29 Biggest Tax Problems For Married Couples

Preparing your annual income tax return is a chore. It’s even more complex when you’re married. You might have two sets of income, assets, debts and deductions. Further, if you were separated, widowed or divorced during the year, you might have a thorny tax situation.

A qualified accountant can advise you on the basic tax problems that married couples face. For a brief introduction, read through to see 29 of the most significant tax problems married people might encounter. Understanding these challenges can help you get more tax breaks this year.

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1. YOU’RE NOT SURE OF THE YOUR MARITAL STATUS FOR THE TAX YEAR

When preparing taxes, you first need to determine your marital status. It might seem like a straightforward task. However, life is not always so simple.

The IRS considers you to be married if you were lawfully wed on the last day of the tax year. For example, if you tied the knot at any time in the past and were still married on Dec. 31, 2016, you were married to your spouse for the entire year in the eyes of the IRS. The laws of the state where you live determine whether you were married or legally separated for the tax year.

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2. YOU’RE NOT SURE OF YOUR MARITAL STATUS IN A SAME-SEX RELATIONSHIP

Married, same-sex couples are treated the same as married, heterosexual couples for federal tax purposes. However, same-sex couples in a registered domestic partnership or civil union cannot choose to file as married couples, as state law doesn’t consider those types of couples to be married.

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3. YOU DON’T KNOW WHICH FILING STATUS TO CHOOSE

If you weren’t married on Dec. 31 of the tax year, the IRS considers you to be single, head of household or a qualified widow(er) for that year.

If you were married, there are three filing possibilities:

  • Married filing jointly
  • Married filing separately
  • Head of household

If more than one category might apply to you, the IRS permits you to pick the one that lets you pay the least amount in taxes.

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4. YOU CAN’T DECIDE WHETHER TO FILE JOINTLY OR SEPARATELY

If you’re married and don’t qualify to file as head of household, you typically have two choices: filing jointly or separately. It’s best to choose the one that allows you to pay the least amount in taxes, which all comes down to your particular circumstances.

Sometimes it makes sense to file separately, said Josh Zimmelman, owner of Westwood Tax & Consulting, a New York-based accounting firm. “A joint return means that your finances are linked, so you’re both liable for each other’s debts, penalties and liabilities,” he said. “So if either of you has some financial issues or baggage, then filing separately will better protect your spouse from your bad record, or vice versa.”

If you file jointly, you can’t later uncouple yourselves to file married filing separately. “On the other hand, if you file separate returns and then realize you should have filed jointly, you can amend your returns to file jointly, within three years,” Zimmelman said.

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5. YOU ASSUME MARRIED FILING JOINTLY IS ALWAYS THE BEST OPTION

Even if married filing jointly has been your best choice in the past, don’t assume it will always be that way. Do the calculations each year to determine whether filing singly or jointly will give you the best tax result.

Changes in your personal circumstances or new tax laws might make a new filing status more desirable. What was once a marriage tax break might turn into a reason to file separately, or vice versa.

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6. YOU’RE NOT CLEAR ABOUT HEALTHCARE REQUIREMENTS

The Patient Protection and Affordable Care Act — more commonly known as “Obamacare” — requires that you and your dependents have qualifying health care coverage throughout the year, unless you qualify for an exemption or make a shared responsibility payment.

Even if you lose your health insurance coverage because of divorce, you still need continued coverage for you and your dependents during the entire tax year.

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7. YOU CHANGED YOUR LAST NAME

If you want to change your last name after a marriage or divorce, you must officially inform the federal government. Your first stop is the Social Security Administration. Your name on your tax return must match your name in the SSA records. Otherwise, your tax refund might be delayed due to the mismatched records. Also, don’t forget to update the changed names of any dependents.

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8. YOUR SPOUSE DIED DURING THE TAX YEAR

If your spouse died during the year, you’ll need to figure out your filing status. If you didn’t marry someone else the same year, you may file with your deceased spouse as married filing jointly.

If you did remarry during that tax year, you and your new spouse may file jointly. However, in that case, you and your deceased spouse must file separately for the last tax year of the spouse’s life.

In addition, if you didn’t remarry during the tax year of your spouse’s death, you might be able to file as qualifying widow(er) with dependent child for the following two years if you meet certain conditions. This entitles you to use joint return tax rates and the highest standard deduction amount.

