Market Cap - Growth in New Zealand

Hamish Fletcher writes for the New Zealand Herald: Xero's share price has hit a record high of $42.35 following the cloud accounting company's announcement it had appointed its New Zealand managing director.
The share price puts the company's market capitalisation at $5.39 billion
Xero announced this morning it had appointed Victoria Crone as its New Zealand managing director.
Crone, Chorus' general manager of sales and marketing, will leave the infrastructure company in April to take up the role at Xero.
Crone will be managing director of the company's New Zealand arm, responsible for driving relationships with government, financial institutions, corporates and media in this country.
"Xero in New Zealand has rapidly grown to over 90,000 small business customers and NZ$25 million of annualised committed revenue. We're thrilled to have a world class executive like Victoria focused 100% on our local market as we embark on the delivery of our next wave of services," Xero chief executive Rod Drury said today.
Xero has hired 90 staff in the last three months and now employs more than 600 workers.  Crone, who has spent the last 18 years with Telecom and Chorus, will be based at Xero's Auckland office.
"Victoria has been central to the development of Chorus over the last two years, ever since she joined us immediately after Chorus' establishment as a standalone company," said Chorus chief executive Mark Ratcliffe.
"She has been a passionate advocate on behalf of our customers and a strong believer in the power of fibre to transform New Zealand. She will leave behind a legacy of innovation, including the Gigatown initiative," he said.
Posted on 10:20 AM | Categories:

2013 Tax Brackets & 2014 Tax Brackets and Standard Deduction Amounts

 


2013 Tax Brackets (for taxes due April 15, 2014)

 
Tax rateSingle filersMarried filing jointly or qualifying widow/widowerMarried filing separatelyHead of household
Tax rate: 10%Single filers: Up to $8,925Married filing jointly or qualifying widow/widower: Up to $17,850Married filing separately: Up to $8,925Head of household: Up to $12,750
Tax rate: 15%Single filers: $8,926 to $36,250Married filing jointly or qualifying widow/widower: $17,851 to $72,500Married filing separately: $8,926 to $36,9250Head of household: $12,751 to $48,600
Tax rate: 25%Single filers: $36,251 to $87,850Married filing jointly or qualifying widow/widower: $72,501 to $146,400Married filing separately: $36,251 to $73,200Head of household: $48,601 to $125,450
Tax rate: 28%Single filers: $87,851 to $183,250Married filing jointly or qualifying widow/widower: $146,401 to $223,050Married filing separately: $73,201 to $111,525Head of household: $125,451 to $203,150
Tax rate: 33%Single filers: $186,251 to $398,350Married filing jointly or qualifying widow/widower: $223,051 to $398,350Married filing separately: $111,526 to $199,175Head of household: $203,151 to $398,350
Tax rate: 35%Single filers: $398,351 to $400,000Married filing jointly or qualifying widow/widower: $398,351 to $450,000Married filing separately: $199,176 to $225,000Head of household: $398,351 to $425,000
Tax rate: 39.6%Single filers: $400,001 or moreMarried filing jointly or qualifying widow/widower: $450,001 or moreMarried filing separately: $225,001 or moreHead of household: $425,001 or more


2014 Tax Brackets (for taxes due April 15, 2015)

 
Tax rateSingle filersMarried filing jointly or qualifying widow/widowerMarried filing separatelyHead of household
Tax rate: 10%Single filers: Up to $9,075Married filing jointly or qualifying widow/widower: Up to $18,150Married filing separately: Up to $9,075Head of household: Up to $12,950
Tax rate: 15%Single filers: $9,076 to $36,900Married filing jointly or qualifying widow/widower: $18,151 to $73,800Married filing separately: $9,076 to $36,900Head of household: $12,951 to $49,400
Tax rate: 25%Single filers: $36,901 to $89,350Married filing jointly or qualifying widow/widower: $73,801 to $148,850Married filing separately: $36,901 to $74,425Head of household: $49,401 to $127,550
Tax rate: 28%Single filers: $89,351 to $186,350Married filing jointly or qualifying widow/widower: $148,851 to $226,850Married filing separately: $74,426 to $113,425Head of household: $127,551 to $206,600
Tax rate: 33%Single filers: $186,351 to $405,100Married filing jointly or qualifying widow/widower: $226,851 to $405,100Married filing separately: $113,426 to $202,550Head of household: $206,601 to $405,100
Tax rate: 35%Single filers: $405,101 to $406,750Married filing jointly or qualifying widow/widower: $405,101 to $457,600Married filing separately: $202,551 to $228,800Head of household: $405,101 to $432,200
Tax rate: 39.6%Single filers: $406,751 or moreMarried filing jointly or qualifying widow/widower: $457,601 or moreMarried filing separately: $228,801 or moreHead of household: $432,201 or more

