2011 Planning: Maximizing Itemized Deductions
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Question:
How can I maximize my deductions?
Response:
Successful tax planning includes a review of your available deductions and the impact of your filing status on your option to itemize. It is important that all of the technical requirements for your deductions are met. In addition, certain items are deductible only to the extent they exceed a percentage threshold. By reducing your adjusted gross income, you increase the amount of itemized deductions you can claim, because the floor limitation amounts are reduced accordingly.
A strategy commonly used in year-end individual tax planning is to determine the best timing for claiming itemized deductions. Generally, it is beneficial for taxpayers to defer income and accelerate expenses. This strategy may enable you to itemize your deductions if you claimed the standard deduction in the past. This year, some certainty for planning purposes is provided due to the extension of the reduced individual income tax rates through 2012 by the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (Tax Relief Act of 2010).
In addition to the reduced tax rates, the Tax Relief Act of 2010 also extended numerous other tax benefits, including:
- Marriage penalty relief
- Repeal of the itemized deduction and personal exemption phaseouts
- Itemized deduction for state and local general sales taxes in lieu of state and local income taxes
- Mortgage insurance premium deduction
- Above-the-line deduction for certain out-of-pocket classroom expenses
- Above-the-line higher education tuition deduction and other education-related incentives
- Alternative minimum tax (AMT) patch
- Nonrefundable tax credit offset of entire regular and AMT tax liability
- Tax-free IRA distributions to charity
However, the additional standard deductions for state and local real property tax, motor vehicle sales tax, and net disaster losses are no longer available.
Tax planning for higher-income taxpayers is more complicated. Generally, you must reduce your otherwise allowable itemized deductions if your adjusted gross income exceeds a specified threshold amount. However, the phase-out of itemized deductions and personal exemptions for higher-income taxpayers is eliminated through 2012 by the Tax Relief Act of 2010. The failure to take the alternative minimum tax (AMT) into account may also jeopardize your tax planning strategy, as the AMT continues to negate many itemized deductions. The Tax Relief Act of 2010 increased the AMT exemptions amounts for the 2010 and 2011 tax years, which provides some relief from this tax burden.
Although maximizing your itemized deductions is an important aspect of tax planning, there are other issues that you may need to consider in light of your overall tax scenario. We hope to provide you with planning options that enable you to achieve the greatest tax savings possible. Please contact our office at your earliest convenience to make an appointment to discuss your tax planning options.
Bartolme and Associates, Inc.
Certified Public Accountants
2134 Main Street Suite 270
Huntington Beach, CA 92648
714-969-1663
Fax 714-969-7225
We use industry standard tax research and professional service platforms.
Visit us on Yelp.
http://www.yelp.com/biz/bartolme-and-associates-huntington-beach
Visit our twitter feed
http://twitter.com/#!/bartolmecpa
We are proud members of Pacific Coast Letip. Visit the groups web site to gather information for other professional and quality services and products.
http://www.pacificcoastletip.com
2011 Planning: Tax Benefits of Home Ownership
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Question:
What are the tax advantages of buying rather than renting a home?
Response:
Buying a home is the single most valuable investment most families make, and home ownership offers tax breaks that make it the foundation for your overall tax planning. The tax law provides numerous incentives to home ownership, including the following:
- Buying, rather than renting, replaces nondeductible rent with deductible mortgage interest.
- For a limited time, qualified mortgage insurance premiums may be treated as deductible mortgage interest.
- Taxpayers can deduct an unlimited amount of property tax they pay on any number of residences.
- Homeowners can exclude up to $250,000 of gain ($500,000 for married couples filing jointly and certain surviving spouses) from taxable income when they sell.
- There is no penalty for an early withdrawal from an IRA for a “first-time” homebuyer for up to $10,000 so long as the proceeds are used for acquisition of a home.
- Self-employed individuals may deduct expenses for a portion of the home used for business.
- Energy credits are available for certain improvements to a residence.
- A temporary provision excludes the discharge of “qualified principal residence indebtedness” from gross income.