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9. YOU FILE JOINTLY AND YOU’RE BOTH LIABLE

If you use the status married filing jointly, each spouse is jointly and severally liable for all the tax on your combined income, said Gail Rosen, a Martinsville, N.J.-based certified public accountant. “This means that the IRS can come after either one of you to collect the full amount of the tax,” she said.

“If you are worried about your spouse and being responsible for their share of their taxes — including interest and penalties — then you might consider filing separately,’ she said.

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10. YOU FILE SEPARATELY AND LOSE TAX BENEFITS

Although filing separately might protect you from joint and several liabilities for your spouse’s mistakes, it does have some disadvantages.

For example, people who choose the married filing separately status might lose their ability to deduct student loan interest entirely. In addition, they’re not eligible to claim the Earned Income Tax Credit and they might also lose the ability to claim the Child and Dependent Care Credit or Adoption Tax Credit, said Eric Nisall, an accountant and founder of AccountLancer, which provides accounting services to freelancers.

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11. YOU DON’T MEET THE MEDICAL EXPENSE DEDUCTION THRESHOLD

To include non-reimbursed medical and dental expenses in itemized deductions, the expenses must meet a threshold of exceeding 10 percent of your adjusted gross income. However, when you file jointly — and thus report a larger combined income — it can make it more difficult for you to qualify.

A temporary exception to the 10 percent threshold for filers ages 65 or older ran through Dec. 31, 2016. Under this rule, individuals only need to exceed a lower 7.5 percent threshold before they are eligible for the deduction. The exception applies to married couples even if only one person in the marriage is 65 or older.

Starting Jan. 1, 2017, all filers must meet the 10 percent threshold for itemizing medical deductions, regardless of age.

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12. YOU DON’T TAKE ADVANTAGE OF THE MARRIAGE BONUS

Many people complain about the marriage tax penalty. “Married filing jointly may result in a higher tax bill for the couple versus when each spouse was filing single, especially if both spouses make roughly the same amount of income,” said Andrew Oswalt, a certified public accountant and tax analyst for TaxAct, a tax-preparation software company.

However, you might have an opportunity to pay less total tax — a marriage tax break — if one spouse earns significantly less. “When couples file jointly with largely differing income levels, this may result in a ‘marriage tax benefit,’ potentially resulting in less tax owed than when the spouses filed with a single filing status,” Oswalt said.

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13. YOU’RE DIVORCED BUT STILL NEED TO FILE A FINAL MARRIED RETURN

If your divorce became official during the tax year, you need to agree with your ex-spouse on your filing status for the prior year when you were still married. As to whether you should file your final return jointly or separately, there is no single correct answer. It partially depends on your relationship with your ex-spouse and whether you can agree on such potentially major financial decisions.

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14. YOU HAVE TO DETERMINE THE STATUS OF DEPENDENTS AFTER A DIVORCE

Tax laws about who qualifies as a dependent are quite complex. Divorcing parents might need to determine which parent gets to claim the exemption for dependent children.

Normally, the custodial parent takes the deduction, Zimmelman said. “So if your child lives with you more than half the year and you’re paying at least 50 percent of their support, then you should claim them as your dependent,” he said.

In cases of shared custody and support, you have a few options. “You might consider alternating every other year who gets to claim them,” said Zimmelman. Or if you have two children, each parent can decide to claim one child, he said.

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15. YOU DEDUCT VOLUNTARY ALIMONY PAYMENTS

If you want to deduct alimony payments you made to a former spouse, it must be in accordance with a legal divorce or separation decree. You can’t deduct payments you made on a voluntary basis.

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16. YOU DEDUCT CHILD SUPPORT PAYMENTS

Even if you don’t take the standard deduction and instead itemize your deductions, you can’t claim child support payments you paid to a custodial parent.

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17. YOU CLAIM CHILD SUPPORT PAYMENTS AS INCOME

Do not report court-ordered child support payments as part of your taxable income. You don’t need to report it anywhere on your tax return. On the other hand, you must report alimony you receive as income on line 11 of your Form 1040.

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18. YOU DON’T CLAIM ALIMONY YOU PAID AS A DEDUCTION

Unlike child support that isn’t tax deductible, you are permitted to deduct court-ordered alimony you paid to a former spouse. It’s a deduction you can take even if you don’t itemize your deductions.

Make sure you include your ex-spouse’s Social Security number or individual taxpayer identification number on line 31b of your own Form 1040. Otherwise, you might have to pay a $50 penalty and your deduction might be disallowed.

