It’s hard to believe that 2014 is almost through! Below you’ll find some of the necessary tax deadlines for U.S. business owners this month, December 2014. If you are worried that you may have missed these deadlines, contact us, Dagley & Co., for help. (Find our phone number at the bottom of this webpage.)
December 15 – Social Security, Medicare and Withheld Income Tax
If the monthly deposit rule applies, deposit the tax for payments in November.
December 15 – Nonpayroll Withholding
If the monthly deposit rule applies, deposit the tax for payments in November.
December 15 – Corporations
The fourth installment of estimated tax for 2014 calendar year corporations is due.
December 31 – Last Day to Set Up a Keogh Account for 2014
If you are self-employed, December 31 is the last day to set up a Keogh Retirement Account if you plan to make a 2014 Contribution. If the institution where you plan to set up the account will not be open for business on the 31st, you will need to establish the plan before the 31st. Note: there are other options such as SEP plans that can be set up after the close of the year. Please call the office to discuss your options.
December 31 – Caution! Last Day of the Year
If the actions you wish to take cannot be completed on the 31st or a single day, you should consider taking action earlier than December 31st.
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If you’re a business owner worried about properly filing with the IRS this year, you’re not alone. With the ever-increasing complexity of the United States’ tax system, it is commonplace for many small businesses to make mistakes with bookkeeping and filing. One way to avoid making errors is to be aware of the most commonly encountered pitfalls. Here, Dagley & Co provides some tips to help keep the proper records.
- Receipts – Though the IRS does not require receipts for meal and entertainment expenses of less than $75, it is still wise to hang onto them. There is no better documentation than a credit card receipt since it has all the expense information required. All you need to do is write on the slip the purpose of the event, the individual you were with, and your business relationship with that person.
- Auto Deductions – Generally, small businesses use either the actual expense method or the optional mileage method of deducting the business use of a vehicle, and both must account for any personal use of the vehicles, including commuting. When using the actual expenses method, the deducible business portion of the expenses is determined by multiplying the total expenses by the percentage of business use, which is found by dividing the business miles driven by the total miles driven. When using the optional mileage method, the business miles are multiplied by the IRS published standard mileage rate, which is 56 cents per mile for 2014. So, regardless of the method used, make sure you keep track of the total and business use miles for the year since it is required for either option.
- Gifts – Do not overspend on gifts to clients and business associates. Being too generous will cost you: The IRS will allow a deduction of only up to $25 worth of gifts to any individual per year. With only that first $25 per recipient considered a deductible business expense, the rest will be nondeductible. For deductible gifts, be sure to keep a copy of the purchase receipt and note on it the business purpose for making the gift or the benefit you expect to receive, as well as the name of the person to whom you gave the gift, his/her occupation or title, or some other designation that will establish your business relationship to the individual.
- Business Equipment – Since equipment is considered a capital expenditure, it has to be depreciated. That is why lumping equipment together with supplies is not a good idea. This is true even when you elect to expense equipment purchases under Sec. 179. If the purchases are not reported properly, the IRS could rule that the expense was improperly characterized. If that is the case, you would not be entitled to the deduction claimed on your return. There could be other repercussions, leaving you with no current deduction at all.
- Ordinary and Necessary – To be deductible, an expense must be ordinary and necessary. An expense is “ordinary” if it is customary and conventional for the taxpayer’s line of business. A “necessary” expense is helpful in the taxpayer’s business; but it need not be indispensable.
- Meals and Lodging – When traveling for business, lodging is 100% deductible but the away-from-home meals deduction is limited to 50% of the cost. So, if the meals are charged to a hotel room, they must be accounted for separately, and keeping a copy of the statement from the hotel that shows the charges, as well as a credit card receipt or other payment receipt, is advisable.
- Entertainment at Sports Events and Theaters – When entertaining customers at sporting events and theaters, the deduction is limited to 50% of the face value of the ticket. The cost of the entertainment must be “directly related to” or “associated with” business or the production of income.
- Home Office Deductions – There are two methods for deducting the business use of a home. One is the conventional method of prorating the expenses (with some limitations) of the home by multiplying the allowable expenses times the business use square footage divided by the total square footage of the home. The other method, referred to as the simplified method, allows $5 per square foot deduction (maximum 300 square feet) without having to keep records of expenses. Both methods have the same eligibility requirements.
