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3 Things You Didn’t Know Were A Tax Write Off

3 Things You Didn't Know Were A Tax Write Off

The U.S. tax system isn’t the easiest thing to navigate and it is unlikely to change any time soon, despite presidential promises.

But there are interesting ways you can save money by finding if you can use any of these three odd tax deductions. They aren’t illegal or even shady loopholes, but it could surprise you to find that they may apply to you and save you some money on your taxes.

Your Health Can Be Tax Deductible

There are actually several ways your health can be tax deductible. Some ways you may not have considered are:

  • Installing a pool for medical purposes – Before going wild and using your scoliosis as a reason to get a free pool courtesy of the IRS, pump the breaks. While a man was able to deduct the installation of his in-ground pool, it was strictly for medical purposes. So no pool parties along with your medical needs.
  • Quit smoking – You may qualify for a tax write off for using a smoking cessation program, quitting aids, etc. Feel free to check with your accountant if your method qualifies.
  • Get in shape – If your doctor has recommended you get in shape and indicated your life may be in danger if you do not, you could get the course your doctor recommends you follow written off at tax time.

Write Off Rent/Mortgage When Applicable

If you run a business, you know that business taxes are a difficult matter. But if you run one from your home, you may be able to deduct some of your rent or mortgage from your taxes as a business expense.

However, there are fairly stringent rules set down by the IRS governing deducting business expenses. Some basic requirements to deduct rent as a business expense are:

  • Area only used for business – This part of your house has to be set specifically set aside for your business. So like the pool, it cannot serve any other purpose.
  • Conduct business regularly there – The part of your home (whether attached to the house or a structure on the property) has to be regularly used as a place where you do business, not an additional rented office or coffee shop.
  • Importance of activity – You may need to prove that you cannot perform your work elsewhere and that it is a key part of your business

On the plus side, if you can prove your home business deduction, things like utilities, repairs, insurance and depreciation can also be written off.

Deduction For Childcare Cost

Want to volunteer for a charity but can’t afford childcare as you work for the charity? One woman successfully filed the costs of her babysitter’s cost as a donation to the charity she was helping.

As she wasn’t compensated in any way and had records to prove the time she had spent correlated with the costs, she managed to get the costs written off!

To make sure you get all your bases covered, be sure to contact us at AA Tax and Accounting Services and be secure in the knowledge that the experts are on the job.

Businesses That Got Creative With Their Charitable Tax Write-offs

Businesses That Got Creative With Their Charitable Tax Write-offs

As you know, whether you’re an individual or business, you can lessen your tax liability by giving to charitable organizations during the year. However, giving to charity doesn’t necessarily mean giving out your credit card number or writing a check. Many businesses are getting more creative with their charitable giving, and are still getting the tax write-offs to which they’re entitled.

Business Giving Gets Creative

For example, Excel Rainman, a small company which offers spreadsheet outsourcing services and training, donates training videos they produce for Microsoft Excel. They give them to nonprofit organizations to help them understand their spreadsheet data and improve their skills. For write-off purposes, it’s worth $100 per user.

Another small company, The O’Hara Project, a New Jersey marketing firm, gives pro-bono public relations services to a local non-profit to help them get the word out.

Larger companies might also get creative with how they give money to charities. For example, tech giant Apple matches the donations employees make, up to $10,000 per employee, per year (they employ more than 80,000 people). Plus, for every hour an employee volunteers, Apple gives $25 to that non-profit organization.

