The Ultimate Tax Shelter: Your Own Biz!

It is a well known fact that when a taxpayer owns his or her own business, the greatest tax savings strategies become available.  This blog has 72 tax reduction strategies that will reduce income taxes dramatically.  Roger Staubus, CPA: (309) 808-1592

• Small Business Entity Tax Choices

• Corporate Fringe Benefits Available

• Home Office Deductions

• Auto Tax Deductions

• Hire Your Children

• Medical Expense Reimbursement Plans

• Health Savings Account Contributions

• Section 179 Deductions

• Rental Real Estate Tax Losses

• IRA Plans

• Solo 401k Plans

• Retirement Plans for Small Businesses

• Deduct Your Vacation

• Roth IRA Plan

• Small Business Healthcare Tax Credit

• Individual Income Tax Credits

• Tax Credits Commonly Available to Small Businesses

• 7 Surprising Tax Deductions That Can Save Thousands!

A small business owner that utilizes the above tax strategies will reduce his or her federal and state income taxes very significantly.  See 37 Additional tax strategies, lesser known, than the ones linked above.

2017 Trump Tax Reform Plan

Chances For 2017 Tax Reform Become Smaller Each Day

Tax Overhaul In 2017 May Not Happen

Private Tax System for the Wealthiest!

Affordable Care Act Tax Provisions

2016-2017 Tax Planning Guide

2017 Tax Planning Quick Reference Guide

Tax Planning For You And Your Family 2017

Pay Zero Income Tax On A Six Figure Income

What Comprehensive Year-Round Tax Planning Involves!

The Biggest Tax Scam Ever

Some of America's top corporations are parking profits overseas and ducking 100's of billions in taxes.  And how's Congress responding?  It's rewarding them for ripping us off!

Post Updated August 25, 2017

Additional Tax Strategies

Consider the following list of tax reduction strategies that may not be as well known as the ones listed above.

• A Cruise Tax Deduction
• Get 100% Write-Off on Employee Lunches
• Write Off Your Clothing and Laundry Expenses
• Treat Charitable Deductions as Business Expenses
• Your Car is a Tax-Savings Machine
• IRA Double-Win Strategy
• Tax Reduction Strategies For Your Stock Portfolio
• Reduce Self-Employment Taxes By Renting From Your Spouse
• Court Makes New Dangerous Law on IRA Rollovers
• Secrets to Beating the "Kiddie Tax"
• Tricks to Deducting Meals with Your Spouse
• Obamacare Revives S Corporation Income-Shifting Strategy
• HSA Solution to Obamacare
• New IRS Optional Method for Home-Office Tax Deduction
• Protect Your Tax Deductions for Business Entertainment Meal
• Tax-Free Rental of Home to S Corporation
• How To Qualify Conventions and Seminars for Tax Deductions
• Tax-Deductible Reasons for Business Travel
• Better Deductions for Long-Term Care Insurance Costs
• 2016 Long-Term Capital Gains Tax Rate
• IRS says no Payroll Taxes on Family Employment in Single-Member LLC
• How To Find Your Best Tax-Deduction Business Entity
• Use Business Tax Deductions to Build Your Child's College Fund
• Find New Tax Deductions With Two-Car Tax Strategies
• Tax Tips for Divorce
• IRS Secretly Allows Medicare Part B as Self-Employed Health Insurance Deduction
• How 1031 Real Estate Exchanges Work
• Proving Federal Tax Deductions with Credit Card
• Maximizing Tax Benefits of Travel and Entertainment Costs
• Deducting "Commuting Expenses" With a Home Office
• Tax Deductions for "Adjustments to Income"
• Shifting Income And Taxes
• Tax Loss Harvesting
• Maximize Expense Account Deductions
• Deductions For Rent and Lease Payments
• Section 125 Cafeteria Plan
• Reasons To Take A Look At Permanent Life Insurance Plans

Post August 6, 2016

Taxes Americans Pay Every Year

A List of 97 Taxes Americans Pay Every Year!

The list below is not all inclusive, and some of the items may not apply to every individual.

• Capital gains tax
• Cigarette Tax
• Corporate Income Tax
• Federal Income Tax
• Gasoline Tax
• Liquor Tax
• Local Income Tax
• Medicare Tax
• Property Tax
• Real Estate Tax
• Self-Employment Tax
• Social Security Tax
• Sales Tax
• School Tax
• State Income Tax
• Telephone Federal Excise Tax
• Telephone federal, state and local surcharge Tax
• Utility Tax
• Vehicle License Tax
• Vehicle Sales Tax

Not one of these taxes existed 100 years ago and our nation was the most prosperous in the work, had absolutely no national debt, and had the largest middle class in the world.

A List of 97 Taxes Americans Pay Every Year

Last Updated May 13, 2015

Individual Income Tax Credits

Tax credits are more powerful than tax deductions, so be careful to take advantage of the credits that you can qualify for.  For someone in the 20% tax bracket, a $1,000 deduction would result in a $200 tax savings.  But a $1,000 tax credit would reduce your tax bill by $1,000,  five times what a deduction in the same amount would provide.

Child Tax Credit

Child and Dependent Care Tax Credit

Adoption Tax Credit

Earned Income Tax Credit

Premium Tax Credit

Retirement Savings Contribution Tax Credit

American Opportunity Education Tax Credit

Lifetime Learning Credit

Residential Energy Efficient Property Tax Credit

Qualified Plug-In Electric Drive Motor Vehicle Tax Credit

See related post detailing small business tax credit.

Post dated April 21, 2015

Travel Expense Deductions

The tax law allows you to deduct two types of travel expenses related to your business.

1. Firstly you can deduct local transportation expenses incurred for business purposes—the expense of getting from one location to another, but not meals or incidentals.
   
2. Second, you can deduct away from home travel expenses—including meals and incidentals. Deduction limits can be eased if your employer reimburses your travel expenses.

This post explains "away from home travel expenses."
You can deduct one-half of the cost of meals and all of the expenses of lodging incurred while traveling away from home.
To be deductible, travel expenses must be "ordinary and necessary"—though "necessary" is liberally defined as "helpful and appropriate", not "indispensable". Deduction is also denied for that part of any travel expense that is "lavish or extravagant", though this rule does not bar deducting the cost of first class travel, or deluxe accommodations or (subject to percentage limitations below) deluxe meals.

What does "away from home" mean? To deduct the costs of lodging and meals (and incidentals—see below) you must generally stay somewhere overnight. Otherwise, your costs are considered local transportation costs, and the costs of lodging and meals are not deductible.
Here's a list of some deductible away-from-home travel expenses:

• Meals (limited to 50%) and lodging while traveling or once you get to your away-from-home business destination.
• The cost of having your clothes cleaned and pressed away from home.
• Costs for telephone, fax or modem usage.
• Costs for secretarial services away-from-home.
• The costs of transportation between job sites or to and from hotels and terminals.
• Airfare, bus fare, rail fare, and charges related to shipping baggage or taking it with you.
• The cost of bringing or sending samples or displays, and of renting sample display rooms.
• The costs of keeping and operating a car, including garaging costs.
• The cost of keeping and operating an airplane, including hangar costs.
• Transportation costs between "temporary" job sites and hotels and restaurants.
• Incidentals, including computer rentals, stenographers' fees.
• Tips related to the above.

