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Major Tax Deadlines: June 2017

For June 2017

June 15
  • Second quarterly installment 2017 individual estimated tax due
  • Second quarterly installment 2017 estimated tax for calendar-year corporations due
  • Individual tax filing deadline for U.S. citizens living or serving in the military overseas

Note: Businesses are required to make federal tax deposits on dates determined by various factors that differ from business to business.

Payroll tax deposits: Employers generally must deposit Form 941 payroll taxes (income tax withheld from employees’ pay and both the employer’s and employees’ share of FICA taxes) on either a monthly or semiweekly deposit schedule. There are exceptions if you owe $100,000 or more on any day during a deposit period, if you owe $2,500 or less for the calendar quarter, or if your estimated annual liability is $1,000 or less.

  • Monthly depositors are required to deposit payroll taxes accumulated within a calendar month by the fifteenth of the following month.
  • Semiweekly depositors generally must deposit payroll taxes on Wednesdays or Fridays, depending on when wages are paid.

For more information on tax deadlines that apply to you or your business, contact our office.

How will health care reform affect you and your taxes?

We hope you had a wonderful weekend! Many of you are in the midst of celebrating Hanukkah, & the rest of us are gearing up for Christmas. Needless to say, it is a crazy busy time of year!

If you attended the seminar we had last week you know this was a hot topic. So our CPA thought it would be a good idea to get this up onto the blog for those who were unable to attend.

How will health care reform affect you and your taxes?

It’s massive, and it’s complicated. At more than 2,000 pages, the Affordable Care Act (ACA for short) has left businesses and individuals confused about what the law contains and how it affects them.

The aim of the law is to provide affordable, quality health care for all Americans. To reach that goal, the law requires large companies to provide health insurance for their employees starting in 2015. Medium-sized companies have until 2016 to provide health insurance to employees. Uninsured individuals must generally get their own health insurance starting in 2014. Those who fail to do so face penalties.

Insurance companies must also deal with new requirements. For example, they cannot refuse coverage due to pre-existing conditions, preventive services must be covered with no out-of-pocket costs, young adults can stay on parents’ policies until age 26, and lifetime dollar limits on health benefits are not permitted.

The law mandates health insurance coverage, but not every business or individual will be affected by this requirement. Here’s an overview of who will be affected.

FOR BUSINESSES – It’s all in the numbers

Fewer than 50 employees
Companies with fewer than 50 employees are encouraged to provide insurance for their employees, but there are no penalties for failing to do so. A special marketplace will be available for businesses with 50 or fewer employees, allowing them to buy health insurance through the Small Business Health Options Program (SHOP).
Fewer than 25 employees
For 2010 through 2013, small companies that paid at least 50% of the health insurance premiums for their employees could be eligible for a tax credit for as much as 35% of the cost of the premiums. To qualify, the business must employ fewer than 25 full-time people with average wages of less than $50,000 ($50,800 in 2014, as adjusted for inflation). For 2014, the maximum credit increases to 50% of the premiums the company pays, though to qualify for the credit, the insurance must be purchased through SHOP. Special rules apply where SHOP is not available.
50 to 99 employees
Businesses with 50 to 99 employees have until January 1, 2016, to meet the requirement of providing minimum, affordable health insurance to workers or face penalties. To qualify for this transitional relief, employers must certify that they have not laid off workers in order to come under the 100 employee threshold.
100 or more employees
For companies with 100 or more full-time employees, the requirement to provide “affordable, minimum essential coverage” to employees is scheduled to become effective January 1, 2015. The IRS is encouraging large companies to comply with the ACA requirements in 2014 even though there are no penalties for failure to do so.
The business play or pay penalty
Starting in 2015, companies with 100 or more employees that don’t offer minimum essential health insurance face an annual penalty of $2,000 times the number of full-time employees over a 30-employee threshold. If the insurance that is offered is considered unaffordable (it exceeds 9.5% of family income), the company may be assessed a $3,000 per-employee penalty. These penalties apply only if one or more of the company’s employees buy insurance from an exchange and qualify for a federal credit to offset the cost of the premiums.

FOR INDIVIDUALS – It’s all about coverage

A great deal of attention has been focused on the health insurance exchanges or “Marketplace” that opened for business on October 1, 2013. Confusion about the Affordable Care Act left many people thinking everyone has to deal with the exchanges. The fact is that if you are covered by Medicare, Medicaid, or an employer-provided plan, you don’t need to do anything.
Also, if you buy your health insurance on your own, you can keep your coverage if your plan is still offered by the insurance company. You can keep insurance that doesn’t meet the law’s minimum coverage requirements through October 2017 if your state permits it. However, the only way to get any premium-lowering tax credits based on your income is to buy a plan through the Marketplace.

The exchanges (Marketplace)

Each state will either develop an insurance exchange (Marketplace) or use one provided by the federal government. The Marketplace will allow those seeking coverage to comparison shop for health plans from private insurance companies.

