Posts Tagged ‘Deductions’
Talk to Your CPA Now to Plan Year End Moves and Prepare for 2013 Tax Changes
Plan Year End Moves
A recent meeting with one of my clients uncovered an opportunity to save them at least $12,000 in taxes on their 2012 income tax returns. The opportunities to save on your taxes are greatest this time of year. So if you really want to make the most of your CPA a conversation this time of year can save you much money. In the case of my client it was identifying the time to make an organizational change. For many however there are opportunities to reduce taxes at year-end by delaying income or by accelerating expenses or both.
You may have the ability to reduce the taxable income from your business by delaying billing or receiving of payments until next year. If you are a cash basis taxpayer you can bill customers/clients at the end of the of the year so they pay you next year. In addition you can make purchases that are expenses to your business before year-end. Now here is one that is quite nice…you can put an expense on your credit card before year-end and deduct it this year even if you do not pay the bill until next year. Just remember to pay the bill in a timely manner to avoid any interest charges and penalties. You may be able to significantly reduce your income for the year by purchasing major assets before year-end. When making these moves you want to be careful not to spend money just to save pennies on the dollar in taxes. After all it is about how much money you have in your pocket at the end right? I repeat DO NOT SPEND DOLLARS ONLY TO SAVE PENNIES ON YOUR TAXES. While you want to pay as little tax as possible, even more important should be maximizing your wealth which should lead to you paying some taxes. Paying taxes are a good thing, you just want to keep it to a minimum and this is a great time to make some moves to accomplish that end.
Prepare for 2013 Tax Changes
In addition to tax moves you also need to be actively looking at changing your budget for tax changes for 2013. Income tax rates are due to increase and payroll taxes are due to increase by 2% starting January 1, 2013. Take a look at how this will affect your budget for 2013 and be prepared for this potential reduction in income.
There are other moves that you can make now like contributions to retirement or HMA accounts. What will work for you depends and a conversation with your CPA now can result in a huge savings for you and prepare you for changes starting January 1, 2013. What is the best in your situation depends on your situation. So now is the time to give me a call to discuss your situation and to see what opportunities you have now to minimize your taxes for 2012 and prepare for 2013. Please feel free to contact me using my contact information below.
Jeff Haywood, CPA
CPA Tax Superhero
972-439-1955
jeff.jhtaxes@gmail.com
This article was written by Jeff Haywood, CPA.
Jeff is a licensed CPA in Texas
He has prepared income tax returns for the public for over 10 years.
He also has an MBA in Finance from Loyola University in Chicago and he has 24 years experience in Corporate Finance and Business Analysis.
I prepare the following types of tax returns:
Personal
Business
Estate/Gift
Trusts
Federal and State Returns
I especially value discussions about you, your business, your dreams and goals.
Click Here to Follow Jeff Haywood, CPA on Twitter
Also, Click Here to Follow My Twitter Account: Taxesforxpats
In addition here are links to a few of my articles about income taxes for expatriates:
Income Tax Returns for Expatriates
US Income Tax Help for Expatriates
Foreign Earned Income Exclusion
Are You Required to Report Foreign Bank and Financial Accounts?
Click Here to Follow My Twitter Account: Taxesforxpats
For a full list of prior posts see the CPA Tax Blog.
Standard Disclaimer:
As always keep in mind that the content provided on this site is general in nature and may or may not apply to your particular case. It is best to check with a tax professional about your circumstances and what is best for you personally. Also, IRS regulations and tax laws are constantly changing and the information on this site is not constantly updated. Again please check with me about your particular circumstances and what will be best in your situation at the given time and law.
Comments:
If you have a comment to share about this post or for me, please email me at jeff.jhtaxes@gmail.com.
Business, Taxes, IRS: Starting Your New Business and Your Taxes
The biggest problem new businesses encounter is paying unexpected taxes when you file your first income tax return after starting your new business. The result can be a serious cash flow/debt problem. How does this happen and how can you avoid it?
