Tax Strategies
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Tax Strategies
Tax news
Temporary Social Security Tax Cut Extended through February
The Social Security tax rate was scheduled to revert to its normal rate of 6.2% for employees on January 1, 2012, ending a year-long temporary reduction in the rate to 4.2%. Whether this rate should revert to its normal rate or remain temporarily reduced become the topic of intense political discussion. In one of the last legislative acts of the year, Congress passed and President Obama on December 23, 2011, signed into law the Temporary Payroll Tax Cut Continuation Act of 2011 (HR 3765). This legislation provides that the tax rate paid by employees for Social Security remains at 4.2% through the end of February. Employers still pay the full 6.2% rate for their portion of Social Security.
Tax saving tips
Tax tips for the self-employed
If you have your own business, you have several choices of tax-favored retirement accounts, including Keogh plans, Simplified Employee Pensions (SEPs) and individual 401(k)s. Contributions cut your tax bill now while earnings grow tax-deferred for your retirement.
If you use part of your home regularly and
exclusively for your business, you can qualify to deduct as home-office expenses
some costs that are otherwise considered personal expenses, including part of
your utility bills, insurance premiums and home maintenance costs. Some
home-business operators steer away from these breaks for fear of an audit. But
if you deserve them, claim them.
Tax Strategies
Tax Strategies
- Get best results when you sell or trade your business car
- Avoid Section 179 Recapture
- Deduct a home office when you already have an office out of your home
- Avoid Problem of Renting Property to Your Corporation
- Avoid being treated as hobby
- Best Way to Write Off the Investment in a Failed S Corporation
- Plan your home equity loan deduction
When it's time for you to get rid of your business car, do you think of tax consequences? If you own (or your corporation owns) the business vehicle, the sale of that vehicle produces a taxable gain or a deductible loss, regardless of how the deductions were claimed. Whether you have gain or loss, you need to know to handle it in order to save taxes. Contact us for details.
When you claim your Section 179 deduction, you ought to keep your business use above 50% during the “designated” depreciation periods. If you don't, meaning you allow the business use drop below 50%, tax law throws out your Section 179 deductions. You then recompute the deductions using depreciation without Section 179. Next, you report the difference on your tax return, where tax law recaptures the excess deductions as taxable income. If you have concerns, please contact us.
When you have an office outside of your home, can you still deduct your home office? Well, It depends. The key is whether your home office can qualify as your principal place of business. Contact us for details.
Doing business with a related party — meaning yourself, your family, or the entities you own—is the one of biggest problem areas in tax. Whenever you have transactions with family or your owned corporations, partnerships, and other entities, you face special rules in the tax law. Section 280A(c)(6) forbids the home-office deduction when you rent home-office space to your corporation. In addition, the self-rental rule forbids classifying rental income from a self-rental as passive income that you can use to offset passive losses.
You think you are running a business, IRS may disagree. Business or hobby? Big difference! Businesses deduct all their expenses, and business losses may be carried back and forward to generate more tax benefits. With hobby, you may deduct hobby expenses, but not to exceed hobby income. The rest are deducted as miscellaneous itemized deductions where they can suffer a reduction equal to 2 percent of adjusted gross income. So, make all your activities businesses. Here is what you need to do:
- Conduct your activity in a businesslike manner
- Keep complete and accurate book and records
- Make Your Business Cards and Stationery Perfect
- Keep a time log that shows time spent on your activities
- Have a business plan
If you formed a S Corporation and it failed, what's the best way to write off the initial investment? Instead of deducting a long-term capital gain, you probably can write off your initial investment in S corporation stock as an ordinary loss, using the Section 1244 small-business stock rules. Only original stockholders may qualify for tax-favored Section 1244 treatment. Shares purchased from another individual, inherited, or received by gift do not qualify. You deduct your investment in Section 1244 stock as an ordinary loss on IRS Form 4797. The ordinary loss deduction for the year may not exceed $50,000 ($100,000 for a joint return). If the Section 1244 stock loss is more than $100,000 on a joint return for the year, you treat the amount in excess of $100,000 as a capital loss. If some of your original investment in this S corporation was in the form of a loan, you write off as a nonbusiness bad debt the unpaid loan balance to the extent you have basis. The nonbusiness bad debt is deducted as a short-term capital loss. You need proof that the nonbusiness bad debt is totally worthless in the year you claim the deduction.
When you take out home equity loan, you may think you get the benefit of deducting the interest on your tax return. Not so fast. There are three tax rules that could eliminate (or reduce) the deductibility of the interest.
- Phaseout: If you make too much money, your deduction may be phased out by a percentage.
- AMT: The interest deduction for home equity loan interest allowed on your regular Form 1040 is disallowed for AMT purposes.
- Home equity: To deduct your home equity loan interest, you must have sufficient equity in your home. If not, some or all of the interest is not deductible. Interest on a home equity loan is not deductible to the extent that the home equity mortgage exceeds the fair market value of the home reduced by acquisition indebtedness.