There are four types of insurance plans to choose from: Bronze, Silver, Gold, and Platinum. The more expensive the plan, the greater the portion of medical costs that will be covered. The price of each plan will depend on several factors including your age, whether you smoke, and where you live.

Many individuals will qualify for federal tax credits which will reduce the premiums they actually pay. Each state’s Marketplace has a calculator to assist individuals in determining the amount, if any, of their federal tax credit.

The individual play or pay penalty

Individuals will generally need to have coverage for 2014 or pay a penalty of $95 or 1% of your income, whichever is greater. Under certain circumstances, you may qualify for an exemption from the 2014 requirement to have health insurance. Low-income individuals may qualify for subsidies and/or tax credits to help pay the cost of insurance.

The penalty increases to $325 or 2% of income for 2015 and to $695 or 2.5% of income for 2016. For 2017 and later years, the penalty is inflation-adjusted. Those who choose not to be insured and to pay the penalty instead will still be liable for 100% of their medical bills.

MORE ABOUT THE LAW AND YOUR TAXES

In addition to the penalties required by the Affordable Care Act, the law made other tax changes that could affect you. Among them are the following:
● Annual contributions to flexible spending accounts are limited to $2,500 (indexed for inflation).
● The 7.5% adjusted gross income threshold for deducting unreimbursed medical expenses is now 10% for those under age 65. Those 65 and older can use the 7.5% threshold through 2016.
● The additional tax on nonqualified distributions from health savings accounts (HSAs) is 20%, an increase from the previous 10% penalty.
● The payroll Medicare tax increases from 1.45% of wages and self-employment income to 2.35% on amounts above $200,000 earned by individuals and above $250,000 earned by married couples filing joint returns. This rate increase applies only to the employee portion, not to the employer portion.
● A 3.8% Medicare surtax is imposed on unearned income (examples: interest, dividends, most capital gains) for single taxpayers with income over $200,000 and married couples with income over $250,000.

Pre-Tax Reimbursement
One unintended consequence of the Affordable Care Act is explained in an IRS Notice issued in September 2013. Effective January 1, 2014, employers may no longer reimburse employees for their individual health insurance policies or pay the premiums directly to the insurance company on a pre-tax basis. Employers that continue to pay employee’s premiums or reimburse their payment must include these amounts in the employee’s taxable wages. Only if the employer offers a group plan can pre-tax dollars be used for health insurance premiums.

The Affordable Care Act may be one of the most complicated and confusing laws ever passed, but one thing is very clear: the law will affect the taxes of most Americans. In order to manage your tax bill, you will have to factor the new health care rules into your overall personal and business tax planning. For guidance, contact our office.

NOTE: This Memo is intended to provide you with an informative summary of the tax issues connected with the Affordable Care Act. This massive package of legislation contains varying effective dates, definitions, limitations, and exceptions that cannot be summarized easily. Also be aware that in the political environment surrounding this law, changes to the law have already been made and more changes could be made at any time. For details and guidance in applying the tax provisions of this law to your situation, seek professional assistance. (Last updated 7/7/14)

 

Please let us know if you have any questions and/or concerns, we are always here for you. We wish you all a very Happy Holiday Season!

All the best,

Harvey & Caldwell, PA Team

Please feel free to contact Harvey and Caldwell, PA at 913-451-4400 or visit our website http://www.harveyandcaldwell.com/ as a resource for your tax & financial planning needs.

Reference:
Harvey & Caldwell, PA Client Memo

Do year-end planning to cut your 2014 taxes

We hope you had a wonderful weekend!  With Christmas only 10 days away, I am sure everyone is busy wrapping up their Christmas shopping.  I know at this time of year the last thing we want to think about are things we can do now that will still have an impact on this years taxes.  Believe it or not there are still some steps you can take before the end of the year to impact this years taxes.

Do year-end planning to cut your 2014 taxes

The end of another year is fast approaching, and it’s once again time to take steps to reduce taxes on your personal and business returns. Planning advice for 2014 includes strategies for accelerating deductions and deferring income as well as managing assets.

Bunch your deductions
For example, bunching deductions on your personal income tax return can make sense for 2014. Bunching means you concentrate itemized deductions into the year offering the most tax benefit and claim the standard deduction in alternate years. Even if the current limitation on itemized deductions applies to you, bunching can be effective when combined with other tax planning such as reducing adjusted gross income.

One category of itemized deductions that lends itself to bunching is charitable contributions. In general, as long as you have written acknowledgment from a qualified charity, you can deduct donations in the year you write the check or put the charge on your credit card.

Instead of cash, donating appreciated assets before December 31 may be more tax advantageous. When you contribute property you have owned for more than a year, you can usually deduct the full fair market value.

For instance, say the value of the shares you own in a mutual fund has gone up since you bought into the fund. If you sell those shares and donate the proceeds to charity, you’ll have capital gain. But when you donate the shares to the charity, you can claim a deduction for the value on the date of your donation, garnering a benefit without the related income tax bill.

