The Tax Man cometh: Four tax prep tips for startup businesses to start using now

John Weaver, a CPA and tax expert at BerryDunn for Boston.com writes: Even if you aren’t yet turning a profit or showing revenue in your business, you need to pay attention to managing your taxes so that when the money arrives, you haven’t painted yourself or your partners into a corner. With so many other things that never seem to be finished, planning for and filing your tax returns can give you the satisfaction of completion. You can organize, prioritize, execute, and above all, finish if you’ve done some reasonable planning. Here are four pieces of advice for getting it done.

One: Get your stuff together.

It is essential to gather your tax information and assemble it in some way that will be understandable to you, your accountant, and the IRS if they choose to make a visit to you two years from now. You can organize your data with a standard software package such as Quickbooks. Or, many start-ups just summarize their activity on a spreadsheet. But remember, a software program is only as good as the person using it, and a spreadsheet with too many colors, pointers, footnotes, and formulas is daunting. Keep it simple. Good rule of thumb? You should be able to explain to a child what you’ve done or how you’ve organized things. Make absolutely sure you have receipts and other documents to substantiate what you are reporting. You would not believe how many tax return deductions have been overturned due to lack of proper supporting documents.

Be sure to segregate your business expenses from personal expenses. Without the proper documentation for each expense the IRS can disallow your deductions. This is a year-round activity and creating the right habits now can save you money and heartache for many years.

Two: It’s complicated.

Understand the filing requirements for your business. Have you changed the structure of your company? Gone from an LLC or S-corp to a C-corp to accommodate new capital? Make sure the investors understand the tax implications of this change. In an S corporation or LLC, for example, business owners report the entity’s gain or loss on their own personal tax return. In a C-corp, they do not.

Know the implications of your ownership structure and situation. Make sure you can clearly document who owns or owned what portion of the company during each portion of the year. This may significantly affect how you prepare the tax return, depending on what type of return you are filing.

Know what’s deductible and by whom. In some entities, owners may have different amounts of capital invested, or may have invested their capital according to different terms and therefore would treat any losses differently on their personal tax returns. That is, if they even get to deduct those losses at all. This in turn depends on how the organization is structured, and how much money they have invested, and how they invested it. Be aware of your owners’ expectations. This will affect your financial results a few years down the road when you try to sell the company.

Perhaps you aren’t even required to file an income tax return with the IRS. How about with your state, or any state, or even many states? What about 1099s, W-2s, 941s, or annual reports? You’ll need some professional assistance to help you figure out what to file or address since the implications can be significant.

Three: Choose wisely.

Filing your first income tax return has long term implications for your business. On it, you are making elections which will affect every tax return to follow. For example, you must elect whether to report your taxes as a cash-method taxpayer, or an accrual-method taxpayer which create significant future implications. Once you’ve made an election, depending on the election involved, it might be easy, or not so easy, to un-do or change it. Other first year elections can address how you report research and development expenses, how you depreciate any new property or equipment, or how you recognize revenue. By the way: In a due diligence situation, filing the required tax returns properly always is and always will be a very big deal.

Four: Know Your Dates and Get it Done.

Most importantly, don’t fall behind on filing your returns. Failure to file reports properly and on time can lead to costly penalties and turn into a time-consuming problem to clean up afterwards. You didn’t get to where you are by dithering over decisions; decide what you need to do, move on it, and don’t look back.

Plan ahead just a little bit. Don’t assume your accountant can take your information from you in early March and produce a tax return by March 15 (the filing deadline for corporations). If you want a tax return filed on time, or in a reasonably timely manner, let your accountant get a head start on it. This leads to greater efficiency, which leads to a better relationship, and maybe even a lower fee.

Even if you file the tax return yourself, it’s better to do it early, when things are still fresh in your mind, rather than racing to do it later when you have many, many other pressing things to do. Once it’s done, don’t fuss with it. You’ve got a good tax advisor and, if you’ve asked the right questions, then you are probably doing the right things. There’s a great sense of relief at accomplishing any task successfully and moving on to the next one. Now you can get back to growing your business. After all, that’s the whole point of this. And it’s much easier to do that without unfiled tax returns hanging over your head.

Tax Tips After January 1, 2014 / Find strategies to lower taxes, save money when preparing your tax return, and avoid tax penalties.

TurboTax writes: If you think your tax bill is chiseled in stone at the end of the year, think again. Though it’s true that most money-saving options to defer income or accelerate deductions become much more limited after December 31, there is still a lot you can do to make the tax-filing season cheaper and easier.

Some strategies can help you lower your taxes, sometimes by thousands of dollars. Some help you save time and money when preparing your tax return. Other strategies help you avoid costly penalties and interest on both federal and state taxes. All in all, these 10 steps will lower your blood pressure while keeping more money in your pocket:

1. Contribute to retirement accounts

If you haven’t already funded your retirement account for 2013, do so by April 15, 2014. That’s the deadline for contributions to a traditional IRA, deductible or not, and to a Roth IRA. However, if you have a Keogh or SEP and you get a filing extension to October 15, 2014, you can wait until then to put 2013 contributions into those accounts. To start tax-free compounding as quickly as possible, however, don’t dawdle in making contributions.