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19. YOUR SPOUSE DOESN’T WORK AND MISSES TAX SAVINGS

Saving for retirement is important. Contribute to a 401k plan and you will both save money for your golden years and lower your taxable income now. If your employer offers a 401k plan, you can contribute money on a pretax basis, subject to certain limits.

However, nonworking spouses can’t contribute to a 401k because they don’t have wages from an employer.

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20. YOU MISS QUARTERLY TAX PAYMENTS

Single or married, you might have to pay quarterly tax payments to the IRS, especially if you are self-employed. Make sure you know how to calculate estimated taxes. If you are required to make such payments but do not do so, you might have to pay an underpayment penalty, Rosen said.

All taxpayers must pay in taxes during the year equal to the lower of 90 percent of the tax owed for the current year, or 100 percent — 110 percent for higher-income taxpayers — of the tax shown on your tax return for the prior year, Rosen said. “The problem for married couples is that often they do not realize they owe more taxes due to the combining of the two incomes,” she said.

You should be proactive each year. “To avoid owing the underpayment penalty, make sure to do a projection of your potential tax for 2017 when you finish preparing your 2016 taxes,” she said, adding that you should make sure to comply with the payment rules outlined above.

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21. YOU PHASE OUT OF PASSIVE LOSSES

Crystal Stranger — a Los Angeles-based enrolled agent, president of 1st Tax and author of “The Small Business Tax Guide” — said she sees a lot of married couples who have issues with passive loss limitation rules.

“With these rules, if you have a passive loss from rental real estate or other investments, you are allowed to take up to $25,000 of passive losses against your other income,” she said. “But this amount phases out starting at $100,000 (of) adjusted gross income, and is fully lost by $150,000 (of) adjusted gross income.”

Married filers lose out, as the phaseout amount is the same for a single taxpayer as for a married couple. “This is a big marriage penalty existing in the tax code,” Stranger said. “It gets even worse if a married couple files separately. The phaseout then starts at $12,500, meaning almost no (married filing separately) filers will qualify.”

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22. YOU CLAIM A CHILD AS A DEPENDENT, BUT YOUR INCOME IS HIGH

You are not obligated to claim your kids as dependents on your own tax return. In fact, it might be beneficial not to claim them.

“High earners lose the personal exemption after crossing certain income thresholds,” said Nisall. So in some cases, it might make more sense to let working children claim the exemption for themselves on their own return, he said.

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23. YOU MISS OUT ON THE CHILD TAX CREDIT

Married couples might be able to claim the Child Tax Credit up to a limit of $1,000 for each qualifying child.

“The Child Tax Credit phases out starting at $55,000 for couples electing to use the married filing separately filing status, and (at) $110,000 for those choosing the married filing jointly status,” said Oswalt. “But married couples receive twice the standard deduction that individuals receive, so the phaseout limitations may not negatively impact a married couple’s return if they choose to file jointly.”

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24. YOU NEGLECT THE TAX BREAK FROM A HOME SALE

The IRS provides a tax break when you sell your home, subject to certain conditions. Generally, you must meet a minimum residency period by owning and living in the house for two of the five years previous to the sale.

A single person who owns a home that has increased in value can qualify to exclude up to $250,000 in gains from income, said Oswalt. However, married people can exclude up to $500,000 in gains. This rule can become tricky if one person in the couple purchased the house prior to marriage.

“If you are married when you sell the house, only one of you needs to meet the ownership test for the $250,000 exclusion,” Oswalt said. “You both must meet the residency period to exclude up to the full $500,000 of gain from your income, however.”

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25. YOU DON’T CLAIM THE CHILD AND DEPENDENT CARE CREDIT

Married tax filers might be eligible for the Child and Dependent Care Credit if they paid expenses for the care of a qualifying individual so that they could work or look for work. The rules for who can be a dependent and who can be a care provider are strict. This credit is not available if you file separately.

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26. YOU CAN’T DEDUCT STUDENT LOAN INTEREST

If you’re paying back student loans, you might be looking forward to taking the student loan interest deduction. However, if you’re married, it might not be so easy to do that.

“For a single filer, the deduction begins to phase out when the taxpayer’s adjusted gross income is greater than $65,000,” said Oswalt. “This amount is doubled to $130,000 when filing jointly.”