Travel and Entertainment: Maximizing the Tax Benefits

Post Updated May 2, 2015

Tax Deduct a Cruise!

Has your wife been harping on you lately about all work and no play? Is she an employee or a partner of your business (or, more likely, are you the employee)? Why not consider a business cruise, allowing you to write off travel expenses as business tax deductions?

Because of extensive abuses involving tax deductions of conventions or seminars on cruise ships, the regulations allowing their deduction as business travel expenses were tightened and limited a number of years ago. Presently you can only deduct up to $2,000 per year for each person attending conventions and seminars on cruise ships, and only if the cruise trip meets all of the following requirements:

1. The convention, seminar, or meeting offered on the cruise ship must be directly related to your trade or business.
2. The cruise ship must be a vessel registered in the United States.
3. All of the cruise ship's ports of call are in the United States or in possessions of the United States.
4. You must attach to your tax return a written statement signed by you that includes information about:
   1. The total days of the trip (not including the days of transportation to and from the cruise ship port),
   2. The number of hours each day that you devoted to scheduled business activities, and
   3. A program of the scheduled business activities of the meeting.
5. You attach to your return a written statement signed by an officer of the organization or group sponsoring the meeting that includes:
   1. A schedule of the business activities of each day of the meeting, and
   2. The number of hours you attended the scheduled business activities.

Accordingly, conventions and seminars offered on Caribbean cruises are not tax deductible since their ports of call fall outside the United States.

Cruising for Tax Deductions

Post Updated May 2, 2015

Biz Entertainment Tax Write-Offs

There's a fine line between business and pleasure when considering entertainment expenses.

There are rules. Essentially, the rules say: If you're having way too much fun, it's not a deductible expense. Here's a primer on when entertainment expenses count as business or pleasure.

First, any entertaining you do must be directly related to the active conduct of your business or associated with a directly related discussion that preceded or followed the meal or entertainment.

This goes for party throwing as well. To deduct the party, you must conduct business before, during or after the party.

The environment must be conducive to conducting business. An overly-boozy brunch, for instance, wouldn't qualify.

When it comes to writing off party expenses, the guest list also matters. You may deduct 100% of your cost if the party is either open to the general public or if it's for employees and their spouses.
By contrast, if the party is for clients, potential clients and independent contractors who work with you, then you may deduct only 50% of the cost. If there is a mix of employees and spouses along with clients and potential clients, you may allocate part of the cost as a 100% write-off and the remainder as a 50% write-off based on the number of guests in each category.
Another Internal Revenue Service rule says entertainment can't be "lavish or extravagant."
In case the IRS does come knocking, be prepared to defend the deductions you take. If you're having a party, for instance, make sure the invitation announces a business purpose and take pictures of guests inspecting new products or a video clip. Have attendees sign a guest book or track RSVPs so you can prove an accurate allocation of the expense between employees, independent contractors, clients, and potential clients and family members and friends who aren't at all deductible.
Then, keep all receipts for all expenses incurred. For expenses that cost less than $75, however, a journal entry in your appointment book with the amount, location and names of those you entertained is sufficient.

Five Rules for Writing Off Meals and Entertainment Costs

Post Updated May 2, 2015

Strategies fo Avoid the "Kiddie Tax"

Before 1986, parents shifted investments to children so that interest and dividend income from the investments would be reported on the children’s returns. Often, children paid little or no tax because they sheltered the investment income with their standard deduction and exemption deduction and paid tax at their low tax rates.
In 1986, Congress attacked this tax strategy in three ways. First, only one exemption deduction per person is allowed. If you claim your child as a dependent on your return, your child loses his or her personal exemption deduction.
Second, if you claim your child as a dependent on your return, your child’s standard deduction decreases to the greater of $950 or the compensation income of the child plus $300. Thus, if your child’s compensation income is $400, your child’s standard deduction is $950. If your child’s compensation income is $1,800 then your child’s standard deduction is $2,100. This increased standard deduction is one advantage of hiring your children to work for you.
Third, if your child is subject to the kiddie tax, your child’s investment income over $1,900 may be taxed at your tax rate. Dependent children with investment income greater than $1,900 may be subject to the kiddie tax if they are under the age of 19 or are full-time students ages 19 to 23 who do not earn more than one-half of their own support. You can use the chart at the end of this article to help determine if your child is subject to the kiddie tax.
Strategies available-
You can use several strategies to avoid paying tax on your child’s investment income at your tax rates. First, you do not even need to file a return for your child if your child’s income is under $950 unless he or she has net earnings from self-employment of $400 or more.
Second, your child who is potentially subject to the kiddie tax can receive $1,900 of investment income in addition to compensation income before paying tax at your rate. For 2011, your dependent child’s standard deduction is the greater of $950 or your child’s compensation income plus $300 up to $5,800.
If your child has $1,400 of investment income and no compensation income, then your child’s taxable income is $450 ($1,400 - 950). The income is taxed at your child’s tax rate.
If your child has $2,000 of investment income and $6,000 of compensation income, then your child’s taxable income is $2,200 ($2,000 + 6,000 - 5,800).
Of the $2,200, $100 ($2,000 - 1,900) is taxed at your tax rate and $2,100
($2,200 - 100) is taxed at your child’s 10% tax rate.
In other words, compensation income can increase your child’s standard deduction and it does not change the amount of investment income your child can receive before your tax rate applies to his or her income.
Third, when your child’s investment income reaches $1,900,
consider investments that do not increase your child’s taxable income. Examples include:
Tax-exempt municipal bonds,
Growth stocks which pay no current dividends,
Real property which appreciates in value, and
Tax-deferred U.S. Savings bonds.

StrategiesTo Avoid The "Kiddie Tax"

Employing a Kid and the "Kiddie Tax"

Kiddie Tax

Post Updated May 2, 2015

Biz Use of Auto Tax Deductions

Expenses for the business use of your vehicle may be deducted by using either the standard mileage rate or by using the actual expenses of owning and operating the automobile.
Which one of the 2 methods provides the larger deduction depends on various factors, including the # of miles driven per year, the cost and size of the vehicle, the anticipated repair costs, and the vehicle's gas mileage.
IRS does require that you maintain timely a log of the business miles driven. There are auto logs available that are designed to easily let you do this. Some business owners do use their best estimates for this calculation, but are at risk, on audit, for having IRS disallow their claimed deduction. Agent's 1st comment is "show me your mileage log".

Sample Mileage Log

Deduct Car and Truck Expenses

The easiest way to calculate automobile expense deductions is to use the standard mileage rate. You apply an IRS-determined rate to the business miles driven. For 2015 the rate per mile is 57.5 cents per mile.