 
Kay Bell for Bankrate.com writes:   Most taxpayers claim the standard deduction amount. The amounts are adjusted each tax year for inflation.

For 2013, the standard deduction for taxpayers younger than 65

Single$6,100
Head of household$8,950
Married filing jointly$12,200
Qualifying widow or widower$12,200
Married filing separately$6,100

Standard deductions for older, visually impaired taxpayers

Taxpayers who are 65 or older, or who are blind, receive larger standard deduction amounts. Each is noted via a checkbox on Form 1040 and Form 1040A. The age and vision of each spouse is counted separately, meaning that an older couple could check up to four boxes. The final box count is used to figure the adjusted standard deduction amount.

For 2013, the standard deduction for taxpayers older than 65 and/or visually impaired

Filing statusNumber of boxes checkedStandard deduction amount
Single1
2
$7,600
$9,100
Married filing jointly1
2
3
4
$13,400
$14,600
$15,800
$17,000
Married filing separately1
2
$7,300
$8,500
Head of household1
2
$10,450
$11,950
Qualifying widow(er) with dependent child1
2
$13,400
$14,600



For standard deduction amount purposes, if your 65th birthday was Jan. 1, the Internal Revenue Service considers you age 65 for the previous tax year and you may claim the larger standard deduction.
As for vision considerations, you may qualify for the larger deduction even if you are partially blind by attaching a letter from your physician attesting to your limited vision.

Standard deductions for dependent taxpayers

Sometimes you might file a return, for example, to get a refund of withheld money, even though you can be claimed as a dependent on someone else's return.
In this case, a dependent taxpayer who is younger than 65 and not blind can take as a standard deduction the greater of $1,000 or his or her earned income plus $350. This deduction amount, however, cannot exceed the basic standard deductions for the dependent taxpayer's filing status.

Itemized deductions

Although most taxpayers claim the standard deduction, all taxpayers may choose to itemize deductions and claim that amount if it is larger than their allowable standard deduction amount.

You must file Form 1040 and Schedule A to itemize.
Some itemized deductions are limited based on a taxpayer's adjusted gross income, or AGI. Others are restricted to a threshold, or percentage, of the filer's adjusted gross income.
Taxpayers who make a certain amount also may not be able to deduct all of their itemized deductions. The total of Schedule A deductions begins phasing out if your adjusted gross income is more than $150,000 if married filing separately; $250,000 if single; $275,000 if head of household; or $300,000 if married filing jointly or a qualifying widow(er).

Limits on itemized deductions

Medical expensesAmount exceeding 10 percent of your adjusted gross income is deductible. The threshold for taxpayers older than 65 remains at 7.5 percent through the 2016 tax year.
Mortgage loan interestGenerally, fully deductible for loans totaling $1 million or less ($500,000 if married filing separately) on your primary residence or second home.
Home equity loan interestGenerally, deductible for loans up to $100,000 ($50,000 if married filing separately) that are secured by your home.
Charitable contributionMost are fully deductible as long as the gift amount does not exceed 50 percent of AGI.
Casualty lossesDeductible after subtracting insurance reimbursements, 10 percent of your AGI and $100.
Miscellaneous expensesAmount exceeding 2 percent of AGI is deductible.

Posted on 10:01 AM | Categories:

FreshBooks, ZenPayroll integrate accounting and payroll platforms / A new partnership between the two cloud software companies will reduce the need to enter payroll data manually.

