PRIOR TV Tips of the Week
Education Tax Benefits Tax Law Changes Money Saving Tips For the Holidays Business Vehicle Use Tax Relief & Healthcare Act of 2006 Changes in Kiddie Tax Age Limit Social Security Benefits for Spouses
Education Tax BenefitsWeek Ending January 27, 2008
The New Year has begun
and along with it some new laws have been implemented. One new law benefits taxpayers in
two ways; if you are a person contributing to a 529 Education Plan for
children or grandchildren, now you actually receive dual benefits from the
State of There are many
different educational benefits
If you have any questions, or would like more information on this topic, please feel free to call and schedule an appointment with my office.
Respectfully, Robert F. Hockensmith, PC
Week Ending January 13, 2008
It’s now tax season,
so let’s talk about some changes for 2008 while we are preparing tax
returns for 2007. One of the
big changes is that Capital Gains has actually gone down. That’s right, gone down. If you are in the income bracket
of 10 or 15% your Capital Gains have gone down from 5% to zero. That means there are no Capital
Gains for people are currently in the 10-15% tax bracket. For a single filer, that means
anyone who earns less than $32,000 per year and for a married couple that
earns less than $64,000 a year than the long-term gain rate of zero could
apply to you. Other changes for 2008
are mileage rates. In 2007,
it was 48.5 cents per mile.
For 2008, it’s 50.5 cents per mile. This is for the business use of a
vehicle or for people who have more than one job, going to and from their
job, or for people who go from their job to school. The Kiddie Tax has also gone up to
age 19, from age 18 unless you’re a full-time student, then the age limit
has gone up to 24. The Kiddie
Tax is what children earn and if they are of a certain age, they pay taxes
at their parents’ rate as opposed to their own lower income tax rate. Here are some points to
remember: §
Long-term Capital Gains reduced to zero for
some ($32,000 single,
$64,000 married) §
Mileage rates go up (50.5 cents per mile
versus 48.5 cents per mile) §
Kiddie Tax age goes up to 19 (was 18 and could be
24 if student) If you have any questions, or would like more
information on this topic, please feel free to call and schedule an
appointment with my office. Respectfully, Robert F. Hockensmith, PC
Week Ending January 6, 2008
We have a brand new year here so let’s start talking about what to do to prepare for the upcoming tax season to make life a little bit easier. The first thing to do is get out last year’s tax return and take a look at it. Usually, taxpayers don’t change much from year to year and the same kind of expenses that you incurred last year are probably similar. This way, you’re able to start organizing your expense receipts by placing different receipts in an envelope by category of expense, i.e. mortgage interest, real estate taxes, charitable contributions, W-2s, interest income, dividend income, and so on and so forth. Putting your receipts in envelopes by category will make your life a lot easier come tax time. The next thing to do is get a hold of your accountant or tax preparer as soon as possible and schedule an appointment. Most accountants pre-schedule their appointments and send letters out the first or second week of January. If you wait until the last minute, you will usually pay more to have your tax return prepared because the tax preparers will put a premium on the stress you give them waiting until the last minute. Another thing to do is make sure that if you have changed your name or marital status, you let the Social Security Administration know about the change because if the name does not agree with the social security number both at the IRS and at the SSA, the deduction for your personal exemption will be delayed if not disallowed. This can cause a great deal of tax, the average taxpayer will lose about $1,000 in tax savings for each person that does not have a matching name and social security number. This also includes your children. Here are some points to remember:
If you have any questions, or would like more
information on this topic, please feel free to call and schedule an
appointment with my office. Respectfully, Robert F. Hockensmith, PC
Week Ending December 23, 2007
The holidays are upon us and here is something of a
holiday gift the Internal Revenue Service is now providing. The IRS is
sending out free copies of a CD-ROM called the “Small Business Resource
Guide” to help small business owners understand the complex federal tax
laws and it’s now available for shipping. The CD covers a broad range of topics
all the way from starting to closing down a business. It also helps
with business tax forms, instructions, publications, and all the tax law
changes for 2007. In addition to tax-related information,
the CD also contains web links to various government agencies and IRS
organizations.