The standard mileage rate allowance includes all expenses except interest on the vehicle, or parking fees and tolls. These excepted expenses are deducted in addition to the rate.
Sometimes it's beneficial to compute your expense both ways so that you can decide which method to use. However, once you choose a method for a specific vehicle, you can only change from standard mileage rate method to the actual cost method. You cannot change from the actual cost method to the standard mileage rate.

The Lowdown on Auto Expense Deductions

Questions that have to be answered, when claiming business use of auto deductions-

• Do you have objective evidence of your automobile mileage?
• Is your evidence in writing?
• What is your total mileage for the car for the year?
• What is your business mileage for each car?
• What is your commuting mileage?

Without question, claims for automobile expenses are the most frequently audited – the number one deduction that the IRS checks out.


If you have a home office that qualifies as your principal place of ­business, you can deduct the cost of any trips you make from home to another business location. You can get a lot of travel deductions this way. For example, you can deduct the cost of driving from home to a client’s office or to attend a business-related seminar. The commuting rule doesn’t apply if you work at home because, with a home office, you never commute to work (you’re there already).

Deducting "Commuting" Expenses With A Home Office

Post Updated April 19, 2015

Vacation Tax Deductions

It is perfectly legal to deduct your next vacation. Here’s how to do it.
To qualify for this deduction, you must meet the following two criteria:
1. You are self-employed or own a small business;
2. On your next trip, you combine business with pleasure.
The first requirement is pretty cut and dried. By “small business” we are including any type of self-employment activity, full-time or part-time, home-based or “bricks and mortar”. This deduction applies to any type of small business entity: sole proprietorships, partnerships, corporations, and limited liability companies.
The second requirement is somewhat trickier and will be the focus of this post.
To deduct any U.S. trip, you can combine business and pleasure, but the primary purpose of the trip must be business. And here’s how the IRS defines a trip taken primarily for business purposes: the number of “business days” must be greater than the number of “personal days”. To complete the definition, travel days are considered “business days”.
Here’s an example to clarify the rules: You take a 10-day “vacation” to Orlando. You spend one day getting there and one day getting back. You spend four days attending a seminar. The other four days are spent with Mickey Mouse & Company.
Let’s tally up the days:
Business Days = 6 (2 travel days + 4 seminar days)
Personal Days = 4 (doing theme parks)
So, are the number of business days greater than 50% of the total days? Yes. So here’s what you get to deduct: 100% of your transportation expenses (even though 40% of your days were personal days) and 100% of your “on-the-road” expenses for the six business days, including hotel bills, cab fares, rental car, seminar fees, dry cleaning, laundry and meals.
Keep in mind that the meal expenses are still subject to the 50% rule. In other words, when we say that “100% of your on-the-road expenses” (including meals) for the business days are deductible, the actual amount of the meal deduction will be 50% of the meals cost.
Also realize that transportation expenses include air fare to and from your destination (if you take a plane). If you drive to the vacation spot, you can deduct the actual cost of gas or take a deduction based on the current IRS-approved mileage rate.
The on-the-road expenses for the four personal days are not deductible. But you’re still getting a great tax break here. Assuming you spend $1,000 for transportation and the six business day expenses, a sole proprietor in the 35% tax bracket (15% federal tax + 15% self-employment tax + 5% state tax) saves $350.
Before you take your next trip, do some planning to include business activities and let Uncle Sam help you pay for it.

How To Deduct Your Vacation

Last Updated April 26, 2015

Roth IRA - Tax Free Living

There are a number of ways to significantly reduce one's income tax bill, but only a few that a taxpayer can use to pay zero tax at all. The Roth IRA is one of those.

What Is A Roth IRA?

First the Roth Basics

Contribution limits for the Roth and the Traditional are the same. For 2011, you can contribute up to $5,000, plus an additional $1,000 if you are age 50 or older.

For Roth IRA’s, there are no Age Limitations. This point may affect highly paid people who continue to work into their 70’s, but it’s no big deal for 98% of the public.

This is the point everyone focuses on when deciding on a Roth vs. Traditional. Do you take the tax deduction now for the contribution and get taxed later (Traditional IRA)? Or eat the tax now and enjoy tax free withdrawals later on (Roth IRA)?

Being able to take tax free withdrawals under a Roth is a very big advantage in retirement.

2014 Roth IRA Income Limits – 2014

Filing Status	Full Contribution	Reduced Contribution
Single /Head of Household	Up to $114,000	$114,001 to $129,000
Married Filing Jointly	Up to $181,000	$181,001 to $191,000

Roth IRAs have no age limit or mandated distributions, so they make good estate planning vehicles.

The Roth IRA: Ultimate Retirement Plan

Use Working Years To Prepare For a Tax-Free Retirement

When a taxpayer believes his or her tax rate to be higher during retirement than it is today, he or she should make the contributions to the Roth IRA first. In today's economic climate, who knows what the tax rates will even be in 10, 20, 0r 30 years.

Tax Strategies for Roth IRA's

If a taxpayer's business start-up loses money, or he or she shows a loss or a small gain, due to equipment investment, or bonus depreciation convert as much IRA money as possible into a Roth account. Offsetting a $30,000 loss with a $30,000 IRA conversion, and not paying tax on that balance or its earnings when it is withdrawn during retirement years.

Smart Ways To Avoid Taxes On Conversions

Convert IRA plan balances over time: any opportunity that one has to pay only 10%, 15%, or e3ven 20% tax, it may be a good idea to do so. Roth IRA's are a brilliant way to escape future tax increases.

A taxpayer can own and hold a rental property inside a Self-Directed Roth IRA. A taxpayer can invest just about anything in a Roth. Buying a property in the current down market, and earning rental income and capital appreciation tax-free over a number of years, and leaving that property to your children tax-free. That's a great alternative worth considering.

Finding out after a hard-working career that your social security benefits can become taxable when the amounts withdrawn from an IRA or 401K plan is a miserable feeling. That feeling can be avoided if a taxpayer accumulates as much as possible within a Roth IRA.

A taxpayer's heirs and beneficiaries pay no income tax on their inherited share of a Roth IRA. This is a big advantage. When a taxpayer leaves behind a $1 million Roth IRA, the heirs keep the entire $1 million.

Roth IRA Investments

Roth IRA for Children

The Roth IRA Tax Rules For Heirs

Last Updated April 26, 2015

Fringe Benefits - By Type of Business Entity

This post will discuss the availability of fringe benefits by the type of business, such as sole proprietorships, partnerships, C corporations, S corporations, and LLC's.

Sole Proprietorship

• Health Insurance Plan
• Medical Expense Reimbursement Plan
• Dependent Care Assistance Reimbursement Plan
• Retirement Plan
• Employment of Child If Under Age 18
• Reimburse the Spouse for Auto Expenses
• Travel Expense of Spouse

In the case of a married sole proprietor, especially one with children, these benefits can be substantial, with only a nominal amount of additional effort required.

