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Is Your Business Prepared for Obamacare?

The Obamacare employer mandate goes into effect in 2015 for firms with 100 or more full-time-equivalent workers. Companies must offer health coverage to full-timers and, beginning in 2016, their dependents, or pay a tax. A dependent is an employee’s child under age 26 and excludes spouses, stepchildren and foster kids. Firms with 50 to 99 full-time-equivalent employees have until 2016 to comply with the pay-or-play rules. The fines for noncompliance are significant: One applies to firms that fail to offer coverage to at least 70% of full-time workers in 2015, even if only one full-timer opts to buy insurance through a government exchange and receives a tax credit to subsidize the premium.

For 2015, the fine is $2,120 times the total number of full-timers employed (less 80). This amount is indexed each year for inflation and will increase over time. Beginning in 2016, the required coverage jumps from 70% to 95%, dependents must be covered and only 30 full-timers can be disregarded in calculating the penalty. Companies that provide unaffordable insurance will owe a fine equal to $3,180 in 2015 for each full-timer who buys coverage through an exchange and gets a tax subsidy. Again, the figure will go up each year to account for inflation.

Under the Affordable Care Act, coverage is treated as affordable if the required premium contribution from an employee for self-only coverage doesn’t exceed 9.5% of total household income. The employer’s health plan must also provide “minimum value,” meaning that it must pay at least 60% of the costs of covered health services. The IRS is offering employers two optional methods to meet the affordability test:

• Base the 9.5% calculation on an employee’s rate of pay (their current W-2 wages)

• Use the federal poverty line, instead of on household income, which companies do not know.

Contact our firm if you need more information or assistance regarding Obamacare.

You Earned It! Smart Ways to Use Your Tax Refund

If you’re expecting a tax return and are looking forward to a refund, it is easy to think about your IRS check as a bonus. However, it is really just a return of your hard-earned money. In this context, simply splurging with your return is not the wisest strategy. Instead, it pays to think about using the money to help you reach your personal or professional financial goals, starting with the following list.

• Establish or keep building your emergency fund: Your tax refund is a great place to start—or continue—saving for a rainy day, or an unforeseen financial hiccup.

• Cut down high-interest debt: Got a credit card balance? Paying it, and any other high-interest debt, is one of the best things you can do with your refund because it will save you considerable interest and put the money you were using to make minimum payments back in your pocket.

• Refinance your mortgage: Mortgage rates are still pretty low, so you may want to consider refinancing your mortgage to save money each month with a lower mortgage payment. Your refund can provide the funds from which to pay your closing costs and fees when you refinance.

• Contribute to retirement and college accounts: Using your tax refund to top-up (or start) a Roth IRA or 529 college savings plan offers you a double bonus. Not only will you be compounding dollars and interest for your future retirement or college tuition needs, but you’ll be creating a tax deduction as well.

• Make a charitable gift: If you are already in good financial shape already, why not share the wealth by making a charitable donation to help someone else with your tax return. Your gift will benefit others, and may also give you a tax deduction.

• Better your business: If you have a fairly significant refund, making an investment in your business can stimulate business growth and enable you to claim a few more tax deductions next year.

Using your tax refund to secure yourself financially is a smart move. And, if you are receiving a significant refund, consider adjusting your tax withholding amount, so you have the income at your disposal throughout the year. If you have any questions about this information, please contact our office. We are here to help.

A Post-Tax Season Checklist for Businesses

Now that the business tax return deadline has come and gone, this is an ideal time to analyze you businesses’ financial and tax situation with the intention of making next tax year easier and improving your financial situation. Here are five key areas to consider now that your business taxes are filed:

Day-to-day accounting activity. Preparing for tax season can make it difficult to keep on top of your regular accounting tasks, which means that your financial records may need updating. If you fell behind over the past several months, now is the time to get caught up, before the lag in your record keeping hinders your business.

Your current financial and tax situation. Having compiled relevant financial information for your tax preparation, use these numbers to evaluate how your business is doing financially. Now is an ideal time to schedule a mid-year planning session for with our firm to discuss your current business financials and your operational plans for the rest of the year.

Retirement resources. If you do not already have a retirement plan, consider opening a retirement account to defer income taxes and provide future income, beyond Social Security benefits. You may also wish to consider other qualified retirement plans that you can also offer to your employees.