The Perks of Your Generosity

While very few would give to charities for the sole purpose of tax write-offs, donations your resources definitely has its worldly rewards. You know you can reduce your taxable income, but here are some of the particulars:

  • Tax deductions: You may be able to claim a 15-35% reduction to your taxable income.
  • Immediate savings: Even if you didn’t make your donation until December 31, you can still claim it on that year’s taxes. It doesn’t even matter if the organization doesn’t cash your check until the next year. For credit card donations, you can claim the deduction for the year you made the donation — you don’t have to wait until you pay the credit card company.
  • Deduct up to 50%: Sure, there are some limits on what you can claim (you can’t give 100% of your income away and owe zero taxes). However, you can deduct an amount that equals up to 50% of your income. And if you give more than that, you can carry over the extra for up to 5 years.
  • Giving goods: Say you have aging computers you’ll no longer use. Giving them to charity is just as good as giving money. If your company has owned the items for at least a year, you can claim their fair market value as a tax write-off, just like you would a cash donation. And in the case of property that appreciates in value, you can claim a deduction for today’s value…even if it’s worth significantly more than what you paid.
  • The feel-good factor: Businesses that give to charity, especially if they involve employees, build positive morale. They gain community respect, and form ties that go well beyond the financial perks. And who knows…while working with charities to arrange your giving program, you might make some great connections that serve both parties in the future.

When giving goods, services, or money to a non-profit, just be sure you keep good records and get an official receipt from that organization. Give those records to your accountant or CPA, and they can help you figure out how to get the most out of your donation. And don’t be afraid to think outside the box when it comes to donating. You may not always have the cash on hand to give, but you can always find a way to contribute.

How The Trump Administration Plans To Alter Business Taxes

How The Trump Administration Plans To Alter Business Taxes

News from the White House has financial speculators wondering just how President Donald Trump, and his administration, plan to change business taxes. As the short press release on the subject may be unclear, here’s what you need to know about the proposed business tax changes.

Business Tax Reform

Since the official press release announcing the Trump administration’s plan to reform the tax law and simplify it, there have been many articles written on the subject. To simplify and clarify the matter, the Trump administration proposed business tax cuts are:

  • Cut for self-employed: 15 percent tax on pass-through businesses, which 95 percent of business in the U.S. are listed as.
  • Corporation cuts: Corporate taxes to be cut to 15 percent as well, down from the federal 35 percent.
  • Import and export changes: Trump has proposed that there be no border-adjustment tax, which will mean imports are taxed and exports will not be. However, the GOP isn’t quite on board with this proposal yet.

Tax Reforms That Could Affect Businesses

While these taxes may or may not affect your business, they have the capability to have fringe effects on some businesses.

  • Overseas money: A one-time reparation tax rate will allow businesses to bring in overseas money with it being taxed at a lower rate. There are no hard numbers for this potential tax change.
  • Estate tax: Also proposed is the elimination of the estate tax, so that all property can pass to inheritors with no taxation.

Individual Tax Changes Can Affect Business Taxes

Should changes occur and the pass-through business taxes get lowered, this can affect your individual taxes. Here are the individual tax changes that could affect your future filings.

  • Double deduction: The Trump administration wants to double the standard deduction, which could save self-employed individuals a bundle when it come to tax time, as well as other people.
  • Three income brackets: Currently there are 7 income brackets. The proposal is to change to 3 income brackets: 10 percent, 25 percent, and 35 percent. However, the incomes associated with the new brackets has not been clarified.
  • Alternative minimum tax: A large change would be the repeal of the alternative minimum tax. Instead of making tax payers do their taxes twice (once with standard deduction and once with itemized) and having to take the highest tax rate, there would be no minimum tax that has to be paid.

Wait On Tax Plan-Based Changes

While it can be tempting to want to get ahead and anticipate the market, these changes are not set in stone yet. So before you go from considering restructuring your business to actually doing so, wait and see that these reforms get passed.

Then when the new tax laws are passed, they will likely have undergone revisions from the original proposal. We are here to help both now and when those changes come about.

5 Ways Your Charitable Donations Can Help You Financially

5 Ways Your Charitable Donations Can Help You Financially

Most people are aware that giving money to charity is usually tax deductible. When you file your yearly return (individual or business) you can save by donating a portion of your income to your favorite cause. Let’s take a look at 5 ways your financial health could benefit from charitable giving.

