Home Improvement Tax Saver

It’s spring and finally the weather is conducive to working around the house, out in your lawn, etc…  If you are thinking of selling your house this spring or summer keep in mind this tax saving advice below.

With any luck, you might be able to walk away from the sale of your principal residence without paying any capital gains tax. The current law allows qualified married couples filing jointly to pull down a tax-free profit of up to $500,000 ($250,000 for single filers).

But you could still owe tax on a home sale. That’s because your “gain” for tax purposes is the difference between the sale price (less certain selling expenses) and your “basis” in the home.

If your gain exceeds the home sale exemption limit, or if you owe capital gains tax due to the business use of your home, you could wind up with a tax bill.

Tip: Scour your records and files for home improvements and other outlays that can be used to increase your basis. It doesn’t matter if the costs were incurred years ago. The more you can add to your basis, the less your taxable gain.

The list of home improvements includes new additions, installation of central air conditioning, fencing, decks, heating or plumbing systems and landscaping. But the cost of repairs, such as repainting the house or fixing roof shingles, can’t be added to the basis.

“Selling expenses” can also be subtracted. These include attorney’s fees, title search and insurance, broker’s commissions, survey and appraisal fees, and fees for recording deeds and mortgages.

 

 

 

 

 

 

© Copyright 2014. Thompson Reuters.  All rights reserved.
Brought to you by: Gordon Advisors, P.C.

Save a Bundle With Retirement Plans

Small business owners have some lucrative new choices in qualified retirement plans. Current tax law allows more money to be set aside for business owners and key employees, including their spouses. 

Since most entrepreneurs and executives don’t intend to live off Social Security in their golden years, the new tools can help you maintain financial independence – even before age 65.

Two relatively new plans worth considering are:

• The Solo 401(k) Plan allows a one-person firm (a spouse can be the one other employee) to put away up to $52,000 pre-tax in 2014 (up from $51,000 in 2013).The 2014 contribution limit is based on a formula that allows an employee to personally contribute up to $17,500 (unchanged from 2013) and the employer to contribute up to 25 percent of salary. And of course, a self-employed person is essentially both the employer and the employee. In this case, the employer contribution can be up to 20 percent of the individual’s self employment income.

  The total maximum contribution allowed for 2014 is $52,000 per individual, or $57,500 if the individual is 50 or older at year end (up from $51,000 and $56,500 respectively in 2013).  For example, let’s say a husband and wife team (both under age 50) operate an incorporated consulting business and they each earn salaries of $100,000 a year. They can each contribute $17,500 as employees and the company can contribute $25,000 for a total of $42,500 each — that’s $85,000 for the husband and wife.

  Solo 401(k)s follow the same guidelines as other 401(k) plans so the company is forced to include most employees and contribute a similar percent for them. Therefore, these plans are best suited for companies with one or two people. If you are planning to add even one full-time employee to your business, talk with your tax pro before you hire someone to decide how to proceed with your retirement plan.

• The Solo Defined Benefit Plan is skewed in favor of employee-owners age 45 and older. These plans can potentially allow tax contributions up to $100,000, as the covered individual nears retirement age.Other features include flexibility of investments including stocks, bonds, exchange traded funds, mutual funds and other investments. The contribution limit is not based on a percentage of compensation, but is recalculated each year by an actuary.

  For example, let’s say a husband and wife, ages 47 and 46 respectively, each earn $100,000 per year. They might each be able to contribute $70,000 a year on a tax deductible basis into a Solo Defined Benefit Plan — or $140,000 for both of them.

  The two options described here are certainly not the only ones available to your firm. Consult with your tax pro to determine how to best fund your retirement and comply with federal laws.

© Copyright 2013. Thompson Reuters.  All rights reserved.
Brought to you by: Gordon Advisors, P.C.