Other itemized deductions you can control in order to maximize tax savings include real estate taxes and state income taxes

Check exposure to the AMT
Just remember to check your exposure to the alternative minimum tax and the 3.8% net investment income tax when deciding in which year to pay these tax bills. Why? Certain itemized deductions — such as taxes — are disallowed under the AMT rules, but can help reduce exposure to the net investment income tax.

What if you’re not planning to itemize? Taking a look at your deductions is still a useful exercise. One reason: The standard deduction is also disallowed under AMT rules, and you may benefit by itemizing even when your total itemized deductions are under the threshold.

The standard deduction for 2014 is $12,400 when you’re married filing jointly and $6,200 when you’re single.

Monitor adjusted gross income
Another tax planning strategy is to reduce adjusted gross income (AGI). One way to do this on your personal tax return is to maximize above-the-line deductions. These are expenses you can claim even if you don’t itemize.

Above-the-line tax savers include such items as retirement plan contributions, student loan interest deduction, and the health savings account deduction.

Set up a retirement plan
When you have a business, contributions to a self-employed retirement plan also reduce AGI above-the-line. Depending on the plan you choose, you can set up the paperwork before year-end and make contributions by the due date of your 2014 tax return.

For instance, say you’re the sole owner of your business. Establishing a 401(k) gives you the opportunity to set aside as much as $17,500 in salary deferral (plus an extra $5,500 if you’re over age 50). In addition, you can put up to 20% of your business profit into your plan

Manage asset policies
Another tax-saving suggestion for your business is to review your asset management policies. Depreciation is probably the first thing you think of when you consider tax benefits for business assets. And you probably already know bonus depreciation expired at the end of 2013 and the Section 179 expensing deduction was reduced to $25,000 for 2014. (Be aware that Congress may reinstate the larger deductions.)

While accelerated depreciation tax rules affect your current year deduction, remember that changes to these rules have no impact on the total amount you can deduct over the life of an asset. In addition, you still have tax planning opportunities.

One such opportunity is to take advantage of the new repair and capitalization regulations. These rules, which generally take effect this year, provide safe-harbor thresholds for writing off the cost of certain business supplies, repairs, and maintenance. What you need to do before year-end: Create and implement a written policy to comply with the rules.

Another potential tax saver involving business assets: Examine the tax benefits of leasing business equipment instead of buying. Depending on the type of lease, you may be able to deduct payments in full as you make them. What’s the downside? Generally you’ll forfeit depreciation deductions. Run an analysis to determine which option will work best for you.

Consider shifting income
A planning strategy to help reduce taxes on both your business and personal returns is shifting income among family members.

For your business, the strategy could mean hiring family members and paying a reasonable — and deductible — salary for work actually performed. You may be able to provide tax-deductible fringe benefits as well as save on payroll tax expense.

An income-shifting technique is to make gifts of income-producing property to family members in lower tax brackets. (Be aware of the “kiddie tax.”) Though you can’t take a tax deduction for gifts, future income is taxed to the recipient, and may mitigate your exposure to the 3.8% net investment income tax.

Gifts of up to $14,000 per person ($28,000 when you’re married) made before year-end incur no income, gift, estate, or generation-skipping taxes.

These are just a few of the tax planning opportunities available for 2014. To discuss the tax-cutting options suited to your individual circumstances, call us to schedule a year-end tax review.

 

We wish you all a very Happy Holiday Season!
All the best,

Harvey & Caldwell, PA Team

Please feel free to contact Harvey and Caldwell, PA at 913-451-4400 or visit our website http://www.harveyandcaldwell.com/ as a resource for your tax & financial planning needs.

Reference:
Harvey & Caldwell, PA Tax Planning Letter Year-End 2014 http://www.planningtips.com/4422/default.asp?Co_ID=18386&Tip_ID=4422&pg=2

Safer, Smarter Holiday Shopping

Good Morning everyone! We hope you had a wonderful weekend! I cannot believe that Thanksgiving is upon us. Given it is a week of thanks, we want to start off this weeks blog by saying thank you. Thank you for trusting us to handle all of your tax & financial planning needs. We are very grateful to have you as a client!

I received this email from my insurance company & since Black Friday & Cyber Monday is upon us, I thought this would be a great topic for this week.

Safer, Smarter Holiday Shopping

The busiest shopping weekend of the year has arrived. If you’ll be joining the crowd of more than 140 million Black Friday shoppers, take some extra precautions to protect yourself, your purchases and your personal information.

In the Store
From fistfights to identity theft, Black Friday shopping brings a few safety risks. Consider these holiday shopping safety tips:
-Keep your purse close to your body or your wallet in an inside coat pocket or front pants pocket.
-Don’t argue or fight over an item.
-Don’t take your money out until asked to do so.
-Use only one credit card. Remember the 2013 Target breach? Should something similar occur, you can reduce the risk of having multiple cards compromised.
-Save your receipts and monitor your credit card activity.
-Ask for help moving and loading large items if needed.
-If shopping with children, select a central location to meet in case you are separated. Teach kids how to ask a security guard or employee for help if they’re lost.