Taxation of Fringe Benefits

C Corporation

• Health and Accident Insurance Plans
• Adoption Assistance
• Athletic Facilities
• De Minimis Benefits
• Dependent Care Assistance
• Educational Assistance
• Employee Discounts
• Employee Stock Options
• Employer-Provided Cell Phones
• Group Term Life Insurance
• Health Savings Accounts
• Meals
• Moving Expense Reimbursements
• Transportation (Commuting) Benefits

Employer's Guide to Fringe Benefits

Partnerships and S-Corporations

Fringe benefits are not generally tax free for partners, and for 2% or greater S-corporation shareholders.

LLC Entities

If an owner of an LLC employs the spouse, such as is done by a sole proprietorship, then the entity can utilize the tax deductible benefits for Medical Insurance Plan, Medical Expense Reimbursement Plans, and a Dependent Care Assistance Expense Reimbursement Plan.

Post Updated May 2, 2015

Alternative Minimum Tax (AMT)

The alternative minimum tax (AMT) is an additional tax that is calculated separately from a taxpayer's regular tax and paid in addition to the regular tax.
The amount of an individual taxpayer's AMT is the difference between his tentative minimum tax calculated under the AMT rules and his regular tax amount. If the taxpayer's tentative minimum tax amount is lower than his regular tax amount for the year, the taxpayer does not owe any AMT.

The basic formula for calculating AMT is as follows:

NOTE: This formula is for use only in estimating the amount of a taxpayer’s AMT liability. In order to determine the actual liability, a taxpayer must use Form 6251.

Starting Point Regular Taxable income

Plus/Minus AMT Adjustments

Plus AMT Preference items

Less AMT Exemption

Equals Alternative Minimum Taxable Income (AMTI)

Multiplied by AMT rates

Equals Tentative Minimum Tax (before credits)

Minus AMT Foreign Tax Credit

Equals Tentative Minimum Tax

Less Regular Tax

Equals Net Alternative Minimum Tax

If the net alternative minimum tax is a positive amount, the taxpayer must pay
this amount in addition to his regular tax (less applicable non-refundable
credits).

What Is The Alternative Minimum Tax (AMT)

Form 6251: Reporting AMT on Tax Return

Post Updated May 2, 2015

State Income Tax Rates

If you plan to move to another state when you retire, examine the tax burden you’ll face when you arrive. State taxes are increasingly important to everyone, but retirees have extra cause for concern since their income may be fixed.

Illinois state income tax, for example, does not tax retirement income (including Social Security benefits).

But keep in mind that state income tax rates are not the total tax situation for any state, by a wide margin, as there are many additional state taxes as well.

State Income Tax Rates

Some of the Taxes Americans Pay Each Year

COMMENT: Not one of these taxes existed 100 years ago and our nation was the most prosperous in the world, had absolutely no national debt, had the largest middle class in the world and Mom stayed home to raise the kids. What the hell happened?

Post Updated May 2, 2015

Home Office Tax Deductions

Small business owners can deduct a portion of the costs of their home if it is used for business. To deduct the "business use of home" expense, a taxpayer must regularly and exclusively dedicate a portion of their home as either:

• The principal place of business and/or
• Exclusively as the place to interact with customers, patients, or clients in his or her regular business operations, or
• In direct association with your business (if he or she utilizes a structure that is not attached to their home or residence).

There are two types of expenses related to a home office:

1. Direct Expenses Expenses related exclusively to the business are fully deductible. These can include things like, business insurance, general repairs, improvements, service or maintenance to facilitate business operations.
2. Indirect Expenses The percentage of general home expenses attributed to the operations of the business, otherwise known as the "Business Use Percentage." This is the square footage of office/total finished square footage of home or apartment. If your business is 20% of your home you can deduct 20% of your home bills.

Indirect expenses can include the following:

• Mortgage interest
• Real Estate Taxes
• Depreciation
• Rent
• Utilities (gas, electric, heat, water, and sewer)
• Insurance (Homeowner's)

Simplified Option For Home Office Deductions

Home Office Deduction Calculator

Expenses Related To Home Office Are Deductible

Tax Form 8829 for claiming Home Office Expenses

Post Updated April 19, 2015

Health Savings Account Tax Deductions

A Health Savings Account or HSA is tax advantaged medical savings account that is owned by the individual. They are designed to be used in conjunction with a High Deductible Health Insurance Plan. The money contributed to the account are not subject to federal tax at the time of deposit (Pre-Tax Dollars). Funds in a Health Savings Account can be used to pay all eligible medical related expenses not covered by your Health Insurance Plan.

Health Savings Accounts Pair Well With Obamacare Plans

For 2015 Higher Limits for HSA Contributions & Deductibles

ObamaCare and the Health Savings Accounts

For 2015, the contributions limits are $3,350 for single taxpayers, $6,650 for married taxpayers, with an additional $1,000 available for individuals over 55 years of age.

In order to establish a Health Savings Account ( HSA ) you must have a High Deductible Health Plan ( HDHP ). 
Your HSA account has investment options similar to an IRA account. Money market or similar cash instruments are common as people want to make sure funds are available to cover out of pocket medical expenses. If your balance grows beyond your annual maximum out of pocket expenses, then you may choose to put the excess into a stock mutual fund or other "at risk" investment option. Your HSA administrator may charge extra fees to establish brokerage services. Please consult your account representative for advise and investment options.
You can use your health savings account to pay for a wide range of medical and health related services. When you incur a medical or health related expense that is not covered by your insurance, there is a good chance that you can pay for it out of your HSA.
The IRS defines qualified expenses as: "Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. These expenses include payments for legal medical services rendered by physicians, surgeons, dentists, and other medical practitioners. They include the costs of equipment, supplies, and diagnostic devices needed for these purposes.
Medical expenses include all out of pocket expenses for medical care and the amounts you pay for transportation to get medical care. Medical expenses also include amounts paid for qualified long-term care services and can include insurance premiums (Cobra) if you are unemployed.

Examples of HSA Qualfied Expenses Include:
Doctor Visits and Tests not covered by your insurance policy.
Surgical procedures and hospitalization related charges not covered by your insurance.
Prescription Drugs

Certain OTC Drugs qualify but now need a prescription from your doctor.
Insulin as well as Diabetic Testing Supplies
Vitamins & supplements do not qualify.
Accupuncture & Chiropractic Care
Eye Exams, Glasses and Laser Surgery
Hearing Tests and Hearing Aids
Dental Exams, Dental Work and Dentures
Alcohol and Drug Abuse Treatment
Insulin and Diabetic Testing Supplies
Long Term Care related expenses.
Wheel Chairs, hand rails or other disability related home improvements.
Your health insurance provider or HSA administrator will provide you with a complete list of goods and services that are eligible.
The complete list is also available on pages 5-14 on IRS Publication 502
Make sure you save all your HSA related receipts in case you are ever audited. Similar to a tax audit you will need proof of what you purchased using your account.
The health insurance provider where you purchase your High Deductible Health Plan will provide you with a list of local institutions or you can choose any institution that sponsors HSA plans.