 

Real Estate Losses and Homeowners this Tax Season

Many of us in Michigan have experienced the pain of seeing our home values go up and down within the past decade.  If you are a homeowner who recently sold real estate at a loss, you may be wondering if you can count the real estate loss as a write off on your taxes.  Under tax law, residence is considered personal property so for the most part the answer is no.

Losses from real estate can generally only be used to offset income from “passive activities” which could be from any rental activity OR any business in which the taxpayer does not materially participate, it can not be used to offset their “non passive” activities which would include businesses in which the taxpayer works on a regular and continuous basis.   Any remaining losses must be carried forward, unless you are a real estate professional.  Real estate professionals also must pass a “material participation” test in order to use passive losses to offset non-passive income.  If you are not a real estate professional, you can qualify for an extra tax break if you actively participate in rental real estate and meet certain income requirements.

For more information please contact our CPAs in the Real Estate Sector at 248 952 0200.

 

 

 

 

 

© Copyright 2013. Thompson Reuters.  All rights reserved.
Brought to you by: Gordon Advisors, P.C.

Five Tax Credits That Can Reduce Your Taxes

Tax credits help reduce the taxes you owe. Some credits are also refundable. That means that, even if you owe no tax, you may still get a refund.

Here are five tax credits you shouldn’t overlook when filing your 2013 federal tax return:

1. The Earned Income Tax Credit is a refundable credit for people who work but don’t earn a lot of money. It can boost your refund by as much as $6,044. You may be eligible for the credit based on the amount of your income, your filing status and the number of children in your family. Single workers with no dependents may also qualify for EITC. Visit IRS.gov and use the EITC Assistant tool to see if you can claim this credit. For more see Publication 596, Earned Income Credit.
2. The Child and Dependent Care Credit can help you offset the cost of daycare or day camp for children under age 13. You may also be able to claim it for costs paid to care for a disabled spouse or dependent. For details, see Publication 503, Child and Dependent Care Expenses.
3. The Child Tax Credit can reduce the taxes you pay by as much as $1,000 for each qualified child you claim on your tax return. The child must be under age 17 in 2013 and meet other requirements. Use the Interactive Tax Assistant tool on IRS.gov to see if you can claim the credit. See Publication 972, Child Tax Credit, for more about the rules.
4. The Saver’s Credit helps workers save for retirement. You may qualify if your income is $59,000 or less in 2013 and you contribute to an IRA or a retirement plan at work. Check out Publication 590, Individual Retirement Arrangements (IRAs).
5. The American Opportunity Tax Credit can help you offset college costs. The credit is available for four years of post-secondary education. It’s worth up to $2,500 per eligible student enrolled at least half time for at least one academic period. Even if you don’t owe any taxes, you still may qualify. However, you must complete Form 8863, Education Credits, and file a tax return to claim the credit. Use the Interactive Tax Assistant tool on IRS.gov to see if you can claim the credit.Publication 970, Tax Benefits for Education, has the details.

Before you claim any tax credit, be sure you qualify for it. Find out more about these credits by calling our Tax professionals at 248 952 0200.

Tips for Self-Employed Taxpayers

If you are an independent contractor or run your own business, there are a few basic things to know when it comes to your federal tax return. Here are six tips you should know about income from self-employment:

1. Self-employment income can include income you received for part-time work. This is in addition to income from your regular job.
2. You must file a Schedule C, Profit or Loss from Business, or Schedule C-EZ, Net Profit from Business, with your Form 1040.
3. You may have to pay self-employment tax as well as income tax if you made a profit. Self-employment tax includes Social Security and Medicare taxes. Use Schedule SE, Self-Employment Tax, to figure the tax. Make sure to file the schedule with your tax return.
4. You may need to make estimated tax payments. People typically make these payments on income that is not subject to withholding. You may be charged a penalty if you do not pay enough taxes throughout the year.
5. You can deduct some expenses you paid to run your trade or business. You can deduct most business expenses in full, but some must be ’capitalized.’ This means you can deduct a portion of the expense each year over a period of years.
6. You can deduct business costs only if they are both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and proper for your trade or business.