Starting a New Business: Plan Ahead and Prepare Yourself:
Joe starts selling widgets or his wife starts doing shows and they are shocked at how much they owe when do their income tax return. When you operate a business on your own, without forming a corporation, your profits are subject to income tax plus self-employment tax. Self-Employment Tax is basically the equivalent of medicare and social security taxes but both the half that was deducted from your paycheck plus the half paid by your employer that you never saw. Yes, the self-employed pay both halves of these taxes because you are the both the employee and the employer. While the income tax on your profit should be expected what surprises people is the self-employment tax. The self-employment tax, in the past has been 15.3%, now is 13.3% but you can probably expect it to return to 15.3% eventually. So if you are in a 25% tax bracket you could be paying about 38.3% in income and self employment taxes on the profit of your business. So if your profit is $100,000 you will be paying about $38,300 of that back to Uncle Sam. You could be expecting to pay about $25,000 and so you saved that amount during the year, OK maybe you didn’t, and now where is the $13,300 going to come from? You have spent it already and you are investing in your growing business so now you are also going to be making payments to the IRS trying to catch up for last year. In the meantime now your taxes for the current year are going to be more than you expected. This is a big reason why many new businesses fail and why you should have a conversation with your CPA before you start your business.
Preparation and Actions to Take to Minimize Your Taxes:
An unexpected tax bill can be a real ‘kick in the gut’ and if you’re not careful it can cripple your business financially and it can steal your enthusiasm for your business. It helps so much as a business person to be positive and to be one who gives energy to others. If your tax bill hurts you emotionally you it can adversely affect your relationships with others. So first, know upfront, before you start the business, what to expect in regard to taxes and everything associated with your business. The successful are prepared for what is coming. By being prepared for how much tax you will pay you can save during the year and make estimated quarterly payments to the IRS to avoid having a large unexpected tax bill at the end of the year.
There are other things you can do as well, like timing expenses to minimize your profit for the year. You should always have conversations with your CPA during the year so you can be planning for the success of your business. You especially want to have a conversation about a month before the end of your tax year to have a strategy for timing expenses and investment decisions. To reduce your profit and hence taxes for the year you can pay for business expenses or invest in assets before the year-end. You may even be able to put them on a credit card and deduct the full purchase amount even though you do not pay the credit card until the following year. You will want to discuss this with your CPA, and I would be happy to serve you in this regard, but you also need to know that while moving up expenses or investments in assets into the current year could lower your profits and taxes for this year it probably also means higher profits and taxes in subsequent years. You also want to be careful to avoid spending dollars just to save pennies. This is why you need a good CPA who you regularly have business discussions with.
One more action to consider is forming a different entity type to use to reduce taxes. If you are my client and you tell me you expect to have a profit of $100,000 we are going to discuss forming an S-Corporation to lower your taxes as well as to provide some protection for your personal assets. This will be the subject of coming blog post.
Here are some other business related posts you should read:
6 Things You Should Know About Business Expenses – What Can You Deduct?
6 IRS Tax Tips About the Home Office Deduction
6 IRS Tax Tips for Self-Employed Individuals
IRS Top Six: Tax Tips For Making Estimated Payments + 1 free bonus
I am happy to take on new clients and help you prepare for success. Feel free to contact me using my information below.
Jeff Haywood, CPA
972-439-1955
jeff.jhtaxes@gmail.com
This article was written by Jeff Haywood, CPA.
Jeff is a licensed CPA in both Texas and Illinois.
He has prepared income tax returns for the public for over 10 years.
He also has an MBA in Finance from Loyola University in Chicago and he has 24 years experience in Corporate Finance and Business Analysis.
I prepare the following types of tax returns:
Personal
Business
Estates
Trusts
Federal and State Returns
I especially enjoy discussions about you, your business, your dreams and goals.
Click Here to Follow Jeff Haywood, CPA on Twitter
Also, Click Here to Follow My Twitter Account: Taxesforxpats
In addition here are links to a few of my articles about income taxes for expatriates:
Income Tax Returns for Expatriates
US Income Tax Help for Expatriates
Foreign Earned Income Exclusion
Are You Required to Report Foreign Bank and Financial Accounts?
