IRS Highlights Simplified Option for Home Office Deduction

Tax Strategies For Business Owners – Do you work from home? If so, you may be familiar with the home office deduction, available for taxpayers who use their home for business. Beginning this year, there is a new, simpler option to figure the business use of your home.

This simplified option does not change the rules for who may claim a home office deduction. It merely simplifies the calculation and recordkeeping requirements. The new option can save you a lot of time and will require less paperwork and recordkeeping.

Here are six facts the IRS wants you to know about the new, simplified method to claim the home office deduction.

1. You may use the simplified method when you file your 2013 tax return next year. If you use this method to claim the home office deduction, you will not need to calculate your deduction based on actual expenses. You may instead multiply the square footage of your home office by a prescribed rate.

2. The rate is $5 per square foot of the part of your home used for business. The maximum footage allowed is 300 square feet. This means the most you can deduct using the new method is $1,500 per year.

3. You may choose either the simplified method or the actual expense method for any tax year. Once you use a method for a specific tax year, you cannot later change to the other method for that same year.

4. If you use the simplified method and you own your home, you cannot depreciate your home office. You can still deduct other qualified home expenses, such as mortgage interest and real estate taxes. You will not need to allocate these expenses between personal and business use. This allocation is required if you use the actual expense method. You’ll claim these deductions on Schedule A, Itemized Deductions.

5. You can still fully deduct business expenses that are unrelated to the home if you use the simplified method. These may include costs such as advertising, supplies and wages paid to employees.

6. If you use more than one home with a qualified home office in the same year, you can use the simplified method for only one in that year. However, you may use the simplified method for one and actual expenses for any others in that year.

Considering a Tax Professional? For no obligation free consultation about home office deductions contact us today!
ABA Tax Accounting
651-621-5777 or 763-269-5396
info@abataxaccounting.com
http://www.abataxaccounting.com
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Published in: on July 30, 2013 at 3:39 pm  Leave a Comment  
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NET INVESTMENT INCOME TAX: WHAT YOU NEED TO KNOW

Income Tax Service For Small Businesses – Now that the 2012 tax season is over, it’s time to focus on tax planning for 2013. One of the most significant tax changes this year is the Net Investment Income Tax (NIIT), which went into effect on January 1, 2013 as a result of health care reform enacted in 2010. Here’s what you need to know.

WHAT IS THE NET INVESTMENT INCOME TAX?
The Net Investment Income Tax is a 3.8% tax on certain net investment income of individuals, estates, and trusts with income above statutory threshold amounts, referred to as modified adjusted gross income (MAGI).

WHAT IS INCLUDED IN NET INVESTMENT INCOME?
In general, investment income includes, but is not limited to: interest, dividends, long and short term capital gains, rental and royalty income, non-qualified annuities, income from businesses involved in trading of financial instruments or commodities, and passive business activities such as rental income or income derived from royalties.

WHAT IS NOT INCLUDED IN NET INVESTMENT INCOME?
Wages, unemployment compensation, operating income from a nonpassive business, Social Security Benefits, alimony, tax-exempt interest, self-employment income, Alaska Permanent Fund Dividends, and distributions from certain Qualified Plans are not included in net investment income.

INDIVIDUALS
Individuals whose modified adjusted gross income exceeds $250,000 (married filing jointly) or $200,000 (single filers) are taxed at a flat rate of 3.8% on investment income. Net Investment Income Tax is paid in addition to other taxes owed and threshold amounts (e.g. $200,000 for single filers) are not indexed for inflation.

Non-resident aliens are not subject to the tax; however, if a non-resident alien is married to a US citizen and is planning to file as a resident alien for the purposes of filing “married filing jointly” tax return, there are special rules. Please consult us if you have any questions.

Because investment income is generally not subject to withholding, taxpayers should be aware that the NIIT might affect tax liability for the 2013 tax year. In addition, it’s possible that even lower income taxpayers not meeting the threshold amounts could be subject to the tax if they receive a windfall such as a one-time sale of assets that bumps their MAGI up high enough.

Give us a call if you are expecting a windfall this year. We’ll help you come up with a strategy such as an installment sale, minimizing AGI, or figuring out the best timing for sale, that will help you to avoid or minimize taxes when you file your 2013 return next year.

SALE OF A HOME
The Net Investment Income Tax does not apply to any amount of gain excluded from gross income for regular income tax purposes ($250,000 for single filers and $500,000 for a married couple) on the sale of a principal residence. In other words, only the taxable part of any gain on the sale of a home has the potential to be subject to NIIT, providing the taxpayer’s income is over the MAGI threshold amount.

ESTATES AND TRUSTS
Estates and Trusts are subject to the Net Investment Income Tax if they have undistributed net investment income and also have adjusted gross income over the dollar amount at which the highest tax bracket for an estate or trust begins for such taxable year. In 2013, this threshold amount is $11,950.

Special rules apply for certain unique types of trusts such a Charitable Remainder Trusts and Electing Small Business Trusts, and some trusts, including “Grantor Trusts” and Real Estate Investment Trusts (REIT) are not subject to NIIT at all.

It should be noted that non-qualified dividends generated by investments in a REIT are considered taxable income and taxed at ordinary tax rates. As such, they may be subject to the Net Investment Income Tax.

If you need guidance on the topic of Net Investment Income Tax and estates and trusts, don’t hesitate to call us.

REPORTING AND PAYING THE NET INVESTMENT INCOME TAX
Individual taxpayers should report (and pay) the tax on Form 1040. Estates and Trusts report (and pay) the tax on Form 1041.

Individuals, estates, and trusts that expect to pay estimated taxes in 2013 should adjust their income tax withholding or estimated payments to account for the tax increase in order to avoid underpayment penalties. For employed individuals, NIIT is not withheld from wages; however, you may request that additional income tax be withheld. Call us if you need assistance with this.

Wondering how the new tax affects you? Give us a call. It’s never too early to start tax planning!
ABA Tax Accounting
651-621-5777 After Hours: (612)424-1540
info@abataxaccounting.com
http://www.abataxaccounting.com/smallbusinessaccounting.php
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Published in: on June 10, 2013 at 5:14 pm  Leave a Comment  
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