Monday, December 30, 2013

Super Last Minute Business Tax Moves



Time is running out for 2013 and for last minute tax moves.  Here are a few tips for business owners.

Timing is everything:


How does 2013 look for your business and you personally?  Also, what do you expect for 2014? These questions are important because, for example, if you know 2014 will be much better than 2013 then you may want to time profits so that you take more income in 2013 and then you will have less in 2014.  Why would you want to do this?  Perhaps you expect 2014 to be so much better that it may put you into higher tax brackets and/or cause other taxes to "kick in" like the Net Investment Income Tax, The Alternative Minimum Tax, or the Additional Medicare Tax.  Of course it could be the other way around too and you may want to delay profits into 2014.  Either way these are timing opportunities that you can take advantage of.  Realize you will have to report the income but when you report it can affect how much in taxes you will pay.

So how do you delay or accelerate profits between years this late in the year?


  • If your business is an accrual based taxpayer you may accelerate or delay invoices to affect your revenue.  If 2013 looks better you can wait to invoice clients/customers until after the first of the year thereby taking the revenue in 2014 instead of 2013.
  • Cash based taxpayers can collect payments to accelerate income into 2013 or encourage customers to pay after the first to delay income into 2014.
  • Cash based taxpayers can also accelerate payment of business expenses into 2013 by paying them before year-end.  Recognize that this can be accomplished by putting the charge on a credit card even though you will not pay the credit card until next year.
  • You can make last minute purchases of capital assets to be deducted in 2013 if you put them in service before year-end.  If you want to reduce income for 2014 you could chose to wait to purchase capital assets until after the first of the year.


These are just a few examples of tax moves that businesses can make before the end of the year. There may be others too depending on your circumstances.  These suggestions may or may not be beneficial for your situation.  A comprehensive conversation with your CPA about your circumstances can help you to make these decisions.  I would be happy to help you as your CPA.

These can be a complex tax matters that require planning and ideally an ongoing knowledge of your situation.  I would be happy to assist you with this as your CPA and discuss different business and tax strategies with you.  Feel free to contact me using the information below.




Jeff Haywood, CPA
The CPA Superhero
972-439-1955
jeff.jhtaxes@gmail.com
The above information is general information and is not all inclusive and as always in your tax situation everything "depends on facts and circumstances."  So call me to talk about your specific facts and circumstances.

Thursday, December 26, 2013

The Alternative Minimum Tax and Your Tax Return



What in the world is the Alternative Minimum Tax (AMT)?  Even the IRS does not try to explain it in detail for the lay person.  Basically, it is an attempt by the government to make sure individuals and corporations that benefit from certain exclusions, deductions, or credits pay at least a minimum amount of tax.  It is crazy because the Alternative Minimum Tax requires your taxes be calculated twice in two different ways to make sure someone does not benefit too much from the tax provisions.

How is the Alternative Minimum Tax computed?

According to the IRS the following is the general calculation:
  1. Start with taxable income for regular tax purposes
  2. Eliminate or reduce certain exclusions, deductions and credits that are allowed in computing the regular tax
  3. Subtracting the AMT exemption amount (it's calculation would require another post)
  4. Subtracting AMT foreign tax credit
The IRS notes the AMT exemption amount and AMT rate are set by law.  For capital gains and certain dividends, the rates used for AMT are the same as the regular tax rates.

How do you really figure out the AMT?

You figure out if you owe the AMT and how much it is the old fashion way, by filling out the form 6251.  In reality the AMT primarily "kicks in" once your income gets up to $50,000.  But even if you don't owe it this year there are several ongoing calculations that you need to keep track of year by year like the AMT foreign tax credit, the AMT Depreciation, and the AMT Net Operating Loss Carry-forward or Carry-back just to name a few. 

Two expressions come to mind to describe the AMT: 

  • "It's complicated"
  • "It depends on facts and circumstances"
For more information see the IRS instructions for 
This IS a crazy and complex tax matter that I would be happy to assist you with as your CPA.  I would also be happy to discuss different strategies for this situation with you.

Jeff Haywood, CPA
The CPA Superhero
972-439-1955
jeff.jhtaxes@gmail.com
The above information is general information and is not all inclusive and as always in your tax situation everything "depends on facts and circumstances."  So call me to talk about your specific facts and circumstances.

Monday, December 23, 2013

Last Minute Year End Tax Moves - Timing Opportunities



As 2013 comes to a close quickly, what can you still do to reduce your taxes for 2013?

Does your income fluctuate from year-to-year?  Perhaps you expect changes to income tax rates or income taxes or whatever the government wants to disguise them as.  In some cases you can benefit by timing your income or losses so you take less income in a year when your effective tax rate will be higher and defer the income until the following year when your tax rate will be lower.  The same rational applies to cash flow issues.  These are timing opportunities to minimize your taxes in a particular year.

