During December, you should evaluate whether you’ll save any taxes by postponing 2013 income or deductions into 2014 or by accelerating 2014 income or deductions into 2013.? While many factors should be evaluated prior to making your final decision, a few items to keep in mind are as follows:
- For 2013, a single person will itemize once allowable deductions exceed $6,100 and a married couple will itemize once allowable deductions exceed $12,200.
- A taxpayer is no longer subject to Social Security or self-employment taxes once wages and net self-employment earnings exceed and $113,700 in 2013 and $117,000 in 2014.
- Miscellaneous itemized deductions, such as unreimbursed employee business expenses, are only deductible to the extent they exceed 2% of adjusted gross income (AGI). Items paid with credit cards are deductible in the year charged.
- Medical and dental expenses are deductible to the extent they exceed 7.5% of AGI, and are deductible in the year paid.
If you need assistance in determining whether you should either postpone or accelerate your income or deductions, or whether you?ll be hit by the AMT, please give us a call.
A vacation home can be a house, apartment, condominium, mobile home or boat. If you own a vacation home that you rent to others, you generally must report the rental income on your federal income tax return. But you may not have to report that income if the rental period is short.
In most cases, you can deduct expenses of renting your property. Your deduction may be limited if you also use the home as a residence.
Here are some tips from the IRS about this type of rental property.
? You usually report rental income and deductible rental expenses on Schedule E, Supplemental Income and Loss.
You may also be subject to paying Net Investment Income Tax on your rental income.
? If you personally use your property and sometimes rent it to others, special rules apply. You must divide your expenses between the rental use and the personal use. The number of days used for each purpose determines how to divide your costs.
Report deductible expenses for personal use on Schedule A, Itemized Deductions. These may include costs such as mortgage interest, property taxes and casualty losses.
? If the property is ?used as a home,? your rental expense deduction is limited. This means your deduction for rental expenses can?t be more than the rent you received. For more about this rule, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes).
? If the property is ?used as a home? and you rent it out fewer than 15 days per year, you do not have to report the rental income.
For more details on this topic, check out IRS Publication 527. It is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
I graduated from Wharton in 1987. For those of you keeping score at home, that means I’ve been working at my practice for a score and a quarter plus one.? Now that I’ve been practicing for twenty-six years, many of the clients I picked up earlier in my career have children in high school or college who have part-time jobs.
One thing I continually notice is that most of these kids who work are incorrectly having federal and state income taxes withheld from their wages.? Please note that a working child will generally owe no income taxes unless wages earned exceed $5,950 (in 2012) and/or investment income exceeds $300.? Needless to say, most of the kids are getting back all the federal and state income taxes withheld during the year.
The IRS wants to help parents of working children avoid the headaches and costs of preparing tax returns for their kids who won’t earn enough to be taxed.? All you need to do is have your child write the word “Exempt” in Box 7 of the Form W-4 that is generally completed the first day of employment.? If your child previously submitted an incorrect W-4, please have them file a corrected one with their employer as soon as they can.
Here is what the IRS says in their instructions to the Form W-4:
Exemption from withholding: If you are exempt, complete only lines 1, 2, 3, 4, and 7 and sign the form to validate it. Your exemption for 2013 expires February 17, 2014. See Pub. 505, Tax Withholding and Estimated Tax.
And here are the instructions on the W-4 for line 7:
I claim exemption from withholding for 2013, and I certify that I meet both of the following conditions for exemption.
? Last year I had a right to a refund of all federal income tax withheld because I had no tax liability, and
? This year I expect a refund of all federal income tax withheld because I expect to have no tax liability.
If you meet both conditions, write ?Exempt? here .
Do yourself and your kids a favor by having him or her write the word “Exempt” on Line 7 of the W-4 form. Your working child will have more money to spend sooner (and will hopefully ask you for less of your money during that time) since no federal and state income taxes will be withheld from their wages.? And you won’t get stuck preparing a 1040-EZ for your child or paying your CPA $125 or more so your kid can get back their tax refund.