Evaluate estimated tax payments. If you had a large tax liability or a large refund this year, you may want to revisit your estimated tax payments and adjust your calculations to avoid owing too much at the end of the year, or leaving your business cash-poor due to overpayment of taxes. As the year progresses, monitor your bottom line and adjust your tax estimates accordingly.

Employee benefits. If your business has employees, you may wish to consider providing them with enhanced fringe benefits, which can also help your business reaps tax savings. Providing pre-tax benefits such as health insurance, group term life insurance, and child care subsidies to an employee’s pay, saves your business money because you are not required to pay the employer’s share of payroll taxes on these forms of reimbursement.

By taking a proactive approach now, you have the opportunity to leverage valuable tax savings and improve the financial standing of your business before the end of the year. Please contact our office with any questions you may have.

New Tax Rules for Buying or Improving Property for Business Use

The IRS issued final regulations in September 2013 to clarify when business owners can deduct the cost of acquiring, producing or repairing tangible property. For example, the costs of resurfacing a floor to keep the property in good condition would likely be deducted immediately, whereas the addition of a security system may need to be capitalized. Almost all businesses will be affected by the new regulations.

The good news is that taxpayers may deduct any single item whose cost does not exceed $500 per invoice or item. For taxpayers who file financial statements with the Securities Exchange Commission or state or federal agencies or have audited financial statements, the regulations allow any item up to $5,000 to be deducted if they have written expensing thresholds in place. While it is possible to file 2013 returns under this provision, a taxpayer must have had written procedures in place at the beginning of 2013.

Under another new rule, small business taxpayers may elect to expense improvements if the total amount paid for repairs, maintenance and improvements does not exceed the lower of $10,000 or 2% of the adjusted basis of the building.

While the regulations apply to tax years beginning in 2014, taxpayers may choose to follow selected provisions on their 2013 tax returns. Your CPA can help you understand the reach of the new rules and help you navigate the elections and other requirements.

Source: AICPA Tax Law Snapshot for Small Businesses

Don’t Miss Out on Year-Round Tax Savings

If you managed to claim every possible tax break available to you this tax season, that’s great news. However, once this year’s taxes are filed, it’s time to start to thinking about tax-saving all year round. To get you started, here are some strategies can pay off for you in the future.

Give yourself a raise. If you received a big tax refund this year, it means that you're having too much tax taken out of your paycheck every payday. Filing a new W-4 form with your employer will ensure that you receive more money when you earn it.

Increase your retirement savings. One of the best ways to lower your tax bill is to reduce your taxable income by contributing to an eligible retirement account such as an IRA or a 401(k) offered by an employer. Money contributed to the plan is not included in your taxable income, so it is wise to contribute as much as you can to these accounts within the limits imposed by the IRS.

Pay child-care bills with pre-tax dollars. After taxes, it can easily take $7,500 or more of salary to pay $5,000 worth of child care expenses. But, if you use a child-care reimbursement account to pay those bills, you get to use pre-tax dollars. This can save you one-third or more of the cost, since you avoid both income and Social Security taxes.

Keep track of job-hunting expenses. If you count yourself among the millions of Americans who are unemployed, make sure you keep track of your job-hunting costs. As long as you're looking for a new position in the same line of work (your first job doesn't qualify), you can deduct job-hunting costs including travel expenses such as the cost of food, lodging and transportation, if your search takes you away from home overnight. Such costs are miscellaneous expenses, deductible to the extent all such costs exceed 2 percent of your adjusted gross income.

Go green. A tax credit is available for homeowners who install alternative energy equipment. The credit amounts to 30 percent of what is spent on qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps, and wind turbines, including labor costs. There is no cap on this tax credit, which is available through 2016.

Claim out-of-pocket costs of doing good. Keep track of what you spend while doing charitable work, such as supplies and the miles that you drive your car for charity (at 14 cents a mile). You can add such costs to your cash contributions when figuring your charitable contribution deduction.

These are just a few of the ways that you can reduce your taxable income throughout the year, for more tax planning advice, contact our office.

Update: Tax Court Rules in Favor of Developers

Developers of planned residential communities received a big win over the IRS in Tax Court recently with the ruling that they can defer significantly more income via the completed-contract method.

