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!
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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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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
http://www.abataxaccounting.com
http://www.abatax81.blogspot.com
http://www.abataxaccounting.wordpress.com

Published in: on March 14, 2013 at 6:56 pm  Leave a Comment  
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Facts about Mortgage Debt Forgiveness

Facts about Mortgage Debt Forgiveness
If your lender cancelled or forgave your mortgage debt, you generally have to pay tax on that amount. But there are exceptions to this rule for some homeowners who had mortgage debt forgiven in 2012.
Here are 10 key facts from the IRS about mortgage debt forgiveness:
1. Cancelled debt normally results in taxable income. However, you may be able to exclude the cancelled debt from your income if the debt was a mortgage on your main home.
2. To qualify, you must have used the debt to buy, build or substantially improve your principal residence. The residence must also secure the mortgage.
3. The maximum qualified debt that you can exclude under this exception is $2 million. The limit is $1 million for a married person who files a separate tax return.
4. You may be able to exclude from income the amount of mortgage debt reduced through mortgage restructuring. You may also be able to exclude mortgage debt cancelled in a foreclosure.
5. You may also qualify for the exclusion on a refinanced mortgage. This applies only if you used proceeds from the refinancing to buy, build or substantially improve your main home. The exclusion is limited to the amount of the old mortgage principal just before the refinancing.
6. Proceeds of refinanced mortgage debt used for other purposes do not qualify for the exclusion. For example, debt used to pay off credit card debt does not qualify.
7. If you qualify, report the excluded debt on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. Submit the completed form with your federal income tax return.
8. Other types of cancelled debt do not qualify for this special exclusion. This includes debt cancelled on second homes, rental and business property, credit cards or car loans. In some cases, other tax relief provisions may apply, such as debts discharged in certain bankruptcy proceedings. Form 982 provides more details about these provisions.
9. If your lender reduced or cancelled at least $600 of your mortgage debt, they normally send you a statement in January of the next year. Form 1099-C, Cancellation of Debt, shows the amount of cancelled debt and the fair market value of any foreclosed property.
10. Check your Form 1099-C for the cancelled debt amount shown in Box 2, and the value of your home shown in Box 7. Notify the lender immediately of any incorrect information so they can correct the form.
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
http://www.abataxaccounting.com
http://www.abatax81.blogspot.com
http://www.abataxaccounting.wordpress.com

Published in: on March 14, 2013 at 11:56 am  Leave a Comment  
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The mortgage forgiveness debt relief act and debt cancellation

If you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable.

The mortgage debt relief act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition. For no obligation free consultation contact us today!

Aba Tax Accounting

Amare Berhie, Enrolled Agent

Amare@Abataxaccounting.Com

612-282-3200 Toll Free866-936-0430

http://www.abataxaccounting.com

www.abatax81.blogspot.com

www.abataxaccounting.wordpress.com

Published in: on March 5, 2013 at 5:56 am  Leave a Comment  
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Child Tax Credit can save you Money

Federal, State, Local and International Taxes – If you have a child under age 17, the Child Tax Credit may save you money at tax-time. Here are some facts the IRS wants you to know about the credit.

  • Amount.  The non-refundable Child Tax Credit may help reduce your federal income tax by up to $1,000 for each qualifying child you claim on your return.
  • Qualifications.  For this credit, a qualifying child must pass seven tests:
  1. Age test.  The child must have been under age 17 at the end of 2012.
  2. Relationship test.  The child must be your son, daughter, stepchild, foster child, brother, sister, stepbrother, or stepsister. A child may also be a descendant of any of these individuals, including your grandchild, niece or nephew. You would always treat an adopted child as your own child. An adopted child includes a child lawfully placed with you for legal adoption.
  3. Support test.  The child must not have provided more than half of their own support for the year.
  4. Dependent test.  You must claim the child as a dependent on your federal tax return.
  5. Joint return test.  The child cannot file a joint return for the year, unless the only reason they are filing is to claim a refund.
  6. Citizenship test.  The child must be a U.S. citizen, U.S. national or U.S. resident alien.
  7. Residence test.  In most cases, the child must have lived with you for more than half of 2012.
  • Limitations.  The Child Tax Credit is subject to income limitations, and may be reduced or eliminated depending on your filing status and income.
  • Additional Child Tax Credit.  If you qualify and get less than the full Child Tax Credit, you could receive a refund even if you owe no tax with the refundable Additional Child Tax Credit.

Considering a Tax Professional? For no obligation free consultation contact us today!

ABA Tax Accounting

Amare Berhie, Senior Tax Accountant

amare@abataxaccounting.com

612-282-3200 Toll Free866-936-0430

http://www.abataxaccounting.com

www.abatax81.blogspot.com

www.abataxaccounting.wordpress.com

Published in: on February 21, 2013 at 3:34 pm  Leave a Comment  
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Taxable and Nontaxable Income

Federal, State, Local and International Taxes – Most types of income are taxable, but some are not. Income can include money, property or services that you receive. Here are some examples of income that are usually not taxable:

  • Child support payments;
  • Gifts, bequests and inheritances;
  • Welfare benefits;
  • Damage awards for physical injury or sickness;
  • Cash rebates from a dealer or manufacturer for an item you buy; and
  • Reimbursements for qualified adoption expenses.

Some income is not taxable except under certain conditions. Examples include:

  • Life insurance proceeds paid to you because of an insured person’s death are usually not taxable. However, if you redeem a life insurance policy for cash, any amount that is more than the cost of the policy is taxable.
  • Income you get from a qualified scholarship is normally not taxable. Amounts you use for certain costs, such as tuition and required course books, are not taxable. However, amounts used for room and board are taxable.