How Helping Charities Can Help You

  1. Tax deductions
    As you probably know, tax deductible gift to charity can reduce your taxable income. These reductions range from from 15% to 35%, depending on your tax bracket. As your bracket goes up, you may gain better tax incentives for your contributions.
  2. Most contributions qualify
    While certain types of charity organizations will not qualify for a tax deduction when you give, most of them will. Foreign governments and charities are exempt from deductions, as are certain private foundations. Giving money to a needy individual is awesome, but not tax deductible. If you aren’t sure if your contribution will provide tax benefits, be sure to ask.
  3. De-junking can mean deduction
    Most people think about cash donations being associated with tax deductions, but material donations also count. Think of organizations like Goodwill or the Salvation Army. If you’ve owned property for at least a year and donate it to a charity, the value of that deduction is usually the same as that property’s fair market value. It makes an even better deal for you if the property donated has appreciated over the time you’ve owned it, since market value would be more than what you paid. Keep in mind that items are only deductible if they are in “good condition or better.” Just make sure to ask for a receipt for your donations.
  4. High limits
    The IRS does place limits on the deductions you can take for charitable giving, but those limits are pretty high. The more you give, the more you can deduct, up to 50% of your contribution base. So for example, if your adjusted gross income is $90,000 in a given year, your deductions would be capped at $45,000. Your individual limits may be lower (20-30%), depending on your situation. But if you donate more than your eligible limit in one year, you can carry the excess over for up to 5 years.
  5. Immediate application
    Any donations you make can be applied to the year in which they are given. So even if you mail a check at the end of December 2017, and the check isn’t cashed for 3 months, you can still take that deduction in 2017. The same rules apply to credit card contributions. You can claim the deduction in the year your credit card was charged, even if you don’t pay back the credit card company for another year.

When making charitable donations, be sure you keep good records and always ask for receipts. The IRS will not allow a deduction for separate contributions of $250 or more without documentation from the charity (you cannot use a canceled check). When you’re ready to give, look for tax-exempt or 501(c) organizations such as churches, charitable hospitals, publicly-supported foundations, or certain private foundations that distribute donations to public charities. Provide your accountant or CPA with documentation of all your contributions to claim any applicable deductions.

Considerations to Review Before Restructuring Your Business Entities

Considerations to Review Before Restructuring Your Business Entities

If you’re starting a business or growing your existing one, sooner or later the issue of restructuring is bound to come up. The right structure is important to ensure the most favorable tax, legal, and practical benefits. It’s a big step, however, so there are a lot of things to think about before you actually embark on the process. It’s important to also get some advice from an attorney or CPA who can help you determine the pros and cons of the different structures in your unique situation.

What to Think About Before Restructuring

If you aren’t familiar with the process of restructuring or don’t know if should be set up differently than you are, here are some things you should consider.

  • THE WHY
    Some common reasons for business restructuring include a change in ownership or management, financial goals such as profitability and cash flow, internal reorganization, and growth.
  • THE WHAT
    The type of structure you change to will depend on a lot of factors. This is where you really need the advice of a professional who can help you find the right fit. Your new structure will influence important things like tax liabilities, employee/employer status, personal liability, control, cost of doing business, and more.
  • THE FURNITURE
    What are your goals for 3 years down the road? For 10 years? You need to plan your business structure accordingly, so it can help you meet your business and financial goals.
  • TAX LIABILITIES
    Most people cite financial reasons for examining their current business structure and looking into a change. A big part of that is your tax liability (including capital gains), as different structures have their own pros, cons, and legal guidelines when it comes to taxes.
  • PERSONAL LIABILITIES
    Taxes aren’t the only financial liabilities you should consider before restructuring. Personal liability should also come into play. If you’re a sole proprietor, for example, you could find yourself liable for any and all damages in the event you are sued. If you set up your business accordingly, you can avoid being taken for everything you have when a client, partner, or other entity files a lawsuit. Your legal structure provides a measure of protection for everything you or your business owns.