Under this method, profit from the sale of the homes is deferred until the tax year when the builder has incurred 95% of the project’s total costs. For this purpose, the cost of common amenities such as roads, sidewalks, golf courses, and the like are included in total costs.

The IRS claimed that the 95% test should be applied house by house in a development, but the Court disagreed. The amenities were key components of the builders’ marketing efforts, as well as in buyers’ decisions to purchase a residence within the development.

What Can Construction Firms Learn From Their Tax Return?
Tax season is in full swing! This is the time of year that many business owners tend to think about tax credits, deductions, and other accounting issues in relation to their tax filings. This is a prime time to kick start your tax planning by looking at areas where you could make changes that will benefit you next tax year. Even though business decisions are not based on tax consequences alone, they are an important component of maximizing cash flow and profitability. As you are probably currently “in the moment” with your taxes right now, it is worthwhile to learn from this year’s return and consider the following questions to determine if you need to make any changes to minimize your taxes for next year.

1. What did I spend on equipment, including repairs and maintenance? While the definitive answer on bonus depreciation for next tax year and beyond is still up in the air, remember that you can claim bonus depreciation for any equipment that was placed in service in 2013. Looking forward, routine repairs and maintenance on existing fleets of equipment also present opportunities to write-off expenses, however, the rules are complex so construction companies with fleets of vehicles and equipment will want to look carefully at the new regulations to determine whether a change in income tax accounting method is warranted.

2. Am I investing in research and development? Relatively few construction contractors take advantage of federal and state research and development (R&D) tax credits. Activities that qualify for the federal R&D tax credit include those aimed at developing the construction process for a specific job or improving the efficiency of overall process performance. Design/build, value engineering, and LEED projects and some pre-construction planning can qualify for these credits.

3. Have I worked on energy efficient government buildings—or will I in the future? If your company was the primary designer of a government-owned, energy-efficient building, you may be eligible to claim the 179D Energy Efficient Commercial Building Deduction which provides a deduction of up to $1.80 per square foot to owners of energy-efficient commercial buildings. To qualify for this deduction on a government-owned building, the building designer must obtain a letter that assigns the tax benefits from the government agency to the contractor.

4. Am I properly accounting for employees’ expenses and reimbursements? An important component of tax planning involves avoiding penalties and interest by ensuring compliance with all applicable federal, state, and local tax laws. The IRS often scrutinizes how a business reimburses employees’ expenses, so it is critical that you ensure that you are accounting for these items.

5. Am I properly classifying employees? Worker classification can be a confusing area of the law that can cost construction firms dearly. If the IRS determines that a worker who was designated an independent contractor is actually an employee, the employer will owe back payroll taxes, potential interest and penalties. In the not-too-distant future employers may also owe penalties under the Patient Protection and Affordable Care Act (PPACA) if the reclassification of employees moves a company into the “large employer” category. Whether a worker is an independent contractor or an employee is usually determined by the degree of control that the employer has over the worker.

6. Does my business cross state lines? When your business operations cross state lines, sales and use taxes can cause confusion. Generally, a contractor is deemed to be the end user of materials purchased in the construction of a building. Therefore, the contractor is responsible for paying sales and use taxes. Problems can occur if materials are shipped to one state and then delivered to a different state. Depending on the states involved, the contractor will likely owe sales and use taxes in both jurisdictions. If you are sending people or materials across state lines, be sure to check the rules on state and local tax rules in each location.

IRS Pilots Identity Theft Protection Program for E-Filers
As part of its comprehensive identity theft strategy, the Internal Revenue Service (IRS) is offering a limited pilot program to help taxpayers who filed their returns last year from Florida, Georgia and the District of Columbia.

According to the IRS, this additional layer of security for identity theft will be available to taxpayers who need an Electronic Filing PIN (e-file PIN) to submit their tax return this year. This pilot program allows any taxpayer who filed a tax return last year from one of the three states above, to obtain an e-file PIN this year and an opportunity to apply for an Identity Protection PIN (IP PIN). The IRS encourages taxpayers who are offered the opportunity in this pilot program to complete the process to get the IP PIN. The IRS selected Florida, Georgia and the District of Columbia for the pilot because those are the locations with the highest per-capita percentage of tax-related identity theft. The pilot is an expansion of the current IP PIN program, which was historically reserved only for victims of identity theft.