Funds can be withdrawn for any reason using checks and debit cards, however any withdrawls that are not used for qualified medical expenses are subject to a 20% penalty as well as income taxes. The 20% penalty is waived for people age 65 and older or those who have become disabled. Income taxes still apply in these situations but there is no additional penatlies. These rules are very similar to the ones governing other tax sheltered accounts such as IRAs.

Any funds withdrawn for qualified medical expenses are always tax free. You must however keep documentation pertaining to all qualifed medical purchases. A lack of documentation can be grounds for the IRS to rule that funds were not used for qualified medical expenses and the account holder would be subject to additional penalties.

When an account holder dies, the funds transfer to the beneficiary designated on the account. If a surviving spouse is the beneficiary, the funds will transfer on a tax free basis.

Health Care Strategies by Mark Kohler

Post Updated May 8, 2015

Tax Savings from Medical Expense Reimbursement Plans

New Restrictions on Employer Medical Reimbursement Plans

Section 105 of the Internal Revenue Code provides a way to save taxes, for both employer and employee. Don’t confuse this 105 Medical Reimbursement Plan with a Section 125 Cafeteria Plan, as they are two different programs. Section 105, a little known part of the tax code, allows a 100 percent deduction for health insurance and even allows companies to write off other non-insured medical, dental and vision expenses as well. Employers and employees can save Federal Taxes, State Taxes, FICA, Medicare, Workers Compensation , Unemployment and State Disability Insurance payroll taxes. Up to a 50% savings for some. While any company can take advantage of the plan, smaller companies, particularly self-employed individuals that can employ their spouse in their business, can benefit greatly.

Health Reimbursement Plans Not Compliant With ACA Could Mean Exorbitant Penalties

To qualify, a business owner must file their taxes as a Sole Proprietor, Partnership, C Corporation, S Corporation or a Limited Liability Company. Except in the case of a Corporation, the business owner must be married and the spouse must be active in the business – even on a part-time basis.

Like many deductions allowed under the law, Section 105 plans require strict compliance measures set up by the Department of Labor and the Employee Retirement Income Security Act, known as ERISA. You have to have a plan document, a summary plan description, establish employment relationship(s) - and a few minor documents. And, you have to file the appropriate forms with your business tax returns and keep careful payroll records. The program will require about 3 hours of paperwork each year per participant, but the time invested will be well worth the tax savings. Thousands of tax dollars that people would ordinarily pay can be saved by adopting a plan.

The cost of establishing and operating a plan will vary. One of the best values in the marketplace will cost around $200 to set up and $50 per employee per year to administer. It is very inexpensive and very cost effective.

Medical Expenses - Section 105

Based on Section 105 of the Internal Revenue Code, a self-employed individual who employs a spouse in the business can become eligible for a medical reimbursement package.
A medical reimbursement plan enables qualified small business owners to deduct 100% of federal, state, and FICA taxes for family medical costs.  Key to these savings is the ability to declare medical expenses as a business expense rather than a personal deduction.  Qualifying medical expenses include:

• All family health insurance premiums including dental and vision (post-tax)


• Qualified long-term care insurance premiums


• All out-of-pocket medical, dental and vision care expenses, including over-the counter expenses


• Cancer insurance premiums


• Term life ($50,000 max) and disability income insurance premiums for employees only

The plan must cover all eligible employees, however, you can exclude employees who-

1. are under the age of 25
2. work less than 35 hours a week
3. are seasonal or work less than 9 months a year
4. have less than 3 years of service

A sole proprietor (Schedule C) is not an employee, but an owner, so he or she must be able to employ their spouse or family member to access these benefits.

Example: A self-employed individual earns $100,000 from his or her business and spends $8,000 out of pocket for medical expenses. Medical expenses can be itemized on Schedule A for the business owner, but only expenses that exceed 7.5% of his or her adjusted gross income would be deductible, so this would eliminate the deduction for $7,500 of medical expenses. With a Medical Expense Reimbursement Plan, the entire $8,000 would be deductible.

Post Updated May 4, 2015

Vacation Home Tax-Free Rent Income

If you rent your vacation home for 14 or fewer days during the year and use it personally for more than 14 days, the property falls under the tax rules for personal residences.As explained, you can generally deduct qualified residence interest from your mortgage on Schedule A. You can always deduct the property taxes on Schedule A.
You need not declare one cent of the rental income on your 1040. You can't write off any operating expenses (maintenance, depreciation, etc.) attributable to the rental period, but this is still a great deal. And it can really pay off when your vacation home is fortuitously located near a major event -- like a big golf tournament. You may be able to rent the house for a few days at outrageous rates without having to share any of the profits with Uncle Sam.
You can also take advantage of this break by, for example, renting your vacation home for a short time for filming of movies or commercials. (This 14-days-or-less-tax-free-rental-income rule also applies to principal residences.)

Tax Savings Strategies for Vacation Homes

Last Updated May 2, 2015

Tax Free Income from Personal Residence Exclusion

For select qualified individuals with building and remodeling experience, they may use a personal residence strategy to permanently exclude gains from their taxable income.

Many know a taxpayer can exclude a $500,000 gain (or $250,000 for single taxpayers) when they sell their personal residence under IRC 121. This exclusion is available every 2 years.

A taxpayer is required to personally reside on the premises to establish personal residence requirement. If you purchase a house that requires significant remodel, or building a house on a vacant lot, the taxpayer may place a mobile home on the lot to establish residency.

Let's postulate that a taxpayer bought a lot for $50,000 and built a 2000 square foot for a total of $200,000, that has a tax basis of $250,000, and then sells the home for $450,000, resulting in a gain of $200,000 that is not taxed. He or she never has to pay taxes on the $200,000 gain.

This strategy can be repeated every 2 years. This is a real life example of living a tax-free life.

$500,000 Home Sale Tax Exclusion

Last Updated May 2, 2015

Tax Losses From Rental Real Estate of $25,000

The biggest reward for being a landlord isn’t the rent checks, but rather the considerable tax deductions for rental homes.

Many rental home expenses are tax deductible. Save receipts and any other documentation, and take the deductions on Schedule E. Figure you’ll spend four hours a week, on average, maintaining a rental property, including recordkeeping.

Here are some of the most common deductible expenses for rental homes, according to the IRS. You can usually take these write-offs even if the rental home is vacant temporarily. In general, claim the deductions for the year in which you pay for the expenses:

• Advertising

• Cleaning and maintenance

• Commissions paid to rental agents

• Home owner association/condo dues

• Insurance premiums

• Legal fees

• Mortgage interest

• Taxes

• Utilities

Less obvious deductions include expenses to obtain a mortgage, and fees charged by an accountant to prepare your Schedule E. And don’t forget that a rental home can even be a houseboat or trailer, as long as there are sleeping, cooking, and bathroom facilities. Moreover, the location of the rental home doesn’t matter. It could even be outside the United States.

You can deduct expenses related to traveling locally to a rental home for such activities as showing it, collecting rent, or doing maintenance.

If you use your own car, you can claim the standard mileage rate. For 2014, it is 56 cents per mile.

