We hope that Thanksgiving treated you all nicely and that we have all recovered from our turkey-induced comas. December 1st is here and as we enter the final month of 2009, it is no time to become complacent with your year-end tax planning. Let's dive into a few more areas to focus on today.
Estimated tax payments are a confusing topic for many taxpayers and can create penalties if incorrectly computed and underpaid. Generally, if your 2008 Adjusted Gross Income (AGI) was $150,000 or less, one way you could avoid 2009 underestimated tax penalties is to make your timely 2009 estimated tax payments based on 100% of your 2008 tax liability. If your 2008 AGI was over $150,000, you can avoid penalties by basing your 2009 estimated tax payments on 110% of your 2008 tax liability. 2009 offers one additional method to avoid underpayment penalties for 2009 only! If you qualify, you can eliminate 2009 underestimated tax penalties by basing your 2009 estimated tax payments on 90% (rather than 100% or 110%) of your 2008 tax liability. To qualify, you must meet the following requirements: you must have had an AGI below $500,000 or $250,000 if married and filing separate returns for 2008 AND you must certify that more than 50% of the gross income on your 2008 return came from a "qualifying small business". For purposes here, a qualifying small business is one that employed, on average, less than 500 employees during 2008. Please contact your accountant as soon as possible if you think that your current tax withholdings or estimated tax payments may not meet one of these safe harbors. If so, we may be able to eliminate the penalty by having you withhold additional taxes from your year-end bonus, distribution from your IRA, etc.
Avoiding the impact of the Alternative Minimum Tax (AMT) is complicated and is affected by a number of different areas. One such area is that of Incentive Stock Options (ISO). If you exercised an ISO in 2009, there is a possibility that it generated AMT if the difference between the stock's value and the exercise price is substantial. If you did exercise such an ISO in 2009 and the stock you acquired has declined in value since the date of exercise, it may be possible to eliminate or reduce your 2009 AMT liability if you sell the stock on or before December 31, 2009. Please check with your accountant if you have exercised ISO's during 2009 and the price of the stock has fallen since the date of the exercise.
One more area to be cognizant of as year-end approaches is that of mutual fund purchases. Many mutual funds typically distribute income, including capital gains, near the end of each year. As such, if you invest near year-end but before the date of record, then you will be taxed on this distribution as if you held the fund the entire year. Before investing, determine the amount and timing of any year-end payout.
Check back with us next week as we look at the tax credits that may be available to you and whether or not you are eligible for the temporary 0% capital gains tax rate.
info@mcarthurco.com 704.544.8429
Monday, November 30, 2009
Tuesday, November 24, 2009
Tax Planning for Businesses in a Down Year
In light of the holiday season's arrival, we want to first start by talking a little bit about charitable contributions. A few reminders...for your charitable contribution to be deductible in 2009 your check must be mailed on or before December 31, 2009. A pledge to a church or any other organization made in 2009 is not deductible until paid. One great way to increase the bang for your buck with your charitable contribution is to donate appreciated stock. If you've owned the shares for over a year (long-term in nature), then you can deduct the full value of the stock and pay zero taxes on the appreciation of said stock. The alternative is to sell the stock, pay capital gains tax, and then donate the money. In this scenario, you get hit with a tax bill and the charity receives less. If you have stock that has fallen in value, then do not donate this stock because you will lose the ability to deduct the loss on your return. The better strategy in this case is to sell the stock and then donate the proceeds. Whatever charitable cause that may be near and dear to your heart this holiday season is ready for your contribution. While making these contributions, keep in mind the above reminders and gifting methods.
Now, let's shift our focus to end of year tax planning for businesses and business owners. There's not doubt that the recession has hit many small businesses hard; as such, it requires a closer examination of some end of the year decision making. If your S Corporation is anticipating a taxable loss this year, it is important to contact your CPA promptly. These losses are only deductible on your personal return if you have adequate "basis" in your S Corporation. If you do not have sufficient basis, there are steps that can be taken to correct the issue, but they must occur before the end of the tax year. Again, please contact your CPA as the steps to correct this lack in basis are complicated and require precise actions.