You may benefit from a close review of these provisions, particularly if you are considering transactions involving your home, including selling, refinancing, or renting. Many home ownership tax benefits also apply to a second home. We would like to assist you with home ownership as it applies to your overall tax plan. Please call our offices at your earliest convenience to arrange an appointment.
Bartolme and Associates, Inc.
Certified Public Accountants
2134 Main Street Suite 270
Huntington Beach, CA 92648
714-969-1663
Fax 714-969-7225
We use industry standard tax research and professional service platforms.
Visit us on Yelp.
http://www.yelp.com/biz/bartolme-and-associates-huntington-beach
Visit our twitter feed
http://twitter.com/#!/bartolmecpa
We are proud members of Pacific Coast Letip. Visit the groups web site to gather information for other professional and quality services and products.
http://www.pacificcoastletip.com
2011 Planning: Home and Domestic Service Workers
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Question:
What are the tax and filing issues surrounding the many different individuals I hire for my household?
Response:
Your family may need outside assistance to provide care and supervision for your children or elderly parents while you work. You may hire cleaning help or a landscaper to assist with the upkeep of your home, or someone to walk your dog during the work week. These lifestyle choices simplify your daily routine, but there are rules you must follow when compensating your domestic workers. It is important to determine what your responsibilities are with respect to your workers, and ensure that you comply with the payment and reporting rules that apply to your situation.
For instance, understanding the difference between an employee and an independent contractor is very important. If you are an employer, you are required to withhold and contribute a matching amount of FICA and Medicare taxes from your domestic worker’s income. However, if your workers are independent contractors, you are only required to report payments of $600 or more on a Form 1099-MISC, Miscellaneous Income. Failing to make the right classification could cost you money.
Alternatively, if you incur qualified expenses on behalf of a child under age 13, or a disabled spouse or dependent, you may be able to claim a child and dependent care tax credit. The credit that can be claimed ranges from 20 to 35 percent of qualified employment-related expenses, but is subject to a cap which is calculated as a percentage of these expenses. The maximum amount of eligible expenses is $3,000 if you have one qualifying dependent and $6,000 if you have two or more qualifying dependents.
An individual may be considered a domestic services worker when performing household duties as part of a daily work routine. Generally, services performed by cooks, waiters, babysitters, butlers, housekeepers, maids, valets, caretakers, handymen, chauffeurs, and companions are considered domestic services.
However, an individual may be performing these services as an employee rather than an independent contractor, and this distinction could be very important in determining how to report your income, and pay employment and income taxes. Generally, the right to control how duties are executed and what tasks are performed is sufficient to make a worker an employee.
For example, if you are a babysitter in the parents’ home, you are probably a domestic employee. If you earn $1,700 or more in 2011, your employer is required to withhold FICA and Medicare taxes from your income. Generally, you must contribute an equal amount of FICA and Medicare taxes, but for 2011 only, your tax rate as an employee is two-percent less than your employer’s rate.
Subject to certain limitations, your employer may also be required to pay federal unemployment tax (FUTA), but is not obliged to withhold income taxes unless there is a mutual agreement to do so. However, you are liable for federal and state income tax on your earnings, and may be required to make quarterly estimated tax payments.
Conversely, if you watch children in your own home, you are most likely an independent contractor. Your clients must report your remuneration of $600 or more on a Form 1099-MISC, Miscellaneous Income. Your income is subject to self-employment and income tax, and along with any related business expenses, should be reported on Form 1040, Schedule C. However, since your business expenses are not reported on Form 1040, Schedule A, they are not limited to the 2% of adjusted gross income (AGI) thresh
For further information and help please contact our office at your earliest convenience to make an appointment.
Sincerely yours,
Bartolme and Associates, Inc.
Certified Public Accountants
2134 Main Street Suite 270
Huntington Beach, CA 92648
714-969-1663
Fax 714-969-7225
We use industry standard tax research and professional service platforms.