Individual copies can be ordered online. The IRS has
many of the CDs on supply and is looking to deplete them before the 2008
edition comes out in April 2008. All orders are processed on a first
come, first serve basis. Here are some points to
remember:
If you have any questions, or would like more
information on this topic, please feel free to call and schedule an
appointment with my office. Respectfully, Robert F. Hockensmith, PC
Week Ending December 9, 2007
The holiday season is now upon us, and now is the time to talk about some tax deductions that are available for the holiday season. Typically, if an employer or owner of a small business takes a client, employee, potential client, or employee out to lunch, there is only a 50% tax deduction for the cost of the meals. There are a few exceptions to this. One of the exceptions: if the employer/owner purchases a holiday meal for employees and/or clients. A further exception: if an employer/owner purchases a small holiday gift such as a turkey, ham, or bottle of wine. The only things that need to be proven to receive this 100% tax deduction (instead of 50% deduction), are the date, place, purpose and dollar amount spent. This will allow the company to write off the deduction at 100%. Some things to consider are: ·
· Small holiday gifts are deductible to the employer or business owner (ham, turkey, wine) · The documentation that is required is the date, purpose of meal, place of meal and the dollar amount If you have any questions, or
would like more information on this topic, please feel free to call and
schedule an appointment with my office. Respectfully, Robert F. Hockensmith, PC
Money Saving Tips For the Holidays
Week Ending November 25, 2007
The holidays are upon us. It should be
a pleasant time, but too often the enjoyment we experience is followed by
financial headache. January’s bank statements and credit
cards bring the realization that once again, we have lost control of our
spending habits. But, before the holidays begin, you
should consider making a budget. Estimate the cost of what you plan to
buy, and if the total cost is manageable, then stick firmly to it as you
shop. If
its not, then look for ways to cut back. Typically, we use the rule of
thumb:
YOUR CREDIT CARD BILL FOR THE HOLIDAYS
SHOULD BE PAID OFF IN 90 DAYS. If it takes more than 90 days to pay
your credit card off, then you spent more than you should have. Consider how
to save on holiday gifts. Many families can draw names and give
one nice gift to a person rather than multiple small ones. Make or bake
gifts instead of buying them. Give combined gifts from parents or
children instead of individuals. Agree with your close friends on a
spending limit. The holidays are a special time for children,
too. But
here, you must curb your excesses so you can teach your children lessons
on spending.
Remember, you don’t have to give kids every gift they want. When they
make a Christmas list, have them prioritize the things they truly
want.
Don’t forget, favored toys are often simple toys that allow them to
use their imagination. Show your children there is more to the
holidays than simply receiving presents. Have them participate in choosing and
wrapping presents for a less fortunate child. Encourage
them to make their own gifts for families and friends. Arrange
family outings and fun activities so the holidays become a series of
joyful events.
Here are some points to remember:
If you have any questions, or would like more
information on this topic, please feel free to call and schedule an
appointment with my office. Respectfully, Robert F. Hockensmith, PC
Week Ending November 18, 2007
Today is Veteran’s Day so
let’s discuss some of the tax benefits for the military such as National
Guard, Reserves, or Active Duty. §
Filing tax returns
late (Can have up to 180 days after returning from deployment, to
file tax returns without late penalties or interest) §
Selling a home for tax
purposes and getting the Capital Gain Exclusion (Time deployed
counts for the five-year rule, to help sell the home and avoid Capital
Gains) §
Overnight Travel
Expenses for National Guard and Reserve members living more than 100 miles
from duty station (Now this deduction is on the front of the tax
return, and no itemizing is required. This allows you to write off travel
expenses, lodging expenses, and meal expenses)
If you have any questions, or would like more information on this topic, please feel free to call and schedule an appointment with my office. Respectfully, Robert F. Hockensmith, PC
Week Ending November 4, 2007
We all know the housing
market is pretty much flat in the economy nationwide. As such,
there are expected to be 1.3 million foreclosures this year. Believe it or
not, it’s possible that losing a home in foreclosure proceedings could
result in taxable income. Gain on Foreclosure and Cancellation of
Debt.