Heather Clancy for ZD Net writes:   Fast-growing cloud accounting software provider, FreshBooks, has beefed up its support for payroll processing through an integration deal with ZenPayroll.
 
It's just the latest example of the support building behind payroll services and platforms focused on small businesses. Aside from ZenPayroll, which is available in seven states with more to follow this year, another startup to watch closely is JustWorks, which is licensed in 25 states. Both companeis are planning for rapid expansion of their services during 2014.
 
The partnership between FreshBooks and ZenPayroll means that users of ZenPayroll can automatically populate their accounting software when a payroll cycle is run. Adjustments to payroll are automatically reflected, which means that managers and bookkeepers don't have to worry about mistakes that could occur when synchronizing them manually.
 
Aside from FreshBooks, ZenPayroll also supports integrations with Xero and QuickBooks.
Posted on 9:56 AM | Categories:

Tax refund loan alternatives


Kay Bell for BankRate.com writes:   Just discovered you'll be getting a tax refund? Don't let your enthusiasm for spending that unexpected money get the better of you.  Some taxpayers, upset at the delay until Jan. 31 of the start of the federal tax-filing season, might consider offers to get their refund money sooner via private programs. In recent years, attorneys general have filed suits against refund anticipation loan, or RAL, operations for failure to disclose full costs of the products to consumers. Consequently, RALs are effectively unavailable. But alternatives, such as refund anticipation checks, remain and, say consumer advocates, can be just as costly.
 
Thanks to today's technology, there's really no need to pay extra just to get your hands on your tax money a tiny bit sooner. If instant cash is more a desire than a need when considering a quick refund, consider these alternatives:
 
Go electronic. Abandon the traditional paper return sent via the U.S. mail and file from your computer. You'll get the money almost as fast as you would with a refund anticipation loan and get it without paying any loan fees or interest. In fact, you may not need to pay for anything. An Internal Revenue Service partnership with tax preparers and software companies offers free online tax preparation and e-filing to some taxpayers. For the 2013 filing season, the Free File program kicks off Jan. 31. Last year, the income cutoff was $57,000, regardless of filing status. An inflation adjustment of $1,000 increases that amount slightly to $58,000.
 
For the past few years, the IRS has also expanded the online program to include taxpayers who make more money. Via the Free File Fillable Tax Form option, anyone, regardless of income, can enter their tax data onto online forms and then file them for free directly with the IRS. This is not a tax software program, but simply blank forms you can use via computer, and file directly, rather than filling them out by hand.
 
The IRS says that any e-filing option you use will get you your tax refund much more quickly than mailing a paper return. Whereas paper filers could wait up to eight weeks for their refunds, most electronic filers can expect their tax checks to show up in their mailboxes in half that time or less. The agency also points out that the error rate is less than 1 percent for electronic filers.
 
Direct deposit. Electronic filers who opt for a refund via direct deposit do even better. The IRS says the money generally shows up in taxpayer bank accounts in 10 to 14 days. Even if you file the old-fashioned paper way, having your refund deposited directly into a bank account cuts the time you have to wait for your tax cash. Plus, it's added protection against lost or stolen refund checks sent via the mail.
 
Use store financing. If you want your refund to finance a must-have new appliance, store interest rates usually will be better than a refund anticipation loan. Many stores offer free financing for limited time periods. By then, the refund should have arrived and you can use it to pay off the store credit -- and pay no interest at all.

 

Impatience usually wins. "Theoretically, with electronic filing and quicker turnaround on refunds, the need for tax anticipation loans has become obsolete," says John L. Stancil, CPA and professor of accounting at Florida Southern College in Lakeland.
 
But ultimately, a refund anticipation product is a personal preference, not a fiscal issue for taxpayers. The prospect of cash a few days earlier appeals to those who value speed over cost, such as the person who stands impatiently in front of the microwave complaining that it's taking too long for dinner to be ready.
 
Companies that offer quick refund options are well aware of such impatience, and that's why some opportunities survive even as electronic filing increases, especially in the past two years when official filing was delayed.
 
