With the year end over, there still may be important tax items individuals should consider. One is your FSA, or Flexible Spending Account.
As most people know, flex spending accounts are used to provide tax deductible health expenses to employees. The types of deductible amounts available for reimbursement in 2010 include: doctor co-pays, out of pocket prescription costs, prescription co-pays, as well as more routine expenses such as cough medicine, band aids, and certain other quasi-medical expenses.
If you still had money in your FSA account and did not turn in your receipts before December 31, 2010, some plans have a grace period. This grace period is designed to allow participants to turn in receipts after year-end for reimbursement, so as to use all of the available money in the account.
Remember that FSA accounts are "use it, or lose it" so you should try to use all the money withheld from your paycheck, so you are not giving money away uselessly. Check with your plan administrator on whether or not your plan has a grace period, if it does, then you will have a short period of time to present receipts and draw down that FSA money to as close to zero as possible.
Check back in a week, when I will talk more about the changes ahead for flexible spending accounts in 2011.
Friday, January 7, 2011
Wednesday, January 5, 2011
IRS releases Audit Technique Guide on Capitalization
There is a fine line between repairs and maintenance costs, and those costs that extend the life of an asset and therefore should be capitalized (depreciable property). One good source of reference for business people in need of guidance are IRS Audit Technique Guides.
As the name would suggest IRS Audit Technique Guides, are the actual guides that IRS Auditors follow when conducting an IRS Audit. For this reason, they can be very powerful to the average business owner, and tax professionals. This guide has specific case examples from prior court cases, including types of documentation to retain in order to form a substantial tax position on repair and maintenance and/or capitalized property.
I would encourage business owners whom are taking bookkeeping into their own hands to review this audit guide, as this particular topic can raise many questions.
Here is a link to the guide on the IRS website:
www.irs.gov/businesses/article/0,,id=231440,00.html
As the name would suggest IRS Audit Technique Guides, are the actual guides that IRS Auditors follow when conducting an IRS Audit. For this reason, they can be very powerful to the average business owner, and tax professionals. This guide has specific case examples from prior court cases, including types of documentation to retain in order to form a substantial tax position on repair and maintenance and/or capitalized property.
I would encourage business owners whom are taking bookkeeping into their own hands to review this audit guide, as this particular topic can raise many questions.
Here is a link to the guide on the IRS website:
www.irs.gov/businesses/article/0,,id=231440,00.html
Thursday, December 30, 2010
Smart Year End Tax Moves Part 4
As year end approaches, many individuals are in the charitable giving mood. With that in mind, I offer one additional suggestion.
Recently, Congress has changed the nature of charitable giving, by allowing contributions to be made directly from retirement accounts to charitable organizations.
Here is one example of how it works:
Bill an IRA owner whom is 71 has Required Minimum Distributions from his IRA account. He also is very charitable by nature and customarily gives a significant amount to his church as well as other organizations. Now, Bill can schedule to make direct payments from his retirement account to the charitable organizations of his choice. These amounts are considered to be required minimum distributions for purposes of "testing" for the IRA at year end. But, the nice part is that these amounts are not taxable income to Bill. Since, he did not constructively receive these amounts, this is not taxable income to Bill even if he does not itemize (if Bill did itemize then this exercise would be kind of pointless because he would end up in virtually the same place anyway).
Please remember two things about these types of contributions. First, make sure the money is sent directly from the IRA account to the charity of your choice. Second, these amounts are not includable as "Schedule A" itemized deductions because they are amounts sent directly to the charity itself, and are therefore not included in income when they are sent.
As always, there may be specially circumstances surrounding your particular tax situation. Please consult a tax professional regarding tax consequences before making significant changes to your individual tax situation.
Recently, Congress has changed the nature of charitable giving, by allowing contributions to be made directly from retirement accounts to charitable organizations.
Here is one example of how it works:
Bill an IRA owner whom is 71 has Required Minimum Distributions from his IRA account. He also is very charitable by nature and customarily gives a significant amount to his church as well as other organizations. Now, Bill can schedule to make direct payments from his retirement account to the charitable organizations of his choice. These amounts are considered to be required minimum distributions for purposes of "testing" for the IRA at year end. But, the nice part is that these amounts are not taxable income to Bill. Since, he did not constructively receive these amounts, this is not taxable income to Bill even if he does not itemize (if Bill did itemize then this exercise would be kind of pointless because he would end up in virtually the same place anyway).
Please remember two things about these types of contributions. First, make sure the money is sent directly from the IRA account to the charity of your choice. Second, these amounts are not includable as "Schedule A" itemized deductions because they are amounts sent directly to the charity itself, and are therefore not included in income when they are sent.
As always, there may be specially circumstances surrounding your particular tax situation. Please consult a tax professional regarding tax consequences before making significant changes to your individual tax situation.
Wednesday, December 29, 2010
Smart Year End Tax Moves Part 3
I have focused a lot of attention in the last week on retirement plans. In this post I will change gears a bit to focus on stock sales.
Recently there has been a lot of focus on stock sales as the bush tax cuts were set to expire, fortunately for most taxpayers, Congress extended the bush tax cuts to all individuals for two years. However, this doesn't mean there aren't things that people should be doing to put themselves in the best tax position.
Two smart year end tax moves that could really pay.
First, if you are planning to gift stock you should consider the best way to gift that stock.