Another area that planning in a down year might change is how closely-held corporations decide to pay year-end "bonuses". Since your corporation can deduct a bonus, but not a dividend, year-end "bonuses" are traditionally paid to a shareholder/employee in the form of a bonus in order to take the deduction where it has the largest tax benefit. However, in light of the recessionary times, if your corporation is operating at a current loss and/or has net operating loss carryovers to the current year, then little or no tax benefit will be realized by paying these year-end "bonuses" as bonuses. Instead of structuring the year-end "bonus" payment as a bonus, it would be prudent to consider making the payment in the form of a dividend to a shareholder/employee. In this case a dividend taxed at a maximum rate of 15% will generally save taxes. On the other hand, if your corporation has thrived and is currently in a high tax bracket, then a bonus would likely save taxes. The key here is to know your corporation's situation and plan accordingly.
Lastly, as business owners look to their future and the future of their employees, establishing a retirement plan might be appropriate. It is important to remember the following deadlines in this effort. Calendar year taxpayers who wish to establish a qualified plan in 2009 generally adopt the plan no later than December 31, 2009. However, a SEP may be established by the due date of the tax return (including extensions), and a SIMPLE plan must be established no later than October 1, 2009.
In economic times that are tight, planning your finances and having your financial house in order are more important than ever. If you feel that you have work to do and need an experienced guide, please contact us and we will be glad to see if we can meet your needs.
Happy Thanksgiving!
704.544.8429 or info@mcarthurco.com
Now, let's shift our focus to end of year tax planning for businesses and business owners. There's not doubt that the recession has hit many small businesses hard; as such, it requires a closer examination of some end of the year decision making. If your S Corporation is anticipating a taxable loss this year, it is important to contact your CPA promptly. These losses are only deductible on your personal return if you have adequate "basis" in your S Corporation. If you do not have sufficient basis, there are steps that can be taken to correct the issue, but they must occur before the end of the tax year. Again, please contact your CPA as the steps to correct this lack in basis are complicated and require precise actions.
Another area that planning in a down year might change is how closely-held corporations decide to pay year-end "bonuses". Since your corporation can deduct a bonus, but not a dividend, year-end "bonuses" are traditionally paid to a shareholder/employee in the form of a bonus in order to take the deduction where it has the largest tax benefit. However, in light of the recessionary times, if your corporation is operating at a current loss and/or has net operating loss carryovers to the current year, then little or no tax benefit will be realized by paying these year-end "bonuses" as bonuses. Instead of structuring the year-end "bonus" payment as a bonus, it would be prudent to consider making the payment in the form of a dividend to a shareholder/employee. In this case a dividend taxed at a maximum rate of 15% will generally save taxes. On the other hand, if your corporation has thrived and is currently in a high tax bracket, then a bonus would likely save taxes. The key here is to know your corporation's situation and plan accordingly.
Lastly, as business owners look to their future and the future of their employees, establishing a retirement plan might be appropriate. It is important to remember the following deadlines in this effort. Calendar year taxpayers who wish to establish a qualified plan in 2009 generally adopt the plan no later than December 31, 2009. However, a SEP may be established by the due date of the tax return (including extensions), and a SIMPLE plan must be established no later than October 1, 2009.
In economic times that are tight, planning your finances and having your financial house in order are more important than ever. If you feel that you have work to do and need an experienced guide, please contact us and we will be glad to see if we can meet your needs.
Happy Thanksgiving!
704.544.8429 or info@mcarthurco.com
Monday, November 16, 2009
Tax Planning for Individuals, Continued...
As promised, we are back with more tax planning tips for End of Year Planning 2009. We hope for these tips to not only be informative, but also useful in your tax preparation. In fact, two of these next tips have been used by clients at our firm.
