Tax Tips for New Business Owners

Each year, almost half a million new businesses are started. With the tax season in full swing, it’s critical that the taxpayers behind these new businesses know what to look for when preparing their taxes, which can make a huge difference in how much they owe.

                     

Entrepreneurs new to tax filing should keep some of the following tips in mind:

•  Any individual who is self-employed is required to pay into Social Security and Medicare.

• New business start-up costs can be deducted.

• If you started a business in 2014, consider becoming incorporated, to protect your personal assets.

• Take into consideration those doing work on your behalf, such as employees or contractors.

•  If you set up your business as an S Corporation you can avoid paying some of your profit into Social Security and Medicare.

To read the entire article, please visit www.cpapracticeadvisor.com

The “Dirty Dozen” Tax Scams for 2015

The Internal Revenue Service (IRS) completed their 2015 “Dirty Dozen” list of tax scams this week, including a warning to taxpayers about aggressive telephone scams continuing across the U.S. during the early weeks of this year’s filing season.

Aggressive and threatening phone calls from scam artists are being reported on a daily basis in states across the nation. Taxpayers are urged not to give money or personal financial information over the phone or through emails claiming to be from the IRS. Illegal scams can lead to major penalties and interest for taxpayers, and even possible criminal prosecution.

Keep in mind that, as a taxpayer, you are legally responsible for what is on your tax returns, even if it is prepared by someone else. Phone scams and email phishing schemes top the “Dirty Dozen” list of tax scams that are being highlighted by the IRS.

To view the full list, and to read the entire article, please visit www.irs.gov.

A Key Part of Estate Planning? Income Tax Planning

It’s been two years since Congress enacted the American Taxpayer Relief Act (ATRA), which increased the federal estate and gift tax exemption to $5 million and the maximum estate, gift, and generation-skipping transfer (GST) tax rates from 35 percent to 40 percent.

For 2015, taking into account the inflation adjustment, the federal estate and gift tax exemption is $5.43 million for each individual, or $10.86 million for a married couple. The ATRA also made permanent the portability feature introduced in 2010. The portability provisions allow a surviving spouse to combine the deceased spouse’s unused exemption with the surviving spouse’s exemption, thereby effectively assuring that married couples utilize their full exemptions.

With respect to the federal income tax, the ATRA increased the top individual income tax rate from 35 percent to 39.6 percent and the top capital gains rate from 15 percent to 20 percent. In addition, the Affordable Health Care and Patient Protection Act added the 3.8 percent income tax on net investment income (NII). Therefore, taking into account the 3.8 percent tax, the top federal individual income tax rate can reach 43.4 percent for ordinary income, and the top rate on dividends and long-term capital gains can reach 23.8 percent.

Keep in mind, the 3.8 percent tax only applies to individual taxpayers whose modified adjusted gross income exceeds $200,000, or $250,000 for married taxpayers filing jointly. The 3.8 percent tax also applies to trusts when the adjusted gross income of the trust exceeds $12,150. Because of the ATRA, the increase in the federal estate and gift tax exemptions, coupled with the increase in the top individual income tax rates, has now shifted the focus of estate planning to include income tax planning.

Two Income Tax-Planning Strategies to Consider

Traditionally, estate tax rates exceeded income tax rates, but the ATRA has closed that gap significantly. Now, individuals are well-advised to consider income tax-planning strategies where they had not done so previously.

Here are two approaches:

1. Assign income from a taxpayer in a high-income tax bracket to a taxpayer in a lower bracket: For example, gifting income-producing assets to a complex trust allows the trust to shift taxable income to beneficiaries in lower tax brackets.

2. Avoid the phase-out of itemized deductions and personal exemptions: By reducing one’s income, taxpayers may be able to decrease the phase-outs of itemized deductions and personal exemptions.

To read the entire article, please visit www.accountingweb.com.