Taxpayers selected for the pilot will be asked a series of questions online to verify their identity. The IRS will not issue an IP PIN to a taxpayer unless that person’s identity has been verified. Filing a return without an IP PIN should not delay processing their return.mThe vast majority of taxpayers do not need an e-file PIN to file their taxes. In some cases, a taxpayer must obtain an e-file PIN if they need to e-file a tax return or other electronic forms, but they do not have their Self-Select PIN or Adjusted Gross Income from their 2012 tax return to verify their identity. In these cases, the taxpayer may request an e-file PIN on the IRS website. Following this pilot program, the IRS will assess its results and performance before deciding on whether to expand the program.

Identity theft is one of the IRS’ biggest challenges and one of the fastest growing crimes nationwide. The IRS has more than 3,000 employees working on identity theft cases and has trained more than 35,000 employees who work with taxpayers to recognize and provide assistance when identity theft occurs. Florida residents can visit the IRS website (http://www.irs.gov/uac/Newsroom/2014-Identity-Protection-PIN-%28IP-PIN%29-Pilot) to learn more about this program.

Tax Deductions for Medical Professionals
Many self-employed doctors miss out on all kinds of tax deductions just because they don’t realize what is deductible and what isn’t. If you are a sole proprietor, partner, or a contractor, keeping careful records of your business expenses is critical. The following list can help you determine how to maximize the deductions that you are eligible for:

Supplies
To qualify as a deduction, supplies must be items that are ordinarily used in your profession and necessary for your job. If your employer reimburses you for the cost, then you cannot deduct it. Some examples of typical medical deductions may include your answering service, referral services, medical equipment, and office supplies.

Out of Town Expenses
If you have to travel out of town for your job, then your travel expenses can be deducted from your taxes. In order for this to qualify as a deduction, you must travel away from home, which is defined as the city in which you work. If you spend the night out of town, you can deduct mileage, food, lodging, valet services, phone calls and tips. If you drove to your destination, write down the business miles that you traveled. You must keep your hotel receipts in order to use them as a deduction, but you are not required to keep receipts for expenses that are less than $75. Just be sure that you write down how much you spent on your business trip, and keep lodging and meal expenses separate.

Vehicle Travel Expenses
While you cannot deduct the miles that you drive from your home to your office every day, you can include mileage from trips to temporary work sites. If you are driving to different locations for your job, you need to keep a detailed journal of your expenses. Your journal should include the date, the purpose of the trip, the place where you are going, the odometer readings when you leave and when you arrive, and the number of business miles that you have traveled. You should also keep the receipts for repairs, car insurance, and gas.

Uniform Expenses
If your employer requires you to wear a uniform, you may be able to deduct its cost and upkeep from your taxes. In order for your uniform to qualify as a deduction, the IRS stipulates that it must be required by your employer and that it cannot be adapted to be worn as street wear. If a medical facility requires you to have an emblem, name or logo on your uniforms, then your uniforms may qualify as a deduction. You can also deduct your expenses for work shoes, dry cleaning and alterations.

Continuing Professional Education Expenses
If you take classes about your profession, then you may be able to deduct the expenses. When your employer requires you to take a class or go through training in order to keep your job, it is deductible. You can also deduct expenses when you earn continuing professional education credits in order to maintain your medical skills. However, you may not deduct expenses for training that is required in order to meet minimum requirements to get a new job. If you have taken classes, then you may be able to deduct the tuition, lab fees, copy fees, cost of supplies, textbooks and registration fees.

Professional Fees
Certain professional fees and dues can be deducted from your taxes. If you are a member of a union, then your membership payments are deductible. You can also deduct any money that you place into a strike fund, but personal expenditures are not deductible. You can also include your membership dues and fees for professional associations.

Legal and Insurance Expenses
Malpractice insurance and liability insurance costs can be deducted, as well as any legal protection that you have.

A final note for employed physicians: Many of the deductions detailed above are subject to the 2 percent floor on Schedule A, which can often times eliminate any benefit to you.