In the Car
With so many people out and about, you may encounter some aggressive drivers on the road. Don’t add to the problem: Remember to drive defensively and curb your road rage. Parking lots can be dangerous too, so be on guard:
-Be patient when looking for a parking space. Don’t speed up to catch that empty (or soon-to-be empty) spot, and be cautious of other drivers who do.
-Park your vehicle in a well-lit area.
-Look around and under your vehicle before approaching it.
-Store shopping bags in your trunk and out of plain sight.
-Look for other cars or people, and back out slowly.

On the Internet
Opting to join Black Friday or Cyber Monday from your couch? You still need to be on the lookout. And while there are plenty of advantages to e-commerce, it’s also wise to take steps to protect your identity.
Here are a few tips:
-Always review your order confirmations and credit card statements in a timely manner. Staying abreast of your statements can help you catch errors and unusual charges.
-Do not email your credit card information to individuals privately offering items for sale.
-Never make online financial transactions via websites or institutions with which you are not familiar. Many thieves set up fake sites to steal information from unsuspecting victims.
-Be especially skeptical of unsolicited emails – even those that appear to be from institutions you trust – asking you to follow particular links, respond with identifying information, or change passwords. Another common phishing practice is to set up websites that pose as the sites of trusted institutions in order to gather legitimate passwords from unsuspecting users.
-Be sure to log off completely from any website following an online transaction. Don’t just close your browser: Find the link that logs you off.
-Stick to retailers you know, and never commit to a deal that seems too good to be true.
-Make sure that websites where you’re shopping are secured. Look for a secured symbol at the bottom of your browser (the symbol is most often displayed as a small padlock).
-Only provide your account information when the browser indicates an encrypted (scrambled) connection. An encrypted connection is normally indicated by an “https://” in your browser’s address bar in front of the address of the page you are viewing.

We wish you all a very Happy Thanksgiving & happy shopping!
All the best,

Harvey & Caldwell, PA Team

Please feel free to contact Harvey and Caldwell, PA at 913-451-4400 or visit our website http://www.harveyandcaldwell.com/ as a resource for your tax & financial planning needs.

Reference:
Staff Writer (October 14, 2014 & February 20, 2011) Safer, Smarter Holiday Shopping, & Purchases & Online Security. State Farm. Retrieved November 23, 2014, from
http://learningcenter.statefarm.com/safety-2/family-1/safer-smarter-holiday-shopping/index.html?cmpid=enews-nov14 http://learningcenter.statefarm.com/family/finances/purchases-and-online-security/

Do year-end planning to cut your 2014 taxes

We hope that everyone had a wonderful Halloween! Now that November is here, the rest of the year is going zoom by!  This is an article from our November tax planning letter.  I thought it was worth sharing now that there is a little time between Halloween & Thanksgiving.  Now that the World Series is over, and we can actually be productive human beings again, this is an important thing to consider before we are in full swing holiday mode.
Do year-end planning to cut your 2014 taxes

The end of another year is fast approaching, and it’s once again time to take steps to reduce taxes on your personal and business returns. Planning advice for 2014 includes strategies for accelerating deductions and deferring income as well as managing assets.

Bunch your deductions
For example, bunching deductions on your personal income tax return can make sense for 2014. Bunching means you concentrate itemized deductions into the year offering the most tax benefit and claim the standard deduction in alternate years. Even if the current limitation on itemized deductions applies to you, bunching can be effective when combined with other tax planning such as reducing adjusted gross income.

One category of itemized deductions that lends itself to bunching is charitable contributions. In general, as long as you have written acknowledgment from a qualified charity, you can deduct donations in the year you write the check or put the charge on your credit card.

Instead of cash, donating appreciated assets before December 31 may be more tax advantageous. When you contribute property you have owned for more than a year, you can usually deduct the full fair market value.

For instance, say the value of the shares you own in a mutual fund has gone up since you bought into the fund. If you sell those shares and donate the proceeds to charity, you’ll have capital gain. But when you donate the shares to the charity, you can claim a deduction for the value on the date of your donation, garnering a benefit without the related income tax bill.

Other itemized deductions you can control in order to maximize tax savings include real estate taxes and state income taxes.

Check exposure to the AMT
Just remember to check your exposure to the alternative minimum tax and the 3.8% net investment income tax when deciding in which year to pay these tax bills. Why? Certain itemized deductions — such as taxes — are disallowed under the AMT rules, but can help reduce exposure to the net investment income tax.

What if you’re not planning to itemize? Taking a look at your deductions is still a useful exercise. One reason: The standard deduction is also disallowed under AMT rules, and you may benefit by itemizing even when your total itemized deductions are under the threshold.