“So if both spouses are making $65,000 or less, then their deduction will not be affected by the phaseout,” he explained. “However, if one is making $60,000 and the other $75,000, the deduction begins to phase out, which will ultimately result in a larger tax bill.”

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27. YOU INCORRECTLY ACCOUNT FOR GAMBLING WINS AND LOSSES

Imagine a married couple where both spouses like to gamble in Las Vegas. He’s not so lucky and has losses, while she has winnings. If they file a joint return, they might have to report the gambling winnings as taxable income. Meanwhile, the losses might be deductible if the couple itemizes their deductions instead of taking the standard deduction.

However, they can’t take the amount of gambling winnings, subtract the losses and claim the net amount as winnings. Instead, they must report the entire amount of gambling winnings as income, whereas the losses are reported as an itemized deduction up to the amount of the winnings. The IRS requires you to keep accurate records of your winnings and losses.

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28. YOU BECAME A VICTIM OF TAX IDENTITY THEFT

Identify theft is a financial nightmare, no matter how it happens. Tax identity theft happens when someone files a tax return using one or both of the spouse’s Social Security numbers in hopes of scooping up your legitimate refund. If this happens to you, “contact the IRS immediately and fill out an identity-theft affidavit,” said Zimmelman. “You should also file a complaint with the Federal Trade Commission, contact your banks and credit card companies, and put a fraud alert on your and your spouse’s credit reports.”

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29. YOU CAN’T GET YOUR 2015 RETURN

The IRS and state tax agencies work to develop safeguards to avoid identity theft related to tax returns. In 2017, they will be particularly concerned about the implications of taxpayers who file using tax software.

The IRS has alerted taxpayers that they might need to have their 2015 adjusted gross income handy if they are changing software products this year. This number might be required to submit your return electronically.

Getting your 2015 adjusted gross income might be difficult if you are a member of a divorced couple that is not on positive terms, or that hasn’t even been in contact the past few years.

However, you still have options. You might be able to get the information if you go to the IRS website and use the Get Transcript service.

 

 

Written By: Valerie Rind
Source: GOBankingRates

The 10 Most Commonly Googled Tax Questions — Answered

Taxes can be confusing. We’re here to help. To find out what people’s most burning questions about taxes are, MONEY asked Google for a list of its top tax-related queries—and assembled the information you need.

1. When are taxes due?

It’s April 18 this year. Usually, it’s the 15th — you can read why you get an extra three days here. (If you file for an extension, you get until Oct. 16 to file your return, because Oct. 15 is a Sunday. You must still pay what you estimate you owe by April 18, though.)

2. How to file taxes

This IRS page has links to online forms you can print as well as a locator tool where you can find an office if you prefer to pick up forms in person or don’t have access to a printer. You might also find tax forms at your local library or post office.

If you make less than $64,000, the IRS has a page where you can file your taxes electronically at no charge under the Free File program. If you plan to file with a simple form like a 1040A or 1040EZ, some tax preparation companies like TurboTax, H&R Block, Jackson Hewitt and TaxAct have their own platforms you can use to do your taxes online for free.

If you’re not sure which form you should use, the IRS spells out the differences here. Not sure how to file state taxes? This IRS page has links to all of the state governments, including tax departments.

3. When can you file taxes?

The IRS began accepting electronic returns for 2016 on Jan. 23, 2017.
You technically have until 11:59:59 p.m. on April 18 to file your taxes if you’re filing online, according to TurboTax, but waiting until the last second is a bad idea: A pokey computer could cost you big in penalties. If you’re using U.S. mail, you have to have your return and payment postmarked by April 18. Some post offices stay open late for Tax Day; you can find out which ones have extended hours here.

If you (or your accountant) file your taxes electronically, you have the option of paying online using the IRS’s Electronic Funds Withdrawal function (which is free). You can also pay via credit or debit card (which will cost you a convenience fee of a bit under $3 if you use a debit card, or around 2% of the charge if you use a credit card).

4. How to file a tax extension

If you procrastinated and April 18 is looking like a long shot, experts say you should file for an extension. This doesn’t get you out of paying any taxes you owe by the deadline, but it gives you an extra six months to file. An extension will keep you from getting hit with a late-filing penalty of 5% of the unpaid taxes for each month or part of a month you’re late, up to 25%.