But if you can squelch your refund appetite for just a few days, then you -- and your bank account -- will be better off.


Posted on 9:56 AM | Categories:

Tax Fees Compared: How Will You File?

Gerald Morales for MyBankTracker.com writes: Tax season is upon us and before you know it you will have to file your 2013 tax return. Despite being delayed until Jan. 31, it is still smart to get a jump on preparing your taxes now. You should compare tax fees to figure out how you want to file — will you use a tax professional or file on your own?
Thanks to technology and free software available to help you file online, filing has become easier than ever. You can save time, money, and help the environment by filing a tax return online. See the comparison below of 2014 tax fees so that you have a clear understanding on how much each preparer charges.

Tax fees

Think about the type of return you need to file. Your financial situation will determine which type of return you should file. Here is a breakdown on what the different filing type typically entails. Keep in mind it will vary by company.
  • Free – Designed for students or people with a simple return.
  • Basic – This is for people with a simple return and want basic support. This option usually allows for simple access to previous tax returns in the years to come.
  • Deluxe – A person that owns a home, has charitable donations, and other more complicated things to deduct should look into this service.
  • Premier – Anyone that has sold bonds, stocks, or mutual funds is going to want to file a premier tax return. This also applies to people that own rental property, or that sold employee stocks.
  • Home and business – Sole proprietors and small business owners are going to want to file through this option. It is also ideal for someone that has small office deductions.
Now that you understand what each type means, take a look at these tax fee comparisons.

2014 Tax Fees Compared

Tax PreparerFederal FeesState FeeTotal Cost
Turbo TaxFree-$0, Basic-$19.99, Deluxe-$29.99, Premier-$49.99, Home & Business-$74.99$36.99Free-$36.99, Basic-$56.98, Deluxe-$66.98, Premier-$86.98, Home & Business-$111.98
H&R BlockFree-$0, Basic-$19.99, Deluxe-$29.99, Premium-$49.99$27.99Free-$27.99, Basic-$47.98, Deluxe-$57.98, Premium-$77.98
TaxACTFree-$0, Deluxe Federal-$12.99, Ultimate Bundle-$17.99, Home & Business Bundle $59.99Free-$14.99, Deluxe-$8 (if filed separate to federal tax return)Free-$14.99, Deluxe-$17.99 (when both state and federal are filed together), Ultimate Bundle-$17.99 (Ultimate Bundle includes state return), Home & Business Bundle $59.99 (Home & Business Bundle includes state return)
eSmart (by Liberty Tax)Free-$0, Deluxe-$9.95, Premium-$29.95$9.95Free-$9.95, Deluxe-$19.9, Premium-$39.9
Jackson Hewitt OnlineBasic-$0, Deluxe-$26.95, Premium-$44.95$29.95Basic-$29.95, Deluxe-$56.9, Premium-$74.89
FreeTaxUSAFree-$0, Deluxe-$5.95$12.95Free-$12.95, Deluxe-$18.9

What about personal tax preparers?

If you do not feel comfortable filing online, you may want to look into personal assistance. Take note that personal tax preparers charge their own rate to file your tax return. The National Society of Accountants calculated the average fee charged in 2013 to file tax returns was $246. How much you are charged depends on where you file, the type of return you file, and ultimately the rate you are charged by your tax preparer.
If you or someone you know is struggling to pay for this fee, do not worry, there is help. The AARP Foundation offers free in-person tax preparation for low to moderate income taxpayers. The service is especially in favor of helping taxpayers age 60 or older. View AARP Foundation to find a location in your area.

Check before you file

Before you file taxes either online or through a person, check the credibility of who is filing your return. Ensure you do not file somewhere that does not have a good reputation as being known as a reliable place to file a tax-return.