Click Here to Follow My Twitter Account: Taxesforxpats
For a full list of prior posts see the CPA Tax Blog.
Standard Disclaimer:
As always keep in mind that the content provided on this site is general in nature and may or may not apply to your particular case. It is best to check with a tax professional about your circumstances and what is best for you personally. Also, IRS regulations and tax laws are constantly changing and the information on this site is not constantly updated. Again please check with me about your particular circumstances and what will be best in your situation at the given time and law.
Comments:
If you have a comment to share about this post or for me, please email me at jeff.jhtaxes@gmail.com.
Year End Tax Moves: Take Action Now
Year End Tax Moves
Mr. CPA, What can I do to help with my tax situation for 2011?
Before the end of the year you want to look at your tax situation and make decisions and take actions to help with your taxes and your cash-flow. Hopefully your business is doing well in 2011 and you want to minimize your income taxes for the year. So first of all take a look at your income and expenses to get an idea how much profit you will have for the year. You may to add into your calculation business miles and home office expenses. If you have profits that you want to reduce to so as not to pay taxes on them for 2011 there are a few actions you can consider taking.
First, you can control when you receive and report income. So if you are working on a job or finishing a job for a client you can wait to bill them in January. If you are a cash basis taxpayer and you have already billed a client and you want that income in 2012 you can ask the client to wait to pay you until after the end of the year. That is a call they will love to receive.
Second, you can pay bills before the end of the year. As a cash basis taxpayer that wants to reduce 2011 income pay all outstanding bills before the end of the year. You may even want to prepay expenses like rent. For your personal return you can make sure you have paid your property taxes on your home. In some cases, especially where you have no or a very small mortgage balance and hence very little interest expense to deduct, then you may want to plan your property tax payments so every other year you pay two years of real estate taxes so as to be able to itemize your deductions on your tax return. How do you do this? It is simple. As an example you would pay your 2010 taxes on January 1, 2011 and then pay your 2011 taxes before December 31, 2011. By doing this you take two years of real estate taxes in one year. You can do this because the real estate taxes are deductible on your income tax return in the year you make the payment.
Now you also want to consider purchasing equipment for your business before the end of the year. If you need equipment you may be able deduct the full purchase price of the equipment this year if you purchase the equipment before the end of the year. Know that equipment you purchase using a credit card is potentially deductible when you charge it even though you do not payoff the credit card before the end of the year. So you may be able to by equipment in December that you can deduct on your income tax return for this year and with some retail credit cards not pay for it for six months or so without paying any interest. Keep in mind that your interest on your business credit card is also deductible. Finally, know that there are limits as to how much you can deduct in a year for equipment purchases. Check with your CPA or call me to discuss your situation.
Many taxpayers are not aware of these strategies. Your CPA should bring these to your attention and you should be having a year-end discussion every year. These discussions help you to get an idea or an expectation of what your taxes will be when you file your tax returns. A big tax bill is difficult enough but it is worse when you are not expecting it. So let’s have a conversation today about your situation. Feel free to use my contact information below to set an appointment for that discussion.
Know too that you may be able to reduce your taxable income by making a contribution to your retirement account. If you use an IRA you have until April 15th to make that contribution and use it to reduce your taxable income this year.
Please do not keep me as a secret. Please tell others about me and this site. I keep my practice at a manageable size so all my clients get the attention they need for their business and their personal income tax situations. I specialize in helping business owners and investors and also expatriates living out of the country. I also do individual tax returns. Please contact me today using the contact information below to make an appointment to discuss your situation.
Jeff Haywood, CPA
972-439-1955
jeff.jhtaxes@gmail.com
I prepare the following types of tax returns:
Personal
Business
Estates
Trusts
Federal and State Returns
I especially enjoy discussions about you, your business, your dreams and goals.
Take a look at these related posts:
Let’s Accomplish Great Things Together
How to Profit From Your CPA
A Most Valuable Resource For Entrepreneurs
Forming a New Business – Please Consult With Your CPA First
Click Here to Follow Jeff Haywood, CPA on Twitter
Also, Click Here to Follow My Twitter Account: Taxesforxpats
In addition here are links to a few of my articles about income taxes for expatriates:
Income Tax Returns for Expatriates
US Income Tax Help for Expatriates
Foreign Earned Income Exclusion
Are You Required to Report Foreign Bank and Financial Accounts?