Types of opportunities to defer income and taxes:

  • Capital Gains
  • Salary from your business
  • Income in your business
  • Purchasing Capital Assets
  • Taking a Retirement Distribution
  • Paying Bills in your Business
  • Paying Real Estate Property Taxes
  • Making Charitable Contributions

Here is a tip for business owners; a cash basis business can accelerate bill payments into 2013 without coming out of pocket with the cash until 2014.  This can be done by paying bills using a credit card.  The IRS allows you to take the deduction in the year the expense or asset is charged on the card.  If you use this to purchase a capital asset realize you have to actually put the asset in service in 2013 to take the deduction in 2013.  This strategy can help reduce your taxes even if your cash situation hinders you from paying for it now.  

Disclaimer: Every time I offer this tip someone yells "it is a bad idea to promote the use of credit cards."  I am sure if you have a business you are mature enough to work through that potential landmine.

Recognize that these strategies merely shift income and taxes between years and sooner or later you will pay tax on your profits and paying taxes on profits and income is a good thing because you are making money. Perhaps it is a good thing to delay paying some of the tax until next year.

These timing issues require knowledge of tax changes and changes in your personal situation.  Regular discussions with you CPA about your situation can help you take advantage of these opportunities.  I would also be happy to discuss different tax strategies with you as your CPA.  Feel free to use my information below to contact me.


Jeff Haywood, CPA
The CPA Superhero
972-439-1955
jeff.jhtaxes@gmail.com
The above information is general information and is not all inclusive and as always in your tax situation everything "depends on facts and circumstances."  So call me to talk about your specific facts and circumstances.

How Are You Affected by the new Net Investment Income Tax



If you have Net Investment Income and your Adjusted Gross Income exceeds the set thresholds you may have to pay the Net Investment Income Tax.  The tax is 3.8% on the lower of your Net Investment Income or your Adjusted Gross Income that exceeds the threshold.

First, what is Net Investment Income?  

Generally it includes but is not limited to:

  • interest
  • dividends
  • capital gains
  • rental and royalty income
  • non-qualified annuities
  • income from businesses involved in trading of financial instruments or commodities
  • businesses that are passive activities to the taxpayer (within the meaning of section 469)
The calculation of Net Investment Income is reduced by certain expenses properly allocable to the income.

What is Adjusted Gross Income for this tax?

Adjusted Gross Income for the purpose of the Net Investment Income Tax is the adjusted gross income (Form 1040, Line 37) adjusted for some amounts excluded from gross income under different provisions of the tax code.

Thresholds for Adjusted Gross Income for the Net Investment Income Tax:

  • Married Filing Jointly $250,000
  • Single, Head of Household (with qualifying person), Qualifying Widow(er) with dependent child $200,000
  • Married Filing Separately $125,000

The Tax

By the name of this tax you might get the idea the tax is on your Net Investment Income but the name is actually deceiving.  The 3.8% tax applies to your Net Investment Income or Your Adjusted Gross Income that exceeds the threshold.  So your tax may be on an amount smaller than your Net Investment Income.

To illustrate how the tax works, if you are single and you have $300,000 in Net Investment Income and Adjusted Gross Income of $400,000 then your Adjusted Gross Income that exceeds the threshold would be $200,000 so the tax would be applied to that $200,000 rather than to your Net Investment Income.  Therefore your Net Investment Income Tax would be $7,600.

If you have Net Investment Income but your Adjusted Gross Income is below the threshold you probably are not subject this tax.

As always what applies in your situation "depends on facts and circumstances."

There are many other aspects of the Net Investment Income Tax not covered in this article.  For more information see the IRS website IRS.gov.


This can be a complex tax matter that I would be happy to assist you with as your CPA.  I would also be happy to discuss different strategies for this situation with you.

Jeff Haywood, CPA
The CPA Superhero
972-439-1955
jeff.jhtaxes@gmail.com
The above information is general information and is not all inclusive and as always in your tax situation everything "depends on facts and circumstances."  So call me to talk about your specific facts and circumstances.


Friday, December 20, 2013

The Additional Medicare Tax and Your Tax Return


Alert: This Additional Tax Will Surprise You at Tax Time: 

Surprise, you owe more than you expected.  It can be disturbing when expectations are not met especially when it means more money out of your pocket.  That can happen this year due to the Additional Medicare Tax.

The Additional Medicare Tax:

The Additional Medicare Tax is an additional tax or surtax on your wages, compensation or self-employment income that exceed certain thresholds.  The thresholds are:
  • $250,000 for couples filing jointly
  • $200,000 for individuals, even individuals filing Head of Household, and Qualified Widows
  • $125,000 for married persons filing separately
The tax is an additional .9% on qualified wages, compensation or self-employment income.

Employers are required to withhold the additional .9% from wages it pays to an individual in excess of $200,000 in a calendar year, without regard to the individual's filing status or wages paid by another employer.

