Category Archives: Tax Facts & Tips

Tax Benefit If You Rent to Relatives

For Rent signDid you know you can save taxes when you rent to relatives?

Want renters you know, trust, like and just happen to be related?  No problem.  In fact, it is actually a pretty good idea.

According to the Bradford Tax Institute, renting is still a business agreement – even if your tenant is your college-age child or your retired in-laws.  As with every business agreement, this rental requires a clear understanding of what is and isn’t permitted by law. So set down the ground rules, then you can relax.

The Core to a Safe Rental Strategy

Here’s a good tip to remember when renting to relatives (it will help you escape the rental triple whammy): Charge a well-documented and market-supported fair rent to your relatives.

That way, your rental property will not get misconstrued as a second home.

Here are a few ways to prove the rent you charge is fair:

  • Print listings for similar rentals in the same neighborhood from craigslist.com
  • Cut out comparable rental ads from local newspaper want ads
  • Get letters from property managers
  • Obtain an independent appraisal

To recap: Be sure to charge your relatives fair rent. Keep your relationship in good standing and your tax deductions on solid ground

Source: Tax Reduction Letter.

 

IRS Provides Answers to FAQ on Itemized Deductions for Medical Expenses

Larger IRSQuestions and Answers: 2013 Changes to the Itemized Deduction for Medical Expenses

1. When do changes to the itemized deduction for medical expenses take effect?

The rules are changing if you plan to itemize medical deductions on your 2013 federal tax return that you will file in 2014. The change will not affect income tax returns for the 2012 taxable year that will be filed in 2013. Continue reading →

HOW ARE YOU AFFECTED BY THE 2014 INFLATION ADJUSTMENTS

Larger IRS2014 Inflation Adjustments

IR-2013-87, Oct. 31, 2013

WASHINGTON — For tax year 2014, the Internal Revenue Service announced today annual inflation adjustments for more than 40 tax provisions, including the tax rate schedules, and other tax changes. Revenue Procedure 2013-35 provides details about these annual adjustments.

The tax items for tax year 2014 of greatest interest to most taxpayers include the following dollar amounts.

  • The tax rate of 39.6 percent affects singles whose income exceeds $406,750 ($457,600 for married taxpayers filing a joint return), up from $400,000 and $450,000, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds are described in the revenue procedure.
  • The standard deduction rises to $6,200 for singles and married persons filing separate returns and $12,400 for married couples filing jointly, up from $6,100 and $12,200, respectively, for tax year 2013. The standard deduction for heads of household rises to $9,100, up from $8,950.
  • The limitation for itemized deductions claimed on tax year 2014 returns of individuals begins with incomes of $254,200 or more ($305,050 for married couples filing jointly).
  • The personal exemption rises to $3,950, up from the 2013 exemption of $3,900. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $254,200 ($305,050 for married couples filing jointly). It phases out completely at $376,700 ($427,550 for married couples filing jointly.)
  • The Alternative Minimum Tax exemption amount for tax year 2014 is $52,800 ($82,100, for married couples filing jointly). The 2013 exemption amount was $51,900 ($80,800 for married couples filing jointly).
  • The maximum Earned Income Credit amount is $6,143 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $6,044 for tax year 2013. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phaseouts.
  • Estates of decedents who die during 2014 have a basic exclusion amount of $5,340,000, up from a total of $5,250,000 for estates of decedents who died in 2013.
  • The annual exclusion for gifts remains at $14,000 for 2014.
  • The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending arrangements (FSA) remains unchanged at $2,500.
  • The foreign earned income exclusion rises to $99,200 for tax year 2014, up from $97,600, for 2013.
  • The small employer health insurance credit provides that the maximum credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10 and the employer’s average annual wages in excess of $25,400 for tax year 2014, up from $25,000 for 2013.

Details on these inflation adjustments and others not listed in this release can be found in Revenue Procedure 2013-35, which will be published in Internal Revenue Bulletin 2013-47 on Nov. 18, 2013.

Follow the IRS on New Media
Subscribe to IRS Newswire

 

 

Page Last Reviewed or Updated: 31-Oct-2013

Second Half 2013 Tax Questions Just To Be Safe

Pat_003_S_Mid Year Tax Questions You Need To Ask  Yourself

This is a good time to take a look at your present financial picture.  Has your income or withholding changed in a significant way? If you are my client – then I need to know.