We'd first like to discuss an important topic not only for your taxes, but for our environment-Energy Efficient Improvements to your Home. Unlike many other tax benefits, these credits are not reduced or eliminated as your AGI increases and they offset Alternative Minimum Tax so they can provide a tax planning opportunity irregardless of your income level. The 2009 updates allow a 30% credit for "qualified energy-efficient home improvements" to your principal residence if located in the United States. Some conditions do apply, so be sure to check with your tax professional. First, the improvements must be in service in either 2009 or 2010. Secondly, there is a limit to the credit. It maxes out, cumulatively, at $1500 for the 2009 and 2010 tax years. Some examples of qualified improvements include the the following: energy efficient roofs, insulation, exterior windows including skylights, exterior doors, heat pumps, hot water boilers, and air conditioners. Please check with the manufacturer of any qualified improvements to ensure that your device meets the government requirements. In addition to the above credit applicable to only principal residences, a second part of the 2009 update allows for a credit for improvements for principal residences and second residences alike. A 30% credit for "qualified residential solar water heaters, geothermal heat pumps, wind energy property, and solar electric generating property" installed can be applied to your tax bill. In the case of the above tax planning opportunities, going green can also save you some green.
A second topic that may be of interest to some in light of the recent and current economic struggles is the opportunity to waive your required minimum distribution (RMD) for 2009, and 2009 only! The RMD's from employer-sponsored retirement plans and IRA's alike. This waiver can only be applied to distributions for the 2009 calendar year. If you have already received your 2009 RMD, you can keep the payment as you normally would and just simply report it in your income. If you want to avoid taxation of the distribution, then you are required to roll the amount distributed into an IRA within 60 days of receipt. However, the IRS recently announced that it will waive the 60-day requirement if you complete the rollover no later than November 30, 2009. Please note that if you have income tax withheld on these payout amounts, you may owe an estimated tax underpayment penalty by skipping the 2009 RMD. The waiver of the 2009 RMD must be analyzed carefully, so please consult your tax advisor.
Please tune in next week as we shift our focus to End of Year Tax Planning for Business entities including Establishing a New Retirement Plan for 2009 and Closely-Held Corporations Paying Dividends Over Year-End Bonuses. And in light of Thanksgiving, we'll talk a little bit about making the most of your charitable contributions!
We'd first like to discuss an important topic not only for your taxes, but for our environment-Energy Efficient Improvements to your Home. Unlike many other tax benefits, these credits are not reduced or eliminated as your AGI increases and they offset Alternative Minimum Tax so they can provide a tax planning opportunity irregardless of your income level. The 2009 updates allow a 30% credit for "qualified energy-efficient home improvements" to your principal residence if located in the United States. Some conditions do apply, so be sure to check with your tax professional. First, the improvements must be in service in either 2009 or 2010. Secondly, there is a limit to the credit. It maxes out, cumulatively, at $1500 for the 2009 and 2010 tax years. Some examples of qualified improvements include the the following: energy efficient roofs, insulation, exterior windows including skylights, exterior doors, heat pumps, hot water boilers, and air conditioners. Please check with the manufacturer of any qualified improvements to ensure that your device meets the government requirements. In addition to the above credit applicable to only principal residences, a second part of the 2009 update allows for a credit for improvements for principal residences and second residences alike. A 30% credit for "qualified residential solar water heaters, geothermal heat pumps, wind energy property, and solar electric generating property" installed can be applied to your tax bill. In the case of the above tax planning opportunities, going green can also save you some green.