Your Surprise:

Since employers are only required to withhold the surtax on your wages that exceed $200,000 you could wind up owing more than was withheld.  This could be the case if you had more than one source of qualified income.  It could also be the case for married couples filing jointly who are over the $250,000 threshold. 

For example, if a married couple filing jointly each make $200,000 then no additional tax would be withheld from their wages but they would owe the additional .9% tax on the amount of their income over $250,000 which would be $150,000 in their case and the additional tax would be $1,350.  Surprise!!!!

Or an individual filing a "Single" return could have income from one job of $200,000 and another $200,000 from another job or active partnership and he would owe the additional tax on $200,000 and the additional tax would be $1,800.  Surprise!!!!

What can you do?

We are too late in the game to have your employer withhold additional income taxes for you.  So there are a few options you have if you are just now aware of the surprise.  First, you could make an estimated tax payment for the fourth quarter which is due January 15th.  Second, you could prepare now to pay the additional tax when you file your tax return and send the payment on April 15th.

Sidenotes:

  • Note that wages from an S-Corporation are subject to the surtax but not Shareholder Distributions.  
  • Tips are also subject to the additional tax.
  • Non-resident aliens and U.S. citizens living abroad are subject to the Additional Medicare Tax.

This can be a complex tax matter that I would be happy to assist you with as your CPA.  I would be happy to discuss different strategies for this situation with you.

Jeff Haywood, CPA
The CPA Superhero
972-439-1955
jeff.jhtaxes@gmail.com
The above information is general information and is not all inclusive and as always in your tax situation everything "depends on facts and circumstances."  So call me to talk about your specific facts and circumstances.

Thursday, December 19, 2013

Living Outside the U.S.? You May Be Able to Exclude Foreign Earned Income On Your Tax Return



If you are a U.S. citizen or resident alien of the United States residing and working outside the U.S. you should be concerned about the taxes implications.  The country you are living in may want to tax that income and in the U.S. you are required to report all your worldwide income so you could face double taxation on that income.  The U.S. however has some provisions that are meant to protect you from the double taxation.  One of which is the Foreign Earned Income Exclusion.

The Foreign Earned Income Exclusion allows you, if you meet the requirements, to exclude up to a certain amount of foreign earned income.  First of all, realize this exclusion is just for foreign earned income which means income that you earn by working as an employee or in your business while in a foreign country.  This does not include unearned income like investment or passive income even if you are living in another country.

To qualify you must have foreign earned income, your tax home must be in a foreign country, and you must meet one of the following requirements:

  • You must be a U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year.
  • Or you are a resident alien who is a citizen or national of a country with which the U.S. has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year.
  • A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any of 12 consecutive months.

The amount of the exclusion is adjusted annually for inflation.  For 2013 the amount is $97,600 per person. In addition, you can exclude or deduct certain foreign housing amounts.  The exclusion amount limit applies to the foreign earned income and the foreign housing combined.  Each qualifying person can exclude up to the limit but if one spouse is below the limit the other spouse does get to use the other spouse's unused amount.

You may also be entitled to exclude from income the value of meals and lodging provided to you by your employer.

This is a complex tax matter that I would be happy to assist you with.  It is important to prepare to take the exclusion and know what to expect and how to benefit.  There are some complicated timing issues I can help you with so feel free to call me to assist you as your CPA.

Jeff Haywood, CPA
The CPA Superhero
972-439-1955
jeff.jhtaxes@gmail.com

For Expatriate Tax Information 
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The above information is general information and as always in your tax situation everything depends on facts and circumstances.  So call me to talk about your specific facts and circumstances.

Wednesday, December 18, 2013

What You Can and Can't Do On Your Tax Return: It Depends on Facts and Circumstances


Answers to tax questions seem like they should be simple and they should be in most cases.  However, the way the US Tax Code is written the answer can vary depending on your particular situation.  The answer for Johnny down the street won't necessarily be the same for you and your circumstances.

At a recent IRS Seminar it was repeated often that the answers to questions about tax situations always "depends on facts and circumstances."  So as my first blog post you need to realize that my posts will contain general information and what applies to your tax situation "depends on facts and circumstances."  So to get a real answer to your tax questions you will need to take time to give a tax professional like myself the full picture of your situation.  It is better to have a CPA tax professional that you talk to regularly who can get to know your situation and what you want to accomplish and advise you accordingly than it is to go it alone and then hire a CPA to bail you out of trouble.  It costs much more to bail you out of trouble than it does to hire a CPA to regularly take care of your tax returns and reporting requirements.

I am a licensed CPA and I have been preparing tax returns for the public for over 13 years.  I get to know each of my clients well and communicate with them throughout the year.  Feel free to contact me if I can be of assistance to you.


Jeff Haywood, CPA
The CPA Superhero
972-439-1955
jeff.jhtaxes@gmail.com
twitter.com/jeffhaywoodCPA
twitter.com/taxesforxpats