√  Most new tax rules affect incomes above $200K.  Will these new rules affect you?  If you aren’t sure how these new rules will affect your taxes, give me a call.

√  Are you sure you are withholding enough to cover your taxes?  Let’s go over your information, and make sure it is where it needs to be.  If it isn’t enough, and you need to make estimated tax payments, I can help you.

√  Significant changes in your income?  If so, it can have a big impact on your taxes.  Don’t get fooled by the “graduated tax rate”.  10% income increase can result in a 20% increase in your taxes.  Don’t wait on this, call me ASAP so we can be sure you are covered.

√  Life-Changing Events?    Divorce, Marriage? New Child?  All these shape how the government looks at you.  If there are job changes, home sale, moves, launching a new business, loss of a job or starting a new one, these are all important events that impact your financial profile.  Let me know about any of these.

√  Unscheduled Income?  Unemployment benefits, social security or pension, sale of an investment property or rental …. all of these can affect your tax rate also.  Let me know as early as possible so we can factor them in.

When it comes to taxes, I’m in a “need-to-know” capacity.  I need to know about anything that can affect your tax rate so you aren’t caught off-guard.

Have a great Autumn!

Reduce Your Taxes with Miscellaneous Deductions

IRS Summertime Tax Tip 2013-15, August 5, 2013

small IRS logo for bloggingIf you itemize deductions on your tax return, you may be able to deduct certain miscellaneous expenses. You may benefit from this because a tax deduction normally reduces your federal income tax.  Here are some things you should know about miscellaneous deductions:

Deductions Subject to the Two Percent Limit.  You can deduct most miscellaneous expenses only if they exceed two percent of your adjusted gross income. These include expenses such as: Continue reading →

Deadline for some same-sex marrieds is September 15, 2013

The IRS has released FAQs clarifying the Revenue Ruling 2013-17 .

Here is a link to the complete IRS FAQ. that make it clear that same-sex married couples must file extended 2012 returns by September 15, 2013, to file as single.

For tax year 2013 and going forward, same-sex spouses generally must file using a married filing separately or jointly filing status.

For tax year 2012 and all prior years, same-sex spouses who file an original tax return on or after Sept. 16, 2013 (the effective date of Rev. Rul. 2013-17), generally must file using a married filing separately or jointly filing status.

For tax year 2012, same-sex spouses who filed their tax return before Sept. 16, 2013, may choose (but are not required) to amend their federal tax returns to file using married filing separately or jointly filing status.

For tax years 2011 and earlier, same-sex spouses who filed their tax returns timely may choose (but are not required) to amend their federal tax returns to file using married filing separately or jointly filing status provided the period of limitations for amending the return has not expired.

A taxpayer generally may file a claim for refund for three years from the date the return was filed or two years from the date date the tax was paid, whichever is later.

For information on filing an amended return, go to Tax Topic 308, Amended Returns, at http://www.irs.gov/taxtopics/tc308.html.the tax was paid, whichever is later.
For information on filing an amended return, go to Tax Topic 308, Amended Returns, at http://www.irs.gov/taxtopics/tc308.html.

 

Affordable Care Act Provisions for Small Employers, Beginning October 1, 2013

Some of the provisions of the Affordable Care Act, or health care law, apply only to small employers, generally those with fewer than 50 full-time employees or equivalents.

If you have fewer than 50 employees, but are a member of an ownership group with 50 or more full-time equivalent employees, you are subject to the rules for large employers.

Coverage

  • Beginning Oct. 1, 2013, if you have 50 or fewer employees, you can purchase affordable insurance through the Small Business Health Options Program (SHOP).
  • To learn more about how the Affordable Care Act may affect your business, visit HealthCare.gov.

Reporting

  • Effective for calendar year 2015, if you provide self-insured health coverage to your employees, you must file an annual return reporting certain information for each employee you cover. This rule is optional for 2014. Learn more.
  • Beginning Jan. 1, 2013, you must withhold and report an additional 0.9 percent on employee wages or compensation that exceed $200,000. Learn more.
  • You may be required to report the value of the health insurance coverage you provided to each employee on his or her Form W-2.