A second topic that may be of interest to some in light of the recent and current economic struggles is the opportunity to waive your required minimum distribution (RMD) for 2009, and 2009 only! The RMD's from employer-sponsored retirement plans and IRA's alike. This waiver can only be applied to distributions for the 2009 calendar year. If you have already received your 2009 RMD, you can keep the payment as you normally would and just simply report it in your income. If you want to avoid taxation of the distribution, then you are required to roll the amount distributed into an IRA within 60 days of receipt. However, the IRS recently announced that it will waive the 60-day requirement if you complete the rollover no later than November 30, 2009. Please note that if you have income tax withheld on these payout amounts, you may owe an estimated tax underpayment penalty by skipping the 2009 RMD. The waiver of the 2009 RMD must be analyzed carefully, so please consult your tax advisor.
Please tune in next week as we shift our focus to End of Year Tax Planning for Business entities including Establishing a New Retirement Plan for 2009 and Closely-Held Corporations Paying Dividends Over Year-End Bonuses. And in light of Thanksgiving, we'll talk a little bit about making the most of your charitable contributions!
Tuesday, November 10, 2009
The End of the Year is Here- Tax Planning for Individuals
Here at McArthur & Company, we believe in providing our clients with proactive, current and valuable information that can maximize their understanding of tax planning opportunities and decrease their tax liability where possible. Part of that push for information can be found here weekly on our blog. We hope that you enjoy, learn, and follow regularly!!!
The end of the year is upon us and it is never too early to start the appropriate tax planning, especially in a year where Congress, the IRS, and the courts have flooded taxpayers and tax planners alike with significant tax developments. In such a year, we want to highlight a few new opportunities that exist for the taxpayer under these new provisions. We suggest you call our firm before implementing an tax planning techniques discusssed herein to confirm the tax implications for your personal situation.
Sales Tax Deduction on a New Car: Cash for Clunkers is gone, but a sales tax deduction on a new car may still be available to you for cars purchased between February 17, 2009 and December 31, 2009. This deduction can be claimed for the sales or excise taxes you pay on the purchase of a "qualified motor vehicle". If you itemize deductions, you may deduct the qualified sales or excise taxes. If you do not itemize, you may deduct the qualifies sales or excise taxes as an "additional standard deduction". Watch for the phase out limits. The deduction is limited to the sales or excise tax on the first $49,500 of the vehicle's purchase price. For Modified Adjusted Gross Income, you are phased out ratably from $250,000-$260,000 on a joint return or $125,000-$135,000 on a single return. An additional tax tip is that the IRS has allowed this sales tax deduction for more than one qualifying purchase.
Tune in next week for more tips on End of the Year Tax Planning for "Individuals" as we look into tax credits for making energy-efficient improvements to your home and the waiver of required minimum distributions for 2009.
Please contact us at 704.544.8429 or info@mcarthurco.com
The end of the year is upon us and it is never too early to start the appropriate tax planning, especially in a year where Congress, the IRS, and the courts have flooded taxpayers and tax planners alike with significant tax developments. In such a year, we want to highlight a few new opportunities that exist for the taxpayer under these new provisions. We suggest you call our firm before implementing an tax planning techniques discusssed herein to confirm the tax implications for your personal situation.
Sales Tax Deduction on a New Car: Cash for Clunkers is gone, but a sales tax deduction on a new car may still be available to you for cars purchased between February 17, 2009 and December 31, 2009. This deduction can be claimed for the sales or excise taxes you pay on the purchase of a "qualified motor vehicle". If you itemize deductions, you may deduct the qualified sales or excise taxes. If you do not itemize, you may deduct the qualifies sales or excise taxes as an "additional standard deduction". Watch for the phase out limits. The deduction is limited to the sales or excise tax on the first $49,500 of the vehicle's purchase price. For Modified Adjusted Gross Income, you are phased out ratably from $250,000-$260,000 on a joint return or $125,000-$135,000 on a single return. An additional tax tip is that the IRS has allowed this sales tax deduction for more than one qualifying purchase.
Tune in next week for more tips on End of the Year Tax Planning for "Individuals" as we look into tax credits for making energy-efficient improvements to your home and the waiver of required minimum distributions for 2009.
Please contact us at 704.544.8429 or info@mcarthurco.com
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