Archive for March, 2012

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Important Information for All Small Business Owners and the Self Employed

Tuesday, March 20th, 2012

The exclusive purpose for the information which is provided from this website is to disseminate information, and not to provide tax advice.

One of the most often asked questions by either new or existing business owners is “What records am I required to keep?” or “How long should I keep all of these business records?”  The Internal Revenue Service provides some excellence guidance for these requirements.  Additionally, these same requirements are applicable for your accounting and financial record keeping.   

Here are the links to answer each of the questions:

1.  Why should I keep business records?  http://www.irs.gov/businesses/small/article/0,,id=98557,00.html 

2.  I am planning to start my own business.  What business records should I have and keep?   http://www.irs.gov/pub/irs-pdf/p583.pdf

3.  How long should I store and retainmy business records?  http://www.irs.gov/businesses/small/article/0,,id=98513,00.html

4.   What types and kinds of records should I have, and retain?  http://www.irs.gov/businesses/small/article/0,,id=98551,00.html

5.  All of my business records will be in electronic format.  Will the IRS accepts these records or will I have to always provide them with paper documents?  http://www.irs.gov/businesses/small/article/0,,id=229050,00.html

There is also some valuable additional information on this subject: (more…)

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Is Your Child Receiving (Passive) Investment Income?

Friday, March 16th, 2012

The exclusive purpose for the information which is provided from this website is to disseminate information, and not to provide tax advice.

 Tax Rules May Affect Your Child’s Investment Income

 

Parents may not realize that there are tax rules that may affect their child’s investment income. The IRS offers the following four facts to help parents determine whether their child’s investment income will be taxed at the parents’ rate or the child’s rate.

1.   Investment income   Children with investment income may have part or all of this income taxed at their parents’ tax rate rather than at the child’s rate. Investment income includes interest, dividends, capital gains and other unearned income.

2.   Age requirement   The child’s tax must be figured using the parents’ rates if the child has investment income of more than $1,900 and meets one of three age requirements for 2011:

  • Was under age 18 at the end of the year,
  • Was age 18 at the end of the year and did not have earned income that was more than half of his or her support, or
  • Was a full-time student over age 18 and under age 24 at the end of the year and did not have earned income that was more than half of his or her support.

3.  Form 8615    To figure the child’s tax using the parents’ rate for the child’s return, fill out Form 8615, Tax for Certain Children Who Have Investment Income of More Than $1,900, and attach it to the child’s federal income tax return.

4.   Form 8814   When certain conditions are met, a parent may be able to avoid having to file a tax return for the child by including the child’s income on the parent’s tax return. In this situation, the parent would file Form 8814, Parents’ Election To Report Child’s Interest and Dividends.

More information can be found in IRS Publication 929, Tax Rules for Children and Dependents. This publication and Forms 8615 and 8814 are available on this website or by calling 800-TAX-FORM (800-829-3676).

Links:

  • Form 8615, Tax for Certain Children Who Have Investment Income of More Than $1,900 and instructions
  • Form 8814, Parent’s Election to Report Child’s Interest and Dividends 
  • Publication 929, Tax Rules for Children and Dependents

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Alternative Minimum Tax (AMT)

Saturday, March 10th, 2012

The exclusive purpose for the information which is provided from this website is to disseminate information, and not to provide tax advice.

This is a rather insidious provision of the income tax laws.  Perhaps the authors had Warren Buffet in mind when the tax law was passed.  The provisions were initially enacted in 1969 as the “Minimum Tax” law.  Just as the very same opinions among non-wealthy taxpayers exists today, in the 1960s there was a concern by Congress that many wealthy taxpayers were paying little or no tax at all since they had taken full advantage of the tax loopholes, or the benefits of the many tax deductions which were available to them.  Under the provisions of the law a taxpayer’s “Taxable Income” was first calculated with the full benefit of these “tax preference” deductions.  Then an alternate calculation was used whereby if your tax return included one or more of the “tax preference” line items, the deduction was added back to your taxable income to re-calculate or re-determine your “Taxable Income.”  Your income taxes were calculated based upon both methods and your income taxes were determined using the method which produced the highest income tax liability.   

The tax law was revised in 1982 and was appropriately re-named as  the “Alternative Minimum Tax” (AMT).   The original income threshold for being subject to the AMT was approximately $40,000.00.  At that time most taxpayers were not affected by the AMT.  However, since the 1980s our individual incomes have continued to increase, even if only adjusted for inflation.  However, Congress has not adequately adjusted the AMT income threshold.  For 2011 the AMT threshold for a married couple who are filing a joint tax return is $74,450.00.    