Making a deductible contribution will help you lower your tax bill this year. Plus, your contributions will compound tax-deferred. It’s hard to find a better deal. If you put away $5,000 a year for 20 years in an investment with an average annual 8 percent return, your $100,000 in contributions will grow to $247,000. The same investment in a taxable account would grow to only about $194,000 if you’re in the 25 percent federal tax bracket (and even less if you live in a state with a state income tax to bite into your return).

To qualify for the full annual IRA deduction in 2013, you must either: 1) not be eligible to participate in a company retirement plan, or 2) if you are eligible, you must have adjusted gross income of $59,000 or less for singles, or $95,000 or less for married couples filing jointly. If you are not eligible for a company plan but your spouse is, your traditional IRA contribution is fully-deductible as long as your combined gross income does not exceed $178,000.

For 2013, the maximum IRA contribution you can make is $5,500 ($6,500 if you are age 50 or older by the end of the year). For self-employed persons, the maximum annual addition to SEPs and Keoghs for 2013 is $51,000.

Although choosing to contribute to a Roth IRA instead of a traditional IRA will not cut your 2013 tax bill—Roth contributions are not deductible—it could be the better choice because all withdrawals from a Roth can be tax-free in retirement. Withdrawals from a traditional IRA are fully taxable in retirement. To contribute the full $5,500 ($6,500 if you are age 50 or older by the end of 2013) to a Roth IRA, you must earn $112,000 or less a year if you are single or $178,000 if you’re married and file a joint return.

The amount you save for making a contribution will vary. If you are in the 25 percent tax bracket and make a deductible IRA contribution of $5,500, you will save $1,375 in taxes the first year. Over time, future contributions will save you thousands, depending on your contribution, income tax bracket, and the number of years you keep the money invested.

2. Make a last-minute estimated tax payment

If you didn’t pay enough to the IRS during the year, you may have a big tax bill staring you in the face. Plus, you might owe significant interest and penalties, too.

How could that happen? Withholding on your paycheck may be out of whack, or you may have received a big gain from selling stock. According to IRS rules, you must pay 100 percent of last year’s tax liability or 90 percent of this year’s tax or you will owe an underpayment penalty. If your adjusted gross income for 2012 was more than $150,000, you have to pay more than 110 percent of your 2012 tax liability to be protected from a 2013 underpayment penalty. If your tax payments were a bit light, you may be stuck.

If you make an estimated payment by January 15, though, you can erase any penalty for the fourth quarter, but you still will owe a penalty for earlier quarters if you did not send in any estimated payments back then. But if your income windfall arrived after August 31, 2013, you can file Form 2210: Underpayment of Estimated Tax to annualize your estimated tax liability, and possibly reduce any extra charges.

A note of caution: Try not to pay too much. It’s better to owe the government a little rather than to expect a refund. Remember, the IRS doesn’t give you a dime of interest when it borrows your money.

3. Organize your records

Good organization may not cut your taxes. But there are other rewards, and some of them are financial. For many, the biggest hassle at tax time is getting all of the documentation together. This includes last year’s tax return, this year’s W-2s and 1099s, receipts and so on.

If you really want to make tax season go smoothly, use a personal finance software program like Quicken throughout the year so you have easy access to all the information you need.

How do you get started?

• Print out a tax checklist to help you gather all the tax documents you’ll need to complete your tax return.
• Keep all the information that comes in the mail in January, such as W-2s, 1099s and mortgage interest statements. Be careful not to throw out any tax-related documents, even if they don’t look very important.
• Collect receipts and information that you have piled up during the year.
• Group similar documents together, putting them in different file folders if there are enough papers.
• Make sure you know the price you paid for any stocks or funds you have sold. If you don’t, call your broker before you start to prepare your tax return. Know the details on income from rental properties. Don’t assume that your tax-free municipal bonds are completely free of taxes. Having this type of information at your fingertips will save you another trip through your files.

4. Find the right forms

You won’t find all of them at the post office and library. Instead, you can go right to the source online. View and download a large catalog of forms and publications at the Internal Revenue Service Web site or have them sent to you by mail. You can search for documents as far back as 1980 by number or by date.

The IRS also will refer you to a private Web site that lists state government sites where you can pick up state forms and publications.

By the way, TurboTax already includes all the forms you need, which takes the hassle out of deciding which forms to use. Just answer simple, plain-English questions, and TurboTax fills out all the right forms for you.

5. Itemize

It’s easier to take the standard deduction, but you may save a bundle if you itemize, especially if you are self-employed, own a home or live in a high-tax area. It’s worth the bother when your qualified expenses add up to more than the 2013 standard deduction of $6,100 for singles and $12,200 for married couples filing jointly. Many deductions are well known, such as those for mortgage interest and charitable donations. However, taxpayers sometimes overlook miscellaneous expenses, which are deductible if the combined amount adds up to more than two percent of your adjusted gross income. These deductions include tax-preparation fees, job-hunting expenses, business car expenses and professional dues.

You can also deduct the portion of medical expenses that exceed 10% percent of your adjusted gross income.

There is a temporary exemption from Jan. 1, 2013 to Dec. 31, 2016 for individuals age 65 and older and their spouses. If you or your spouse are 65 years or older or turned 65 during the tax year you are allowed to deduct unreimbursed medical care expenses that exceed 7.5% of your adjusted gross income. The threshold remains at 7.5% of AGI for those taxpayers until Dec. 31, 2016.

Beginning Jan. 1, 2017, all taxpayers may deduct only the amount of the total un reimbursed allowable medical care expenses for the year that exceeds 10% of your adjusted gross income.