Visit us on Yelp.
http://www.yelp.com/biz/bartolme-and-associates-huntington-beach
Visit our twitter feed
http://twitter.com/#!/bartolmecpa
We are proud members of Pacific Coast Letip. Visit the groups web site to gather information for other professional and quality services and products.
http://www.pacificcoastletip.com
2011 Planning: Independent Contractor vs. Employee
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Question:
What are the differences between Employee’s and Independent contractors? What are the possible liability issues surrounding misclassifying a worker?
Response:
Currently, the likelihood of your business being involved in a worker classification or employment tax audit is increased because the IRS is aggressively attempting to reduce the “tax gap,” which is the annual shortfall between taxes owed and taxes paid. Employment tax noncompliance is estimated by the IRS to account for approximately $54 billion of the tax gap. Under-reporting of FICA makes up $14 billion; under-reporting of self-employment tax accounts for $39 billion; and under-reporting of unemployment tax accounts for $1 billion in lost revenue.
As a result of the Questionable Employment Tax Practice (QETP) initiative, in 2007 the IRS entered into agreements with workforce agencies in 29 states to share the results of employment tax examinations. These agreements provide a centralized, uniform means for the IRS and state employment officials to encourage compliance with federal and state employment tax requirements. In addition, for the 2008 through 2010 tax years, the IRS plans to examine 6000 randomly selected employers’ Forms 941, Employer’s Quarterly Federal Tax Return, as part of the National Research Program (NRP).
Because the existing worker classification rules are complex and ambiguous, much uncertainty surrounds their interpretation and application. The lack of a single, definitive test for classifying workers as either employees or independent contractors contributes significantly to the worker classification problem.
Therefore, understanding the difference between an employee and an independent contractor is very important. If you are an employer, you are required to withhold and contribute a matching amount of FICA and Medicare taxes from your employee’s income. However, if your workers are independent contractors, you are only required to report payments of $600 or more on a Form 1099-MISC (Miscellaneous Income). Failing to make the right classification could cost you money.
If you have workers who make substantial financial investments in tools, equipment, or a place to work, or undertake some entrepreneurial risks, they are probably independent contractors. However, when you control and direct the workers who perform services for you as to the end result and how it will be accomplished, you are probably involved in an employer-employee relationship.
Unless there is a reasonable basis for treating your employees as independent contractors, failing to withhold income and employment taxes from their wages can result in severe penalties and interest, in addition to the back taxes owed. Of course, penalties for intentional worker misclassifications are harsher than they are for inadvertent mistakes.
Your benefit plan may also be in jeopardy if any eligible employees have been misclassified as independent contractors. Since these employees have been excluded from plan participation, your retirement plan may lose its tax-favored status. The problem is compounded when excluded employees seek restitution for lost benefits not only due to their exclusion from the benefit plan, but also for health coverage and other employee benefits.
Since the potential liability is considerable, it would be beneficial for you to verify that your workers are properly classified. It is also important that your employment tax records are in compliance with IRS guidelines, especially in the event of an audit. Please contact our office at your earliest convenience to make an appointment.
Sometimes workers are specifically designated as employees by the Internal Revenue Code even if the facts do not suggest an employer-employee relationship. Generally, the following types of workers are considered statutory employees:
1. Full-time traveling or city sales representatives;
2. Agent-drivers or commission-drivers;
3. Life insurance sales representatives; and
4. Home workers.
However, there are distinct rules for each worker type, and their employment tax treatment also varies. In addition, statutory employees must personally perform substantially all of the services required under your contract. These workers cannot have a material investment in your facilities, and your relationship with them must be ongoing.
If your business currently employs statutory employees, it would be beneficial for you to verify that your workers are properly classified. It is also important to review your employment tax records and procedures, to ensure that they are in compliance with IRS guidelines, especially in the event of an audit. Employee Employer issues are lengthy and tedious so if you have further questions contact our office for a free consultation.
Bartolme and Associates, Inc.