From the IRS Tax Tips News:
If you have a child under age 17, the Child Tax Credit may save you money at tax-time. Here are some facts the IRS wants you to know about the credit.
- Amount.? The non-refundable Child Tax Credit may help reduce your federal income tax by up to $1,000 for each qualifying child you claim on your return.
- Qualifications.? For this credit, a qualifying child must pass seven tests:
1.?Age test.? The child must have been under age 17 at the end of 2012.
2.?Relationship test.? The child must be your son, daughter, stepchild, foster child, brother, sister, stepbrother, or stepsister. A child may also be a descendant of any of these individuals, including your grandchild, niece or nephew. You would always treat an adopted child as your own child. An adopted child includes a child lawfully placed with you for legal adoption.
3.?Support test.? The child must not have provided more than half of their own support for the year.
4.?Dependent test.? You must claim the child as a dependent on your federal tax return.
5.?Joint return test.? The child cannot file a joint return for the year, unless the only reason they are filing is to claim a refund.
6.?Citizenship test.? The child must be a U.S. citizen, U.S. national or U.S. resident alien.
7.?Residence test.? In most cases, the child must have lived with you for more than half of 2012.
- Limitations.? The Child Tax Credit is?subject to income limitations, and may be reduced or eliminated depending on your filing status and income.
- Additional Child Tax Credit.? If you qualify and get less than the full Child Tax Credit, you could receive a refund even if you owe no tax with the refundable Additional?Child Tax Credit.
- Schedule 8812.? If you qualify to claim the Child Tax Credit make sure to check whether you must complete and attach the new Schedule 8812, Child Tax Credit, with your return. If you qualify to claim the Additional Child Tax Credit, you must complete and attach Schedule 8812.
IRS Publication 972, Child Tax Credit, can provide you with more details. View it online at IRS.gov or request it by calling 800-TAX-FORM (800-829-3676). You can also use the Interactive Tax Assistant tool on the IRS website to check if you can claim the credit. The ITA is a resource that can help answer tax law questions.
Additional IRS Resources:
By Andrew D. Schwartz, CPA
For doctors in practice, making a lot of decisions every day is just part of the deal.? While some practice management issues come with only one obvious solution, most require that you spend time researching a variety of options only to learn that there is more than one correct answer.? Selecting the best type of entity for your practice is one of those issues with multiple correct answers.
If you are in the process of opening or purchasing a practice, now is the time to determine which type of entity would work best for your practice over the long-term.? Or, if you have owned a practice for a number of years, why not take this opportunity to determine if you have selected the best type of entity for your situation.? Let?s take a look a pros and cons of the various entities available to healthcare professionals in practice.
Most Popular Entity Selection
Most healthcare professionals operate their practice as a Sole Proprietorship, a Limited Liability Company (LLC), or an S-Corporation.? Different rules apply to the different type of entity.? The first question, however, is why even bother to create an entity for your practice.? Why not just go with a sole proprietorship or a general partnership?
If you are involved with partners in your practice, setting up an entity is a must.? While asset protection laws vary by state, running your practice as an S-Corp or LLC should protect your personal assets from your business partner?s mistakes.? Without forming an entity, you would be running the practice as a General Partnership which offers no protection to that risk.
For practices with one owner, setting up an entity helps keep your practice separate from your personal finances.? Some people who own a practice and also own the real estate where their practice is located actually end up establishing two entities – one to hold the assets of the practice and a second to hold the real estate.
Let?s start by looking at two major characteristics for these three options.? While Single Member LLCs and S-Corporations are separate legal entities, only an S-Corp comes with the requirement of filing a separate tax return each year.? Sole proprietors and Single Member LLCs report their income and expenses on a Schedule C filed as part of the owner?s individual income tax return.
Type of Entity
Separate Legal Entity
Files Own Tax Return
Single ? Member LLC
For Part 2 of this series, we’ll discuss the Benefits and Pitfalls of S-Corps.? Stay tuned!