That’s in addition to a late-payment penalty of 0.5% of the unpaid taxes for each month or part of a month—plus interest at a rate of the federal short-term interest rate plus 3%.
If you expect a refund, you obviously have an incentive to get your return in as soon as possible to get those dollars in your pocket. If you file for an extension thinking you’ll get a refund and instead find that you owe, you’ll have to tack on the late-payment charges.

Don’t forget about state taxes. A handful of states will automatically give you an extension if you request one through the IRS, while others require a separate request to that state’s tax department. In some cases, the rules are different depending on whether you owe money or are due a refund.

5. How much do you have to make to file taxes?

There are various thresholds, depending on your filing status, age, and the type of income you receive. For instance, if you’re single, under 65 and your income was below $10,350 last year, you generally don’t need to file federal taxes. This IRS tool can help you figure out if you need to file a tax return.

Even if appears you don’t have to file, experts say it’s generally a good idea to fill in the blanks on a return and see what your bottom line would be. About 70% of Americans are expected to qualify for refunds this year, according to the IRS, but many people never file to collect. The average unclaimed refund is nearly $700. Especially for lower-income Americans, a number of credits and deductions could make you eligible for a refund.

6. How long to keep tax records

The IRS says you should hang onto your tax documents for three years; if you get audited, that’s generally the look-back period they’re allowed to cover. However, if they suspect fraud or underpayment of income tax, or if you’ve written off worthless securities, they can request up to seven years’ worth of tax records. Hang onto documents like receipts that justify deductions like business expenses, charitable donations and so on.

7. When is the last day to do taxes?

Yeah, there are clearly a lot of procrastinators out there. As explained above in No. 1, the filing deadline is pushed back a few days from the usual April 15 this year to the 18th. You have until midnight local time—but if you’re going to put it off that long you should consider just filing for an extension.

8. Is Social Security taxed?

It’s possible. Depending on your income, up to 85% of Social Security benefits may be taxable. If you’re a single filer and your combined income—that is, adjusted gross income, nontaxable interest from municipal bonds and half of your Social Security benefits—is more than $25,000, you will have to pay taxes. If you’re married and file jointly, the threshold is $32,000.

9. How long does it take to get taxes back?

The answer this year might be “longer than usual.” To combat tax fraud, the IRS is taking extra time checking filers’ tax information if they claimed either the Earned Income Tax Credit or the Additional Child Tax Credit. Under a new law, the agency is holding back refunds claiming those credits until at least Feb. 15, and people aren’t likely to see those refunds until the end of February at the earliest. On top of that, “New identity theft and refund fraud safeguards put in place by the IRS and the states may mean some tax returns and refunds face additional review,” the agency warns. For everybody else, the IRS says refunds should be issued in its standard window of 21 days from the time it get your return.

10. Why do I owe taxes?

The first income tax in the U.S. was authorized by Congress in 1861 and levied the following year, to help pay for the Civil War, according to the Civil War Trust, but taxes have been around nearly as long as civilization itself. Historians have found tax records that go back to 6,000 B.C. in what is now Iraq, and the ancient Greek, Egyptian and Chinese cultures all had their own versions. In Biblical times, Roman emperor Caesar Augustus established rules around some personal and inheritance taxes that the English later used to create similar taxes centuries later, according to the Handbook on Tax Administration. Ironically, modern-day Italy has the lowest rate of income-tax compliance out of 10 major developed nations, with less than two-thirds of citizens giving the tax man his due.

And although plenty of Americans have argued in court that they shouldn’t have to pay taxes, the IRS has a helpful 71-page paper that methodically debunks these claims, The Truth About Frivolous Tax Arguments, (which might be equally helpful as a cure for tax-season-induced insomnia.)

 

 

Written By: Martha C. White
Source: MONEY

2017 Tax Planning Guide

During this Tax Season, we want to provide you with a great Tax Planning Guide to help you evaluate your options and outline tax planning strategies with your accounting professional.

In addition to referencing this guide during the tax season, it can also be a helpful year-round tool. Staying actively involved in these and other underlying areas of tax planning will keep you in a position to preserve and create longer-term wealth for yourself and your family.

Click Here for your Free 2017 Tax Planning Guide

 

 

Is a SEP-IRA Right for Your Business?

If you’re like many small business owners, running your own business is an all-consuming endeavor.

In the face of everyday demands, choosing a retirement plan for your business can become a casualty. The idea of establishing a plan could evoke worries about complicated reporting and administration.