Click Here to Follow My Twitter Account: Taxesforxpats
For recent US income tax content see the following links:
Sometimes Money Costs Too Much
Let’s Accomplish Great Things Together
Can I Use My Loss To Get Money Back From Prior Year Taxes Paid?
IRS Top Ten: Tax Tips for Individuals Who Are Moving This Summer
IRS Top Ten: Tax Tips for Individuals Selling Their Home
IRS Tax Tips: Do You Owe the IRS Money? What You Need to Know.
IRS Tax Tips: Do You Owe the IRS Money? What You Need to Know.
Does the IRS Have Money Waiting For You
Ideas: How Young People Can Become Entrepreneurs and Find a Home
IRS Top Ten: Facts about Amending Your Tax Return
Are You Ready To Get Your First Apartment/Home?
How to Succeed in Business: Pricing
Credit for Education Expenses: American Opportunity Credit – Extended Through 2012
How to Prepare Before a Disaster Strikes
IRS: Summer Day Camp Expenses May Qualify for a Tax Credit
IRS Tax Tips for Students Starting a Summer Job
IRS Tax Tips for Deducting Charitable Contributions
Tax Planning Tips
Tax Tips – Tip Income
Stratospheric Success
Are You Ready to Purchase a Home? Factors to Consider.
Foreign Earned Income Exclusion
A Most Valuable Resource for Entrepreneurs
How to Profit From Your CPA
Begin With The End In Mind
If the band you are in starts playing different tunes
Where Is It? Tax Refund
Deadline for 2010 Personal Tax Returns Moved
Now is the time to file those late tax returns for previous years
IRS: 8 Things to Know if You Receive an IRS Notice
IRS: Nine Fact on Filing an Amended Return
IRS: Eight Facts on Penalties
IRS Top Ten: Making Federal Tax Payments
Forming a New Business – Please Consult With Your CPA First
Questions After I Have Filed My Return
For a full list of prior posts see the CPA Tax Blog.
Standard Disclaimer:
As always keep in mind that the content provided on this site is general in nature and may or may not apply to your particular case. It is best to check with a tax professional about your circumstances and what is best for you personally. Also, IRS regulations and tax laws are constantly changing and the information on this site is not constantly updated. Again please check with me about your particular circumstances and what will be best in your situation at the given time and law.
Comments:
If you have a comment to share about this post or for me, please email me at jeff.jhtaxes@gmail.com.
This article was written by Jeff Haywood, CPA.
Jeff is a licensed CPA in both Texas and Illinois.
He has prepared income tax returns for the public for over 10 years.
He also has an MBA in Finance from Loyola University in Chicago and he has 24 years experience in Corporate Finance and Business Analysis.
Are You Ready To Buy A Home? Factors to Consider.
According to news stories many people in the U.S. are letting their homes go back to their lenders. As a result their credit has been seriously damaged and home values have fallen and may continue to fall. So you are thinking about buying a home and you do not want to get hurt by purchasing a home before you are ready. Are you financially and emotionally ready to purchase a home and take on the responsibilities that come with it? Here are some factors to consider.
Buy a Home?
In the late spring and summer before school starts are the prime months for home buying but are you ready to buy a home? Is it a good idea to buy a home? I have owned a few and I can help you to have in mind the points to consider before deciding if you should buy a home. It is important to consider all aspects because those who want to sell you a home or the related services do not mention everything you need to consider. They will typically mention how you can gain equity in a home, you will get tax breaks but not as much as they would lead you to believe, and sometimes they claim you will actually spend less buying a home. What is the truth and what else do you need to consider?
Emotions:
Most often emotion is the primary factor in deciding to purchase a home. In fact people who sell homes and the related services try to get you emotionally in the decision to purchase a home. However, for some emotions are also a primary reason for not buying a home. How do you feel about the “American Dream” of owning your own home? How do you feel about the responsibility of taking care or your own home and its costs? As you drive around looking at homes notice how many people neglect their homes and or yards. You do not want to be like that so you need to consider how you feel about the responsibility. Obviously many do not want that responsibility because as you can see they neglect their home.