The standard deduction for 2014 is $12,400 when you’re married filing jointly and $6,200 when you’re single.

Monitor adjusted gross income
Another tax planning strategy is to reduce adjusted gross income (AGI). One way to do this on your personal tax return is to maximize above-the-line deductions. These are expenses you can claim even if you don’t itemize.

Above-the-line tax savers include such items as retirement plan contributions, student loan interest deduction, and the health savings account deduction.

Set up a retirement plan
When you have a business, contributions to a self-employed retirement plan also reduce AGI above-the-line. Depending on the plan you choose, you can set up the paperwork before year-end and make contributions by the due date of your 2014 tax return.

For instance, say you’re the sole owner of your business. Establishing a 401(k) gives you the opportunity to set aside as much as $17,500 in salary deferral (plus an extra $5,500 if you’re over age 50). In addition, you can put up to 20% of your business profit into your plan.

Manage asset policies
Another tax-saving suggestion for your business is to review your asset management policies. Depreciation is probably the first thing you think of when you consider tax benefits for business assets. And you probably already know bonus depreciation expired at the end of 2013 and the Section 179 expensing deduction was reduced to $25,000 for 2014. (Be aware that Congress may reinstate the larger deductions.)

While accelerated depreciation tax rules affect your current year deduction, remember that changes to these rules have no impact on the total amount you can deduct over the life of an asset. In addition, you still have tax planning opportunities.

One such opportunity is to take advantage of the new repair and capitalization regulations. These rules, which generally take effect this year, provide safe-harbor thresholds for writing off the cost of certain business supplies, repairs, and maintenance. What you need to do before year-end: Create and implement a written policy to comply with the rules.

Another potential tax saver involving business assets: Examine the tax benefits of leasing business equipment instead of buying. Depending on the type of lease, you may be able to deduct payments in full as you make them. What’s the downside? Generally you’ll forfeit depreciation deductions. Run an analysis to determine which option will work best for you.

Consider shifting income
A planning strategy to help reduce taxes on both your business and personal returns is shifting income among family members.

For your business, the strategy could mean hiring family members and paying a reasonable — and deductible — salary for work actually performed. You may be able to provide tax-deductible fringe benefits as well as save on payroll tax expense.

An income-shifting technique is to make gifts of income-producing property to family members in lower tax brackets. (Be aware of the “kiddie tax.”) Though you can’t take a tax deduction for gifts, future income is taxed to the recipient, and may mitigate your exposure to the 3.8% net investment income tax.

Gifts of up to $14,000 per person ($28,000 when you’re married) made before year-end incur no income, gift, estate, or generation-skipping taxes.

These are just a few of the tax planning opportunities available for 2014. To discuss the tax-cutting options suited to your individual circumstances, call us to schedule a year-end tax review.

 

We hope that everyone has a wonderful week & please let us know if you have any questions and/or concerns.

All the best,

Harvey & Caldwell, PA Team

Please feel free to contact Harvey and Caldwell, PA at 913-451-4400 or visit our website http://www.harveyandcaldwell.com/ as a resource for your tax & financial planning needs.

Reference:
Harvey & Caldwell, PA Year-End 2014 Tax Planning Letter http://www.planningtips.com/4422/default.asp?tip_id=4422&co_id=18386&pg=2

Understand the tax rules before lending money to relatives

Good morning everyone, we hope that you had a wonderful weekend! It has definitely been exciting watching the Royals! I was looking over our online advisor this weekend and saw this topic about lending money to relatives. Now that we are approaching the holiday season we do tend to lend money to our family to help make their season more enjoyable. So this topic seemed to be appropriate for the week.

Understand the tax rules before lending money to relatives

There are many worthwhile reasons to lend money to a relative. For example, you may want to help a child or sibling continue their education or start their own business.

-The IRS says you must charge interest. But lending money to relatives can have tax consequences. The IRS requires that a minimum rate of interest be charged on loans. The rates change every month, and can be found at www.irs.gov. If you do not charge at least the minimum rate, the IRS will still require you to pay tax on the difference between the interest you should have charged and what you actually charged. If these excess amounts become large, or if the loan is forgiven, there may also be gift tax implications.

-There are some exceptions, though. Loans of up to $10,000 can be made at a lower (or zero) rate of interest, as long as the proceeds aren’t invested. Loans between $10,001 and $100,000 are exempt from the minimum interest requirement as well, as long as the borrower’s investment income is $1,000 or less. If the investment income exceeds $1,000, you’ll be taxed on the lesser of this income or the minimum IRS interest.

-Do the paperwork. For the IRS to treat the transaction as a loan and not a gift subject to the gift tax rules, the transaction must look like a loan. The borrower should have the ability to repay the principal and interest. A contract should be prepared which specifies the loan amount, interest rate, the payment dates and amounts, any security or collateral, as well as late fees and steps to be taken if the borrower doesn’t pay. Have the document signed and dated by all the parties.