All income, such as wages and tips, is taxable unless the law specifically excludes it. This includes non-cash income from bartering – the exchange of property or services. Both parties must include the fair market value of goods or services received as income on their tax return.

 

If you received a refund, credit or offset of state or local income taxes in 2012, you may be required to report this amount. If you did not receive a 2012 Form 1099-G, check with the government agency that made the payments to you. That agency may have made the form available only in an electronic format. You will need to get instructions from the agency to retrieve this document. Report any taxable refund you received even if you did not receive Form 1099-G.

 

Considering a Tax Professional? For no obligation free consultation contact us today!

ABA Tax Accounting

Amare Berhie, Senior Tax Accountant

amare@abataxaccounting.com

612-282-3200 Toll Free866-936-0430

http://www.abataxaccounting.com

www.abatax81.blogspot.com

www.abataxaccounting.wordpress.com

 

Published in: on February 12, 2013 at 3:22 pm  Leave a Comment  
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How is taxable income computed?

How is taxable income computed?

U.S. Persons (U.S. citizens and resident aliens):

• gross income (except certain income earned working outside the United States or derived from U.S. possessions);      minus

• allowable deductions.

Nonresident Aliens:

• In general:

• tax on certain investment income from U.S. sources and on income effectively connected with a U.S. trade or business;      minus

•  allowable deductions.

• Exception: a nonresident alien married to a U.S. person (U.S. citizen or resident alien) may elect to be taxed as a U.S. person, as well.

Considering a Tax Professional? For no obligation free consultation contact us today!

ABA Tax Accounting

Amare Berhie, Senior Tax Accountant

amare@abataxaccounting.com

612-282-3200 Toll Free866-936-0430

http://www.abataxaccounting.com

www.abatax81.blogspot.com

www.abataxaccounting.wordpress.com

Published in: on February 9, 2013 at 2:30 pm  Leave a Comment  
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TAX CHANGES THAT BENEFIT TAXPAYERS FOR 2012

Federal, State, Local and International Taxes – Thanks to the passage of the American Taxpayer Relief Act of 2012 (ATRA), many tax provisions that expired in 2011 were retroactively extended (or made permanent) that are of benefit to taxpayers filing 2012 returns this year. Here are six of them:

1. Education-Related Tax Deductions – ATRA extended, through 2017 and retroactive to 2012, two popular and widely used education-related tax benefits that expired in 2011: the deduction for qualified tuition and related expenses and the deduction for certain expenses of elementary and secondary school teachers. Both are above-the-line deductions, which means that they can be taken before calculating adjusted gross income (AGI).

2. Limited Non-Business Energy Property Credits – Non-business energy credits expired in 2011, but were extended (retroactive to 2012) through 2013 by ATRA. For 2012 (as in 2011), this credit generally equals 10 percent of what a homeowner spends on eligible energy-saving improvements, up to a maximum tax credit of $500 (down significantly from the $1,500 combined limit that applied for 2009 and 2010). 

Because of the way the credit is figured however, in many cases, it may only be helpful to people who make energy-saving home improvements for the first time in 2012. That’s because homeowners must first subtract any non-business energy property credits claimed on their 2006, 2007, 2009, 2010, and 2011 returns before claiming this credit for 2012. In other words, if a taxpayer claimed a credit of $450 in 2011, the maximum credit that can be claimed in 2012 is $50 (for an aggregate of $500). 

The cost of certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass all qualify, along with labor costs for installing these items. In addition, the cost of energy-efficient windows and skylights, energy-efficient doors, qualifying insulation and certain roofs also qualify for the credit, though the cost of installing these items do not.

3. 

  • Mortgage Insurance Deductible as Qualified Interest – ATRA extended, through 2013 (and retroactive to 2012), a tax provision that expired in 2011 that allows taxpayers to deduct mortgage insurance premiums as qualified residence interest. As such, taxpayers can deduct, as qualified residence interest, mortgage insurance premiums paid or accrued before Jan. 1, 2014, subject to a phase-out based on the taxpayer’s AGI.

3. AMT “Patch” Made Permanent – The AMT ‘patch” was made permanent by ATRA; however, exemption amounts for 2012 and beyond are higher than in years’ past and are now indexed to inflation. For tax-year 2012, the alternative minimum tax exemption amounts increase to the following levels:

  • $78,750 for a married couple filing a joint return and qualifying widows and widowers, up from $74,450 in 2011.
  • $39,375 for a married person filing separately, up from $37,225 in 2011.
  • $50,600 for singles and heads of household, up from $48,450 in 2011.

4. Transportation “Fringe Benefits” – Parity for transportation fringe benefits provided by employers for the benefit of their employees expired at the end of 2011; however, ATRA reinstated this parity retroactive to 2012. As such, the monthly limit for qualified parking is $240 and the benefit for transportation in a commuter highway vehicle or a transit pass is $245 for tax year 2012.

  • 5. State and Local Sales Taxes – Retroactive to 2012, ATRA extended (through 2013) the tax provision that allows taxpayers who itemize deductions the option to deduct state and local general sales and use taxes instead of state and local income taxes.

 

If you have questions about these or other tax changes, please call us. We’d be happy to assist you. Call us today for no obligation free consultation!

ABA Tax Accounting

info@abataxaccounting.com

866-936-0430 Toll Free

http://www.abataxaccounting.com

www.abataxaccounting.wordpress.com

www.abatax81.blogspot.com

 

 

Published in: on February 6, 2013 at 3:34 pm  Leave a Comment  
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