6. Don't shy away from a home office deduction

The eligibility rules for claiming a home office deduction have been loosened to allow more filers to claim this break. People who have no fixed location for their businesses can claim a home office deduction if they use the space for administrative or management activities, even if they don’t meet clients there. Doctors, for example, who consult at various hospitals, or plumbers who make house calls, can now qualify. As always, you must use the space exclusively for business.

Many taxpayers have avoided the home office deduction because it has been regarded as a red flag for an audit. If you legitimately qualify for the deduction, however, there should be no problem.

You are entitled to write off expenses that are associated with the portion of your home where you exclusively conduct business (such as rent, utilities, insurance and housekeeping). The percentage of these costs that is deductible is based on the square footage of the office to the total area of the house. A middle-class taxpayer who uses a home office and pays $1,000 a month for a two-bedroom apartment and uses one bedroom exclusively as a home office can easily save $1,000 in taxes a year. People in higher tax brackets with greater expenses can save even more.

One home office trap that used to scare away some taxpayers has been eliminated. In the past, if you used 10 percent of your home for a home office, for example, 10 percent of the profit when you sold did not qualify as tax-free under the rules that let homeowners treat up to $250,000 of profit as tax-free income ($500,000 for married couples filing joint returns). Since 10 percent of the house was an office instead of a home, the IRS said, 10 percent of the profit wasn’t tax-free. But the government has had a change of heart. No longer does a home office put the kibosh on tax-free profit. You do, however, have to pay tax on any profit that results from depreciation claimed for the office after May 6, 1997. It’s taxed at a maximum rate of 25 percent. (Depreciation produces taxable profit because it reduces your tax basis in the home; the lower your basis, the higher your profit.)

7. Provide dependent taxpayer IDs on your return

Be sure to plug in Taxpayer Identification Numbers (usually Social Security Numbers) for your children and other dependents on your return. Otherwise, the IRS will deny the personal exemption of $3,900 for each dependent and the $1,000 child tax credit for each child under age 17.

Be especially careful if you are divorced. Only one of you can claim your children as dependents, and the IRS has been checking closely lately to make sure spouses aren’t both using their children as a deduction. If you forget to include a Social Security number for a child, or if you and your ex-spouse both claim the same child, it’s highly likely that the processing of your return (and any refund you’re expecting) will come to a screeching halt while the IRS contacts you to straighten things out.

The $1,000 child tax credit begins to phase out at $110,000 for married couples filing jointly and at $75,000 for heads of households.

After you have a baby, be sure to file for your child's Social Security card right away so you have the number ready at tax time. Many hospitals will do this automatically for you. If you don’t have the number you need by the tax filing deadline, the IRS says you should file for an extension rather than sending in a return without a required Social Security number.

8. File and pay on time

If you can’t finish your return on time, make sure you file Form 4868 by April 15, 2014. Form 4868 gives you a six-month extension of the filing deadline until October 15, 2014. On the form, you need to make a reasonable estimate of your tax liability for 2013 and pay any balance due with your request.

Requesting an extension in a timely manner is especially important if you end up owing tax to the IRS. If you file and pay late, the IRS can slap you with a late-filing penalty of 4.5 percent per month of the tax owed and a late-payment penalty of 0.5 percent a month of the tax due. The maximum late filing penalty is 22.5 percent and the late-payment penalty tops out at 25 percent. By filing Form 4868, you stop the clock running on the costly late-filing penalty.

9. File electronically

Electronic filing works best if you expect a tax refund. Because the IRS processes electronic returns faster than paper ones, you can expect to get your refund three to six weeks earlier. If you have all your documents in order, go ahead and file electronically in January using software like one of the TurboTax programs. If you have your refund deposited directly into your bank account or IRA, the waiting time is even less.

There are other advantages to e-filing besides a fast refund. The IRS checks your return to make sure that it is complete, which increases your chances of filing an accurate return. Less than one percent of electronic returns have errors, compared with 20 percent of paper returns. The IRS also acknowledges that it received your return, a courtesy you don’t get even if you send your paper return by certified mail. That helps you protect yourself from the interest and penalties that accrue if your paper return gets lost.

If you owe money, you can file electronically and then wait until the federal tax filing deadline to send in a check along with Form 1040-V. You may be able to pay with a credit card or through a direct debit.

• With a credit card, expect to pay a service charge of as much as 2.5 percent.
• With direct debit, you may delay the debiting of your bank account until the actual filing deadline.

Plus, federal e-filing is now included at no additional charge with all TurboTax federal products.

10. Decide if you need help

TurboTax can handle the most complex returns with ease (and allow you to file your taxes electronically for a faster refund). You just need to answer simple questions, such as whether you've had a baby, bought a home or had some other life-changing event in the past year. TurboTax will then fill out all the right forms for you.

However, if you still feel uncomfortable doing your taxes on your own, TurboTax offers some economical additional services you can purchase when preparing your return. You can talk to a tax professional by phone to get your questions answered, or purchase Audit Defense coverage so that you are professionally represented in the event of an audit. If you are concerned about preparing your own return, these services will give you added confidence and peace of mind.

IRS Issues Guidance On Post-DOMA Benefits Issues

The Internal Revenue Service has updated its online frequently asked questions (FAQs) on the impact on employee benefits of the Supreme Court’s decision in Windsor. In that case, the Supreme Court struck down Section 3 of the Defense of Marriage Act of 1993 (DOMA).