Costs:
How much will it cost you to own your own home? Even Jesus recommended that you “count the cost.” Now those in the business selling homes may want you to look at just the monthly cost you will have in the form of interest and principal in your mortgage payment. While you want to consider those costs there are many more costs to consider. First of all, you need to consider your monthly cost for your real estate taxes and insurance on your home. In Texas many home buyers have been shocked in about the second year of owning a new home. How does that happen? When they bought the home the realtor and mortgage person figured their monthly payment including taxes and insurance based on the prior years real estate tax on that property. Unfortunately the prior year it was just a piece of land with no home. Surprise comes when the taxes go up based not on a $20,000 to $30,000 piece of land but now on that land plus a $200,000 to $300,000 home. If your budget was tight with the payment they calculated for you now you may have a monthly payment you can not afford. This is why it is good to have a CPA you can discuss these huge decisions with.
We have not finished with the costs yet but we need to discuss who does not have your best interest at heart. Those who make money on selling you a house do not usually help you consider everything involved with buying a home. In fact the real estate and mortgage industries have become widely considered to be dirty in the U.S. The so called professionals in those industries were major contributors to the housing bubble and subsequent economic collapse in the U.S. and the world. Those in this industry now are viewed in the same category as used car salesmen or just car salesmen, lawyers, and politicians. Not every professional is dirty but the profession now has a horrible reputation. You should be fully informed and prepared to own the home you are buying. Clearly in the last several years many were not.
So you need to know how much your home will cost you monthly. That includes principal and interest, taxes and insurance right? Not so fast. What about home owners association dues? Additionally, the most overlooked cost is maintenance. So what does it cost to maintain a home? To illustrate this and the point about your best interests notice these points from a realtor, Coldwell Banker:
So according to their website your maintenance can be $3,000 to $8,000 a year for a $200,000 home. That can add up to $666 a month to your cost. However, their website goes on to include the following about a home warranty plan, which I think is a great idea:
While I think this is a good idea I am appalled by what they are not saying. These maintenance costs are related to “major home systems and built-in appliances.” OK, but now when you go look at homes and you look at both new and used homes some realtors will point out that a used home is outdated. What does that mean? The style, paint, wallpaper, and sometimes layout of the structure is not the latest style that people are looking for. So in addition to keeping you home functioning it needs to be updated so when the time comes you can sell it and get your money out of it. So you could be looking at putting in new carpet or floors, painting, wallpaper, even changing the layout to keep your home up to date. In addition you at some point will need to replace the roof and or fence or in Texas have your foundation repaired. These things realtors often neglect to discuss with you and a mortgage person will almost never talk about. In the last 20 years or so they have just wanted you to get into a house and did not worry about if you could afford all the costs or were prepared to deal with these costs. You need to be prepared financially and emotionally to handle these cost over the time you will own the home.
Notice this helpful article about updating your home. The author explains ways to update your home so that you can get your money back.
Top 7 Ways to Radically Update Your Home (And Not Lose Money!!!)
While I appreciate the information about updating your home and how to do it and not lose your money, as a CPA I see something that needs to be clear to you the homeowner. You need to be able to cash-flow or finance these updates until you sell the property and get your money out of it. So you need to ask yourself can I afford it and do I have room in my budget for the down-payment, monthly principal and interest, insurance and taxes, utilities, lawn care, home owner’s association fees, a home warranty, and set aside money monthly for updating your home? If you buy a new home you will probably want to set aside a little more for updates each year as the home ages.
Cost of Selling Your Home:
Finally, you need to consider what your cost will be to sell the house. This often surprises many first time homebuyers because the realtor and mortgage person are not anxious to talk it when you are considering purchasing the house. Typically, you as the seller will pay not only your closing costs from a legal/title standpoint but also the commission for the realtors. In Texas the typical commission for the realtors is 6%. So think about that cost. If you purchase a house today for $200,000 and if you sell it in several years for $250,000 your commission cost at 6% would be $15,000. Now how have you done on the purchase of this house. Instead of a $50,000 profit you subtract the commissions, other closing costs, your maintenance expenses and the cost of upgrades and what do you have left? That is not even considering what you paid in interest and taxes over the years. So before making the biggest purchase of your life give it some serious consideration.