Certified Public Accountants
2134 Main Street Suite 270
Huntington Beach, CA 92648
714-969-1663
Fax 714-969-7225
We use industry standard tax research and professional service platforms.
Visit us on Yelp.
http://www.yelp.com/biz/bartolme-and-associates-huntington-beach
Visit our twitter feed
http://twitter.com/#!/bartolmecpa
We are proud members of Pacific Coast Letip. Visit the groups web site to gather information for other professional and quality services and products.
http://www.pacificcoastletip.com
2011 Planning: Retirement Plan Distributions
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Question:
What are the tax effects of retirement plan distributions?
Response:
Your retirement plans and IRAs may be among the largest, if not the largest, asset that you have. Therefore, one of the most important planning areas for you is taking distributions from your IRAs and qualified retirement plans. Understanding the basic tax rules and then planning your distributions to meet your personal financial and estate planning objectives is essential. We can explain those rules and provide some strategies for you to consider as part of your overall tax plan.
Some taxpayers may consider early retirement as a viable option. However, generally, a distribution made before you are 59 1/2 years of age is subject to a 10% penalty in addition to the tax otherwise payable on the distribution. There are some exceptions. The penalty may not apply for certain hardship cases, for first-time home buyers, or to pay certain medical or education expenses. Many distributions may be received tax free if they are transferred to an IRA or another eligible plan within 60 days of the distribution.
Though there is a penalty for premature distributions, there is also a penalty for failure to commence distributions by a certain age. Minimum distribution rules are imposed to prevent participants from unreasonably deferring the tax on their retirement savings. Under these rules, distributions are required to begin, for a participant other than a 5-percent owner, no later than April 1 of the calendar year following the later of:
- the calendar year in which the participant reaches age 70 1/2, or
- the calendar year in which the participant retires.
The minimum distribution rules do not apply to Roth IRA’s, but do apply to traditional IRAs, deferred compensation plans, tax sheltered annuities, and qualified retirement plans.
Navigating the rules of when and how retirement distributions are taxed can be intimidating. However, we can help you make the right choices that will minimize your tax burden, meet your financial needs and comply with tax regulations. Please visit our web site or give our office a call at your earliest convenience to discuss your retirement plan options in view of your overall tax plan.
Bartolme and Associates, Inc.
Certified Public Accountants
2134 Main Street Suite 270
Huntington Beach, CA 92648
714-969-1663
Fax 714-969-7225
We use industry standard tax research and professional service platforms.
Visit us on Yelp.
http://www.yelp.com/biz/bartolme-and-associates-huntington-beach
Visit our twitter feed
http://twitter.com/#!/bartolmecpa
We are proud members of Pacific Coast Letip. Visit the groups web site to gather information for other professional and quality services and products.
http://www.pacificcoastletip.com
2011 Planning: Educational Savings Plans
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Question:
What tax favored methods / plans are available to help our family save for future college tuition and other related expenses?
Response:
As a family with young children, you should consider the cost of higher education well in advance. Two educational savings vehicles allow individuals to save for education on a tax-favored basis: a qualified tuition program and a Coverdell education savings account. Also, you may be able to exclude from income a limited amount of bond interest received from qualified U.S. savings bonds in the year you pay higher education expenses. Parents may also use funds from an individual retirement account or a traditional form of savings to pay tuition costs. Generally, the payment of higher education costs is supplemented with scholarships, loans and grants. However, having a viable plan as early as possible in a child’s life will make maximum use of a family’s financial resources and may provide some tax benefit.
Section 529 plans. The Tax Code allows states and some educational institutions to offer so-called “529″ plans (known for the section of the Tax Code that governs them). They are also sometimes called qualified tuition programs (QTPs). They allow you to either prepay or contribute to an account for paying a student’s post-secondary education expenses. An eligible educational institution generally includes colleges, universities, vocational schools or other post-secondary educational institutions. In addition, distributions from state programs, even to the extent of earnings, are now entirely tax-free to the extent used for qualified higher education expenses. This tax-free treatment also has been available for distributions from private college and university programs.
