New Simplified Option for Home Office Deduction

Tax Strategies For Business Owners – Beginning in tax year 2013 (returns filed in 2014), taxpayers may use a simplified option when figuring the deduction for business use of their home.
Note: This simplified option does not change the criteria for who may claim a home office deduction. It merely simplifies the calculation and recordkeeping requirements of the allowable deduction.

Highlights of the simplified option:
 Standard deduction of $5 per square foot of home used for business (maximum 300 square feet).
 Allowable home-related itemized deductions claimed in full on Schedule A. (For example: Mortgage interest, real estate taxes).
 No home depreciation deduction or later recapture of depreciation for the years the simplified option is used.
For no obligation free consultation contact us today!
ABA Tax Accounting
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Published in: on May 30, 2013 at 4:02 pm  Leave a Comment  
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TAX PLANNING FOR SMALL BUSINESS OWNERS

Tax planning is the process of looking at various tax options in order to determine when, whether, and how to conduct business and personal transactions to reduce or eliminate tax liability. 

Many small business owners ignore tax planning. They don’t even think about their taxes until it’s time to meet with their accountants, but tax planning is an ongoing process and good tax advice is a valuable commodity. It is to your benefit to review your income and expenses monthly and meet with your CPA or tax advisor quarterly to analyze how you can take full advantage of the provisions, credits and deductions that are legally available to you. 

Although tax avoidance planning is legal, tax evasion – the reduction of tax through deceit, subterfuge, or concealment – is not. Frequently what sets tax evasion apart from tax avoidance is the IRS’s finding that there was fraudulent intent on the part of the business owner. The following are four of the areas most commonly focused on by IRS examiners as pointing to possible fraud:

  1. Failure to report substantial amounts of income such as a shareholder’s failure to report dividends or a store owner’s failure to report a portion of the daily business receipts.
  2. Claims for fictitious or improper deductions on a return such as a sales representative’s substantial overstatement of travel expenses or a taxpayer’s claim of a large deduction for charitable contributions when no verification exists.
  3. Accounting irregularities such as a business’s failure to keep adequate records or a discrepancy between amounts reported on a corporation’s return and amounts reported on its financial statements.
  4. Improper allocation of income to a related taxpayer who is in a lower tax bracket such as where a corporation makes distributions to the controlling shareholder’s children. .

For no obligation free consultation contact us today!

ABA Tax Accounting

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651-621-5777

http://www.abataxaccounting.com

 

Published in: on May 21, 2013 at 12:41 pm  Comments (2)  
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Tax Credits that Can Reduce Your Taxes

Tax Credits that Can Reduce Your Taxes

Federal, State, Local and International Taxes – A tax credit reduces the amount of tax you must pay. A refundable tax credit not only reduces the federal tax you owe, but also could result in a refund.

Here are five credits the IRS wants you to consider before filing your 2012 federal income tax return:
1. The Earned Income Tax Credit is a refundable credit for people who work and don’t earn a lot of money. The maximum credit for 2012 returns is $5,891 for workers with three or more children. Eligibility is determined based on earnings, filing status and eligible children. Workers without children may be eligible for a smaller credit.
2. The Child and Dependent Care Credit is for expenses you paid for the care of your qualifying children under age 13, or for a disabled spouse or dependent. The care must enable you to work or look for work.
3. The Child Tax Credit may apply to you if you have a qualifying child under age 17. The credit may help reduce your federal income tax by up to $1,000 for each qualifying child you claim on your return.
4. The Retirement Savings Contributions Credit (Saver’s Credit) helps low-to-moderate income workers save for retirement. You may qualify if your income is below a certain limit and you contribute to an IRA or a retirement plan at work. The credit is in addition to any other tax savings that apply to retirement plans.
5. The American Opportunity Tax Credit helps offset some of the costs that you pay for higher education. The AOTC applies to the first four years of post-secondary education. The maximum credit is $2,500 per eligible student. Forty percent of the credit, up to $1,000, is refundable. You must file Form 8863, Education Credits, to claim it if you qualify.