The IRS also has issued Notice 2014-1, which amplifies the guidance provided by Rev. Rul. 2013-17, on the application of the rules under Sec. 125 relating to cafeteria plans, including health and dependent care flexible spending arrangements (FSAs), and Sec. 223 relating to health savings accounts (HSAs), to the participation by same-sex spouses in certain employee benefit plans. The guidance is in question-and-answer format and addresses such issues as midyear election changes, FSA reimbursements, and contribution limits for HSAs and dependent care assistance programs. The notice is effective as of Dec. 16, 2013.

Place of celebration approach. After Windsor, the IRS announced that same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for all federal tax purposes. The IRS also announced that for tax year 2013 and going forward, same-sex spouses generally must file using a married filing separately or jointly filing status. Additionally, the IRS issued Notice 2013-61, describing two administrative procedures for employers to correct overpayment of employment taxes.

Note that as long as a couple is married in a jurisdiction that recognizes same-sex marriage, the IRS will recognize their marriage even if they relocate to a jurisdiction that does not recognize same-sex marriage.

Tax treatment of benefits. Because of Section 3 of DOMA, employers that allowed an employee to add his or her same-sex spouse to their health plan needed to impute income to the employee for federal income tax purposes equal to the fair market value of health coverage provided to the same-sex spouse. However, this did not apply if the same-sex spouse qualified as a dependent.

In its updated FAQs, the IRS explained that an employee should seek a refund of Social Security and Medicare taxes from his or her employer first. However, if the employer indicates an intention not to file a claim or adjust the overpaid Social Security and Medicare taxes, the employee may claim a refund of any overpayment of employee Social Security and Medicare taxes by filing Form 843, Claim for Refund and Request for Abatement.

The IRS also explained that an employer using the first special administrative procedure under Notice 2013-61does not need to obtain a written statement from its employee with respect to the 2013 overpayments. However, an employer that uses the second special administrative procedure under Notice 2013-61must obtain a written statement from each affected employee. The updated FAQs also discuss home employment situations and joint ventures.

Midyear election changes. Notice 2014-1 indicates that a cafeteria plan may treat a participant who was married to a same-sex spouse as of the date of the Windsor decision (June 26, 2013) as if the participant experienced a change in legal marital status for purposes of the election change rules. Accordingly, a cafeteria plan may permit such a participant to revoke an existing election and make a new election in a manner consistent with the change in legal marital status. For purposes of election changes due to the Windsor decision, an election may be accepted by the cafeteria plan if filed at any time during the cafeteria plan year that includes June 26, 2013, or the cafeteria plan that includes Dec. 16, 2013.

A change in the tax treatment of a benefit offered under a cafeteria plan generally does not constitute a significant change in the cost of coverage, however. Given the uncertainty created by the Windsor decision, cafeteria plans may have permitted mid-year election changes based on a change in the cost of coverage prior to the publication of Notice 2014-1. As such, for periods between June 26 and Dec. 31, 2013, a cafeteria plan will not be treated as having failed to meet the election change rules solely because the plan permitted a participant with a same-sex spouse to make a midyear election change on the basis of cost as a result of the plan administrator’s interpretation that the change in tax treatment of spousal health coverage arising from the Windsor decision resulted in a significant change in the cost of health coverage.

FSA reimbursements. A cafeteria plan may permit a participant’s FSA, including a health, dependent care, or adoption assistance FSA, to reimburse covered expenses incurred by the participant’s same-sex spouse (or the same-sex spouse’s dependent) beginning on a date that is no earlier than (1) the beginning of the cafeteria plan year including the date of the Windsor decision; or (2) the date of marriage, if later.

For this purpose, the same-sex spouse may be treated as covered by the FSA (even if the participant had initially elected coverage under a self-only FSA) during that period. For example, a cafeteria plan with a calendar year plan year may permit a participant’s FSA to reimburse covered expenses of the participant’s same-sex spouse (or the same-sex spouse’s dependent) that were incurred during a period beginning on any date that is on or after Jan. 1, 2013 (or the participant’s date of marriage if later).

Contribution limits. A same-sex married couple is subject to the joint deduction limit for contributions to an HSA, according to Notice 2014-1. The maximum annual deductible contribution to one or more HSAs for a married couple either of whom elects family coverage under a high deductible plan is $6,450 for the 2013 taxable year.

In addition, a same-sex couple is subject to the exclusion limit for contributions to a dependent care FSA. The maximum annual contribution to one or more dependent FSAs for a married couple is $5,000.

Written plan amendment. According to Notice 2014-1, a cafeteria plan containing written terms permitting a change in election upon a change in legal marital status generally is not required to be amended to permit a change-in-status election with regard to a same-sex spouse in connection with the Windsor decision.

To the extent that the cafeteria plan sponsor chooses to permit election changes that were not previously provided for in the written plan document, the cafeteria plan must be amended to permit such election changes on or before the last day of the first plan year beginning on or after Dec. 16, 2013. Such an amendment may be effective retroactively to the first day of the plan year including Dec. 16, 2013, provided that the cafeteria plan operates in accordance with the guidance under Notice 2014-1.

A Huge Change on Your Taxes Is Coming / Odds are good that Obamacare will mean a big adjustment in the way you file your federal tax returns.