Gain on Foreclosure is
treated as a sale when the amount realized is greater than your basis in
the home.
The resulting gain is subject to tax at Capital Gains rates. Keep in mind,
that if this is a personal residence, then you may be able to exempt your
home, unless your gain exceeds the exemption amount of $250,000 or
$500,000 depending on marital status. If the foreclosure results in a loss,
which could happen, there is no tax, but there is also no tax deduction,
unless the loss relates to rental or business property. The next issue is
Cancellation of Debt. When a lender forgives all or part of
the amount you owe on a loan, then the amount you no longer have to pay is
considered income under Code Section 108. Debt forgiveness is income. There are
exceptions such as bankruptcy, insolvency, or gifting situations, but in
general, cancellation of debt is taxable as ordinary income. Here are some
points to remember:
If you have any questions, or
would like more information on this topic, please feel free to call and
schedule an appointment with my office. Respectfully, Robert F. Hockensmith,
PC
School Tax Credits
Week Ending October 21,
2007
School is back in session so let’s discuss some
school tax benefits while it’s fresh in peoples’ minds.
If you have any questions, or would like more
information on this topic, please feel free to call and schedule an
appointment with my office. Respectfully, Robert F. Hockensmith, PC
Week Ending September
23, 2007 The governor recently signed House Bill 2779 into law
which is going to have a dramatic impact on employers now. The new law
prohibits employers from knowingly hiring illegal immigrants and requires
all businesses to verify employment eligibility of workers through a
federal database beginning January 1, 2008. There are very stiff penalties for
employers who knowingly hire illegal immigrants or circumvent the
system.
The first offense alone, can net an employer a mandatory ten-day
license suspension and five years probation. That’s just
for a first offense. Second time violators will have their
business license revoked permanently. As you can see, these are high stakes, and on a
practical and political level, we can expect quite a bit of controversy
from implementation of these new laws. It’s very easy to have this be an issue
at your business if you’re not following the rules. Anytime an
employee files for unemployment or worker’s comp, or said they weren’t
paid overtime, could net a payroll audit from taxing authorities, both
federal and state. With this new law going into effect,
you can imagine that additional questions are going to be asked about
hiring procedures of the company. Some points to remember:
If you have any
questions, or would like more information on this topic, please feel free
to call and schedule an appointment with my office. Respectfully, Robert F. Hockensmith, PC
Business Vehicle Use
Week Ending September 9,
2007 Most of us practically live in our vehicles. It’s
basically become an office on wheels. It’s also a tax deduction if you
structure it correctly. Here’s what you need to do to get a
deduction.
You can deduct auto expenses when you own or lease a vehicle and
use it for business purposes. For instance, making deliveries,
traveling to and from meetings, trips to the office supply store, your
bank, clients, and so forth are considered a business deduction. Commuting, on
the other hand, going back and forth from home to office, is not a
deduction.
You have two different ways of calculating a business
deduction for a vehicle: the Actual Cost Method or Standard
Mileage Method.
If you choose the Standard Mileage Method, all you need to do is
keep a log book. Keep track of how many business miles
you drive, multiply that by the standard mileage rate and that is your
deduction.
Alternately, if you use the Actual Cost Method, you still have to
keep a log book for your business miles versus your personal miles and
under the Actual Cost Method, you have to keep track of maintenance, gas,
tires, insurance, parking fees, interest expense on loans, and other
expenses out of pocket. You even get a tax deduction for
depreciation on your vehicle depending on the business use of that
vehicle.
Which method is best? Keep track of the log book and figure
it out using both methods to see which one gives you the better
deduction.