Traveling outside your local area to a rental home is another matter. You can write off the expenses if the purpose of the trip is to collect rent or, in the words of the IRS, “manage, conserve, or maintain” the property. If you mix business with pleasure during the trip, you can only deduct the portion of expenses that directly relates to rental activities.

Another area that requires rental home owners to tread carefully is repairs vs. improvements. The tax code lets you write off repairs—any fixes that keep your property in working condition—immediately as you would other expenses. The costs of improvements that add value to a rental property or extend its life must instead be depreciated over several years. (More on depreciation below.)

Think of it this way: Simply replacing a broken window pane counts as a repair, but replacing all of the windows in your rental home counts as an improvement. Patching a roof leak is a repair; re-shingling the entire roof is an improvement. You get the picture.

Depreciation refers to the value of property that’s lost over time due to wear and tear. In the case of improvements to a rental home, you can deduct a portion of that lost value every year over a set number of years. Carpeting and appliances in a rental home, for example, are usually depreciated over five years.

You can begin depreciating the value of the entire rental property as soon as the rental home is ready for tenants, even if you don’t yet have any. In general, you depreciate the value of the home itself over 27.5 years. You’ll have to stop depreciating once you recover your cost or you stop renting out the home, whichever comes first.

You can even write off a loss on a rental home as long as you meet income requirements, own at least 10% of the property, and actively participate in the rental of the home. Active participation in a rental is as simple as placing ads, setting rents, or screening prospective tenants.

If you’re married filing jointly and your modified adjusted gross income (same as adjusted gross income for most persons) is $100,000 or less, you can deduct up to $25,000 in rental losses. The deduction for losses gradually phases out between income of $100,000 and $150,000. You may be able to carry forward excess losses to future years.

Tax Deductions For Rental Homes

Post Updated April 23, 2015

Tax Benefits for Hiring Your Kids

"Small business owners can save thousands in taxes by hiring their family," explains Kohler. "Essentially, they can quit paying their children's expenses and can instead put them on payroll in their business and let the kids pay for their own expenses...saving thousands!"
Kohler offers this benefit breakdown:
First, small business owners who employ their minor children don't have to withhold any payroll taxes.
Second, all single wage earners, including children, don't pay taxes on the first $5,800 in 2011 in income because this is the standard deduction. Entrepreneurs with children on the payroll can still claim them on their tax return as a dependent and take the exemption, including the child tax credit.
"The beauty is—kids don't pay taxes on their earned income on the first $5,800!" Kohler exclaims.
In turn, the business benefits too. Kohler explains, "When you pay your children for services they perform in your business you are able to generate a valid business expense while pushing income to your children."
In addition to tax deductions gained, parents are surprised at the ancillary benefits such as being able to spend more time with their children and creating love for entrepreneurship.
For those ready to put their children on payroll, here are a few tips:
Create Legitimate Duties
"When brainstorming ideas for hiring children, make sure the jobs you give them are legitimate. It doesn't have to be an important role, but directly related to the purpose of the business," says Kohler.
Possible jobs include keeping the books; cleaning the office and maintaining the property; working on the company website; and the like.
Keep a record of what the kids did and a time record in order to withstand an audit.
Follow the Right Procedure
The IRS allows any sole proprietorship or partnership (LLC) wholly owned by a child's parents to pay wages to children under age 18 without having to withhold the payroll taxes. However, those operating an S or a C-Corporation do not receive this benefit.
The recommendation is to pay children out of a family management company paid a management fee from the Corporation, or out of a Sole-Proprietorship or LLC with independent income and operations.

Mark J. Kohler is the author of What Your CPA Isn't Telling You and Lawyers are Liars. He is a partner in the accounting firm Kohler & Eyre CPAS, LLP and the law firm Kyler, Kohler, Ostermiller, & Sorensen, LLP, where he specializes in the areas of business, estate and tax planning. www.markjkohler.com .

3 Keys to Hiring Your Children in Your Small Business
For this tax-saving strategy to work, however, you must be careful to follow to the following guidelines:
1. The child must actually perform the work for which he/she is paid.
If your child is old enough (and responsible enough) to do chores around the house, then he/she is probably old enough to work for your business. If they help clean the house you live in, they can clean the office building you work in. They can vacuum the carpets, empty the trash cans, dust the furniture, and make those restroom fixtures shine!
Can they read and write? Then they can do many clerical office tasks such as filing and basic record keeping. Can they use a computer? Here’s an area where they may know more than you do. So put your computer whiz to work and have him maintain your website.
If your business provides labor services such as lawn care, and your children are big enough and strong enough, put them on the crew. I’m sure you can think of plenty of other tasks. Be creative, within the limits of reasonableness.
The key here is this: the child must be paid for actual work. No funny money, ok?
2. The compensation must be reasonable.
Again, you are hiring your child and treating him/her like any other employee. This must be a true arm’s length transaction. You pay the child the fair market value for services rendered. Do not inflate the wage. Pay your child the same hourly rate as you do other employees who are doing comparable work. If you hire the child to do work that no other employee is doing, find out what the current rate is for that type of work in your geographical area. Again, no monkey business here.
3. The work done by the child must be necessary for the business. In other words, if your child did not do the work for which they were paid, the business would have had to hire someone else to do it.
These guidelines are merely common sense, aren’t they? Simply put, your child must be treated like any other bona fide employee.

Self-Employed Tax Deductions - Hire Your Childdren

Hire Your Kids and Save Taxes

Post Updated April 19, 2015

Don't Overlook These Small Business Tax Deductions

TYPICAL SMALL BUSINESS TAX EXPENSES

1. ADVERTISING. Literature, price lists, catalogues, display and
classified ads in newspapers, internet, radio, T.V, etc.
Internet advertising expense and sales promotion such as
search engine placement, pay per click advertising, and
e-zine mailing list hosting services.

2. BAD DEBTS. Any due and non-collectable based on actual
expenses incurred.(Note:For accrual method of accounting only)

3. BANK CHARGES. Service fees and checking costs, including
check imprinting, overdraft protection, and any costs and
penalties from late charges and insufficient funds.

4. BUSINESS GIFTS. Items given to any prospect, customer or associate, up to $25 annually per recipient.

5. CAR AND TRUCK EXPENSE. If only one car , use actual expense or mileage method. If two or more cars or if leasing, use actual expense method. Mileage method replaces all actual operating and fixed expenses including depreciation.

6. CLIENT ENTERTAINMENT. Extra activities such as catering, and special refreshments for business related birthday and anniversary parties. Tickets for ball games, sporting events, plays, movies, etc., purchased to entertain business clients.

7. CONTINUING EDUCATION. All business related schooling and educational costs. Producing testing, research and development.

8. CONTRIBUTIONS. C Corporations only. S Corporations or Sole Proprietorships; report on Schedule A of Form 1040.

9. CONVENTIONS AND SEMINARS. Costs of attending or participating in meetings and rallies.

10. COMMISSIONS. Fees paid to others for transacting business, a percentage paid to another responsible for a business transaction, or bonuses paid to distributors and agents.