If you are planning to give the stock to a charity, consider this. If the stock has lost money since you bought the stock, you should strongly consider selling the stock and giving the money to the charity. It is important to note that if you were to give the stock directly to the charity, your deductible contribution would be the fair market value on the date of contribution. So the only way to capture the loss, while you held the stock, would be to sell the stock, capturing the loss, and subsequently giving the money to your charitable organization.
The same rules apply when you give stock to family members (as gifts). So it only makes sense to sell the shares and give them the cash. If they choose they can take that money and buy the exact shares you just sold and their basis would equal the cash they received.
Recently there has been a lot of focus on stock sales as the bush tax cuts were set to expire, fortunately for most taxpayers, Congress extended the bush tax cuts to all individuals for two years. However, this doesn't mean there aren't things that people should be doing to put themselves in the best tax position.
Two smart year end tax moves that could really pay.
First, if you are planning to gift stock you should consider the best way to gift that stock.
If you are planning to give the stock to a charity, consider this. If the stock has lost money since you bought the stock, you should strongly consider selling the stock and giving the money to the charity. It is important to note that if you were to give the stock directly to the charity, your deductible contribution would be the fair market value on the date of contribution. So the only way to capture the loss, while you held the stock, would be to sell the stock, capturing the loss, and subsequently giving the money to your charitable organization.
The same rules apply when you give stock to family members (as gifts). So it only makes sense to sell the shares and give them the cash. If they choose they can take that money and buy the exact shares you just sold and their basis would equal the cash they received.
Smart Year End Tax Moves Part 2
In my previous post I focused on retirement plans businesses can setup before year-end to capture tax savings. In this post I will focus on personal retirement plans and smart moves that can be made before year end to capture additional tax savings.
As you all may know IRA accounts are the primary vehicle for personal retirement.
Here are two things you should keep in mind coming into year end.
First, even if you currently contribute to a retirement plan such as a 401(k) plan, you could still potentially participate in either a traditional IRA, a Roth IRA or both. Certain income limitations apply to deductible contributions.
Second, if you plan on making contributions to an IRA account in 2010, you have until April 15th of 2011 to make tax deductible contributions to your IRA account. This may be a smart tax move since the maximum individual contribution is $5,000 with an additional $1,000 catch up available to individuals 50 years and older. Just as an example, if you are in the 25% tax bracket and are 52, you could potentially make a $6,000 contribution to a Traditional IRA. In this circumstance, if you maximized your contribution, you would also reduce your tax bill by $1,500, a very smart tax move indeed.
I also mention this because the IRS now allows for income tax refunds to be direct deposited into IRA accounts, a major benefit for taxpayers whom might not save that money otherwise.
Please note that certain taxpayers are not eligible to make deductible contributions to IRAs, please check with your tax professional before you make your decision.
As you all may know IRA accounts are the primary vehicle for personal retirement.
Here are two things you should keep in mind coming into year end.
First, even if you currently contribute to a retirement plan such as a 401(k) plan, you could still potentially participate in either a traditional IRA, a Roth IRA or both. Certain income limitations apply to deductible contributions.
Second, if you plan on making contributions to an IRA account in 2010, you have until April 15th of 2011 to make tax deductible contributions to your IRA account. This may be a smart tax move since the maximum individual contribution is $5,000 with an additional $1,000 catch up available to individuals 50 years and older. Just as an example, if you are in the 25% tax bracket and are 52, you could potentially make a $6,000 contribution to a Traditional IRA. In this circumstance, if you maximized your contribution, you would also reduce your tax bill by $1,500, a very smart tax move indeed.
I also mention this because the IRS now allows for income tax refunds to be direct deposited into IRA accounts, a major benefit for taxpayers whom might not save that money otherwise.
Please note that certain taxpayers are not eligible to make deductible contributions to IRAs, please check with your tax professional before you make your decision.
Sunday, December 26, 2010
Good marketing book
Normally, I spend less time talking about running a business than about the tax topics that effect businesses.
But even tax nerds like me can change. With that in mind. Recently I picked up a book called "Duct Tape Marketing" by John Jantsch. It is a great book with the premise that every business owner should be a good sales person, whom offers the same attributes as duct tape. Those attributes are versatility, dependability and a good all around resource for "clients". It also talks about many other subjects including creating sticky relationships with your best clients.
I would recommend this book to all small business owners who are looking to make more money, because I guess in the end, that is what marketing is all about.
Beyond marketing, this book does a good job of helping business owners analyze their business in order to improve all the facets of the business and begin to create a cohesive business strategy.
I picked it up on amazon for around $10, so it is also pretty cheap, which I also really enjoyed.
But even tax nerds like me can change. With that in mind. Recently I picked up a book called "Duct Tape Marketing" by John Jantsch. It is a great book with the premise that every business owner should be a good sales person, whom offers the same attributes as duct tape. Those attributes are versatility, dependability and a good all around resource for "clients". It also talks about many other subjects including creating sticky relationships with your best clients.
I would recommend this book to all small business owners who are looking to make more money, because I guess in the end, that is what marketing is all about.
Beyond marketing, this book does a good job of helping business owners analyze their business in order to improve all the facets of the business and begin to create a cohesive business strategy.
I picked it up on amazon for around $10, so it is also pretty cheap, which I also really enjoyed.
Friday, December 24, 2010
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