The caveat is, once you’ve used the Actual Cost Method, you are
stuck using that method until you trade vehicles. Further, if
you use the Actual Cost Method, you have to take depreciation for the
business use and you may have to recapture the depreciation when you
dispose of the vehicle. Here are some points to remember:
If you have any questions, or would like more
information on this topic, please feel free to call and schedule an
appointment with my office. Respectfully, Robert F. Hockensmith, PC
New Depreciation Rules RE: Week Ending August 26, 2007 This week we will talk about
change in Depreciation Rules for 2007. Depreciation is the expensing of the
cost of equipment, spread out over one or more years, and is determined on
the business use of an asset (80% business use, 80% depreciation; 75%
business use, 75% depreciation; and so forth). If you spend
less than $125,000 on equipment, you may write off the entire cost in one
year, per Code Section 179. However, your depreciation cannot
exceed the net income of your business. Any remaining depreciation will be
written off the next year. Depreciation is usually spread out over
five to seven years, with the exception of real estate. Residential
real estate rental property is depreciated over 27 ½ years, by law. Here are some
points to remember:
If you have any questions, or would like more
information on this topic, please feel free to call and schedule an
appointment with my office. Respectfully, Robert F. Hockensmith, PC
Tax Relief & Healthcare Act of 2006 RE: Week Ending August 12,
2007 Thanks to the Tax Relief and Healthcare Act of 2006,
there’s a new tax break available if you’re a homeowner who itemizes: The Private
Mortgage Insurance Deduction. You can reap additional tax savings
when you buy a home this year or refinance the mortgage you took out to
purchase your home. In addition to real estate taxes, now
the premiums you pay for mortgage insurance is deductible. The insurance
that protects your lender in case of default is typically required when
your down payment is less than 20% of the cost of the home. Under present law, only mortgage contracts issued in
and for 2007 qualify for this tax break. Premiums you took out on mortgages in
prior years are not eligible. The mortgage must be secured by your
home and the home must be a qualified residence. Mortgage
insurance premiums that you pay in advance may be non-deductible, so it’s
only deductible when you pay it each month. Some points to remember:
If you have any questions, or would like more
information on this topic, please feel free to call and schedule an
appointment with my office. Respectfully, Robert F. Hockensmith, PC
RE: Week Ending July 29, 2007 Last week we talked about the new Kiddie Tax that
went into effect. This week we will talk about how hiring
your children will actually save you money if you have your own
business.
The Kiddie Tax mostly applies to unearned income, in that if a
child is under the age of 18, they certainly will pay taxes at the
parental rates, and if the child is between 19 and 23-years old and the
parents claim as a full-time student that the parents claim as a
dependent, then their unearned income will also be taxed at the parents’
rate.
But, if the child makes earned income, and they are under the age
of 18 or they are a full-time student who is 19 to 23-years old, they can
effectively still save you some taxes. For 2007, parents can pay their
children $5,350 and not have any income taxes withheld or paid as long as
they have earned no other income that year. If they want to continue on, they can
pay the child an additional $4,000 for a total of $9,350 and put $4,000
into an IRA and still not pay taxes on $9,000. There are
still a couple of ways you could save on some taxes. Effectively,
by paying your child $5,350 for the year, you are going to save $1,873 in
income taxes at a minimum. You will have to pay Social Security
taxes, though, but that means the child will receive benefit for the
Social Security taxes paid which makes them eligible for Social Security
benefits far faster than in the past. Further, if you pay your children
$5,350, then they are eligible for medical reimbursement plans, where the
company pays for their medical expenses, up to the amount of their earned
income.
They can also have retirement accounts, where they can put money
away into a 401k or an IRA, or both. There are many opportunities to shift
income from the parent to the child and still be able to cut taxes
down.
Here are some points to remember:
If you have any questions, or would like more
information on this topic, please feel free to call and schedule an
appointment with my office. Respectfully, Robert F. Hockensmith, PC
Changes in Kiddie Tax Age Limit RE: Week Ending July 15, 2007 One of the provisions signed into
law May 25, 2007 by President Bush extended the Kiddie Tax. The Kiddie
Tax is a tax that has to be paid when children earn income over a certain
limit.
They don’t pay taxes at their rate; they pay taxes at their
parent’s rate which is usually a higher tax bracket than the
children’s.