Get the Right Advice

If you’ve been wondering if your business entities are set up correctly, you probably have reason to look into a change. While some companies offer “kits” that provide paperwork and limited guidance, nothing can replace the qualified help from professional dedicated to your success. When it comes to the complicated world of entity restructuring, that relationship can prove immensely valuable.

Who Needs Entity Restructuring Services?

Who Needs Entity Restructuring Services

If you own a business and have not yet heard of entity restructuring, you might consider investigating how these services can benefit your business. As your business grows and your industry changes, you will find that your current business structure might need to adapt. That is where entity restructuring comes into play. You can adjust the existing structure of your business to accommodate the changes that will affect your ability to do business and how you generate income in the future.

The Basics of Restructuring

Business restructuring is not something that can be done by your current tax or legal professionals. Restructuring your business entity requires a specialized organization, focused on the specific legal and tax needs of restructuring businesses. A specialist can look at your situation and can recommend the right way to restructure your business and help you establish any new business entities that might result from the changes.

Reasons for Restructuring

A business might restructure for several reasons. Some of the more common reasons for restructuring a business entity include:

  • Creating a spin-off business
  • Adding or removing partners
  • Changing the financial interest partners have in the business
  • Taking on investors
  • Refinancing existing debt
  • Selling company assets
  • Expanding the business to include new divisions or
  • Renegotiating vendor and employment contracts.

Potential Candidates who Need to Restructure

Business restructuring laws differ for each state, but you can use common elements to help you grasp the general concept of how it all works. To better understand why you might need to go through the process of restructuring, examine the following examples.

In the first situation, if you started off your business as a sole proprietorship because it suited your needs, then you might need to alter that structure as your business grows. With expansion, a sole proprietor status exposes you to more personal liability risk and could become a serious financial problem, leaving you vulnerable and at risk. Restructuring into an LLC or corporation will help protect your personal assets and allow you to set up other parts of your business so that you can expand as needed.

In the second scenario, when you started your business, you took on Mr. Smith as a partner because he had comprehensive industry knowledge that you needed. As your company has grown, you have gone in a different direction, and Mr. Smith is no longer as involved in company decisions. It makes sense, at that point, to restructure your business to alter the ownership percentages for each partner. You might even want to upgrade your LLC to a C corporation to take on investors as well. These are just two examples of individuals who might need to restructure their business.

As the needs of your business and the landscape of your industry change, your business needs to change as well. Tax laws make selling assets difficult under certain business structures, while your original business structure might limit your company’s ability to grow. Entity restructuring can help solve some of your problems and move your company forward in the right financial and legal direction.

Steps to Get an Extension on Your 2016 Taxes

Steps to Get an Extension on Your 2016 Taxes

April 15 is just around the corner although the due date in 2017 is April 18 because the date falls on a Saturday. Even so, people stress over their filing options. While most people will need to file by the deadline, you might have a legitimate reason for filing late.

Reasons for Filing Late

People file their taxes late for many reasons. Some of the most common include.

  • Laziness
  • Forgetfulness
  • Confusion about the filing process
  • Medical reason or extended hospital stay
  • Poor advice from someone else
  • Active military duty or stationed overseas or
  • Destroyed records.

Military Exceptions

If you’re in the military, serving in a combat zone, in a hazardous duty area or simply stationed outside the United States, special rules might apply to you. Some of these include additional deductions, extensions, exemptions on some of your pay and more. Check with your accountant for further details.

Submit a Payment with Your Extension Request

You can follow a few simple steps to obtain an extension. The first would be to pay based on what you estimate your taxes to be. Even if you are not sure of the exact amount, by making a decent calculated guess on your taxes and then paying that amount, you can automatically file for an extension. Once you actually file your taxes, you can pay the difference to the Internal Revenue Service or request a refund for what you over payed. This is the best method available for someone who does not have their taxes deducted from their paycheck, such as subcontractors or restaurant servers. On the other hand, if you do have your taxes deducted from your paycheck and suspect that you are owed money, then you have already completed this step.