Every business is unique, so if you need assistance in setting up your recordkeeping system or need further clarification on any of the topics discussed, please get in touch with us at Dagley & Co.
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The year 2014 has flown by! There are less than two months left, and it’s time to lay out an end-of-year tax strategy.
The following is a checklist of items to think about while prepping for “tax time.” Some of these might help you save taxes if you act before the year’s end. Not all strategies will apply to everyone, but many people will benefit from more than one item. Not all strategies are listed either, so contact us at Dagley & Co. for more ideas.
- If a job-related bonus is expected to be paid around the end of the year, you might be able to defer that income into the following year if that is appropriate in your situation, such as when you expect less ‘other’ income next year. See if your employer is willing to put off payment until just after the first of the year.
- If you have stocks that have declined in value, you may wish to sell them before the end of the year and use the loss to offset other gains for the year or to produce a deductible loss. The net capital loss on a tax return is limited to $3,000 for the year, but any excess loss carries over to future years. You can repurchase them after 30-days have passed and avoid the wash sale rules.
- If you are over 70 ½ years of age and have retirement plans, make sure you take the required minimum distribution before the end of the year. If you turned 70 ½ in 2014, you can wait until next year to take your distribution, provided you take it before April 2, 2015. You will still need to take another distribution for 2015, so if you delay the 2014 distribution until 2015, you will essentially be doubling your distributions for that year. The penalty for failing to make the proper distribution is an additional tax equal to 50% of the under-distribution amount.
- If you anticipate having a tax liability for 2014, you can increase your withholding for the balance of the year and eliminate or reduce underpayment penalties. Withholding is treated as paid evenly throughout the year, so additional withholding toward the end of the year can reduce penalties in earlier underpaid quarters as well.
- If itemizing deductions, a taxpayer can increase those deductions for the year by prepaying certain taxes. Caution: This strategy will not work if you are subject to the Alternative Minimum Tax (AMT), since taxes are not deductible for AMT purposes. Consider one or both of the following:
- Prepay the next installment of your property taxes before the end of 2014, or
- Pay your 4th quarter state tax estimate in December.
- Reduce your gift and estate taxes by making gifts before the year’s end. For 2014, the amount you may give without creating a gift tax filing requirement is $14,000 per person. You can make gifts each year to an unlimited number of individuals, but you can’t carry over unused annual gift tax exclusions from one year to the next. If you have a substantial gain in a stock or other asset you want to sell, but don’t want the resulting tax liability, there are a couple of techniques you can employ to simply give away the appreciated asset and let the recipient take the gain:
- Charitable Gift – Consider replacing your cash charitable gifts with gifts of appreciated property. By giving the asset to your favorite charity, you receive a charitable contribution deduction equal to the fair market value of the gift and at the same time avoid having to report the gain from selling the asset on your return. However, the maximum deduction for gifts of this type can be as low as 20% or 30% of AGI as compared to 50% for cash gifts. Caution: If the value of the stock you are considering gifting is less than what you paid for it, sell it, take the loss on your return, and then contribute the cash to the charity.
- Gifts to Individuals – Giving a gift of appreciated property to an individual (donee) transfers the gain from that property to the donee. This can work to your advantage by gifting the appreciated asset rather than giving the donee cash. Caution, this strategy will not work for children who are subject to the kiddie tax.
- If you are retired and taking IRA distributions, make sure that you are maximizing your withdrawal with respect to your tax bracket. It may be tax-effective to actually withdraw more than the minimum required by law. If you receive Social Security benefits, IRA distributions can sometimes be planned to minimize the taxability of this income.
- If you are marginally able to itemize each year, it may be appropriate to “bunch” deductions in one year and then claim the standard deduction in the alternate year. For example, by paying two years of church tithing or pledges to a charitable organization all in one year, deducting the total in that year, and the next year contributing nothing and taking the standard deduction, the combined tax for the two years may be less than if a contribution was made in each year.
- If your taxable income is low or a negative amount for the year, it may be appropriate to convert some or all of your taxable traditional IRA to a Roth IRA for little or no tax cost. Roth IRAs provide the benefit of tax-free income for retirement.
- If you qualify for one of the higher education tax credits and have not paid enough tuition during the year to achieve the maximum credit, the law allows you to prepay tuition for an academic period beginning within the first three months of the next year and claim the tuition for the current year’s credit.
- If you own an interest in a partnership or S corporation, you may need to increase your basis in the entity so you can deduct a loss from it for this year.