 If you believe that you may be affected by the provisions of this tax law, then review the instructions for Federal Form 6251 (http://www.irs.gov/pub/irs-pdf/i6251.pdf )  If there are additional AMT taxes on your tax return the amount will be on Line #45 (“Alternative Minimum Tax”) of Federal Form 1040. (more…)

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Home Energy Improvement Costs = Tax Credits

Thursday, March 8th, 2012

The exclusive purpose for the information which is provided from this website is to disseminate information, and not to provide tax advice.

Tax Credits Available for Certain Energy-Efficient Home Improvements

The IRS would like you to get some credit for qualified home energy improvements this year.   Perhaps you installed solar equipment or recently
insulated your home?   Here are two tax credits that may be available to you:

1.  The Non-business Energy Property Credit  Homeowners who install energy-efficient improvements may qualify for this credit. The 2011 credit is 10 percent of the cost of qualified energy-efficient improvements, up to $500. Qualifying improvements includeadding insulation, energy-efficient exterior windows and doors and certain roofs. The cost of installing these items does not count. You can also claim a credit including installation costs, for certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass fuel. The credit has a lifetime limit of $500, of which only $200 may be used for windows. If you’ve claimed more than $500 of non-business energy property credits since 2005, you can not claim the credit for 2011. Qualifying improvements must have been placed into service in the
taxpayer’s principal residence located in the United States before Jan. 1, 2012.

2.  Residential Energy Efficient Property Credit   This tax  credit helps individual taxpayers pay for qualified residential alternative
energy equipment, such as solar hot water heaters, solar electricity equipment  and wind turbines. The credit, which runs through 2016, is 30 percent of the  cost of qualified property. There is no cap on the amount of credit available,  except for fuel cell property. Generally, you may include labor costs when  figuring the credit and you can carry forward any unused portions of this  credit. Qualifying equipment must have been installed on or in connection with  your home located in the United States; geothermal heat pumps qualify only when  installed on or in connection with your main home located in the United States.

Not all energy-efficient improvements qualify so be sure you have the  manufacturer’s tax credit certification statement, which can usually be found on the manufacturer’s website or with the product packaging.  If you’re eligible, you can claim both of these credits on Form 5695,
Residential Energy Credits when you file your 2011 federal income tax return.   Also, note these are tax credits and not deductions, so they will generally  reduce the amount of tax owed dollar for dollar. Finally, you may claim these  credits regardless of whether you itemize deductions on IRS Schedule A.

You can find Form 5695 at IRS.gov or order it by calling 1-800-TAX-FORM  (800-829-3676).

Link:

Form
5695, Residential Energy Credits

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The Small Business Health Care Tax Credit

Tuesday, March 6th, 2012

The exclusive purpose for the information which is provided from this website is to disseminate information, and not to provide tax advice.

What Employers Need to Know About Claiming the Small Business Health Care Tax Credit 

 

If you are a small employer with fewer than 25 full-time equivalent employees that earn an average wage of less than $50,000 a year and you pay at least half of employee health insurance premiums…then there is a tax credit that may put money in your pocket.

The Small Business Health Care Tax Credit is specifically targeted to help small businesses and tax-exempt organizations. The credit can enable small businesses and small tax-exempt organizations to offer health insurance coverage for the first time. It also helps those already offering health insurance coverage to maintain the coverage they already have.

Here is what small employers need to know so they don’t miss out on the credit for tax year 2011:

  • Qualifying businesses calculate the small business health care credit on Form 8941, Credit for Small Employer Health Insurance Premiums, and claim it as part of the general business credit on Form 3800, General Business Credit, which they would include with their tax return.
  • Tax-exempt organizations can use Form 8941 to calculate the credit and then claim the credit on Form 990-T, Exempt Organization Business Income Tax Return, Line 44f.
  • Businesses that couldn’t use the credit in 2011 may be eligible to claim it in future years. Eligible small employers can claim the credit for 2010 through 2013 and for two additional years beginning in 2014.

For tax years 2010 to 2013, the maximum credit for eligible small business employers is 35 percent of premiums paid and for eligible tax-exempt employers the maximum credit is 25 percent of premiums paid.  Beginning in 2014, the maximum credit will go up to 50 percent of qualifying premiums paid by eligible small business employers and 35 percent of qualifying premiums paid by eligible tax-exempt organizations.

Additional information about eligibility requirements and calculating the credit can be found on the Small Business Health Care Tax Credit for Small Employers page of IRS.gov.

 YouTube Video:

Small Business Health Care Tax Credit   |  English

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