-Can you claim a deduction if you’re not repaid? If the borrower defaults, you may be eligible for a nonbusiness bad debt deduction. However, you must document your efforts to collect the unpaid balance. This may involve the unpleasant task of taking legal action against a family member. The preparation of a signed contract, though, may make the borrower think twice before attempting to evade his or her responsibilities.

For assistance in structuring a family loan that doesn’t create tax concerns, give us a call. We’re here to help.

 

We hope that everyone has a wonderful week & please let us know if you have any questions and/or concerns. Go Royals!

All the best,

Harvey & Caldwell, PA Team

Please feel free to contact Harvey and Caldwell, PA at 913-451-4400 or visit our website http://www.harveyandcaldwell.com/ as a resource for your tax & financial planning needs.

Reference:
Harvey & Caldwell, PA October Online Advisor: http://www.planningtips.com/Planning_Tips.asp?Co_ID=18386&Tip_ID=6850

Planning For Your Financial Future

Good morning everyone, we hope that you had a wonderful weekend! It was nice being able to watch the Chief’s for Monday night football! This weeks topic is actually from an email I received from my insurance agent. I know we talk a lot about financial planning (hey, we do that too) in the midst of all the tax talk, and I liked this article. It was a nice reminder for me that even your latte habit needs to be accounted for when establishing a baseline investment strategy.

Planning For Your Financial Future

A plan is essential for reaching any goal. It keeps you focused and can eventually lead to success. The same thing goes for a financial goal. If you want stability and security down the road, you need to have a strategy.

But when you’re just starting to think about your future, and retirement seems so far away, it can be hard to get started on a strategy. Here’s some information to help you begin thinking about a plan.

 

Establish A Budget
The best way to start is by figuring out a budget so you can get in the habit of saving before spending. If you don’t follow a budget, you might be spending more than you realize, and saving less than you could be.

Begin by tracking your spending for a month. The easiest way to do this is by going about your life as usual. Keep track of the bills you pay and items you buy, from groceries to your daily coffee. At the end of the month, compare what you earned with what you spent.

Next, take a good look at what you spent your money on. Are there some things you can do without or ways to cut back? Some expenses are fixed, like food, housing and utilities, but some are just luxuries. Can you eliminate some of those? (Remember, though, you don’t need to cut out every unnecessary expense. A luxury-free budget is about as sensible as no budget at all, and completely depriving yourself of all treats could eventually send you on a serious budget-damaging spending spree!)

Set Financial Goals
Your budget will be easier to follow if you set financial goals. In the short-term, you may want to pay off credit card debt. Your long-term goals might include saving for the down payment on a home, your children’s college tuition or retirement.

Once you’ve identified your goals, give yourself a timeline. That will help you figure out how much of your budget to set aside each month.

Review your goals periodically so they’re always fresh in your mind. If you go off course, don’t get frustrated and give up; simply reassess and continue working toward your goals.

Invest Regularly, Even Small Amounts
Investing early in life is advantageous because your money has more time to compound and grow. But it’s never too late to start.

Many people don’t believe they have enough money to become investors. But you don’t have to invest a large amount of money initially or regularly. It’s perfectly fine to start slow and small while you make investing a habit.

An easy way to get started is by opening an Individual Retirement Account (IRA) or by participating in an employer-sponsored 401(k) plan. In many cases, you can even make regular contributions to these plans by having the money taken directly out of your paycheck.

Your investing plan should include a strategy for increasing your contributions. After a few months of investing, when you’ve adjusted to living on less money, boost the amount you’re investing by a percent or two. You can also look for ways to invest lump-sums of money, such as when you get a bonus, a monetary gift or your tax refund.

 

We hope that everyone has a wonderful week & please let us know if you have any questions and/or concerns.

All the best,

Harvey & Caldwell, PA Team

Please feel free to contact Harvey and Caldwell, PA at 913-451-4400 or visit our website http://www.harveyandcaldwell.com/ as a resource for your tax & financial planning needs.

Reference:
State Farm. Planning for Your Financial Future. State Farm. Retrieved September 28, 2014, from https://www.statefarm.com/finances/retirement-plans-iras/planning-for-retirement

Know the tax effects of investing in mutual funds

We hope that everyone had a great weekend & is enjoying football season being underway. It will soon be fall and as we are approaching the end of the year many of us start to consider investing in mutual funds. In order to utilize your money most efficiently (timing matters) this article from our September Online Advisor gives some great tips on things to consider before you purchase.

Know the tax effects of investing in mutual funds
Mutual funds offer an efficient means of combining investment diversification with professional management.

Their income tax effects can be complex, however, and poorly timed purchases or sales can create unpleasant year-end surprises.

Mutual fund investors (excluding qualifying retirement plans) are taxed based on activities within each fund. If a fund investment generates taxable income or the fund sells one of its investments, the income or gain must be passed through to the shareholders. The taxable event occurs on the date the proceeds are distributed to the shareholders, who then owe tax on their individual allocations.

