Can you deduct the cost of my clothes for work????
Maybe. But in order to deduct them, they must not be suitable for everyday wear. So the business suit or stylish dress isn't deductible. But specialized uniforms or ugly special clothing works.
For most of you, sorry but you are probably out of luck. As always, please call (949-683-8111) or email us at info@southcountycpa.com if you have any questions. We are here to help.
Friday, December 31, 2010
Thursday, December 30, 2010
Alternative Minimum Tax (AMT) What is it? And How Does it Affect You?
AMT is the most misunderstood item in tax law, yet it truly is quite simple. You calculate your income tax liability using the standard rules we all know and love, then calculate it again using the AMT rules that most people don't understand. Whichever calculation shows you owe more is the one that gets used! Now, isn't that simple??? The government wouldn't have it any other way. . . . .
Rather than explain how AMT is calculated (it will bore you to death), I would rather explain what can cause you to fall into this category as ultimately, you will pay MORE in taxes under AMT than you would otherwise. However, if you do fall into AMT, there are some planning alternatives to take advantage of the situation and ultimately save you some hard earned money!
How do I know if I am going to be stuck with AMT??? The answer is somewhat complicated, but here are a couple items that can potentially cause AMT to become a possibility.
Rather than explain how AMT is calculated (it will bore you to death), I would rather explain what can cause you to fall into this category as ultimately, you will pay MORE in taxes under AMT than you would otherwise. However, if you do fall into AMT, there are some planning alternatives to take advantage of the situation and ultimately save you some hard earned money!
How do I know if I am going to be stuck with AMT??? The answer is somewhat complicated, but here are a couple items that can potentially cause AMT to become a possibility.
- If you had significant medical expenses this year
- You made large payments in state income and property taxes
- Mortgage interest paid on a Home Equity Line of Credit
- Significant Business Expenses
While every situation is unique, we strongly recommend you consult us about your individual tax situation as these four items are just the major factors that can cause AMT to take effect. Every individual's tax situation is unique.
So a few of these items pertain to me and I might be subject to AMT????. . . . . what do I do??
While you may have to pay more in taxes under AMT, there are some strategies to make lemonade out of the situation, so don't be afraid to ask us for help!
While you may have to pay more in taxes under AMT, there are some strategies to make lemonade out of the situation, so don't be afraid to ask us for help!
We would be pleased to further explain AMT and discuss ways to help you either avoid it or plan to use it. As always, please call (949-683-8111) or email us at info@southcountycpa.com if you have any questions. We are here to help.
Wednesday, December 29, 2010
IRA and Roth Retirement Plans
Contributions to either an IRA or Roth IRA must be made by April 15th, regardless of when you file your return.
The contribution limits for 2010 have not changed from 2009. The limit for both IRA and Roth IRA is 100% of earned income up to $5,000 plus an additional $1,000 for individuals age 50 and over. Remember that if you are an active participant of an employer-sponsored plan, your IRA limit is phased out if your income exceeds $66,000 if single or $89,000 if married. The Active Participant limitation applies even if you don't elect to contribute to your employer's plan.
There are several tax planning ideas using your IRA account. The first pertains to the conversion of a standard IRA to a Roth IRA. As you are aware, contributions into a standard IRA reduce your taxable income and will be taxable when they are distributed out of the IRA. Contributions into a Roth IRA are not deductible when made and all distributions out are tax free. But you have the opportunity to convert your standard IRA into a Roth IRA at any time. The amount you convert will be taxable in the year of the conversion. This provides an interesting planning opportunity. If you have a year where you don't expect to have taxable income, such as if you are unemployed for a significant part of the year, you can convert your IRA and recognize the taxable income. Then, when you distribute the funds out of your Roth account in future years, there will be no tax due at that time on the principal or earned interest. Best of all, if you elect to convert your IRA to a Roth IRA and find out in April that you shouldn't have done it, the IRS let's you have a "mulligan" and reverse the transaction. And you can then do it again next year if you want.
Another opportunity involves making charitable gifts from your IRA if you are 70 and over. If you want to donate to a charity and don't itemize your deductions, you won't get a deduction for your contribution. If you are required to take a distribution out of your IRA, that is taxable to you. The net effect is you get to pay taxes on the contributed amount. As an alternative, make the charitable contribution directly from your IRA. You will not need to report the amount as a distribution out of the IRA, thus providing you the tax benefit of the charitable gift.
Finally, the rules for non-spouse inherited plans have been liberalized. If the deceased had begun taking distributions, the beneficiary must continue to take a distribution at least equal to what the deceased would have received. The big change occurs when the deceased did not begin distributions. The previous law was that the entire amount had to be withdrawn within 5 years of the date of death. That continues but Congress has added another option. The beneficiary can elect to begin distributions in the first year that are spread over their life expectancy. This provides young beneficiaries the opportunity to spread the tax over their lifetime instead of five years.
As always, please call (949-683-8111) or email us at info@southcountycpa.com if you have any questions. We are here to help.