Make sure you qualify before claiming any tax credit. For no obligation free consultations if your cancelled debt is taxable contact us today!
Aba Tax Accounting
Amare Berhie, Enrolled Agent
Amare@Abataxaccounting.Com
612-282-3200 Toll Free866-936-0430
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Published in: on March 14, 2013 at 6:56 pm  Leave a Comment  
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1099S: 5 KEY REPORTING CHANGES FOR BUSINESSES

Small Business Accounting — According to the IRS, under-reporting of income is the biggest contributing factor to the IRS tax gap–the amount owed by individuals and businesses versus the amount that was actually paid in taxes. In 2006, the most recent year for which data are available, under-reporting across taxpayer categories accounted for an estimated $376 billion of the gross tax gap. 

Overall, the IRS found that compliance is highest where there is third-party information reporting (1099 forms used to report taxable income earned that is not considered salary and wages) and/or withholding (W-2 forms). In the case of W-2 forms, the IRS found that a net of only 1% of wage and salary income was misreported; however, amounts subject to little or no information reporting had a 56 percent net misreporting rate in 2006. 

In an effort to close that tax gap, the IRS has changed some reporting requirements for 1099s for tax year 2012. Here are some of those key changes:

1. 1099-MISC. Starting in 2012, compensation of $600 or more paid in a calendar year to an H-2A visa agricultural worker who did not give you a valid taxpayer identification number must be reported on 1099-MISC. You must also withhold federal income tax under the backup withholding rules. However, if the worker does furnish a valid taxpayer identification number, then report the payments on Form W-2.

2. 1099-B. New boxes have been added to Form 1099-B for reporting the stock or other symbol (box 1d), quantity sold (box 1e), whether basis is being reported to the IRS (box 6b), and state income tax withheld (boxes 13-15). Other boxes on the form have been moved or renumbered. In addition, brokers must report on Form 1099-B sales of covered securities by an S corporation if the S corporation acquired the covered securities after 2011.

3. 1099-C. The titles for boxes 1, 2, and 6 on Form 1099-C have changed. Box 1 is now Date of Identifiable Event; box 2 is now Amount of Debt Discharged; and box 6 is now Identifiable Event Code, and requires the entry of a code for the identifiable event. See Box 6–Identifiable Event Code. For 2012, all codes are optional except for Code A–Bankruptcy.

4. 1099-DIV. Exempt-interest dividends from a mutual fund or other regulated investment company (RIC) are now reported on Form 1099-DIV and are no longer reported on Form 1099-INT, Interest Income. Also, boxes 12 through 14 have been added to Form 1099-DIV to report state income tax withheld.

5. 1099-INT. Exempt-interest dividends from a mutual fund or other regulated investment company (RIC) are no longer reported on Form 1099-INT. Instead, those amounts are reported on Form 1099-DIV, Dividends and Distributions. In addition, boxes 11 through 13 have been added to Form 1099-INT to report state income tax withheld. 

If you need help with 1099s this year, don’t hesitate to give us a ring. We’re happy to help you out. For no obligation free consultation contact us today!

ABA Tax Accounting

info@abataxaccounting.com

866-936-0430 Toll Free

http://www.abataxaccounting.com

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Published in: on January 31, 2013 at 12:41 pm  Comments (1)  
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Standard Mileage Rates for 2013 – www.abataxaccounting.com

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Small Business Tax Planning – The Internal Revenue Service issued the 2013 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
 
Beginning on Jan. 1, 2013, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be: 
 
  • 56.5 cents per mile for business miles driven
  • 24 cents per mile driven for medical or moving purposes
  • 14 cents per mile driven in service of charitable organizations 

The rate for business miles driven during 2013 increases 1 cent from the 2012 rate.  The medical and moving rate is also up 1 cent per mile from the 2012 rate. 

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.
 
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
 
A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle.  In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.
 
These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical, or charitable expense are in Rev. Proc. 2010-51.  Notice 2012-72 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan. Considering a Tax Professional? For no obligation free consultation contact us today!
ABA Tax Accounting
info@abataxaccounting.com
866-936-0430 Toll Free
http://www.abataxaccounting.com
www.abataxaccounting.wordpress.com
Published in: on November 23, 2012 at 3:20 pm  Leave a Comment  
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