For instance, last year’s big mistake by H&R Block resulted in about 660,000 people from receiving their tax return on time. Doing the proper research before choosing a tax professional is crucial before filing.
Posted on 8:28 AM | Categories:

Planning a Roth IRA conversion? Check your state income tax

Scott Hanson for CNBC writes:Just about every article I've read on Roth IRA conversions discusses their benefits for people who might be in a high tax bracket once they retire.
What these articles invariably fail to mention is the negative impact that state income taxes could have and why, depending on where you plan to live, a Roth conversion might actually not be the best decision for everyone.
When you convert a 401(k) plan account or traditional IRA to a Roth IRA, you're making the conscious decision to pay income taxes today for the promise of a tax-free income tomorrow. This can be a wise choice if you are fairly confident that a) you'll be in a higher tax bracket during retirement, and b) Congress won't dramatically change the tax rules on Roth IRA withdrawals.
Those with high incomes who are saving and investing successfully—and who believe they'll continue to have a high income once they retire—seem prone to a certain line of reasoning: Because the promise of tax-free income from a Roth IRA is so appealing, why not just take some retirement savings today, pay the tax at current levels and then sit back and enjoy tax-free income during retirement? After all, just about "everyone" thinks that taxes will be higher in the future, right?
But converting money from a 401(k) or IRA to a Roth IRA triggers not only federal income taxes but also taxable income in the state in which you currently reside. While there are seven states—Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming—with no state income tax, many others have prohibitively high rates.
The top income-tax rate in New York, for example, is around 9 percent, while California's top rate is north of 13 percent.
If you reside in a state with high income-tax rates and convert money to a Roth IRA, you'll not only be forced to pay Uncle Sam, you'll also find yourself writing a check for thousands of dollars to help fund your state government.
This is obviously the reason so many people, once retired, flee high tax-burden states for states with lower taxation rates.
You must consider that because retirement withdrawals are taxed based on the rates of the state in which you reside when you actually take those withdrawals, a traditional 401(k) or IRA withdrawal will be state tax–free if you live in a state with no income tax. Again, it makes no difference if the withdrawal is coming from a traditional IRA or a Roth IRA—the withdrawals are taxed the same (0 percent) in places with no state income tax.
"For those who are confident they'll be leaving their state when they retire, a Roth conversion is simply a bad idea the vast majority of the time."
If you plan on moving out of your current high-taxed state to retire in a location with no state income tax, why would you want to convert anything to a Roth IRA? By doing so, you would be taking money that would be state income tax–free during retirement and making those dollars taxable today.
Simply put: If your current primary residence has high state income taxes, you could be forking over a considerable amount of money today for absolutely zero benefit during your golden years.
There are some circumstances where a Roth conversion still might make sense, such as during a period of prolonged unemployment, but for those who are confident they'll be leaving their state when they retire, a Roth conversion is simply a bad idea the vast majority of the time.
This same logic applies to contributions to Roth 401(k) plans. Again, using the traditional plans may have greater benefit if you leave your high-taxed state once you retire.
Posted on 8:28 AM | Categories:

Roth vs Traditional Question for IRA & 401k / 403b

Over at Mr. MoneyMustache.com we read the following discussion:
Pages: 1Author Topic: Roth vs Traditional Question for IRA & 401k/403b (Read 113 times)

fin123

  • Stubble
  • Posts: 6
Roth vs Traditional Question for IRA & 401k/403b
« on: January 14, 2014, 08:50:23 am »
Hi all,


Simple question regarding Roth vs Traditional elections. My wife and I (24 & 26, respectively) combine to make ~135K, split basically even between us. We contribute 10-12% of our income to our 401k/403b and max out our IRAs each year. We both have the ability through work to elect a before or after-tax election for our 401k & 403b.


I have a good feeling that in retirement we'll be in a lower tax bracket than we are currently as we won't be making our current level of income. However, would it still be better to make Roth/Before tax elections for our 401k/403b & IRA accounts? If anything, tax rates will probably rise, and while in 35 years the Gov could theoretically tax Roth accounts, I don't see them able to pass that legislation. Or, should we hedge our bets and make Roth IRA contributions while going before-tax with one 401k and after-tax with the 403b? That way, we can have more control over our income streams down the line due to ability to pull from before & after tax account.


In summary - 135K income, mid-20s, how should we make elections for IRAs and work retirement accounts?