Coverdell education savings accounts. Coverdell education savings accounts (also sometimes called education IRAs) are similar to IRAs. You can save today for future educational expenses, not just higher educational expenses. Funds in a Coverdell ESA can also be used for K-12 and related expenses. The maximum annual Coverdell ESA contribution is $2,000 per beneficiary. Contributions are not deductible by the donor and distributions are not included in the beneficiary’s income as long as they are used to pay for qualified education expenses. Earnings accumulate tax-free. Contributions generally must stop when the beneficiary turns age 18, except for individuals with special needs. Parents can maximize benefits, however, by transferring older siblings’ accounts for use by a younger brother, sister or first cousin, thereby maximizing the tax-free growth period. Excess contributions are subject to an excise tax.
Although the amounts of adjusted gross income allowed for a contributor to a Coverdell ESA are subject to phase-out, the limits are generous. The annual contribution starts to phase out for married couples filing jointly with modified AGI at or above $190,000 and less than $220,000 and at or above $95,000 and less than $110,000 for single individuals.
Undoubtedly, some of these provisions will be more important to you than others, depending upon your personal circumstances. If you would like to explore how these opportunities can work for you and have us fully evaluate your situation then visit our web site or call for a free consultation.
Bartolme and Associates, Inc.
Certified Public Accountants
2134 Main Street Suite 270
Huntington Beach, CA 92648
714-969-1663
Fax 714-969-7225
We use industry standard tax research and professional service platforms.
Visit us on Yelp.
http://www.yelp.com/biz/bartolme-and-associates-huntington-beach
Visit our twitter feed
http://twitter.com/#!/bartolmecpa
We are proud members of Pacific Coast Letip. Visit the groups web site to gather information for other professional and quality services and products.
http://www.pacificcoastletip.com
2011 Tax Planning: Rental Real Estate Activity Compliance
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Question:
I have a second home that I have decided to lease to a third party. What are the tax issues with regard to my rental income and expenses?
Response:
Rental real estate offers tremendous tax advantages and opportunity for tax planning. Taxpayers, such as you, can depreciate property far exceeding your actual investment, deduct interest on borrowed capital, exchange rather than sell properties to defer tax on gains, use installment sales to defer tax on sales, and profit from preferential rates on long-term capital gains. Most importantly, you can generate “positive cash flow,” or monthly income, with depreciation deductions that effectively turn the actual income into tax losses.
However, deductions are not unlimited. For example, real estate income and loss is generally considered passive income and loss for tax purposes. Taxpayers generally cannot use passive activity losses (PALs) to offset ordinary income from employment, self-employment, interest and dividends, or pensions and annuities. The rental real estate loss allowance and real estate professional status are two important exceptions to this rule. In addition, the tax consequences of renting out a vacation home depend upon the amount of time the home is rented and the amount of time you use the home for personal purposes.
As one exception to the PAL rules, taxpayers with adjusted gross incomes of $150,000 or less can claim a rental real estate loss allowance of up to $25,000 for property they actively manage. Active management does not require regular, continuous, or substantial involvement. However, it does require that the taxpayer own at least 10% of the property. Also, to qualify for the exception, married taxpayers must file jointly.
The second exception allows real estate professionals not to treat their rental activity as a passive activity. Therefore, their losses are not limited to passive income. This exception requires material participation by the taxpayer which is demonstrated by meeting one of seven tests. These tests are complex and include the number of hours of participation and the facts and circumstances of the participation in the activity.
Vacation homes are taxed under one of three sets of rules depending on how long the homeowner rents the property. If you rent your vacation home for fewer than 15 days during the year, no rental income is includible in gross income. If you rent the property for 15 or more days during the tax year and it is used by you for the greater of (a) more than 14 days or (b) more than 10% of the number of days during the year for which the home is rented, the rental deductions are limited. Under this limitation, the amount of the rental activity deductions may not exceed the amount by which the gross income derived from such activity exceeds the deductions otherwise allowable for the property, such as interest and taxes.