Gene Marks for Inc. writes: Get ready. Whether you're a business owner or an employee, a huge change to your taxes is coming. And it's not what you think.

One thing's for certain in 2014. There will not be a lot of individual tax increases. We had most of that last year, particularly from the effects of the Affordable Care Act. This year the highest earners will see their top federal tax rate go up to 39.5%. Medical-device and other companies in the health-care field will be levied with new surcharges. And of course there's the individual mandate, requiring everyone to have health insurance or be subject to apenalty (or a tax or whatever it's called) that will be reported on taxpayers' federal returns.

But that's not the biggest change. A bigger one will happen in 2014 and in the next few years. More people will itemize. Are you itemizing? Are your employees? You will be!

Hello, Medical-Expense Deduction

Right now, most taxpayers earning less than $75,000 per year and a third earning up to $100,000 still do not itemize their deductions on their federal tax returns. That's because to itemize, you must first have eligible expenses that exceed $6,200 (or $12,400 for married households) which is the standard deduction we're allowed to take in lieu of itemizing. For many taxpayers, the standard deduction, even when considering mortgage payments and state taxes and medical expenses (which have to now be more than 10% of your adjusted gross income to be eligible for a deduction) was higher (and easier) to deduct than itemizing individual expenses. But not anymore.

That's because we are now in a new era of health care. And in the next few years health plans are going to change. If health-care insurance costs increase as many experts predict, employers will be able to absorb only so much. Business owners will look to save money while still being in compliance with the law. So what will likely happen to your company's benefits? Your future health-insurance plan will almost certainly have higher deductibles for both you and your employees. And more out of pocket expenses. Brace yourself.

Employers like me will have a choice of offering platinum, gold, silver and bronze plans for ourselves and our employees. All of these plans will be in compliance with the new health-care law. Most of my clients' current plans are probably somewhere in the silver range. The lowest-cost one will be the bronze plan. It will offer the minimum essential benefits required by law. But it will come with higher deductibles and more out-of-pocket costs. Most employers like me will do our best to help our employees with this cost. But the reality is that more employees will likely have to bear the burden as health-care premiums continue to rise, which many experts predict.

Employers will likely give employees a choice in the future. We will explain that they can stick with their current plan and pay higher premiums. Or, they may find themselves opting to take a lower-priced bronze plan but exposing themselves to higher deductibles and out-of-pocket costs that were once covered. Have a soccer kid in the family? A cheerleader? Weekend-warrior spouse? One broken leg, one torn ligament, one hip replacement and you'll find yourself easily out-of-pocket for thousands. The good news is that the Affordable Care Act will ultimately limit your out-of-pocket expenses to a maximum of $6,350 ($12,700 for families). The bad news is that you're going to start getting familiar with that maximum.

So now think about your future tax returns. Whether you're a business owner or an employee, that medical-expense deduction will be looking pretty attractive right? If you're making $50,000 or $75,000 a year and you've got a bronze plan, you could find yourself spending more than 10% of your income on medical expenses and premiums. And when you combine that with your mortgage and state and local taxes you will probably exceed the standard deduction amount.

Which means that you'll want to itemize. Things are changing. So prepare. Keep good records to back up your itemized expenses. And if you're an employer, like me, you want to make sure that your people know that the silver lining to increased medical expenses is the potential to realize a bigger tax deduction in the future. It isn't a lot of comfort. But it's something.

Will Americans Get Our Tax Breaks Back?

Dan Caplinger for Daily Finance writes: Even under the best of circumstances, it's hard to understand the tax code well enough to do smart tax planning. But when you can't even be certain what the tax laws are going to be in the year ahead, planning becomes almost impossible.

Unfortunately, lawmakers left millions of Americans in exactly that situation when they left for their winter break without making a final decision on whether to extend dozens of tax breaks that save American families and businesses billions of dollars. Those provisions expired Monday, meaning taxpayers will have to hope for the best but plan for the worst over these valuable tax breaks.

What's At Stake

Lawmakers have been aware since they passed their last short-term patch to the tax code that many treasured tax breaks were slated to expire at the end of 2013. Among them are breaks that help a wide variety of Americans.

• Underwater homeowners have benefited from provisions that help them avoid having to pay taxes on money they "earn" as a result of banks forgiving all or part of their mortgage debt.
• Taxpayers in states that have no state income tax or that charge relatively low tax rates have been able to deduct sales tax instead, but under current law, that isn't available for 2014.
• Teachers won't be able to deduct what they pay out of their own pockets for classroom supplies.
• Those who take public transit to will see the amount they can set aside in pre-tax income to pay for commuting costs drop from up to $245 a month to $130 a month. Those who drive to work could set aside $245 a monthpre-tax for parking expenses in 2013; in 2014, they'll be allowed to set aside $250.
• Popular provisions that offer tax breaks for educational expenses and energy-efficiency improvements will also disappear.

The most frustrating aspect about all this for taxpayers is that Congress almost always extends these tax breaks -- eventually. Yet most often, lawmakers only choose to extend the provisions for a single year, citing the budget cost of making them permanent. (Some cynics suggest lawmakers have other reasons.)

But for now, those who benefit from these tax breaks have to suffer the uncertainty of whether they're actually going to come back or not on an annual basis.

Is a Fight Coming?