11. DEMONSTRATIONS AND TRAINING. Portion of groceries used for business. Products used for demonstration purposes.

12. DUES AND PUBLICATIONS. Newspaper and magazine subscriptions and purchases relative to business from newsstands and subscriptions.

13. EDUCATIONAL SUPPLIES. Books, records, tapes and any materials used self improvement pertaining to business.

14. FIELD ACCOMMODATIONS. Other travel and lodging expenses.

15. FREIGHT. Handling charges, costs of shipments sent and received, including gifts and special carrier delivery such as UPS, Parcel Post, Federal Express, DHL, etc..

16. INCENTIVES AND AWARDS. Pins, plaques, applicable production discounts, rewards, costs of contests and prizes -- anything expended to generate sales, including raffles, drawings and door prizes.

17. INSURANCE. Business portion of homeowner's insurance for casualty, fire,theft, property damage, and liability. Subject to home office limitations. Employee Health Insurance.

18. INTEREST. Business portion of home mortgage interest and interest on business loans. Interest on business related expenses from credit cards.

19. LEGAL AND PROFESSIONAL SERVICES. Payment for services such as attorneys and accountants.

20. OFFICE SUPPLIES. Stationary, pencils, pens, paper clips, envelopes, file folders, erasers, order forms, bookkeeping and art supplies. Computer and printer paper, small equipment items such as pocket calculators, electronic organizers, staplers, paper punches, etc.. Also diaries, ledgers,tablets, message pads, etc..

21. PARKING. Meters, space fees, and lot costs for business purposes.

22. POSTAGE. Stamps for all correspondence, newsletters, IRS audits, Christmas cards, bills, and all costs of certified, registered and insured mailings.

23. PRINTING AND REPRODUCTION. Reproduction of newsletters, fliers, brochures, business cards, business stationary and coupons.

24. RENT. Applicable business rent, meeting rooms and trailers, and all lease costs.

25. REPAIRS. Business portion of painting, flooring, resurfacing, concrete fixing, new glass, hardware supplies, tools, paint rollers. Repairs of business computer, VCR and other office equipment.

26. SALES EXPENSES. Costs associated with and pertaining to search for new clients and personnel.

27. SAMPLES AND DISPLAYS. Service of Product displays or demonstrations and new products used for promotion and samples.

28. SECURITY. Business portion of Home Alarms (smoke detectors and fire alarms), car alarms, padlocks, electronic sensors, monitoring cameras, and private patrols.

29. STORAGE. Costs of warehouses, lockers, garages, dock fees
and hanger space for business purposes.

30. SUPPLIES. Additional items such as linen, coffee makers,
cups, napkins, paper towels, interior decorating items,
special lights, blackboards, and easels, whiteboards, visual
aids, usual office supplies, items for client comfort.

31. TAXES. Business portion of real estate taxes, sales and
excise taxes. (Do not include sales tax of inventory
purchased if Purchases are gross figures). Payroll and
Business License taxes.

32. TELEPHONE. Cost of second telephone or fax line in home
office dedicated to business use. If only one line is used,
the cost of telephone company monthly service charges and
personal calls are not deductible. Business portion of cell
phone, voicemail, pager, and pay phone charges.

33. TRAVEL. Traveling costs such as a plane, train, taxi, and
bus fare. Rental cars, lodging, tour and guide fees, and
special arrangements (to be reimbursed with appropriate
documentation submitted to business entity when expense is
paid).

34. UTILITIES AND TELEPHONE. Business portions of natural gas
and electricity, heating oil, water sanitation.

OTHER DEDUCTIONS

35. ACCOUNTING. Payments for bookkeeping and auditing services.

36. ANSWERING SERVICE. Cost for business telephone message
services.

37. CLIENT CONTACT. Developing or maintaining communication with
clients or prospective clients by way of e-mail, snail-mail,
notes etc..

38. CONTRACT LABOR. Monies paid to those with whom you contract
for various tasks, projects, services, etc. See also category
Outside Services below.

39. DEPRECIATION. Business furniture, autos, equipment, and
improvements depleted over useful lifetime.

40. LICENSES AND FEES. Costs of obtaining permits and licenses for
sales. Local Business Tax License.

41. MARKET DEVELOPMENT. Cost of sales and performance development
in specific markets. New product research, application,
introduction, and orientation.

42. PEST CONTROL. Cost of products and services pertaining to
controlling and eliminating rodents, insects, and other
vermin (If sole proprietor, subject to business use of home
limitations.)

43. PROPS AND MEDIA. Equipment, audio visual devices, and
supplies needed to assist with business presentations.

44. PROSPECTING. Costs associated with and pertaining to search
for new clients and personnel.

45. PUBLICITY AND PROMOTIONAL EXPENSE. General announcements of
products and Services, opportunity availability, receptions,
etc.

46. REGISTRATION FEES. Costs of enrollment for continuing education,
fees for business fairs, other such other events and exhibitions
for promotion of business production and services.

47. REFUNDS. Repayments of reimbursements made for products or
services rendered.

48. OUTSIDE SERVICES. Payments made to Independent Contractors
for work performed (Issue Form 1099) in the conduct of
non-contract labor.

49. WAGES. Payments for salaries and hired help for which payroll
taxes are paid and Form W -2's are issued.

50. ONLINE CHARGES. Cost of Internet Access dedicated to business
use.

75 Items your small biz may be able to deduct, by Entrepreneur Magazine

Last Updated May 2, 2015

Income Not Taxable

Don't overpay the IRS by including non-taxable income on your tax return. The following are some of the main non-taxable items of income:

1. Life insurance proceeds
   
2. IRA and Pension rollovers
   
3. Child support payments
   
4. Inheritances
   
5. Gifts
   
6. Workers Compensation
   
7. Disability payments if you paid the premiums on the policy. If your employer paid the policy, then the disability payments are taxable. If you paid part of the policy, then part of the disability payments are non-taxable.
   
8. Court damages for personal physical injuries or physical sickness.
   
9. Health and accident benefits.
   
10. Federal income tax refund. Also your state income tax refund if you took the standard deduction on the related prior year's 1040.
    
11. Most scholarships and fellowships
    
12. Foreign earned income (needs to be reported on Form 2555, but up to $80,000 usually can be excluded)
    
13. Foster care payments (certain restrictions for individuals over age 18 in foster care)
    
14. Social security benefits may not be taxable. It's a complicated calculation, but basically your social security benefits are not taxable if your adjusted gross income plus tax-exempt interest and 50% of your social security benefits is less than $32,000 (married filing jointly) or $25,000 (single or head of household).
    
15. Gain on the sale of your personal residence is usually nontaxable. The gain might be taxable if you lived in the residence less than two years or if the residence has ever been used as a rental property or home office.
    