Visit our web site or call for an appointment if you have any questions as to how the rental real estate rules apply to your particular situation. We can assist you in taking advantage of the available tax benefits and develop an overall tax plan.
Bartolme and Associates, Inc.
Certified Public Accountants
2134 Main Street Suite 270
Huntington Beach, CA 92648
714-969-1663
Fax 714-969-7225
We use the very best industry standard tax research and professional service platform.
Visit us on Yelp.
http://www.yelp.com/biz/bartolme-and-associates-huntington-beach
Visit our twitter feed
http://twitter.com/#!/bartolmecpa
We are proud members of Pacific Coast Letip. Visit the groups web site to gather information for other professional and quality services and products.
http://www.pacificcoastletip.com/
2011 Planning: Maximizing Itemized Deductions
Please refer to the Disclaimer and Other Information page on this (Blog/Website) before continuing.
Question:
How do I maximize my deductions for my 2011 tax return?
Response:
Successful tax planning includes a review of your available deductions and the impact of your filing status on your option to itemize. It is important that all of the technical requirements for your deductions are met. In addition, certain items are deductible only to the extent they exceed a percentage threshold. By reducing your adjusted gross income, you increase the amount of itemized deductions you can claim, because the floor limitation amounts are reduced accordingly.
A strategy commonly used in year-end individual tax planning is to determine the best timing for claiming itemized deductions. Generally, it is beneficial for taxpayers to defer income and accelerate expenses. This strategy may enable you to itemize your deductions if you claimed the standard deduction in the past. This year, some certainty for planning purposes is provided due to the extension of the reduced individual income tax rates through 2012 by the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (Tax Relief Act of 2010).
In addition to the reduced tax rates, the Tax Relief Act of 2010 also extended numerous other tax benefits, including:
- Marriage penalty relief
- Repeal of the itemized deduction and personal exemption phase-outs
- Itemized deduction for state and local general sales taxes in lieu of state and local income taxes
- Mortgage insurance premium deduction
- Above-the-line deduction for certain out-of-pocket classroom expenses
- Above-the-line higher education tuition deduction and other education-related incentives
- Alternative minimum tax (AMT) patch
- Nonrefundable tax credit offset of entire regular and AMT tax liability
- Tax-free IRA distributions to charity
However, the additional standard deductions for state and local real property tax, motor vehicle sales tax, and net disaster losses are no longer available.
Tax planning for higher-income taxpayers is more complicated. Generally, you must reduce your otherwise allowable itemized deductions if your adjusted gross income exceeds a specified threshold amount. However, the phase-out of itemized deductions and personal exemptions for higher-income taxpayers is eliminated through 2012 by the Tax Relief Act of 2010. The failure to take the alternative minimum tax (AMT) into account may also jeopardize your tax planning strategy, as the AMT continues to negate many itemized deductions. The Tax Relief Act of 2010 increased the AMT exemptions amounts for the 2010 and 2011 tax years, which provides some relief from this tax burden.
Although maximizing your itemized deductions is an important aspect of tax planning, there are other issues that you may need to consider in light of your overall tax scenario.
We hope to provide you with planning options that enable you to achieve the greatest tax savings possible. Please visit our web site for more information or contact our office.
Bartolme and Associates, Inc.
Certified Public Accountants
2134 Main Street Suite 270
Huntington Beach, CA 92648
714-969-1663
Fax 714-969-7225
We use the very best industry standard tax research and professional service platform.
Visit us on Yelp.
http://www.yelp.com/biz/bartolme-and-associates-huntington-beach
Visit our twitter feed
http://twitter.com/#!/bartolmecpa
We are proud members of Pacific Coast Letip. Visit the groups web site to gather information for other professional and quality services and products.
http://www.pacificcoastletip.com/
2011 Planning: Moving and Job Hunting Expenses
Please refer to the Disclaimer and Other Information page on this (Blog/Website) before continuing.
Question:
What are the tax issues surrounding moving in search of a new job and other job hunting costs?