Use the Correct Forms

However, you must realize that an extension does not change the fact that you still have to pay your taxes by April 18. Once people determine what point they are at the above steps, they can proceed to file for an extension. This allows you to extend your filing deadline for six whole months until October 16 and is available to anyone for any reason. You have three ways to obtain an extension.

  • File Tax Form 4868 online.
  • File Tax Form 4868 by mail.
  • Use your credit card or debt card via the Electronic Federal Tax Payment System (EFTPS) to pay at least part of your income tax due. You should pay what you expect to owe.

Remember to read the instructions carefully for Tax Form 4868 before filing and make sure you understand all of the details. If you miss the filing date and if you owe taxes, you will accrue hefty late fees. However, as long as you make a payment, you can avoid these fees.

If you are stressed about paying late or if you feel confused about the process, you can simply find help from a reputable tax and accounting service that charge reasonable rates. The fee that you pay them will likely be far more reasonable than any penalty the IRS might impose for failing to file your taxes on time.

Tax Breaks For Parents Filing Their 2016 Return

Tax Breaks For Parents Filing Their 2016 Return

Raising children is expensive, from when they are newborns needing diapers to when they are teenagers demanding name brand shoes, the cost of raising a child from infancy to 17 years old is around $233,610. When it comes time to file your tax return it’s important to know every tax break available to you so that you can have a little bit of that money back.

Exemptions for Dependents

If you’re filing jointly with your spouse, typically you both will take a personal exemption that will decrease your taxable earnings by exactly $4,050 a person. However when you’re a parent, this means you are able to lower your taxable income by the same sum for each of your children under 19, or 24 if your child is a student. For example, if you have five people in your family you can decrease your total taxes by $20,250 [$4,050 x 5=$20,250.] You are eligible for this exemption if you are married couple making less than $311,300 a year, or if you’re a single filer making less than $259,400 a year.

Earned Income Tax Credit

Commonly referred to as the EITC, the earned income tax credit is a great tax break for low to moderate- income homes. To see if you qualify for this tax credit, you can refer to the IRS’s website to view the various income caps. The amount you can receive from this tax credit will depend on your income and how many children you have. In order to claim your dependents, proof of relationship, shared residency, and age must be presented. For the year 2016 if you’re married filing jointly, make less than $53,505 and have three or more children, you can earn a tax break of $6,269. If you’re a single parent, you can receive this same tax break while making $47,955 or less a year.

Child Tax Credit

This deduction is only for those couples making $110,000 or less a year. If your salary is under $130,000 you may qualify for a reduced child tax credit. If you’re a single filer you can qualify for this credit if you make $75,000 or less. The child tax credit will reduce the amount of taxable income owed to the government by $1,000 for each child under 17 that still lives with you.

Additional Child Tax Credit

If you can claim the entire amount of the Child Tax Credit, then you will not be eligible for the Additional Child Tax Credit. If you have any money left over from the Child Tax Credit, you are possibly qualified to receive a portion or all of the left over amount through the Additional Child Tax Credit. For instance, if you owe $800 in taxes, thanks to the Child Tax Credit of $1000, that sum will be reduced to zero. The Additional Tax Credit then credits you back the difference of $200.

Now that you’re aware of the four tax breaks available for parents, you can be a little more excited about filing your taxes this year.

4 Scams to Be Aware of This Tax Season

4 Scams to Be Aware of This Tax Season

Every year, the IRS releases a list of several scams to be extra vigilant to avoid during tax season. If you rely on a trusted bookkeeping and accounting service to take care of your taxes, you’ll have little to worry about. But if you’re handling your taxes yourself, you’ll need to watch out for some of the most common ones. The following scams top the list of recent IRS warnings.

ONE | Fake Phone Calls

This scam is the most commonly reported, in which con artists pretending to be IRS agents call and insist you haven’t properly paid your taxes and owe a large sum of delinquent monies. They then use intimidation and threats of arrest if you don’t pay up immediately.

However, the IRS will never contact you by phone and threaten to throw you in jail if you don’t pay up on the spot. They will always first contact you by mail. If they claim that there’s a discrepancy in the amount owed, they’ll allow you an opportunity to appeal.