If you buy mutual fund shares toward the end of the year, your cost may include the value of undistributed earnings that have previously accrued within the fund. If the fund then distributes those earnings at year-end, you’ll pay tax on your share even though you paid for the built-up earnings when you bought the shares and thus realized no profit. Additionally, if the fund sold investments during the year at a profit, you’ll be taxed on your share of its year-end distribution of the gain, even if you didn’t own the fund at the time the investments were sold.

Therefore, if you’re considering buying a mutual fund late in the year, ask if it’s going to make a large year-end distribution, and if so, buy after the distribution is completed. Conversely, if you’re selling appreciated shares that you’ve held for over a year, do so before a scheduled distribution, to ensure that your entire profit will be treated as long-term capital gain.

Most mutual fund earnings are taxable (unless earned within a retirement account) even if you automatically reinvest them. Funds must report their annual distributions on Forms 1099, which also indicate the nature of the distributions (interest, capital gains, etc.) so you can determine the proper tax treatment.

Outside the funds, shareholders generate capital gains or losses whenever they sell their shares. The gains or losses are computed by subtracting selling expenses and the “basis” of the shares (generally purchase costs) from the selling price. Determining the basis requires keeping records of each purchase of fund shares, including purchases made by reinvestments of fund earnings. Although mutual funds are now required to track and report shareholders’ cost basis, that requirement only applies to funds acquired after 2011.

When mutual funds are held within IRAs, 401(k) plans, and other qualified retirement plans, their earnings are tax-deferred. However, distributions from such plans are taxed as ordinary income, regardless of how the original earnings would have been taxed if the mutual funds had been held outside the plan. (Roth IRAs are an exception to this treatment.)
If you’re considering buying or selling mutual funds and would like to learn more about them, give us a call.

 

We hope that everyone has a wonderful week & please let us know if you have any questions and/or concerns.

All the best,

Harvey & Caldwell, PA Team

Please feel free to contact Harvey and Caldwell, PA at 913-451-4400 or visit our website http://www.harveyandcaldwell.com/ as a resource for your tax & financial planning needs.

Reference:
Harvey & Caldwell, PA September Online Advisor: http://www.planningtips.com/6850/oatax2.asp?co_id=18386&tip_id=6850

IRS warning & Business owner salary

We hope that everyone had a fantastic Labor Day weekend! I cannot believe we are already to this point of the year, as always it seems like it is just flying by. But the reality is, it is the end of summer, our fantasy football drafts have occurred, the kids are back in school, & the next holiday will be here before we know it. This week we are covering few things.

IRS warns again about phone scams
Another strong warning from the IRS is alerting taxpayers to phone scams that have already resulted in 90,000 complaints and the theft of millions of dollars. Here’s how the typical scam works: The caller claims to be from the IRS and, using hostile and abusive language, demands immediate payment of taxes by a prepaid debit card or wire transfer. The IRS reminds taxpayers it will never contact you by phone about owed taxes; the first contact will be by mail. It will never ask for credit, debit, or prepaid card information in a phone call, and it will never request immediate payment over the phone.

 

Now lets get to this weeks topic which was have selected from our September Online Advisor. Many of us are business owners & have struggled with this. So we thought it to be good advice as many of us are reevaluating our businesses as we head into fall.

 
Setting Your Salary: What’s the right amount for a small business owner?
One of the greatest perks of owning a small business is flexibility. You can set your own hours and salary. You can plot the firm’s trajectory without consulting your boss, upper management, or even corporate policy. But that same flexibility may become a curse if handled unwisely. A small business owner without discipline and a well-thought-out strategy may fall into serious financial trouble. Employees in larger firms often rely on the human resources department to establish pay scales, retirement plans, and health insurance policies. In a small company, all those choices — and many more — fall to the owner, including decisions about personal compensation.
While there’s not a one-size-fits-all formula for determining how much to pay yourself as a business owner, here are three factors to consider:

 
Personal expenses. Tracking your business and personal expenses separately makes it easier to track the firm’s cash flow, and lets you know how much salary you can realistically draw without hurting profitability.

Start with your household budget; then determine how much you’re willing to draw from personal savings to keep your household afloat as the company grows. For a start-up company, owner compensation may be minimal. Beware, however, of going too long without paying yourself a reasonable salary. Be sure to document that you’re in business to make a profit; otherwise the IRS may view your perpetually unprofitable business as a hobby — a sham enterprise aimed at avoiding taxes.

 
The market. If you were working for someone else, what would they pay for your skills and knowledge? Start by answering that question; then discuss salary levels with small business groups and colleagues in your geographic area and industry. Check out the Department of Labor and Small Business Administration websites. In the early stages of your business, you probably won’t draw a salary that’s commensurate with the higher range of salaries, but at least you’ll learn what’s reasonable.

 
Affordability. Review and continually update your firm’s cash flow projections to determine the salary level you can reasonably sustain while keeping the business profitable. As the company grows, that level can be adjusted upward.