Payments & Credits

 

IT IS IMPORTANT TO CHOOSE A TAX PROFESSIONAL, SUCH AS AN ENROLLED AGENT, WHO KEEPS UP WITH THE RULES AND REGULATIONS AND USES THIS EXPERTISE TO DO THE BEST JOB POSSIBLE FOR EVERY TAXPAYER. 

R. Patrick Michael, EA, continues to provide tax preparation and financial consultation services since 1978.  Pat can be reached at  619-589-8680

 

Questions and Answers on Employer-Shared Responsibility Provisions Under the Affordable Care Act

Transition Relief for 2014 Under §§ 6055 (§ 6055 Information Reporting), 6056 (§ 6056 Information Reporting) and 4980H (Employer Shared Responsibility Provisions)

small IRS logo for bloggingNOT-129718-13
Notice 2013-45

 

I. PURPOSE AND OVERVIEW

This notice provides transition relief for 2014 from (1) the information reporting requirements applicable to insurers, self-insuring employers, and certain other providers of minimum essential coverage under § 6055 of the Internal Revenue Code (Code) (§ 6055 Information Reporting), (2) the information reporting requirements applicable to applicable large employers under § 6056 (§ 6056 Information Reporting), and (3) the employer shared responsibility provisions under § 4980H (Employer Shared Responsibility Provisions). Continue reading →

IRS revises Guidance on W-2 reporting of Group Health Insurance Costs

Employers need to understand the latest IRS pertaining to the ACA, what their obligations are and have systems in place for tracking and calculating reportable costs. For many, the reporting requirement became effective for the 2012 tax year— but for qualifying small employers (filing less than 250 W-2’s) many of these obligations will take effect for the 2013 tax year.   Continue reading →

IRS Offers Businesses Voluntary Classification Settlement Program

Back in July we wrote about businesses that have treated workers as 1099 contractors (“Are you making a mistake with your 1099 Contractors?”), and pointed out that if the IRS determines that your workers are not 1099 contractors, but actually “employees”, you may be faced with unexpected payroll taxes and penalties. The IRS has created the VCSP program for businesses that want to voluntarily reclassify their workers as employees. Continue reading →

8 Facts to Know if You Receive an IRS Letter or Notice

What to do if you receive an IRS Notice or Letter

While it may be tempting to navigate the new tax laws and changes on your own, it is always better to consult a tax professional – specifically – Enrolled Agents (EA) who are recognized as the tax experts.  Your EA will know what to do, why you received the notice or letter, and the immediate steps to take.  However, if you want to do this on your own – here are some facts you need to know.     Continue reading →

Personal Home? Tax Home? What’s the Difference?

Did you know that your personal home is not your tax home? 

“Your tax deductions, tax strategies, and tax records hinge on the following federal income tax defined terms: Personal Home, Tax Home, Business Travel, Business Transportation.”¹

Do you know the definition and differences?   Continue reading →

Thinking of Selling Your Home? What About Taxes?

Will You Owe Taxes When You Sell Your Home?

Visit our Child Care Tax Specialists site and read more about what a family child care provider faces in the decision to sell their home by way of taxes. One tax you can probably avoid and another you cannot.  This will give you the high points, but it is always best to speak with your tax preparer to get the latest on potential tax impacts.

Click here to read about the tax that you probably can avoid.

Are you making a mistake with your 1099 Contractors?

Do you know what factors the IRS looks at in determining Independent Contractor Status?

Actually, the IRS does not look specifically at any one factor, but one factor can be enough to cause the IRS to take a closer look.  They may determine that a worker is an employee and not a contractor.  What does that mean for you?  That means if they determine that your contractor was an employee – you could face unexpected payroll taxes and penalties.  That’s why we’re giving you tools to make sure you know the difference, and that you are taking care of business. Continue reading →

Are You Deducting All of Your Outdoor Expenses?

In Tom Copeland’s “Taking Care of Business”, he touches on what qualifies as outdoor deductions for child care provider businesses.  Bottom line?  Deduct all the expenses that are designated as “ordinary and necessary” to your business, especially if it is used 100% for your business.   But what about those expenses that are used for business and personal purposes?  They may be deductible, in part, so download our Time-Space Percentage Crib Sheet so you can keep track of those receipts!  Download Crib Sheet here.