Response:
Individual taxpayers seeking new jobs may incur a variety of expenses, including costs directly associated with moving to a new job location or those specifically related to the job search. Many of these expenses are deductible, but the rules are strict, and expenses must be carefully documented and substantiated. You may be able to take advantage of these deductions, if you plan carefully.
Any moving expenses you may incur, including expenses of traveling to the new location and transporting household goods and personal effects, are deductible so long as you meet certain requirements relating to when you begin work at the new position and how far the new job is from the old job and your old residence. These expenses are deductible even if you are seeking employment for the first time or in a completely new field. Also, qualified moving expenses reimbursed or paid by your employer are considered nontaxable fringe benefits.
You also may be able to deduct the expenses you incur in searching for a new job, including the costs of a headhunter or employment service, and the expense of preparing your resume. These expenses are deductible so long as the job being sought is in the same line of work as the old job, even if you are unemployed at the time of the job search. Further, the job search does not have to be successful in order to qualify for the deduction. However, job hunting expenses for a first job, or related to changing to a new career, are not deductible.
Although these are just a few examples, there are many more tax issues that you should consider.
Visit our web site so we can discuss your overall tax planning strategies and how you can benefit from these deductions. Please contact our office at your earliest convenience to make an appointment.
Bartolme and Associates, Inc..
Certified Public Accountants
2134 Main Street Suite 270
Huntington Beach, CA 92648
714-969-1663
Fax 714-969-7225
We use the very best industry standard tax research and professional service platform.
Visit us on Yelp.
http://www.yelp.com/biz/bartolme-and-associates-huntington-beach
Visit our twitter feed
http://twitter.com/#!/bartolmecpa
We are proud members of Pacific Coast Letip. Visit the groups web site to gather information for other professional and quality services and products.
http://www.pacificcoastletip.com/
2011 Planning: Tax Consequences for Self-Employed Individuals
Please refer to the Disclaimer and Other Information page on this (Blog/Website) before continuing.
Question:
What are the tax advantages and disadvantage of being self employed?
Response:
Owning your own business can be very rewarding, both personally and financially. Being the sole decision-maker for this important undertaking can also be overwhelming. Business owners have many choices to make, and these choices involve tax consequences that are not always foreseen. We can help you minimize your overall tax burden by identifying and maximizing business deductions, providing guidance on substantiation of expenses, and exploring tax planning alternatives that are uniquely available to the self-employed.
Some frequently overlooked business expenses that you may be able to deduct include moving expenses, costs of travel away from home, entertainment expenses, and expenses related to a home office. Code Sec. 179 expense allowances on the purchase of new equipment can provide a significant deduction. In addition, there are multiple benefits when you employ your spouse, child, or other family member in the business.
There are some risks involved in adopting tax positions relating to operating a business as an independent contractor. For example, the distinction between employee and independent contractor is an issue the IRS subjects to special scrutiny. As a self-employed individual, you must comply with these rules for yourself or for any workers that you hire. If you are an employer, you must withhold income and employment taxes from an employee’s income. However, if your workers are independent contractors, you are only required to report payments of $600 or more on a Form 1099-MISC, Miscellaneous Income. Failing to make the right classification, however, could result in additional taxes, interest and penalties.
Complex rules and calculations are involved in many of the planning opportunities that are available to you.
We would be happy to review your overall tax scenario in order to maximize your tax savings. Please contact our office at your earliest convenience to make an appointment.
Bartolme and Associates, Inc..
Certified Public Accountants
2134 Main Street Suite 270
Huntington Beach, CA 92648
714-969-1663
Fax 714-969-7225
We use the very best industry standard tax research and professional service platform.
Visit us on Yelp.
http://www.yelp.com/biz/bartolme-and-associates-huntington-beach
Visit our twitter feed
http://twitter.com/#!/bartolmecpa
We are proud members of Pacific Coast Letip. Visit the groups web site to gather information for other professional and quality services and products.
http://www.pacificcoastletip.com/