 
We hope that everyone has a wonderful week & please let us know if you have any questions and/or concerns.

All the best,

Harvey & Caldwell, PA Team

Please feel free to contact Harvey and Caldwell, PA at 913-451-4400 or visit our website http://www.harveyandcaldwell.com/ as a resource for your tax & financial planning needs.

Reference:
Harvey & Caldwell, PA September Online Advisor: http://www.planningtips.com/Planning_Tips.asp?Co_ID=18386&Tip_ID=6850

Don’t Waste 529 Tax Benefits

Happy Wednesday everyone! We hope that you are having a great week so far. I know most of us are sending our kids back to school, and that it is a very busy time of year. I was trying to figure out what to share with you this week and given the time of year a past post actually popped into mind. This is a post we shared back in November, and since it pertains to paying for school, I thought what better topic for the week?

Don’t Waste 529 Tax Benefits

 
Qualified tuition programs (QTPs), also known as 529 plans, offer substantial tax benefits. Investment earnings inside such plans avoid income tax. In addition, distributions from 529 plans to cover qualified higher education costs are tax-free. However, you’ll lose the full value of 529 tax benefits if you’re not careful about managing distributions. One trap is taking out too much money; another involves not pulling enough money from your 529.

 
Expensive excess
The risk of insufficient 529 withdrawals may be easier to grasp. If you leave money in the account after all the relevant college bills have been paid, further distributions may be highly taxed.

 
Example 1: Art and Kim Wilson open up a 529 account for their daughter, Eve. After Eve graduates and gets a full time job, there is still $20,000 left in the 529 account. The senior Wilsons have no younger children to whom they might transfer the account. If the Wilsons want to use that $20,000 for purposes other than education, the distributions will be taxable. The taxable amount will depend on the ratio of earnings to the overall account value. The Wilsons also will owe a 10% penalty on the amount included in income.

 
Qualified (that is, tax-free) distributions from a 529 plan may cover tuition, fees, books, supplies, and equipment, as well as room and board, in many cases. However money spent by the Wilsons or by Eve to repay student loan debt will not be considered a qualified 529 expense, for this purpose. Ideally, 529 account owners should fully draw down 529 accounts for qualified higher education costs before all the likely beneficiaries are finished attending classes.

 
Credit check
Another 529 tax trap involves other college tax breaks such as the American Opportunity Tax Credit, the Lifetime Learning Tax Credit, and the tuition and fees tax deduction. Many taxpayers can save taxes by claiming such benefits. For instance, the American Opportunity Tax Credit is fully available to joint filers with modified adjusted gross income (MAGI) of $160,000 or less, and to single filers as well as household heads with MAGI of $80,000 or less. (Partial credits are available with slightly higher income.) Someone who qualifies can trim taxes by as much as $2,500, on $4,000 worth of higher education outlays.

 
However, you can’t claim these education tax benefits and 529 qualified distributions for the same expenses. To claim either credit or deduction, you may owe tax on your 529 distribution.

 
Example 2: Eve Wilson’s total qualified college costs in 2013 are $25,000. Her parents take a $25,000 distribution from their 529 account to pay those bills. When the senior Wilsons file their 2013 tax return, they discover they are eligible for the full American Opportunity Tax Credit, which they claim.

 
Because the Wilsons use $4,000 of Eve’s qualified expenses to claim the tax credit, only $21,000 of their 529 withdrawal counts as a qualified distribution. Thus, the Wilsons must treat $4,000 as a nonqualified distribution. (Note: Taxpayers won’t owe the 10% penalty if they lose the 529 tax break because of a conflict with the American Opportunity Tax Credit.)

 
If the Wilsons had been aware of this tax treatment, they could have paid $4,000 of Eve’s college bills from another source to align with the American Opportunity Tax Credit. Then they could have withdrawn only $21,000 from the 529 plan, all of which would have been tax-free.

 
Family QTP Transfers
-Assets in a Qualified Tuition Program (QTP) can be rolled over or transferred from one QTP to another. In addition, the designated beneficiary can be changed without transferring accounts.

 
-There are no income tax consequences if the designated QTP beneficiary is changed to a member of the existing beneficiary’s family.

 
-A beneficiary’s family includes many relatives, for this purpose. Besides children, stepchildren, foster children, and adopted children, the extensive list includes parents, siblings, in-laws, and their spouses.

 

We hope re-sharing this was helpful to some of you and good luck getting the kiddos off to school!  We hope that everyone has a wonderful week & please let us know if you have any questions and/or concerns.

All the best,

Harvey & Caldwell, PA Team

Please feel free to contact Harvey and Caldwell, PA at 913-451-4400 or visit our website http://www.harveyandcaldwell.com/ as a resource for your tax & financial planning needs.

Reference:
October 2013 issue of CPA Client Bulletin (ISSN 1942-7271) is prepared by AICPA for the clients of its members and other practitioners

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