If this sounds familiar, then you may want to consider whether a Simplified Employee Pension (SEP) may be right for you.

A SEP can be established by sole proprietors, partnerships, and corporations, including S corporations.

The advantages of the SEP begin with the flexibility to vary employer contributions each year from 0% up to a maximum of 25% of compensation, with a maximum dollar contribution of $53,000 in 2016.

Employees Vested

The percentage you contribute must be the same for all eligible employees. Eligible employees are those age 21 or older who have worked for you in three of the last five years and have earned at least $600 (in 2016). Employees are immediately 100% vested in all contributions.

There are no plan filings with the IRS, making administration simple and low cost. You only need to complete Form 5305 SEP and retain it for your own records. This form should be provided to all employees as they become eligible for participation.

Unlike other plans, a SEP may be established as late as the due date (including extensions) of your business’ tax filing (generally April 15th) for making contributions for the prior year.

A Menu of Options

Each eligible employee will be asked to establish his or her own SEP-IRA account and self-direct the investments within the account, relieving you of choosing a menu of investment options for the plan.The rules for accessing these funds are the same as those governing regular IRAs.

Distributions from SEP-IRA and traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.¹

Unlike the self-employed 401(k), which is only available to business owners with no employees, you cannot take a loan from your SEP assets. Distributions from 401(k) plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.¹

The SEP earns the “simplified” in its name and stands as an attractive choice for business owners looking to maximize contributions while minimizing their administrative responsibilities.

 

 

1. IRAs have exceptions to avoid the 10% withdrawal penalty, including death and disability.

Tesla Might Use Loophole to get More Buyers a Big Discount

Tesla Model 3 in motion:   
Provided by MotorTrend

Some Tesla owners will be paying much less than others for their electric cars, thanks to tax credits offered by the federal government. A $7,500 credit is available to people buying one of the first 200,000 eligible vehicles made by an auto manufacturer.

As of a few days ago, there were 325,000 pre-orders of Tesla’s new Model 3, each reserved with a $1,000 deposit. Tesla has already sold tens of thousands of other models–roughly 25,000 Model S cars in 2015, for instance–and these too count toward the company reaching the 200,000-sale mark.

At first glance, one might assume that anyone buying a Tesla after the company has already sold 200,000 units would be out of luck and miss out on the $7,500 tax credit. But there’s a loophole. The law actually doesn’t say that the credit expires with 200,001st vehicle sold, but rather at the end of the quarter in which the company hits the 200,000th vehicle. There’s potentially some significant wiggle room here.

According to Automotive News, Tesla could hit that number on the first day of a quarter and then have a few months to pump out as many cars as possible–each eligible for the full $7,500 credit.

Asked by a Twitter user whether this move was on the table, Tesla CEO Elon Musk suggested he would potentially employ it.

With the enormous amount of pre-orders, which amount to $14 billion worth of automobiles, Tesla will have to balance lowering the cost to customers—via the tax credit—with making sure everything runs smoothly. Tesla is already sailing in uncharted waters and is playing a high-stakes game, and a botched car at this level of popularity could scare consumers and push back the electric car’s mainstream adoption for another decade.

Written by Ethan Wolff-Mann of Money

(Source: Time)

Companies To Feel Pinch Of Tightened Tax Loopholes

money-tax-loopholes
Provided by IBT US
The upcoming U.S. tax filing deadline — Monday, April 18 — doesn’t just have regular Joes on edge. Massive corporate entities based in the U.S. are getting a little nervous, too, according to a report from the Financial Times.

The number of companies warning their investors about increased impact from taxes in 2015 has doubled from last year, the FT says.

The warnings come from the potential closing of myriad international tax loopholes, courtesy of the Organisation for Economic Co-operation and Development (OECD), a consortium of 34 countries, including the Germany, the U.K. and the U.S.

Some of those loopholes include accounting tricks like shifting profits from Ireland, where tax rates are already relatively low, to Bermuda, where the company doesn’t pay any taxes. Companies are able to do this because the definitions of “residence” are different in U.S. and Irish tax law, allowing money made from sales in Ireland to wind up being “based” in Bermuda or another country considered a tax shelter.

The OECD estimates that various companies’ tax avoidance costs governments around $240 billion.

The companies that are likely to be hit hardest are those in the tech sector, like Apple, already-beleaguered Yahoo and Google. Travel site Priceline is already fighting a French tax penalty of 356 million euros ($397 million), and the U.K. is looking to take back 1 billion pounds ($1.4 billion) from corporations after eliminating a tax break on interest costs.