SBA Surety Bond Guarantee Program Can Help Small Business Contractors
As explained in our previous article, sometimes it can be difficult for a small business to obtain a surety bond due to the higher perceived risk by a surety company or an agent, especially if the business has limited working capital or a lack of experience completing successful contracts. In these cases the Small Business Administration Surety Bond Guarantee Program may be helpful. Through the program, the SBA guarantees between 70 and 90 percent of the losses and expenses incurred by a surety company in the event that the small business defaults and fails to complete the contract. To qualify for the SBA Surety Bond Guarantee Program small business contractors must meet the following eligibility requirements:

The business applying for the program must be classified as small according to the SBA’s size standard designated for the primary industry of the business together with its affiliates.

You must need an SBA guarantee to obtain a bond.

The size of the public or private contract or subcontract must not exceed $6.5 million or $10 million if a Federal contracting officer certifies that SBA’s guarantee is necessary to obtain bonding.

The business must satisfy credit, capacity and character evaluations completed by the surety company or an agency representing the surety company. There must be a reasonable expectation of successful contract performance and the contract must require a bond.

To apply for a surety bond, you must first choose a surety company or bonding agent who represents a participating surety company and then complete the surety’s application and provide the necessary credit, capacity, and character information. The surety or agent will underwrite the application and decide whether to issue the bond, and whether an SBA guarantee is required. If the surety company requires an SBA guarantee as a condition of issuing the bond, you can submit applications by paper or online through the electronic application system.

For complete instructions visit the SBA website at http://www.sba.gov/content/contractors. Williams & Company can help you through the bonding process. Please contact us if we can be of assistance to your organization.

What Your Construction Firm Needs to know About Surety Bonding: Part 1
In order to bid on certain projects (mostly those for government and not-for-profit organizations), contractors have to be bonded.The higher your company’s bonding capacity is, the larger the projects you can bid on. However, bonding capacity increases in stages and is affected by experience, your company's financial standing, and in many instances, personal credit.

Bonding first became common practice in the 19th century when, recognizing the need to protect taxpayers from contractor failure, Congress passed the Heard Act in 1894, which required surety bonds on all federally funded projects. In 1935, The Miller Act (40 U.S.C. Section 270a et. seq.) became the last major change in the public sector surety, and is the current federal law mandating surety bonds on federal public works. This law requires performance bonds for public work contracts in excess of $100,000 and payment protection, with payment bonds the preferred method, for contracts in excess of $25,000. Almost all 50 states, the District of Columbia, Puerto Rico, and most local jurisdictions have enacted similar legislation requiring surety bonds on public works.

Surety bonds provide financial security and construction assurance by assuring project owners that contractors will perform the work and pay specified subcontractors, laborers, and material suppliers. A surety bond is a risk transfer mechanism where the surety company assures the project owner (obligee) that the contractor (principal) will perform a contract in accordance with the contract documents.

There are three basic types of contract surety bonds:

• Bid bonding assures that the bid has been submitted in good faith and that the contractor will enter into the contract at the price bid and provide the required performance and payment bonds.

• Performance bonding protects the owner from financial loss should the contractor fail to perform the contract in accordance with its terms and conditions.

• Payment bonding assures that the contractor will pay specified subcontractors, laborers, and material suppliers on the project.

If a contract is $500,000 or less, bonding requirements are generally less onerous and express bonding programs are available which do not require extensive paperwork, underwriting, or minimum financial limits. In this instance, bonding can usually be supported by personal credit. For larger projects in the range of $1 million to $10 million, a company generally requires a review by a CPA firm. If you have questions about bonding, contact Williams and Company—we can explain the process of bonding and help your construction firm get the appropriate level of bonding it needs to bid on all potential contracts.

Update on Same Sex Marriage Tax Filing Rules – Jan. 14, 2014
According to the Kiplinger Tax Letter, the Supreme Court may legalize same-sex marriage as early as 2015. For tax purposes, to determine if individuals of the same sex are lawfully married, the IRS looks to state or foreign law. The IRS has a general rule recognizing a marriage of same-sex spouses that was validly entered into in a domestic or foreign jurisdiction whose laws authorize the marriage of two individuals of the same sex even if the married couple resides in a domestic or foreign jurisdiction that does not recognize the validity of same-sex marriages.