The contribution limits for 2010 have not changed from 2009. The limit for both IRA and Roth IRA is 100% of earned income up to $5,000 plus an additional $1,000 for individuals age 50 and over. Remember that if you are an active participant of an employer-sponsored plan, your IRA limit is phased out if your income exceeds $66,000 if single or $89,000 if married. The Active Participant limitation applies even if you don't elect to contribute to your employer's plan.
There are several tax planning ideas using your IRA account. The first pertains to the conversion of a standard IRA to a Roth IRA. As you are aware, contributions into a standard IRA reduce your taxable income and will be taxable when they are distributed out of the IRA. Contributions into a Roth IRA are not deductible when made and all distributions out are tax free. But you have the opportunity to convert your standard IRA into a Roth IRA at any time. The amount you convert will be taxable in the year of the conversion. This provides an interesting planning opportunity. If you have a year where you don't expect to have taxable income, such as if you are unemployed for a significant part of the year, you can convert your IRA and recognize the taxable income. Then, when you distribute the funds out of your Roth account in future years, there will be no tax due at that time on the principal or earned interest. Best of all, if you elect to convert your IRA to a Roth IRA and find out in April that you shouldn't have done it, the IRS let's you have a "mulligan" and reverse the transaction. And you can then do it again next year if you want.
Another opportunity involves making charitable gifts from your IRA if you are 70 and over. If you want to donate to a charity and don't itemize your deductions, you won't get a deduction for your contribution. If you are required to take a distribution out of your IRA, that is taxable to you. The net effect is you get to pay taxes on the contributed amount. As an alternative, make the charitable contribution directly from your IRA. You will not need to report the amount as a distribution out of the IRA, thus providing you the tax benefit of the charitable gift.
Finally, the rules for non-spouse inherited plans have been liberalized. If the deceased had begun taking distributions, the beneficiary must continue to take a distribution at least equal to what the deceased would have received. The big change occurs when the deceased did not begin distributions. The previous law was that the entire amount had to be withdrawn within 5 years of the date of death. That continues but Congress has added another option. The beneficiary can elect to begin distributions in the first year that are spread over their life expectancy. This provides young beneficiaries the opportunity to spread the tax over their lifetime instead of five years.
As always, please call (949-683-8111) or email us at info@southcountycpa.com if you have any questions. We are here to help.
Tuesday, December 28, 2010
New Reporting Requirements for 2011
A new year and new tax laws always go into effect. Normally they are minor and of little consequence, but a big one hits in 2011 and continues to effect us in 2012. That is the reporting requirements for businesses paying over $600 to a single company. The Small Business Jobs Act effects us in 2011 and the Health Care Act kicks in in 2012.
Starting January 1, 2011, individuals that have a rental property are now considered a business. They will be required to total expenses paid for the property and issue a 1099 in January 2012 to non-corporate suppliers that provided services that total over $600. This would include gardeners, maintenance personnel, and repair companies. 1099's must be filed by January 31st to avoid penalties.
Beginning January 1, 2012, the Health Care Act expands who you will need to report. Payments to corporations will be included as reportable transactions. Additionally, in addition to services, purchases of goods and tangible property will be included as reportable transactions. Therefore, payments made by a business or rental owner to Home Depot in excess of $600 will require filing a 1099 to Home Depot.
The Jobs act also increased the penalties for not filing a 1099 or filing late. Currently, the penalty for late filing is equal to the penalty for not filing; $75 per 1099. Beginning in 2011, the penalty for late filing is: $30 if filed by March 1st; $60 if filed by August 1st, and; $100 if filed after August 1st. The penalty for "intentionally" not filing is the greater of $250 or 10% of the amount that should have been reported.
Congress has now put some teeth into the penalties for not filing 1099's while increasing the reporting requirements. The American Institute of CPA's has asked the Senate to review the reporting requirements as unnecessary and excessive. Three different sub-committees have looked at the rules and indicated that they are OK with the requirements. So it doesn't look like they will be changed until after the first flurry of useless 1099's are received in 2013.
As always, please call (949-683-8111) or email us at info@southcountycpa.com if you have any questions. We are here to help.
Starting January 1, 2011, individuals that have a rental property are now considered a business. They will be required to total expenses paid for the property and issue a 1099 in January 2012 to non-corporate suppliers that provided services that total over $600. This would include gardeners, maintenance personnel, and repair companies. 1099's must be filed by January 31st to avoid penalties.
Beginning January 1, 2012, the Health Care Act expands who you will need to report. Payments to corporations will be included as reportable transactions. Additionally, in addition to services, purchases of goods and tangible property will be included as reportable transactions. Therefore, payments made by a business or rental owner to Home Depot in excess of $600 will require filing a 1099 to Home Depot.
The Jobs act also increased the penalties for not filing a 1099 or filing late. Currently, the penalty for late filing is equal to the penalty for not filing; $75 per 1099. Beginning in 2011, the penalty for late filing is: $30 if filed by March 1st; $60 if filed by August 1st, and; $100 if filed after August 1st. The penalty for "intentionally" not filing is the greater of $250 or 10% of the amount that should have been reported.