16. Roth IRA qualified distributions
    
17. Cancellation of debt because of bankruptcy or insolvency. If you receive a Form 1099-C with cancellation of debt income, that income isn't taxable to you if the debt was discharged when you declared bankruptcy or if you were insolvent at the time the debt was discharged. Insolvency is when your liabilities exceed your assets at the time of the debt cancellation.
    
18. Veterans Administration disability benefits

Non-Taxable Income

Last Dated May 2, 2015

How a Good Tax Plan Works

How a tax plan works. There are countless tax planning strategies available to a small business owner. Some are aimed at the owner's individual tax situation, some at the business itself. But regardless of how simple or how complex a tax strategy is, it will be based on structuring the transaction to accomplish one or more of these often overlapping goals:

• reducing the amount of taxable income
• reducing your tax rate
• controlling the time when the tax must be paid
• claiming any available tax credits
• controlling the effects of the Alternative Minimum Tax
• avoiding the most common tax planning mistakes

In order to plan effectively, you'll need to estimate your personal and business income for the next few years. This is necessary because many tax planning strategies will save tax dollars at one income level, but will create a larger tax bill at other income levels. You will want to avoid having the "right" tax plan made "wrong" by erroneous income projections. Once you know what your approximate income will be, you can take the next step: estimating your tax bracket.
As an individual taxpayer, and as a business owner, you will often have the option of completing a taxable transaction by more than one method. The courts strongly back your right to choose the course of action that will result in the lowest legal tax liability. In other words, tax avoidance is entirely proper.

Tax Avoidance Is Legal


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 some fraudulent intent on the part of the business owner. The following are areas that IRS examiners most commonly focus on when looking for possible fraud:

• Failing 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.
• Claiming 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.
• Engaging in 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.
• Improperly allocating 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.
• Engaging in a "sham transaction," such as paying your children for work they did not perform.

A business owner may not reduce his or her income taxes by labeling a transaction as something it is not. So, if payments by a corporation to its stockholders are in fact dividends, calling them "interest" or otherwise attempting to disguise the payments as interest will not entitle the corporation to an interest deduction. It is the substance, not the form, of the transaction that determines its tax status.

Last Updated May 2, 2015

Tax Changes Coming in 2013 and 2014

Major tax changes are coming in 2013, and Presidential election in November brings even more uncertainty for next year. Now is the time to consider the changes coming next year so that planning may mitigate some of the negative impact.

• The marriage penalty is back. Two single taxpayers will pay less than a married couple.
• Dividends will be taxed at regular rates instead of at the capital gains tax rate.
• The long-term capital gains tax rate expires.
• Itemized deductions phase out for higher income Americans.
• Personal exemption phase out for higher income Americans.
• The Child Care deduction limit reduces to $2,400.
• The Child Credit reduces from $1,000 per child to $500 per child.
• The lowest 10% income tax bracket is eliminated.
• The refundable Adoption Credit is eliminated and the adoption credit severely limited.
• The American Opportunity college education credit expires.
• There is a major reduction in earned income credits and refunds.
• The income tax exemption for debt forgiven on foreclosures expires.
• The deduction for student loan interest ends.
• Education IRA limit drops from $2,000 to $500.

These are big changes which will increase taxpayers income taxes significant.

New Obamacare Taxes Coming in 2014

Below, find the list of the 10 taxes that will be affected by ObamaCare starting in January 2014.

1. A 10 percent excise tax on indoor tanning services (a boon to beach towns everywhere).

2. Elimination of the tax deduction for employers providing Medicare prescription drug coverage. (This is a big part of why companies like 3M are dropping health coverage for their retirees.)

3. Doubling the penalty for spending money from your tax-free health savings account for non-health-related purposes (as defined by PPACA), to 20 percent.

4. Capping the amount that employers can contribute to your tax-free flexible spending accounts (employer-sponsored HSAs), at $2,500 a year (it was previously limited by your employer’s generosity).

5. Banning the use of funds from HSAs and related accounts for the purchase of over-the-counter medications (now you will have to go to your doctor and get a prescription, a waste of precious health-care resources and doctors’ time).

6. A 0.9 percent Medicare surtax to wages over $200,000 for individuals and $250,000 for married couples, along with a 3.8% Medicare tax on investment income of these individuals. (The 3.8 percent tax will actually apply to the lesser of unearned income or any excess income above $200,000/$250,000.) Because this tax is applied to pre-tax income, these taxes are equivalent to income tax rate increases of 2 percent and 8 percent respectively.

7. The ability to deduct itemized medical expenses will begin after you spend 10 percent of your income on medical expenses, instead of 7.5 percent.

8. The employer mandate, which requires that all business with more than 50 employees offer PPACA-approved health plans to all of their employees, or pay a tax of $2,000 per employee, excluding the first 30 employees.

9. The “Cadillac tax” on high-value health plans: beginning in 2018, plans costing more than $10,200 for individuals, or $27,500 for families, will be assessed a 40 percent excise tax. Insofar as this tax mimics the elimination of the employer tax exclusion, it is the least offensive of Obamacare’s tax increases, but unfortunately that policy goal—harmonizing the tax treatment of individually-purchased and employer-sponsored health insurance—is neutered by the employer mandate described above.

10. And last, but not least: the individual mandate, which requires everyone to purchase health insurance, or pay a tax: it starts in 2014 at $95 or 1 percent of gross income, whichever is greater; and maxes out in 2016 at the greater of $695 or 2.5 percent of income.

Section 179 Tax Write-Offs

Qualifying PropertySection 179 was designed with businesses in mind. That's why almost all types of "business equipment" qualify for the Section 179 deduction.

All businesses need equipment on an ongoing basis, be it machinery, computers, software, office furniture, vehicles, or other tangible goods. It's very likely that your business has purchased many of these goods during the past year, and will do so again and again. Section 179 is designed to make purchasing that equipment during this calendar year financially attractive.

Please keep in mind that to qualify for the Section 179 2015 Deduction, the equipment listed below must be purchased and put into use between January 1, 2015 and December 31, 2015.

• Equipment (machines, etc) purchased for business use
• Tangible personal property used in business
• Business Vehicles with a gross vehicle weight in excess of 6,000 lbs 
• Computers
• Computer "Off-the-Shelf" Software
• Office Furniture
• Office Equipment
• Property attached to your building that is not a structural component of the building (i.e.: a printing press, large manufacturing tools and equipment)
• Partial Business Use (equipment that is purchased for business use and personal use: generally, your deduction will be based on the percentage of time you use the equipment for business purposes).

2015 Deduction Limit = $25,000
This is good on new and used equipment, as well as off-the-shelf software.

Section 179 Deductions for Tax Purposes

Section 179 Expense Limits

Electing Section 179 Deductions On Tax Returns

There is no Section 179 deduction for motor vehicles that weigh 6000 pounds or less.

Limits for SUVs or Crossover Vehicles with GVWR above 6,000lbs

Certain vehicles (with a gross vehicle weight rating above 6,000 lbs but no more than 14,000 lbs) qualify for expensing up to $25,000 if the vehicle is financed and placed in service prior to December 31 and meet other conditions.

Post Updated April 21, 2015