This is meant to prevent parents from shifting income to the
children to reduce taxes. The Kiddie Tax applied to children
up to age 13 years old, until recently. Then it went from 13 years old to 19
years old, and now it goes up to 24 years old if the child is a full-time
student being claimed by the parent(s). This means that children up to age 24,
if being claimed by parents, will pay taxes at the parents’ rate if they
are dependents of the parents. This makes tax planning a little bit
tougher because apparently the taxes the family will pay will increase
with this change. Here are some points to remember: Ø The Kiddie Tax
was recently changed from 13 years old to 19 years old Ø The Kiddie Tax
has now been increased to 24 years old for full-time students claimed by
parents Ø The Kiddie Tax
is a tax paid for children at the parents’ tax rate (unearned income,
under 19 years old) Ø Higher taxes
require earlier planning for families (19-24 years old, no Kiddie Tax
on earned income [W-2s]) If you have any questions, or would like more
information on this topic, please feel free to call and schedule an
appointment with my office. Respectfully, Robert F. Hockensmith, PC Social Security Benefits for Spouses RE: Week Ending June 17, 2007 As you know, President Bush signed into the law a new
tax act on May 25, 2007. One of the provisions he signed into
law is when a husband and wife are in a business together as a sole
proprietorship or a joint venture, now the spouse will get credit for
Social Security taxes paid just like the husband will. In the past,
the spouse had to file her own Schedule C in order for her to get credit
for Social Security taxes paid. This caused a lot of people to not be
eligible for Social Security benefits unless they were married to somebody
for ten years or longer and received half of their Social Security
benefits.
With the new law signed into effect now, the spouse will get credit
for Social Security taxes paid as the taxpayer will if they file a
Schedule C together as a couple or singularly as an individual. This
increases the opportunity for Social Security benefits for the spouse
now.
This goes into effect July 25, 2007. Here are some points to remember: Ø New law signed into effect May 25, 2007 giving
spouses Social Security credit Ø Couples can file a Schedule C jointly and both
receive Social Security credit for taxes paid Ø Spouses will now have a better opportunity to build
Social Security benefits over time If you have any questions, or would like more
information on this topic, please feel free to call and schedule an
appointment with my office. Respectfully,
RE: Week Ending June 3, 2007 On May 25, 2007, President Bush signed into law the
Small Business and Work Opportunity Act of 2007. We have yet
another new tax bill that has been signed into law. One of the
important points here is that there has been a change in the minimum wage
on a Federal level. Each state can sometimes claim its own
minimum wage, but it must be at least what the Federal minimum wage
is. To
date, the Federal minimum wage is $5.15 per hour. Over the next
two years, it will grow to $7.25 per hour. Some states, such as Ø Federal minimum wage increases on July 25,
2007 Ø The first minimum wage increase is to $5.85 per hour
on July 25, 2007 until July 24, 2008 Ø July 25, 2008 the minimum wage increases to $6.55 per
hour Ø July 25, 2009 the minimum wage increases to $7.25 per
hour If you have any questions, or
would like more information on this topic, please feel free to call and
schedule an appointment with my office. Respectfully, Robert F. Hockensmith, PC
RE: Week Ending May 20, 2007 This week we will discuss how to
correct any information that you accidentally omit from your tax
return.
The rush is over and your personal tax return is done for another
year. Or
so you thought right up to the moment you discovered information you
forgot to include. What do you do next? The action
you take depends on the type of information you forgot to include
initially.
For instance, if you reported all of your income on the return you
mailed to the IRS, but you realized you forgot to attach a copy of your
Wage Statement, or W-2, the answer is, do nothing. That is the
best response.
Eventually the IRS will ask for the missing form and at that time
you can send it to them. Other mistakes made are omitting income
or deductions, or finding you are eligible for tax credits, in which case
you may have to amend your tax return. In order to amend your tax return, you
file Form 1040X and a Form 140X with the state of At present, you cannot e-file
amended tax returns; they must be paper filed. As a general
rule, the Form 1040X has no set due date, but if the information you
omitted increases the tax you owe, the sooner you file, the cheaper it
will be due to penalties and interest. On the other side, if the correction
results in less tax owed, the sooner you file, the sooner you will receive
the refund that is due. Keep in mind that if you don’t file an
amended return and you wait more than three years from the due date, you
lose any tax refund that is due you. Here are some points to remember:
If you have any questions, or
would like more information on this topic, please feel free to call and
schedule an appointment with my office. Respectfully, Robert F. Hockensmith, PC
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