The Senate actually had an opportunity in late December to pass legislation extending these and dozens of other tax breaks. Some senators tried to pass a bill to get these tax breaks renewed by unanimous consent. But other senators objected, stalling the bill under the Senate's byzantine procedural rules. (Even had they done so, such an attempt might have died in the House.)

That doesn't mean that these tax breaks are dead for 2014, however. Early in 2013, Congress passed laws that retroactively renewed many tax breaks that had expired at the beginning of 2012.

With a host of contentious issues on the political agenda, lawmakers might decide to use the same strategy in 2014, leaving taxpayers in limbo for another year.

However, there's reason for hope that our representatives in Washington might come to their senses, make the tax breaks permanent (or as permanent as anything is in Washington) and end the annual fight over extending them once and for all.

Until this year, the inflation-adjustment to the Alternative Minimum Tax was one of the most important tax breaks that got renewed on an annual basis. Each year, tens of millions of Americans were at risk of paying much higher taxes until lawmakers managed to pass legislation that set the exemption amount at a higher level. But as part of the compromise that extended some tax cuts in 2013, the higher exemption for the AMT was made permanent, and future inflation adjustments will now be made automatically. A similar move for other popular tax breaks could eliminate the uncertainty taxpayers face today.

Stay Tuned

Unfortunately, once lawmakers miss the Jan. 1 deadline, there's often little impetus for them to revisit these expired tax breaks until later in the year. Until they do, taxpayers will have no options but to voice their displeasure to their elected officials -- and do the best they can to prepare for all contingencies in 2014.

SEP, SIMPLE, Retirement Plan Contribution Deduction / Basics of Self-Employed Retirement Plans

William Perez for About.com writes: Type of Deduction: Above-the-line tax deduction (you don't need to itemize). The deduction reduces the income tax, but does not reduce the self-employment tax.  Basics of Self-Employed Retirement Plans.  If you have self-employment income, then you can take a tax deduction for contributions you make to a SEP-IRA, SIMPLE IRA, or solo 401(k) retirement plan. You can set up the retirement plan with a financial institution of your choice. Each plan has different deadlines and funding limits. If you are a sole proprietor, you will need an Employer Identification Number to set up the plan.

SEP-IRAs

SEP-IRAs can be established and funded as late as October 15th for the previous year, provided that the taxpayer filed an extension. The maximum contribution is 20% of the person's net self-employed income, with a maximum dollar limit of $52,000 for 2014. "Net self-employment income" means self-employed income minus one-half of the self-employment tax. More about SEP-IRAs.

SIMPLE IRAs

Simple IRAs can also be funded as late as October 15th (with an extension), but the plan needs to be established by the taxpayer no later than October 1st of the tax year for which the contributions will apply. SIMPLE plans consist of a salary deferral portion with a maximum of $12,000 for 2013 and 2014, plus a matching contribution of up to 3% of compensation. Taxpayers age 50 or older can contribute an additional $2,500 for 2013 and 2014. More about SIMPLE IRAs.

Solo 401(k) Plans

Solo 401(k) plans combine a deferral portion with a matching portion. The maximum elective deferral is $17,500 for 2014. Persons age 50 or older can contribute an additional $5,500. The maximum matching portion is 20% of net self-employment income. The total of both the deferral and the matching cannot exceed $52,000 for 2014. Solo 401(k) plans need to be set up by December 31st, but contributions can be made as late as October 15th of the following year with an extension. More about solo 401(k) plans.

Qualifications to Take the Deduction

You must have self-employment income. Self-employment income for the purpose of this deduction means net profits from a Schedule C or Schedule F, self-employed income from a partnership, or wages as a shareholder-employee in an S-corporation. Additionally, you must set up and fund a qualified retirement plan by the required deadline.

Where to Claim Deduction

You must use the worksheets found in IRS Publication 560 for figuring your allowable tax deduction for SEP, SIMPLE, and 401(k) contributions. The allowable deduction is then reported on your Form 1040. S-Corporations report retirement contributions on the corporation's Form 1120S.

Explanation from the IRS

"SEP, SIMPLE, and qualified plans offer you and your employees a tax-favored way to save for retirement. You can deduct contributions you make to the plan for your employees. If you are a sole proprietor, you can deduct contributions you make to the plan for yourself. You can also deduct trustees' fees if contributions to the plan do not cover them. Earnings on the contributions are generally tax free until you or your employees receive distributions from the plan." (from IRS Publication 560)

Relevant Tax Laws

The deduction for SEP, SIMPLE, and other retirement plans is found in Internal Revenue CodeSection 62(a)(6) and Section 404.

Tax moves to make in January 2014

Kay Bell for Don't Mess with Taxes writes: Wow! Has your first work day of 2014 been as crazy as mine? If this is what the new year holds, I'm going to have to get a bigger coffee pot! And hire a personal Zen yoga trainer.

Now that I've finally had a chance to catch my breath, I want to remind everyone -- as if y'all need it -- that the 2013 tax year is done. All that's left, for the most part, is the filing of our annual tax returns.

But 2014 also brings us the chance to make sure that the filing process is as painless and effective as possible. And we also need to shift our tax focus a bit to what we can do about our now accumulating 2014 taxes.

For this first month of the New Year, here are some tax moves you can make in both those areas and beyond.

Form flood on the way: First, be on the lookout for the various tax statements that are going to be showing up in your snail mail and email boxes. I've already received a couple.