Congress has now put some teeth into the penalties for not filing 1099's while increasing the reporting requirements. The American Institute of CPA's has asked the Senate to review the reporting requirements as unnecessary and excessive. Three different sub-committees have looked at the rules and indicated that they are OK with the requirements. So it doesn't look like they will be changed until after the first flurry of useless 1099's are received in 2013.
As always, please call (949-683-8111) or email us at info@southcountycpa.com if you have any questions. We are here to help.
Friday, December 24, 2010
Deductions for 2011
It is soon time to fill out the W-4 form that tells your employer how many allowances you want for withholding. We are frequently asked "What is an allowance and how many do I have?" So today we answer the question and learn how to complete the treacherous W-4.
The first question is are you married or single. Obvious, no? Not quite. The reason for the question is not to survey the percentages of each. The IRS issues two withholding tables, one for married people and one for single. The differences are due to the difference in tax rates for each status. The tax rates for single people escalate quicker (get bigger at lower incomes) than for married people. Naturally, if you are single you should check the single box. But if you are married and both spouses work, one of you should probably check the single box (or the married but withhold at single rate). This will make sure you have enough money withheld to avoid owing a lot next April.
Now the tricky part. How many allowances are you claiming. There is a complicated formula at the top of the form to "help" you determine this number. Don't try to complete it as it will drive you insane. The starting point is to claim allowances equal to the number of exemptions on last year's return. That is one for you, one for your spouse and one for each child you have. If you stop at this point and write that number down, you should be safe in having enough money withheld. If you itemize your deductions, you can increase this number by one for every $5,000 in deductions.
Increasing the number of allowances will reduce the amount withheld out of your check. But if you don't withhold the correct amount (90% of your total tax for the year) the IRS will charge you a penalty for underpayment. Finally, if you and your spouse both work, we recommend having the lower paid spouse elect to be withheld at the single rate with 1 allowance. The tax tables calculate your tax assuming that only one spouse works. So if both work, the tables calculate the lower rates on the first $50,000 of income for both spouses.
We know this is a long explanation of what should be a simple form to complete. As always, please call (949-683-8111) or email us at info@southcountycpa.com if you have any questions. We are here to help.
The first question is are you married or single. Obvious, no? Not quite. The reason for the question is not to survey the percentages of each. The IRS issues two withholding tables, one for married people and one for single. The differences are due to the difference in tax rates for each status. The tax rates for single people escalate quicker (get bigger at lower incomes) than for married people. Naturally, if you are single you should check the single box. But if you are married and both spouses work, one of you should probably check the single box (or the married but withhold at single rate). This will make sure you have enough money withheld to avoid owing a lot next April.
Now the tricky part. How many allowances are you claiming. There is a complicated formula at the top of the form to "help" you determine this number. Don't try to complete it as it will drive you insane. The starting point is to claim allowances equal to the number of exemptions on last year's return. That is one for you, one for your spouse and one for each child you have. If you stop at this point and write that number down, you should be safe in having enough money withheld. If you itemize your deductions, you can increase this number by one for every $5,000 in deductions.
Increasing the number of allowances will reduce the amount withheld out of your check. But if you don't withhold the correct amount (90% of your total tax for the year) the IRS will charge you a penalty for underpayment. Finally, if you and your spouse both work, we recommend having the lower paid spouse elect to be withheld at the single rate with 1 allowance. The tax tables calculate your tax assuming that only one spouse works. So if both work, the tables calculate the lower rates on the first $50,000 of income for both spouses.
We know this is a long explanation of what should be a simple form to complete. As always, please call (949-683-8111) or email us at info@southcountycpa.com if you have any questions. We are here to help.
Saturday, December 18, 2010
Bush Tax Cuts Extended. . . . What it Means for You. . .
Welcome to the first of my weekly updates and suggestions to make your life easier and pay as little in taxes as necessary.
As you probably have heard, unless you have been on vacation and away from the net, Congress has decided not to raise our taxes next year. The important part for all of us is that nothing major has changed. The rates for 2011 will remain the same as in 2010. If you have specific questions, please do not hesitate to contact me. But now we can plan for the end of the year.
As always, accelerate deductions and defer income. Some examples:
As you probably have heard, unless you have been on vacation and away from the net, Congress has decided not to raise our taxes next year. The important part for all of us is that nothing major has changed. The rates for 2011 will remain the same as in 2010. If you have specific questions, please do not hesitate to contact me. But now we can plan for the end of the year.
As always, accelerate deductions and defer income. Some examples:
- If you have the option to receive a bonus in December or January, elect January.
- Pay your mortgage interest payment for January in December, just make sure the bank gets the payment before 12/31 or it won't be reported to the IRS.
- Make your 4th California estimated payment (due 1/15) in December,
- Pay the second half of your property taxes.
Check back next week and each week hereafter. As always, thanks for listening...
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