Google, the report notes, has included language about tax concerns for 10 years now. Other companies have also been proactive about warning investors that the tax hammer could fall at any moment.

But investors have been slow on the uptake. “I still think that investors are not asking the right questions. They are in early stages of understanding the issues,” Fiona Reynolds, the managing director of a network of fund managers, told the FT.

Written by Oriana Schwindt of International Business Times

(Source: MSN)

Don’t Overlook These 7 Top Tax Breaks for the Self-Employed

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Getty Images/Hemera

Running your own business comes with plenty of challenges. But contrary to what many Americans think, the Internal Revenue Service does not want taxes to be one of them.

That’s because while the tax code does have its quirks, the IRS offers a host of valuable tax breaks for sole proprietors and the self-employed that are intended to help their businesses succeed.

“In its broadest terms, you can deduct all of the ordinary and necessary expenses that relate to the production of income in the business,” said Jeff Warnkin, a CPA at the JL Smith Group in Avon, Ohio.

That means a self-employed individual who keeps good records can write off a host of items come April, and significantly reduce their income taxes as a result.

Here are seven of the most valuable breaks for the self-employed:

• Health insurance deduction. “One of the most commonly missed items is the self-employed health insurance deduction,” Warnkin said. The premium is wholly deductible against your income tax, he said, and the tax savings can be big depending on your plan. Furthermore, in tax year 2015 there is an increase in the “individual mandate” penalty for taxpayers who do not have health coverage, so paying for your own insurance plan also can prevent added fees.

• Travel expenses. You don’t have to drive to a worksite in order to deduct business-related travel, said Chris Kichurchak, vice president at Strategic Wealth Partners in Independence, Ohio. “A person can deduct all expenses for any travel as long as there is at least one hour of documented business discussion,” Kichurchak said. In addition to parking and airfare expenses, you can also get a break-even if you’re just taking a trip in your personal vehicle. The standard mileage deduction is 57.5 cents per mile traveled in tax year 2015 for business purposes. And thanks to online mapping tools, it’s easy to reverse engineer the mileage if you forget to jot down your odometer readings right away.

• Clothing and uniforms. Any specialized clothing is tax deductible as a business expense, including safety goggles, work gloves or a uniform. But take care to remember the IRS specifies these items “not suitable for everyday use,” said Grafton “Cap” Willey, managing director at professional services provider CBIZ MHM. “A claim that you are required to wear a business suit when you normally would not have one in your wardrobe except for business reasons will not work,” Willey said.

• Education and association dues. Books or periodicals relating to your business are deductible on Schedule C of your tax return, as are any courses or continuing education you take. Any professional dues for associations or unions are also tax deductible. Simply make sure you have the proper documentation for both the expense and its relevance to your profession.

• Retirement savings.  You should be saving for retirement anyway, so the IRS offers a generous tax break to self-employed individuals who contribute to a qualified savings plan. One of the most popular is a simplified employee pension plan, or SEP, and can offer big tax advantages and can be created in minutes using any number of online providers. “A SEP is very easy to set up,” said Warnkin at the JL Smith Group. “It’s also very simple to fund.” Contribution limits are up to 25% of your net earnings from self-employment up to $53,000 a year. Those contributions are deductible from your income taxes, and can add up in a hurry if you’re making substantial savings to your SEP plan.

• Home office. Having a home office can unlock a host of valuable deductions, including breaks on your utility bills, property taxes and even upkeep on your home. The IRS allows self-employed Americans to take a break on these and other items based on the site of your office as a percentage of your home. In other words, a 200 square-foot office in a 2,000 square-foot home gives you a 10% break on qualified expenses. The catch, however, is that the tax man demands your office is used for “regular and exclusive” use, according to the IRS. “It can’t just be a corner of the living room,” Warnkin said. “It’s got to be a separate room, like a spare bedroom or something, that’s used exclusively for the business either administratively or because you meet clients there.”

• Tax and financial services. If any of the minutiae of the tax code gets to you or if you need help balancing the books, don’t fret. Professional services from a third-party accountant are tax deductible for your business, so you can get a tax break if you want or need an expert to check the math or regulations around your business activities in the past tax year.

Written by Jeff Reeves of USA Today

(Source: USA Today)

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