When you get these W-2, 1099 or assorted other tax statements, check them immediately. If you find a mistake, let the issuer know that your numbers are different ASAP. That way you'll have plenty of time to get the mistake corrected so that the info you enter on your 1040 jibes with the third-party data the Internal Revenue Service receives.

Planning ahead: Think about your retirement. That's right, a new work year just began and I'm already contemplating when the 9-to-5 will end. So should you. If your workplace offers a 401(k) plan, take advantage of it. If you're not participating, enroll. If your are contributing, bump up the amount that comes out of each paycheck.

And remember that you also can open and/or contribute to an IRA, traditional or Roth, too.

The sooner you stark socking away cash for your post-work years, the longer the power of compounding has to work for you.

Payroll withholding tweaks: While you're making adjustments to your retirement account, also look into revising your payroll withholding. This is a must if you're getting a big refund this tax season or, unfortunately, expect to pay a large tax bill. You want your withholding amount to be as close as your eventual tax bill as possible.

Making the necessary changes -- the IRS has an online payroll withholding calculator that help you come up with the proper amount -- is a wise move for both your taxes and your bottom line. If you need more taken out, at least by doing so sooner, the per-paycheck amounts should be smaller because they're spread over more weeks of pay.

Cool your filing jets: Also remember that thanks to the government shutdown, the IRS has pushed start of the 2014 filing season to Jan. 31. If you're e-filing, you can fill out your return online and your e-file provider can hold it until the tax agency is ready to accept it. But if you're sending in paper forms, don't stamp 'em until the last day of the month.

The Jan. 31 date also is when the Free File program will open its electronic doors. So your patience could mean you'll be able to file at no cost.

These are just a few of the tax issues you might want to consider once you've completely recovered from your New Year's celebration headache.

You'll find more potential tax tasks in the January Tax Moves listing over in the ol' blog's right column. Just scroll down a bit and look for the tax day deadline countdown clock in the bright red box. The monthly tax moves start just below it.

As the 2014 calendar pages change, you'll find tips that apply to your upcoming 2013 return, as well as advice on how to get a head start on reducing your 2014 tax bill.

Whether you're focusing on tax filing or tax planning, I hope some of these tax moves and tips help. Here's to a very happy and tax-saving 2014!

Intuit 1099 E-File Service is now Open with "Early Bird" Discounting

It's January, which means 1099 season has begun.  The Intuit 1099 E-File Service is now open and ready to accept your Tax Year 2013 filings. You can use the service to create electronic 1099-MISC forms to deliver to your vendors, as well as electronically file with the IRS.

Ready to get started?

•	Access the 1099 E-File Service now!
•	If you use QuickBooks1, you can save time and import your data by accessing directly from the Vendor Menu.
•	If you use Intuit Online Payroll, just start in Taxes & Forms.

As a thank-you for your early interest, Intuit wanted to let you know about our Early Bird Discount. If you complete your filings by January 17th, you'll receive up to 20% off², depending on how many forms you file. No coupon or code required.

Finally, a reminder about a few key deadlines:

•	January 17th - Last day for Early Bird special pricing
•	January 31st - IRS deadline to provide copies to contractors
•	March 31st - IRS deadline to E-File your 1099-MISC forms

 

Money Moves We Make to Get into a Lower Tax Bracket

Laura Quinn for Yahoo News writes:  I haven't been in the 10 percent tax bracket since I made money at my part-time job at the mall in high school. My husband and I usually fall in the 25 percent tax bracket unless we make smart financial moves throughout the year to lower our taxable income. While it's not always possible, I contribute as much as I can to retirement accounts so we can be in the 15 percent tax bracket. I'm not an expert on taxes, but I have followed the advice of personal finance experts throughout the years to reduce my tax bill. According to a recent Forbesarticle, the 15 percent income level for married joint filers is $17,850 to $72,500. The 25 percent income level for married joint filers is $72,500 to $146,400.

Getting as close as I can

Since the rates are "marginal rates," I don't owe one particular rate on all of our income. One CNBC article explained marginal tax rates as dividing a person's income into different sections. Each section has a different marginal tax rate. Once a person reaches a new marginal rate due to higher income, that rate applies only to the taxable income within that section. Even if I can't get us into the 15 percent tax bracket, I am still further ahead if our taxable income is on the lower end of the 25 percent tax bracket. It's not about working fewer hours or earning less money, but lowering our taxable income bysaving for retirement.

Setting up automatic deductions

One of the ways we lower our taxable income is by contributing to our 401(k) plans. I know the money I save into my Roth 401(k) won't lower our taxable income, but anything I put into the regular 401(k) will essentially be a tax write off that doesn't require itemization, according to a Turbo Tax article. I found if I automate my savings, I'm more likely to meet my retirement savings goals. I let my employer funnel 10 percent of my income into my 401(k) plan to lower my taxable income.

Using my flexible spending plan

Anther way I've been able to reduce my taxable income is by using a flexible spending plan for medical expenses. The flexible spending plan is a pre-tax plan that helps me pay for medical expenses. Each year, I change how much money I put into my spending plan and budget wisely. With some plans there is a "use it or lose it" stipulation, but with other medical health savings account the unused portion gets moved forward to the next year.

Trying new ideas

Although I've spent the last decade saving money into a 401(k) plan, I'm open-minded to other ways of reducing my tax liability. I recently read a Fox Business article about how taxpayers can reduce federal income tax liability. One idea was to turn to municipal bonds that provide tax-free interest. Although I haven't been able to qualify for the "saver's credit," I do receive the American opportunity credit for money spent on college tuition for my son.

