Sunday, August 1, 2010
Is an installment sale or a 1031 exchange today the best course of action in light of where the capital gains tax rates are likely headed in the not too distant future? Be sure to employ the strategy that saves you the most taxes OVERALL – not just this year.
In these times of falling property prices, it is common for an estate to dispose of property for less than what its value was on the date of death thus creating a capital or passive loss. Passive losses may at times be carried back and capital losses may benefit beneficiaries in the final estate year.
Shareholders of S corps, have you started to account for owner/spouse health insurance as wages and ceased claiming use of space in your residence by the corp pursuant to the IRS clarifications issued within the past few years? Are you taking a "reasonable" salary? (Rule #1 of S corp ownership.)
The revised 990/990EZ forms for TE orgs are about 50% more tedious. Contributions $5000+ (in aggregate) and fundraising events which gross $5000+ must be separately reported. The form will be made available for everyone with an internet connection to review (guidestar.org) so it could reflect poorly on the organization if this form is sloppy or not accurate.
Cancellation of debt generally results in a 1099 being issued on which all the debt forgiven is reported as taxable income to the IRS. In some cases it is not necessary to pay tax on this income. (I.e. when insolvent or in bankruptcy at cancellation.) Whether or not tax is due, this income must be reported on your tax return or you are sure to get a bill from the IRS within 3 years.
Start up and organizational expenses are treated differently than expenses incurred after you have opened your doors or started performing services. Proper elections must be attached to the tax return or deductions may be lost. Several treatment options exist.
Selling an easement to a govt agency for conservation or certain other specified uses can result in a hefty charitable contribution deduction BUT only if you have the right type of appraisal performed at the right time. Errors can cost a small fortune in lost deductions and these transactions are frequently audited.
Up to 85% of your social security benefits may be taxable if you have income - incl interest, dividends, & gains. Causing SS to be subject to tax will dramatically decrease the amount you net from the non SS income. Strategic planning to space out income when possible is the key. If that is not possible, then retaining a CPA to prepare a projection so you will know in advance what you must set aside for taxes is the next best option.
Working in multiple states increases tax filing requirements exponentially. Initial registration and annual renewals, sales taxes, state tax w/holdings from wages (based on where the employee works - not where they live), business and personal income tax returns for each state where income was earned - just to name a few!
Tax planning to manage the impact of AMT requires a multi-year planning approach. The acceleration of income and/or state tax payments into a certain year may reduce total taxes paid over time when AMT is a factor. It is critical to identify risk of being subject to AMT and work on a minimization strategy in advance of year end.
Restaurant and bar owners may be eligible for a tax credit to recoup FICA taxes paid on wages to their employees who also receive tips. This credit is often missed or "blown off" by tax preparers so be sure to inquire about it if you don't see it on your tax return. S corps and partnerships pass the credit through.
Even during the sorrowful time after a loved one has passed away, the IRS won't be ignored. The estate's tax year ends the last day of the month prior to the month of death. For example, the tacx year for the estate of an individual who passed away on 9/15 woudl be September 1-August 31.
The elevated accounting & Quickbooks expertise of CPA firm staff can replace the bookkeeper of a small entity. Benefits include: less risk of theft; wage, tax, benefits, and worker's comp savings; no more being left in a lurch when someone quits; financials are always accurate; tax time is a breeze. A CPA discusses your financial situation with you quarterly. We can access your file remotely.