Same-sex spouses can file federal tax returns using a married filing jointly or married filing separately status starting this tax year and, going forward, same-sex spouses generally must file using a married filing separately or jointly filing status. For tax year 2012 and all prior years, same-sex spouses who file an original tax return on or after Sept. 16, 2013 generally must file using a married filing separately or jointly filing status. For tax year 2012, same-sex spouses who filed their tax return before Sept. 16, 2013, may choose (but are not required) to amend their federal tax returns to file using married filing separately or jointly filing status. For tax years 2011 and earlier, same-sex spouses who filed their tax returns timely may choose (but are not required) to amend their federal tax returns to file using married filing separately or jointly filing status provided the period of limitations for amending the return has not expired. A taxpayer generally may file a claim for refund for three years from the date the return was filed or two years from the date the tax was paid, whichever is later.

In addition, a taxpayer and his or her same-sex spouse can file a joint return if they were married in a state that recognizes same-sex marriages but they live in a state that does not recognize their marriage. The IRS has a general rule recognizing a marriage of same-sex individuals that was validly entered into in a domestic or foreign jurisdiction whose laws authorize the marriage of two individuals of the same sex even if the married couple resides in a domestic or foreign jurisdiction that does not recognize the validity of same-sex marriages. The rules for using a married filing jointly or married filing separately status described above applies to these married individuals.

Unfiled and Delinquent Tax Returns? Let Williams & Company Help! Jan. 7, 2014
Do you have your unfiled and delinquent tax returns? Williams & Company can help you complete the critical step of completing them. The IRS will not negotiate to release levies or to settle your debt unless you file all of your tax returns and you are paying the current year taxes. Even if you have haven’t filed taxes in several years, you need to make sure that you do. Here are three important reasons why:

1) Failing to file tax returns can jeopardize your future. Eventually, the IRS will find you. Unless you take care of your taxes before this happens you risk the possibility of serving federal prison time and having your assets seized. However, if you file before the IRS gets to you, tax evasion is usually resolved without criminal prosecution.

2) Your credit will suffer. You cannot get student loans, buy a house, refinance a house, or get credit from most lenders and credit card companies when you have unfiled tax returns.

3) You risk losing Social Security, Medicare and state benefits because these payments are calculated based on an individual’s earnings, as reported to the IRS on your tax return.

If you have one or more unfiled federal tax returns, call us now and get your delinquent tax returns filed. If you are worried about owing money to the IRS, don’t be. Even if you don’t think that you can fully pay your tax liability, don’t let that stop you from filing—there are many payment options and other alternatives are available.

Williams & Company is experienced in helping individuals find positive resolutions to tax problems and we will help you after your returns are filed to ensure you are in good standing with the IRS. Contact our tax professionals today—and relieve yourself of the stress and worry of unfiled taxes.

ACA Tax Implications for Uninsured Individuals
Obamacare will continue to roll out in 2014, and uninsured individuals will have to make choices that could have tax implications.

Enrollment for health insurance ends on March 31, 2014. If you don't buy an insurance plan, you could face a penalty. The charge for 2014 is either 1 percent of your yearly household income or $95 per uninsured adult and $47.50 per child, up to $285 for a family. You pay whichever amount is higher. If you get insurance for part of the year, your penalty will be prorated. You'll pay the penalty when you file your 2014 tax return in 2015.

Some Timely Tax Reminders:
Estimated Tax Payments Due Jan. 15, 2014

Fourth Quarter Estimated tax payments for those who have not already filed are due by Jan.15, 2014.

Payroll Tax Returns Due Jan. 31, 2014

Fourth quarter payroll returns including FUTA returns are due on Jan. 31, 2014. Also to keep in mind, the payroll tax rate has increased to 6.2 percent.

990 Exempt Organization Business Income Tax Return

Non-profit organizations must file this return (with some exceptions). The filing due date is determined by the end of its fiscal year (the 12-month period for which the organization plans the use of its funds); each filing organization is required to file "by the 15th day of the 5th month after" its fiscal year ends, according to the IRS.

1099-Misc Must be Submitted to Independent Contractors by Jan. 31, 2014

Did you pay someone who works with you $600 or more in 2013? With some exceptions you should file a 1099-Misc with the Internal Revenue Service. The due date to submit this to independent contractors is January 31, 2014. C-Corp and S-Corp Tax Returns Due Mar. 15, 2014

Please be aware that returns for C-Corp and S-Corp entities are due a full month earlier than individual returns. We are ready to assist you with filing your business returns, so please contact us for an appointment to expedite the process. Individual Tax Returns Due Apr. 15, 2014

While April 15 may seem like a long time from now, it is only a few short weeks away. Contact us as soon as possible to set up your tax appointment to ensure that your return is completed well before the deadline.