I used to feel helpless when it came to the tax bill every year. After figuring out better ways to manage my money, I started to feel more in control of my tax destiny. I know the tax code is complicated, but I am no longer intimidated by it. Being more aware of what's offered each year gives me true taxpayer relief.

Give your tax pro a helping hand with these 5 steps

Business Management Daily writes: Prepare for a tax return crunch. The IRS has already announced that the government’s shutdown in October will delay tax filing season by a week or two.

Strategy: If you use a pro to handle your return, make things easier with these five steps.  

1. Get your house in order. Don’t simply dump a pile of receipts, credit card slips and other papers on your CPA’s desk. Arrange a meeting soon to cover all the bases and provide all the relevant information and documentation in a neat and logical order.
2. Don’t assume assumptions. Give your tax pro a refresher course on your situation and any special quirks. Even more important: Check to see if items carried over from 2012—capital losses, passive activity losses, net operating losses, etc.—will be allowed on your 2013 return.
3. Report securities transactions. This info is often vital to a return. Provide your tax pro with all 1099s. (They should be sent by Jan. 31.) Remember that transferring shares within the same family of mutual funds is a taxable event.
4. Support basis adjustments. If you sold securities in 2013, you owe tax on the difference between your sales price and your basis. Make sure that the adjusted basis you use for calculations is properly documented. Otherwise, you might overpay your tax bill.

If you’re not careful, you could pay a “double tax” on mutual fund dividends and capital gains that have been automatically invested. Reason: You have already reported those amounts.

Example: In 2013, you sold mutual fund shares acquired at $10,000 for $15,000. Over time, you’ve paid $2,000 in tax on the reinvested dividends and capital gains, so your adjusted basis is $12,000 ($10,000 + $2,000). Therefore, your taxable gain is only $3,000 ($15,000 – $12,000), not $5,000 ($15,000 – $10,000).

Note that mutual fund companies are generally required to report the adjusted basis on certain sales of shares acquired after 2011 to both investors and the IRS.

5. Combine business with personal. Usually, it’s not a good idea. However, if you own a business, especially a pass-through entity like a partnership or S corporation, it may be easier to have the same firm handle both your personal and business returns. One is often dependent on the other.

Tip: The filing deadline for 2013 corporate tax returns is March 15, 2014.

5 Great Android Accounting Apps for Small Businesses

Brett Nuckles for BusinessNewsDaily.com writes: If you run a small business, you probably use a smartphone for business communications, calendar management and a lot more. Users can find an Android app to streamline virtually every aspect of running their business — and now, they can add finance management to the list.

Accounting apps for Android can't do it all; for serious number crunching, you'll need the benefits of a larger monitor, a full keyboard and deeper features found in desktop software. But for basic accounting tasks, mobile apps have distinct advantages. Because they run on your Android smartphone or tablet, you can log in and access your account from virtually anywhere. And because your account information is stored in the cloud, your information will be up-to-date on all your devices.

Here are five great Android finance and accounting apps to help you manage your business on the go.

Shoeboxed (Free with Shoeboxed subscription, starting at $10/month)

With Shoeboxed for Android, keeping your receipts, bills and other financial documents organized is as easy as snapping a photo. Once your document is uploaded via the Shoeboxed app, the important information — such as vendor, date, total and payment type — is automatically extracted, thus creating a fully searchable digital database of your transactions. Using Shoeboxed will pay off in a major way when it's time for small business owners to file their taxes. Organizing documents by hand is laborious, so the app can save you time. Plus, it can save you money; hiring someone to manage your paper documents is expensive.

Book Keeper Accounting (Subscriptions start at $3.99/month, free 30-day trial available)

Book Keeper Accounting is one of the top-rated accounting apps for Android. The fully featured finance and accounting app sports a simple layout but packs all of the tools that small and medium-sizebusinesses need to track transactions, payments, sales, receipts and more. It also features deep inventory management. Book Keeper Accounting also lets you generate and manage invoices from right within the app, and keep track of paid and outstanding invoices.

Mint (Free)

Mint is billed as a personal finance app, but it offers useful tools for entrepreneurs and very small businesses to track spending and tweak budgets. Add bank accounts and credit cards, and the app automatically pulls in and categorizes your transactions, and then organizes them in easy-to-read graphs to show you where your money is going. In other words, Mint will keep your finances organized so you can focus on business operations.

QuickBooks for Android (Free with a QuickBooks desktop subscription, starting at $13/month)

QuickBooks offers elegant accounting tools to help you track and manage your finances. The Android app isn't a fully featured mobile version of the QuickBooks desktop application; instead, think of it as a mobile companion app with useful tools to help you track sales, send out invoices and review recent payments when you're away from the office. It requires a QuickBooks subscription, but a free 30-day trial is available.

FreshBooks (Free with a FreshBooks subscription, starting at $20/month)

FreshBooks is a QuickBooks alternative with tight cloud integration and an easy-to-use interface. At its core, FreshBooks is a system to help you record and track your business's expenses and profits. It has extra functionalities, such as the ability to track how much you or your employees work on a project, for easier invoice generation. And like other services, it organizes and charts your expenses to help you make business decisions and file your taxes. The service offers a free 30-day trial; after that, you can continue to use FreshBooks starting at $19.95 per month.