- Business clients also should consider making expenditures that qualify for the $25,000 business property expensing (Sec 179) election.
- If taxed by the AMT, you might consider deferring payments that would qualify as a “miscellaneous” itemized deduction, since you will receive no benefit for those expenses. On the other hand, if you are not taxed by the AMT, consider accelerating those expenses.
- If you’re thinking of making non-cash charitable donations, do so before the end of the year to maximize your charitable deduction. And remember that, if you write a check to make a charitable donation, it must be mailed by December 31 to count as a current-year deduction.
The foregoing is a brief summary of several year-end tax strategies. One of the best moves you can make is going forward with working with a professional CPA like Dan Dagley on your takes. Please call for a year-end tax planning appointment if you would like assistance from this office with comprehensive year-end tax planning.
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As a CPA in Washington, D.C., I don’t have to look too hard to find someone with a startup. This is an area filled with innovated and connected people, but it also takes money to get startups going. The good news is at least some of that is tax deductible. Business owners, especially those operating small businesses, may deduct up to $5,000 of their start-up expenses in the first year of the business’s operation. This is in lieu of amortizing the expenses over 180 months (15 years).
Generally, start-up expenses include all expenses incurred to investigate the formation or acquisition of a business or to engage in a for-profit activity in anticipation of that activity becoming an active business. To be eligible for the deduction, an expense also must be one that would be deductible if it were incurred after the business actually began. An example of a start-up expense is the cost of analyzing the potential market for a new product.
As with most tax benefits, there is a catch: Congress put a cap on the amount of the start-up expenses that can be claimed as a deduction under this special election. Here’s how: If the expenses are $50,000 or less, you can elect to deduct up to $5,000 in the first year, plus you can amortize the balance over 180 months. If the expenses are more than $50,000, then the $5,000 first-year write-off is reduced dollar-for-dollar for every dollar start-up expenses exceed $50,000. For example, if start-up costs were $54,000, the first-year write-off would be limited to $1,000 ($5,000 – ($54,000 – $50,000)).
The election to deduct start-up costs is made by claiming the deduction on the return for the year in which the active trade or business begins, and the return must be filed by the extended due date.
On IRS Schedule C, Profit or Loss from Business (Sole Proprietorship), the deduction is taken as part of the “Other Expenses” in Part V. If the entire amount of start-up costs isn’t deductible in the business’s first year, use Form 4562 to amortize the excess amount over 180 months, beginning with the month that you start operating the business. For example, the $53,000 of start-up expenses in the prior example that couldn’t be deducted as an expense in the first year of business would be deductible at $294 per month ($53,000/180), beginning with the first month the business became operational.
Qualifying Start-Up Costs – A qualifying start-up cost is one that would be deductible if it were paid or incurred to operate an existing active business in the same field as the new business, and the cost is paid or incurred before the day the active trade or business begins. Not includible are taxes, interest or research and experimental costs. Examples of qualified start-up costs include:
- Advertisements related to opening the business;
- Surveys/analyses of potential markets, labor supply, products, transportation facilities, etc.;
- Wages paid to employees and their instructors while they are being trained;
- Fees and salaries paid to consultants or others for professional services; and
- Travel and other related costs to secure prospective customers, distributors, and suppliers.
For the purchase of an active trade or business, only investigative costs incurred while conducting a general search for or preliminary investigation of the business (i.e., costs that help the taxpayer decide whether to purchase a new business and which one to purchase) are qualified start-up costs. Costs incurred while attempting to buy a specific business are capital expenses that aren’t treated as start-up costs.
If you have any questions related to the start-up expenses election and whether it will benefit your business, please give us a call at Dagley & Co.
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This Thanksgiving, you may want to toast to good health and wealth – but sadly for some, 2014 may have been spent in and out of treatments, therapy, doctors and hospitals. The silver lining is that your medical expenses may be tax deductible, particularly if the bills ran high.
Beginning is 2013, the only medical expenses that you can deduct are those in excess of 10% of your adjusted gross income (AGI), up from the previous 7.5% AGI limitation. The limitation remains at 7.5% for taxpayers age 65 and over through 2016, unless they are subject to the alternative minimum tax, in which case it is 10% for them as well. For joint return filers not subject to the AMT, if either spouse is age 65 or older, the 7.5% of AGI limitation applies to their joint medical expenses.