TWO | Phishing Scams

Like the previous scam, only con artists contact you via email asking for personal information and often include links to a fake website allegedly in reference to your tax bill. These sites often contain spyware or malware and can harm your computer or harvest other information from your hard drive.

The IRS will never email you or direct you to a website without prior contact via an official letter through the USPS. Forward any suspicious communication to phishing@irs.gov.

THREE | Verifying Your Tax Information

In this scam, the con artist calls or emails the victim asking for information such as bank information, and in particular, the last 4 digits of your Social Security number, claiming that they need to verify something related to your taxes. However, you should never give out such information over the phone or internet, and as previously mentioned, the IRS will never contact you this way for personal information.

If the person on the other end claims to be from a tax preparation agency, simply hang up and call or email a tax preparation professional you know and trust to find out if the info you were asked for is truly needed.

FOUR | Preparation Fraud

Some tax preparers out there bend the rules so that you can receive the highest refund possible. But once you sign and file the return, you are the one responsible for any errors. If you decide to file your taxes yourself, be careful and do due diligence to make sure that you are not falsely claiming anything you shouldn’t or claiming larger deductions than you can justify. If you have someone else do your taxes, make sure to use a reputable firm.

When in doubt, assume it’s a scam. Anybody calling you or emailing you that claims to be from the IRS probably isn’t from the IRS! Keep up your guard so that you can save yourself a lot of trouble and money.

Eliminate Stress by Having a Professional File Your Personal 2016 Tax Return

Eliminate Stress by Having a Professional File Your Personal 2016 Tax Return

As the mid-April tax deadline looms, many of us panic. We wonder if we’ll get a refund, owe taxes, or get things filed accurately so we don’t get in trouble with the IRS. For most Americans, there are simply more tax questions than answers.

Thankfully, there is a way to avoid the stress associated with confusing tax code and IRS paperwork. You’ve probably heard this before, but the best way to ensure a proper filing is to hire a tax professional. But here, instead of simply giving you that recommendation, we’re going to give you the reasons why hiring a tax preparer is the way to go — even for individual returns.

7 Reasons to Hire a Tax Preparer

  1. Hassle
    The reason so many of us panic during tax time is that we can’t find the time to gather documents and fill out the paperwork. Or, we simply aren’t sure of our own ability to do it right. Hiring a pro solves this problem.
  2. Time
    The old adage “time is money” is spot-on when it comes to taxes. Yes, you’ll need to pay the preparer’s fee. However, it’s affordable for most people, especially if you consider it an investment in lowering your tax burden and alleviating risk. Besides — your time is worth something, isn’t it?
  3. Knowledge
    Unless you’re CPA or tax pro yourself, you probably don’t spend your days keeping up on the changing tax codes. This is what tax preparers do, and you’ll never have to worry about knowing the rules if you hire a pro.
  4. Mistakes
    We all make mistakes in life, but most of them won’t get us in trouble with the IRS — unless we goof on our tax return. Those mistakes are likely to cost you time, money, and maybe more.
  5. Human Touch
    Sure, tax filing software is helpful for many of us. But a software program or website can’t help you during an audit, and will never have the savvy of a real-life human being who’s well-versed in tax law.
  6. Peace of mind
    This certainly goes along with number 1, but it bears emphasis. When you hire a tax preparer, not only will you not have to mess with all that paperwork yourself, but you’ll have the peace of mind knowing that your return is in qualified, accurate hands.
  7. Money
    Yes, this is the big one. Having your taxes professionally done will likely end up saving you money in the grand scheme of things. They know every tax credit and deduction available to get you the maximum refund. They can also make recommendations on how to lessen your tax burden in the future, which could save you thousands over multiple years.

If you haven’t yet done so for your 2016 return, it’s not too late to find a tax pro. As you can see from the 7 reasons above, letting a professional handle your return can greatly reduce your stress, increase your accuracy, and help you keep more of your money.

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