Tax Benefits – Not As Much As They Lead You to Believe:
Yes, you can get a break on your taxes by deducting your mortgage interest and real estate taxes for your home. How much of a break? Many would answer that question simply as the amount of your mortgage interest plus real estate taxes times your tax rate. So if you had $15,000 in mortgage interest and real estate taxes and your tax rate is 20% you could save $3,000 in taxes? Actually your itemized deductions may be even more because you can also deduct other expenses, the most common being charitable contributions. So in this example if you also have $2,000 in charitable contributions then you would save $3,400 in taxes in theory. Your itemized deductions would entitle you that pay that much less in tax compared to no deductions. However, the real comparison is what you save using itemized deductions versus the standard deduction. For example the standard deduction for a married couple under 65 years of age in 2010 was $11,400. So if your mortgage interest, real estate taxes and charitable contributions total $17,000 then your tax savings resulting from purchasing your home was only $1,200 rather than $3,400 ($5,600 difference in itemized deductions over standard deduction times a 20% tax rate). The point is the savings on your taxes is not as much as what most advisers claim.
Clients often ask me about deducting their cost of repairs and upgrades or additions to their homes. The IRS does not provide a deduction for these costs in the year you incur them. You do get to deduct these costs when you sell your home to reduce your capital gains. However, you currently do not pay any capital gains on your homestead unless they exceed $500,000 for a married couple. So typically there is no tax benefit from those expenses.
Decision:
Once you have a handle on the costs over the years you will own the home and your tax savings and what you think will happen to the value of the home by the time you are ready to sell it then you can compare buying a home with your other options. You can look at renting an apartment, a house, or condominium or townhouse. What will be the best decision will depend on you, your circumstances, and the area you live in. The lessons learned about real estate the past few years have been hard lessons. Remember what happened and do your homework to make a good decision.
For some analyzing the possibility of purchasing a home is overwhelming. I would be glad to walk you through the financial part of the decision. Call me today and let’s talk it. Use my contact information below.
Jeff Haywood, CPA
972-439-1955
jeff.jhtaxes@gmail.com
I prepare the following types of tax returns:
Personal
Business
Estates
Trusts
Federal and State Returns
I especially enjoy discussions about you, your business, your dreams and goals.
Click Here to Follow Jeff Haywood, CPA on Twitter
For recent US income tax content see the following links:
A Most Valuable Resource for Entrepreneurs
How to Profit From Your CPA
Begin With The End In Mind
If the band you are in starts playing different tunes
Where Is It? Tax Refund
Deadline for 2010 Personal Tax Returns Moved
Now is the time to file those late tax returns for previous years
IRS: 8 Things to Know if You Receive an IRS Notice
IRS: Nine Fact on Filing an Amended Return
IRS: Eight Facts on Penalties
IRS Top Ten: Making Federal Tax Payments
Forming a New Business – Please Consult With Your CPA First
Questions After I Have Filed My Return
For a full list of prior posts see the CPA Tax Blog.
Standard Disclaimer:
As always keep in mind that the content provided on this site is general in nature and may or may not apply to your particular case. It is best to check with a tax professional about your circumstances and what is best for you personally. Also, IRS regulations and tax laws are constantly changing and the information on this site is not constantly updated. Again please check with me about your particular circumstances and what will be best in your situation at the given time and law.
Comments:
I do not manage a comments section on this blog. If you have a comment for me, please email me at jeff.jhtaxes@gmail.com.
This article was written by Jeff Haywood, CPA.
Jeff is a licensed CPA in both Texas and Illinois.
He has prepared income tax returns for the public for over 10 years.
He also has an MBA in Finance from Loyola University in Chicago and he has 24 years experience in Corporate Finance and Business Analysis.