If you don’t itemize your medical deductions or are nowhere near exceeding the AGI limitation, you need not concern yourself with this deduction. On the other hand, if you do itemize and think you might meet the AGI limitation, then it may be worth your time to summarize your medical expenses for the year. Use the following checklist to help you accumulate your deductible medical expenses. The list is by no means all-inclusive, and some of the deductions listed may have additional restrictions not included here:
• Artificial Limb
• Artificial Teeth
• Birth Control Pills
• Braille Books and Magazines
• Abortion, Legal
• Alcoholism Treatment
• Christian Science Practitioner
• Contact Lenses
• Dental Treatment
• Drug Addiction Treatment
• Drugs (Prescription)
• Fertility Enhancement
• Guide Dog
• Hearing Aids
• Hospital Services
• Impairment-Related Expenses
• Insurance Premiums
• Laboratory Fees
• Laser Eye Surgery
• Lead-based Paint Removal
• Learning Disability Treatment
• Medicare B & D Premiums
• Medical Services
• Medicines, Prescribed
• Mentally Retarded, Special Home for
• Nursing Home
• Nursing Services
• Organ Donors
• Psychiatric Care
• Special Schools and Education
• Stop Smoking Programs
• Weight-loss Program
• Wig (Cancer Patient)
If you have questions related to your medical tax deductions please contact Dagley & Co.
‘Tis almost the time of year for gift giving: friends, family, and of course, charitable giving. Before you write those charity checks, though, you should also be aware that there are fraudsters out there who solicit on behalf of bogus charities or who aren’t entirely honest about how a so-called charity will use your contribution.
Solicitations for aid that you get in person, by phone or mail, by e-mail, on websites or on social networking sites may not be who they say they are. Fraudsters also pop up whenever there are natural disasters such as earthquakes, floods, etc., trying to coax you into making a donation that will go into their pockets, not to help victims of the disaster.
Unfortunately, legitimate charities face competition from fraudsters. If you are thinking about giving to a charity with which you are not familiar, do your research to avoid swindlers who try to take advantage of your generosity.
Here are tips to help make sure that your charitable contributions actually go to the cause you support:
• Donate to charities you know and trust. Be alert for charities that seem to have sprung up overnight in connection with current events.
• Ask if a caller is a paid fundraiser, who he/she works for, and what percentage of your donation goes to the charity and to the fundraiser. If you don’t get a clear answer – or if you don’t like the answer you get – consider donating to a different organization.
• Don’t give out personal or financial information – including your credit card or bank account number – unless you know for sure that the charity is reputable.
• Never send cash: you can’t be sure the organization will receive your donation, and you won’t have a record for tax purposes.
• Never wire money to someone who claims to be a charity. Scammers often request donations to be wired because wiring money is like sending cash: once you send it, you can’t get it back.
• If a donation request comes from a group claiming to help your local community (for example, local police or firefighters), ask the local agency if they have heard of the group and are getting financial support therefrom.
• Check out the charity with the Better Business Bureau’s (BBB) Wise Giving Alliance, Charity Navigator, Charity Watch, or GuideStar.
One of the upsides of being able to give to a cause you care about is having the ability to deduct that charitable contribution on your tax return. In order to do this, it must be a legitimate charity. Contributions to religious, charitable, scientific, educational, literary, and other institutions that are incorporated or recognized as organizations by the IRS may be deducted. Sometimes these organizations are referred to as 501(c)(3) organizations after the code section that allows them to be tax-exempt. Gifts to state and local government, the federal government, qualifying veterans and fraternal organizations, and certain nonprofit cemetery companies also may be deductible. Gifts to other kinds of nonprofits, such as business leagues, social clubs and homeowner’s associations, as well as to individuals, cannot be deducted.
To claim a cash contribution, you must be able to document the contribution with a bank record that includes the name of the qualified organization, the date of the contribution, and the amount of the contribution or a receipt (or a letter or other written communication) from the qualified organization that shows the same information. Bank records may include a canceled check, a bank or credit union statement, or a credit card statement. In addition, to deduct a contribution of $250 or more, you must have an acknowledgment of your contribution from the qualified organization or certain payroll deduction records.
Be aware that, to claim a charitable contribution, you must also itemize your deductions. It may also be beneficial for you to bunch your deductions in one year and skip the next. Please contact Dagley & Co. if you have questions related to charitable giving tax benefits associated with your particular tax situation.
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