Thanks in advance for any assistance! Logged




NumberCruncher

  • Magnum
  • Posts: 264
Re: Roth vs Traditional Question for IRA & 401k/403b
« Reply #1 on: January 14, 2014, 09:31:14 am »
My husband and I have had similar questions in the past and are currently in the 28% tax bracket. One simple solution is to use the Roth IRA pipeline, in which case using tax-advantaged (traditional) accounts makes a ton of sense: http://www.mrmoneymustache.com/forum/ask-a-mustachian/help-me-understand-the-roth-conversion-pipeline-idea-and-its-benefits/


Even if we were to just withdraw funds and pay the 10%, our spending levels would put us squarely in the 15% tax bracket (which hasn't changed a ton in recent history: http://taxfoundation.org/article/us-federal-individual-income-tax-rates-history-1913-2013-nominal-and-inflation-adjusted-brackets ), meaning we'd still come out ahead with traditional accounts. Since we have very few other deductions (renting non-parents), it saves us quite a bit. We'd even do traditional IRAs if we could get the deduction. Since we can't, we do Roth.


I don't see them changing the rules much on the lower tax brackets, but even if I did...it's a lot of speculation.

Logged




the fixer

  • Senior Mustachian
  • Posts: 634
  • Location: Seattle, WA
Re: Roth vs Traditional Question for IRA & 401k/403b
« Reply #2 on: January 14, 2014, 10:16:02 am »
I agree that you could speculate either way. I think raising the income tax rates on lower income earners is roughly as likely as putting a small tax on Roth withdrawals. Politicians and think tanks could put out all kinds of studies saying that despite the Roth IRA being intended for low-income taxpayers, the wealthiest receive most of the benefits. So having some in both accounts seems like a good idea.


I would put any money that would get taxed at 28% or more into tax-deferred accounts, then the rest could be split. The other variable worth considering is state income taxes if you think those will go down or up for you in retirement (including the case where you plan on moving to a different state). Logged
A Mustachian climber and part-time vandweller: http://lifeoffroute.com




FrugalSpendthrift

  • Stubble
  • Posts: 12
Re: Roth vs Traditional Question for IRA & 401k/403b
« Reply #3 on: January 14, 2014, 01:05:27 pm »
I've been wrestling with this as well, but my crystal ball won't project that far. I'm in my mid 30's, currently in the 25% tax bracket, but if business goes well, I could potentially be in a higher tax bracket in a couple years. I've been using a Roth 401k for a number of years, and haven't really tracked it well until recently. I just noticed that 56% of my portfolio across all of me and my wife's accounts is Roth money. That shocked me into switching back to pre-tax contributions, but I can't decide if it was the right move. If I was in a higher tax bracket, I would feel more strongly that the pre-tax investment was the way to go, but being in the middle, I'm not so sure. Logged




frugally

  • Stubble
  • Posts: 4
Re: Roth vs Traditional Question for IRA & 401k/403b
« Reply #4 on: January 14, 2014, 01:51:59 pm »




Cheddar Stacker

  • Stubble
  • Posts: 32
  • Location: St. Louis
Re: Roth vs Traditional Question for IRA & 401k/403b
« Reply #5 on: January 14, 2014, 02:43:47 pm »
I use these posts as my guideline. If you don't spend much money, and your tax rate is above 10%, traditional gives you a better tax benefit than Roth using these strategies.






aj_yooper

  • Senior Mustachian
  • Posts: 553
  • Age: 2
  • Location: Chicagoland
  • Use it up, wear it out, make it do, or do without.
Re: Roth vs Traditional Question for IRA & 401k/403b
« Reply #6 on: Today at 06:13:08 am »
If you have an employer-basee HSA available, I would be using that too; they are the sweet spot for tax advantaged. For me, generally, if you see yourselves retiring in the 10-15% bracket, tax advantaged is the way to go, assuming you are clearly above the 15% marginal rate already. If you have more money left over to invest, taxable accounts, properly constructed, are also very beneficial. The sites mentioned above are very good. Logged
"Live lightly. Don’t go into debt. It’s easier to live on less than to make more." Anonymous




Pages: 1

Posted on 8:27 AM | Categories: