Tag: tax

by James Adam

Five Important Tips For Tax Planning


Business

Taxes are a pretty complicated matter, whether you’re a small or large business. That’s why it’s important to start planning your taxes to avoid any issues when it’s time to pay if to the government! From studying the recent tax laws down to implementing strategies to minimize tax costs, planning before tax season helps you save a lot of time, money, and effort for your business in the long run.

Today with TurboTax Live, you can have a fully credentialed income tax expert help you prepare your taxes—all without needing to go outside your Boston home.

The Importance of Tax Planning

You’re probably wondering: What’s the importance of planning ahead? Here are the following major benefits that tax planning can do for you:

  • Pay Less Tax

This is the most important benefit and the main reason why many individuals and businesses start planning around their taxes as early as possible! You’ll be surprised with how much you can save from tax reductions and deductions in the future, which can be put to good use in both businesses and your personal lives.

  • Take Advantage of Tax Law Changes

Almost every year, there will be a change in tax laws, may it be minor or major ones. Whatever the change is, it’s important to stay updated and plan in advance to take advantage of these changes and strategize plans based on such laws.

  • Gives Enough Time to Implement Taxing Strategies

Remember, you’re running on a deadline and any of your strategies and ideas on tax planning require time to be accomplished before tax season. Plus, tax planning also has you be early on paying it with strategy in mind, so there’s no worry about legal issues if you’re late in paying.

  • For Your Heirs

The fewer taxes you’ll pay now, the more you can spend on both your future and heirs. If you are already planning your will and testament, advance tax planning is beneficial, which can also lower the inheritance tax liability for your heirs in the future.

5 Important Tips for Tax Planning

Wondering where to get started when tax planning? Here are the five important tips to follow:

  • Evaluate Both Current and Alternate Primary Residence Locations

Taxpayers from high-income-tax states such as California may end up paying more due to the maximum cap on a deduction for state and local taxes, or SALT. That’s why it’s best to review alternate states of primary residences, selecting the one that can lower tax expenses. Besides this, consider the other specific circumstances in your tax profile which can be affected by changes based on new tax laws.

As of this year, states without tax income are:

  • Alaska
  • Florida
  • Nevada
  • South Dakota
  • Texas
  • Washington
  • Wyoming

 

  • Concentrate the Charitable Deductions

Because of the increase in standard deduction amounts, some taxpayers might not be able to receive as much tax benefits from the charitable contributions made annually. To explain, if your amount of itemized deduction is less than the new, standard one, then there isn’t a tax benefit from the charitable gifts.

That’s why it’s best to concentrate the years’ worth of charitable gifts in one tax year instead. This helps you get the benefits over the standard deduction expected.

  • Reconsider the Mortgage Debt

Depending on your situation, it can be helpful to reassess your debt level. For those who have low mortgage debt or interest expenses that aren’t high enough to generate tax benefits, it might be best to pay off your mortgage instead.

It’s important to consider your situation when paying for your home, including the interest rate you’re paying and its comparison with the after-tax rate of return. This prevents losing the benefit of tax deductions from your mortgage debt.

  • Have a Portfolio Focused on Tax Efficiency

It’s crucial to always monitor your taxes and create a portfolio to keep track of how much you spend, from the big to small expenses. Take tax efficiency into account, which will help you find out if you’re eligible for more tax deductions, penalty relief, or gains. It will also help you see what you can do to plan ahead and strategize to pay less or equal to what you owe, rather than overpaying the government.

  • Take Advantage of the New Collage Saving Plans

For those who are funding education for their children, then you might want to consider checking out the new plans from Section 529. This allows withdrawals of up to $10,000 every year for expenses in school tuition. Besides the expansion of expenses, there are now rollovers for individuals with disabilities.

Consider the impact when making withdrawals for school funds, also looking into the state you’re in as they might not offer the tax-free withdrawals for such expenses!

Wrapping It Up

Through efficient and effective tax planning, you will be able to preserve your wealth and make life easier, whether it’s your personal wealth or in the business. With the right strategies on tax planning, you’ll be able to save a lot and keep your business afloat with extra money to use for other important expenses.

Hopefully, this article on tax planning helped you out! So don’t wait any longer and begin following these tips now or visit https://twaccounting.com.au for more information and tax services.

If you have any questions or want to share your tips and experiences on tax planning, then comment below. Your thoughts are much appreciated.


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by James Adam

Capital Gains Tax Explained: What You Need to Know


Business

Nobody likes taxes, but if you don’t know about them you could end up hurting your business. Click here to have capital gains tax explained.

The very first tax the nation had was ratified in 1913 under the 16th Amendment. It enacted a one percent tax on people who made $3,000 or more a year and charged people who made more than $500,000 a year an additional six percent.

Today the tax code is much more complicated and we pay taxes on all sorts of different kinds of transactions, one of those being the capital gains tax.

In this article, you’ll have the capital gains tax explained so you can make the right decisions for yourself and your business.

Capital Gains Tax Explained

The government taxes all investments differently. The capital gains tax is a fee you pay when you sell stock investments or real estate. The gain is the difference between the price you sold for and what you purchased it for.

The opposite of a capital gain is a capital loss, which often can be used to offset gains on your end-of-year tax return.

A capital gains tax is typically paid when a home or stock sells. The government defines short-term gains as separate from long-term gains and they are taxed at a different rate.

Short-term gains are the kind that is taxed higher. This is to discourage people from frequently buying and selling stocks. When people are buying and selling too much, the market can become volatile and collapse.

How Much is the Tax?

The amount you will pay for capital gains on your property or stocks has to do with what income bracket you are in. If you are in the 15 percent tax bracket, then you won’t have to pay anything at all. This is to encourage those close to the poverty line to invest.

If you are in the highest income bracket, then your tax rate shoots up to a whopping twenty percent.

Fun Fact: Collectibles like stamps and coins are taxed at a separate rate than other investments. You can expect to pay as much as 28% of your earnings from selling collectibles in taxes.

Obama’s Changes

When the Affordable Care Act was passed in 2013, it had a major effect on capital gains taxes. If a single person makes more than $200,000 a year or $250,000 filing jointly with a spouse, then they have to pay an extra 3.8 percent on their investment income.

Avoiding the Tax

There are ways around the capital gains tax, primarily a 1031 exchange is a great method. In a 1031 exchange, you defer paying the government taxes on your investment gain in exchange for reinvesting it into another project.

The government wants to encourage developers to continue what they are doing and incentivize reinvestment. Protect your finances this year by planning ahead and considering a 1031 exchange.

More Helpful Articles

The capital gains tax is levied on investments like property and stocks when you go to sell them. But there are ways to avoid paying this tax, like being in the bottom 15 percent of wage earners or filing for a 1031 exchange.

Now that you’ve had the capital gains tax explained to you, you’ll be more prepared the next time you sell an investment.

by Incredible Planet Staff

Homework: A Guide on Home Office Expenses and Deductions


Homes

Tame Impala, the name used by multi-instrumentalist Kevin Parker for his project and quite possibly the most acclaimed Australian rock act currently active, recorded his most recent album, the 2015 hit Currents in his home studio located at beachside Fremantle. Not the example you’d think of when you consider the phrase home office but music has a long and storied history with home recordings. Whether something lo-fi like Bruce Springsteen’s Nebraska which was famously recorded in his home using with a 4-track or the state-of-the-art recording studio in Paisley Park where the late Prince lived and recorded more than 20 of his albums since the late 80s, home recording has long been a standard within the industry.

Working in a home office is great, you can still catch up with every match of the Australian Open, wear a pair of boxer shorts during a conference call and best of all, not having to share bathrooms with other people. One added advantage of working from a home office is the deductions you could claim, putting much less strain on your startup in regards to the messy world of small business tax. In general, the deductions and expenses you could claim while running a home office can be divided into two parts, running costs and occupancy costs. Keep in mind however that occupancy costs are restricted to those whose home can be categorized as a primary place of business. If for example, your primary business involve making visits to other people’s home like with Airtasker, it’s not possible for you to claim deductions on occupancy costs.

You keep me running

Running costs in a home office is no different to running costs in an actual office, which are the amount of money associated with the maintenance and day-to-day operation of a business, like electricity bills. The difference lies in the fact you can only claim deductions on these expenses when there are actually additional costs incurred. Like for example if you work as a writer and you write while sitting on the couch in the living room where you also watch reruns of Rake, you can’t claim any deduction on the depreciation of the couch or the TV but if you have an actual office in your home you use specifically for writing, you can claim deductions related to the usage of said room. Examples of running costs include:

  • Utility cost for using a room such as cooling and/or heating and lighting
  • Phone bills that are business-related
  • Equipment and furniture depreciation
  • Cleaning costs

To claim deductions on running costs, there are two methods you could use. The easier one is to use a fixed rate of 45 cents an hour to cover electricity, gas and depreciation while the other is to cover the actual incurred expense established through a pattern on use. The latter method requires you to keep a meticulous record of your home office use and the corresponding proportion of the bill (electricity, internet and other utilities) for the minimum of four weeks in a particular financial year. Depending on how you make a living, either would work as an option.

The writer example I used above would be okay going with the fixed rate method, as your expenses probably won’t be that hefty but if you’re working in tech and are working with a team of developers while working on a piece of software that requires you to run a home server, it’s best to go with the latter option. Keep in mind however that the calculation relating to this might get obtusely complicated so you might want to check in with a tax professional first before making any decision. Still, even if you decide to go with the fixed rate option, keeping a record of your own might actually be a good idea to determine whether you’re getting the short end of the stick or not.

Occupational hazard

Occupancy costs cover any costs related to the occupation of a space, in this case your home office. Like stated above, deductions on occupancy costs are only applicable for those whose home is a primary place of business. To determine whether you could claim deductions on occupancy costs such as rent, mortgage interest and insurance, the Australian Tax Office (ATO) requires you to pass what they call the interest deductibility test. This criterion differs depending on your particular circumstances but the guidelines set upon by the ATO are as follows:

  • Clearly identifiable as a place of business, for example, you have a sign identifying your business at the front of your house
  • Not readily suitable or adaptable for private or domestic purposes
  • Used exclusively or almost exclusively for carrying on your business
  • Used regularly for visits by your clients

The method used for calculating the amount of deduction you could claim is rather simple, based on the floor area of your home office compared to the total floor area of your home. For example, if your writing office occupies a 16 m2 space in your 100 m2 apartment, which calculates to 16% of your total living area, then you could claim deductions of 16% on your occupancy costs. Keep in mind however that using your home as a place of business, even for just a short while means that you’re liable to pay capital gains tax or CGT if you ever decide to sell your home.

As with anything related to tax, bookkeeping remains an essential part of the ritual, especially if you decide to claim deductions on running costs based on actual expenses. Sure, the life of a freelance and self-employed worker means not having to kowtow to your boss’ demand on a daily basis but that also means taking a bigger responsibility with your taxes as there’s no Bob from accounting to help you with numbers this time around. Still, as long as you’re properly equipped with articles such as this, I’m sure you’ll be perfectly fine. Probably. Hopefully.

by Incredible Planet Staff

How Does One Terminate an EIN After it has Been Assigned?


Business

If you have questions regarding how to termination your EIN number in North Carolina, we are here to help. We understand that things with owning a business do not always go as planned and that sometimes changes happen, leaving you with the need to cancel, or terminate, your EIN number. Should you find yourself in that position, here is what you need to know in order to successfully terminate your EIN.

It is important to remember that the IRS is not able to terminate your EIN number for you, it is something that must be done by you, the business owner. And in actuality, it cannot be done. This is because, the EIN that was assigned to your business will always be associated with your business in some way, and it will never again be used for another business.

However, should you need to cancel your entire business account; the IRS can assist you with doing so, with the right information.

In order to close your business account with the IRS, you will need to provide them with the pertinent information to do so. First of all, you will need to send the IRS a letter including the following information: your EIN including the EIN assignment notice so that the IRS can verify your EIN number, business address, and a detailed reason as to why you are closing the account.

Also keep in mind that all of your taxes should be filed with the EIN prior to your closing your business account with the IRS, in order to avoid any issues.

As you can see, there are many details that go into closing your business account. IRS-EIN-Tax-ID is here to help in any way you might need.

by Incredible Planet Staff

Stop Putting It off! How to Know It’s Time to Get a Will


People

Due to their association with the inevitable, wills aren’t the most pleasant things to think about. People hardly want to even discuss them. However, it’s something that you’ll likely need to have eventually. After all, everybody dies. That’s sad to say, but that’s the prime reason why something this serious should never be put off. The sooner you get started on your will, the better. Here are a few points for you to consider so that you know it’s time to get a will.

Are You at Least 45 Years Old?

You may have heard the term, “You are now over the hill.” Basically, this means that you have reached the point where you have lived half your life already and are considered to be aging. You might be in denial about this and want to be only as old as you feel. However, as you advance in age, you need to think about the future seriously.

Even if you’re still relatively young (and nowhere close to being 45), you should make a will. We didn’t come to this earth with an expiration date, and so death can come when we least expect it, and so t’s a tremendous disservice to your heirs to avoid making a will.

Are You Prone to Illness?

As people age, their bodies get weaker. During this time, you’ll find yourself more prone to illnesses. Even if you recover from these, you should still be aware of your mortality. Take into account your recent medical history. Have you been going to the hospital frequently? Are you taking more time off work? Be honest with yourself about your health when realizing if you need a will.

You should also take into account your genetic history. Do you know what age your ancestors typically lived to? Do you know if any of them died from any diseases that you may be at risk of getting?

Do You Have an Heir?

If you have a child, it’s important that your will be in place soon after he or she is born. After all, if something were to happen to you, you’d want to have a say in who ended up raising your child. If you have multiple children, this is an especially important thing to consider. If you don’t have a relative or friend who can take in all of your kids, then you’d want to plan who went where ahead of time.

If your children are adults, then it would be best to divide your assets and not leave the decision making of who gets what for everybody to fight about after you pass.

Do You Have Many Assets

The depth of your will depends on how many heirs and assets you have. You might have a substantial net worth to divide. You might also have valuables such as cars to share. Take inventory of everything valuable you own. Assess the value and determine who it should go to. You should also be speaking to your executor as much as possible. Ask them for their best advice regarding the situation. It’s important to hire a professional, such as those with Penguin Insurance Services Inc, who has a thorough understanding of inheritance. Schedule a meeting between yourself, your heirs, and your executor before you pass.

There’s no such thing as starting a will too early. By beginning early, you can reduce anxieties about procrastination. Even if you don’t pass for decades, you’ll be glad you got your will now.