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If you're a CPA who provides tax planning and preparation services to young healthcare professionals, and youíd like to find out more about The MDTAXES Network, please give us a call at  (800) 471-0045 or e-mail us at info@mdtaxes.com. (Don't forget to include your mailing address.)

 

WHAT'S NEW WITH THE FICA REFUND?

New information just issued by the IRS

Check out the memorandum issued by the U.S. District Court in Minneapolis and you'll see that the court found that medical residents and fellows might not be subject to FICA taxes in many instances.

For more information, go to our February, 2001 Newsletter or read through the IRS' Chief Counsel Advice Memorandum on this issue.

 

 

 
October, 2004

BENEFITS OF BEING YOUR OWN BOSS

by Andrew D. Schwartz, CPA

There are lots of advantages to being self employed.  For starters, you get to be your own boss, make your own hours, and decide how hard you want to work.  Plus, there are quite a few tax breaks available to you when you work for yourself. 

Even if you just do some moonlighting on the side, you're allowed to set up a retirement plan for your business and sock away a portion of the money you earn into a pre-tax account.  That holds true even if you work for another company and are currently participating in that company's retirement plan. 

Which type plan should you set up? Depending on how much you earn and how much you want to set aside, you'll choose between a SIMPLE IRA, a SEP IRA, or a Solo 401(k) plan.  For 2004 you can contribute up to $18,000 into a SIMPLE or up to $41,000 into a SEP or a Solo 401(k), depending on your income and whether you participate in a 401(k) plan or 403(b) plan through another employer. If you'll be 50 or older by December 31st, you can contribute an extra $3,000 into a SIMPLE or a Solo 401(k) this year.

Do you have a child under the age of 18?  If so, you'll save some taxes by employing your child.  There's a special loophole that exempts children of self-employed individuals from paying social security, Medicare, and federal unemployment taxes on wages paid by a parent. For 2004, as long as your child is under the age of 18, you can pay him or her up to $4,850, and your child won't owe any income taxes on that money (assuming they have no other income.)  Even so, you get to deduct the wages paid as a business expense. 

As an additional incentive, your child can contribute the lesser of what they earn from you, or $3,000, into a Roth IRA each year.  Imagine what the money contributed will be worth after 50 years or more of tax-free growth!

Self-employed individuals can now deduct 100% of their health insurance premiums paid during the year.  The only catch is that your net self-employment income must exceed the premiums paid. 

If you (and your family) are relatively healthy, consider switching to a high-deductible plan and opening a Health Savings Account (HSA) - the new tax-advantaged way to fund your family's healthcare costs.  We discussed HSAs in our August, 2004 Newsletter.

Another advantage of being self-employed is that you get to deduct certain personal-type expenses against your self-employment income.  When compiling your expenses, don't forget to include business miles at $.375 per mile driven.  You should also factor in the business use portion of your computer purchases, internet access, and wireless phone bills.  And if you have a dedicated workspace in your home, claiming the home office deduction will help cut your tax bill.

Keeping up with all of the tax breaks available to you if you're self-employed is tricky business.  Whether you work for yourself on a fulltime basis, or just do some moonlighting on the side, contacting one of the MDTAXES CPAs will help ensure that you minimize the taxes you pay on your self-employment earnings.

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TAX BREAK FOR VEHICLES AND LEASEHOLD IMPROVEMENTS EXPIRING

by Andrew D. Schwartz, CPA

After 9/11, the government instituted a few tax breaks as an incentive for businesses to invest in property and equipment.  Planning your fixed asset purchases through the end of 2005 will help ensure that you or your business will take full advantage of these soon-to-be-expiring rules.

As part of the 2003 Tax Act, the maximum Section 179 deduction was quadrupled to $100,000 through 2005.  By claiming this deduction, you can expense the first $100,000 of machinery, equipment and furnishings purchased each year, instead of depreciating its cost over five or seven years.  This election is available whether you purchase new or used assets.

 

The second tax break, which is set to expire at the end of 2004, allows for bonus depreciation on new assets purchased during the year that were not expensed under Section 179.  As long as the asset is up and running by December 31st, you can immediately deduct 50% of its purchase price - even if you take a loan to purchase the asset.

 

For automobiles and leasehold improvements, taking advantage of the bonus depreciation rule will save you taxes.  Thatís because youíre generally not allowed to claim the 179 deduction for most automobiles or for improvements to your office space.

 

For new vehicles with a gross loaded weight of less than 6,000 pounds, the allowable first year depreciation deduction you can claim will fall from $10,610 in 2004 to $2,960 in 2005.

 

And for improvements to your office space, as long as the building is more than three years old, and you arenít the owner of the commercial property, you can immediately write off half the money spent on the improvements.  Starting January 1st, youíll once again depreciate your leasehold improvements over 39 years.

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TAX AND FINANCIAL PLANNING CALENDAR FOR OCTOBER, 2004

Month

Income Taxes

Saving and Investing

October

  • Tax returns on second extension due 10/15/04

  • Update your net worth statement using 9/30 information

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2003 & 2004 TAX FACTS

  • For 2003, the standard deduction for a single individual is $4,750 and for a married couple is $9,500. A person will benefit by itemizing once allowable deductions exceed the applicable standard deduction. Itemized deductions include state and local income taxes, real estate taxes, mortgage interest, charitable contributions, and unreimbursed employee business expenses. Our March, 1998 newsletter addressed the issue of itemizing your deductions. For 2004, the standard deduction has been increased to $4,850 for single individuals and $9,700 for married couples.
  • For 2003, the personal exemption is $3,050. Individuals will claim a personal deduction for themselves, their spouse, and their dependents.  For 2004, the personal exemption has increased to $3,100.
  • The maximum earnings subject to social security taxes is $87,900 for 2004 up from $87,000 in 2003.
  • The standard mileage rate is $.36 per mile for 2003, and has increased to $.375 for 2004. Deducting automobile expenses was addressed in our March, 1996 newsletter .
  • The maximum annual contribution to a 401(k) plan or a 403(b) plan is $13,000 for 2004.  And if you'll be 50 or older by December 31, 2004, you can contribute an extra $3,000 into your 401(k) or 403(b) account this year.
  • The maximum annual contribution to your IRA is $3,000 for 2004.  And once you turn 50, you can contribute an extra $500 into your IRA this year.

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copyright - 2004 - The MDTAXES Network

 


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Tax and financial planning calendar for October, 2004


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