Sales Tax Deductions Can Help Lower Your Tax Bill
If you live in a state that does not collect income tax (like Florida), writing off sales tax that you pay can make sense and lower your tax bill. If you live in a state that does collect income tax, you must choose between deducting state and local income taxes, or state and local sales taxes. For most citizens of income-tax states, the income tax deduction usually more favorable.

The IRS provides tables to help you calculate your sales tax and income tax deductions. For example, if you purchased a vehicle, boat, or airplane, you can add the state sales tax you paid to the amount shown in the IRS tables for your state, to the extent the sales tax rate you paid doesn’t exceed the state’s general sales tax rate. This rule also applies to home building materials that you may have purchased. The IRS also has a calculator on its website to help you calculate these deductions, which vary by your state and income level.

If You File Bankruptcy, Can Creditors Claim Your Inherited IRA?
If you declare bankruptcy, can creditors claim funds from an IRA that you inherited? The Supreme Court will decide. According to Kiplinger’s Dec. 6 Tax Letter, Appeals Courts are divided over whether an individual who inherits an IRA and later goes bankrupt can keep the IRA’s assets out of his or her bankruptcy estate.

Under current law, up to $1,245,475 in the debtor’s own IRA is exempt from creditors. The question in a case that recently went before a three-judge panel in the 7th Circuit U.S. Court of Appeals, is whether an inherited IRA is considered an asset or a retirement fund. If it is considered the latter, the money will be protected from bankruptcy creditors under the current law. The Supreme Court will hear the arguments related to this case in the coming year and decide whether an IRA ceases to become a retirement fund when it is inherited.

Stay tuned for updates about this issue, as it may impact how you choose to bequest your estate assets in the future.

Can You Take Advantage of Bonus Depreciation for Assets Put in Service This Year?
The American Taxpayer Relief Act of 2012 (the Act) extended a 50 percent bonus depreciation for qualified property placed in service from Jan. 1, 2013, through Dec. 31, 2013 (2014 for long production property).

This is an important benefit for businesses that can offer significant tax savings for those business owners who have purchased qualified property this year. This regulation differs from IRS section 179 expensing, as you do not need net income to take the bonus depreciation deductions. The bonus is also not limited to smaller businesses or capped at a certain level. However, the bonus depreciation deduction is not available for property used outside of the US, tax-exempt use property, or tax-exempt financed property.

The placed in service dates for long production property generally are extended an extra year, but it is important to note that only costs incurred before Jan. 1, 2014 are eligible for the bonus.Long production property is property that has a recovery period of at least 10 years, an estimated production period of more than two years, or an estimated production period of more than one year and a cost of more than $1 million.

IRS Now Allows Carry Over of Flexible Spending Account Funds
With December 31 only days away, individuals with flexible spending accounts (FSAs) are hurrying to spend their residual funds to avoid forfeiting them, in accordance with the IRS “use-it-or-lose-it” rule. The good news is, the IRS recently changed this provision for flexible spending plans. Individuals can now carry over a maximum of $500 of FSA funds to the following year, which means that employees no longer have to worry about trying to clear the money in their accounts by the end of the year, or by March 15 of the following year, if their flexible spending plan adopted the grace period.

A key point of clarification for employers is that a FSA carryover provision and an FSA grace period cannot be offered at the same time. In order to allow for this $500 carry over, employers must amend their plans to adopt the change. However, if an employer’s FSA plan currently allows for the grace period, that provision must be dropped in order to allow for the $500 carryover adoption.

Employers can implement the carryover for 2013 as long as the flexible spending plan is amended by the end of 2014. However, if the plan currently allows the grace period up until March 15, then the plan must be amended by the end of 2013 to formally eliminate this provision.

If you have any questions about this information, please contact us. We are here to help you.

The Tax Implications of Short Sales and Foreclosures
In the housing market, foreclosures and short sales result from a borrower’s inability to make their mortgage payments. In a foreclosure, the mortgage lender takes possession of the home due to lack of payment over an extended period of time. In a short sale, the mortgage lender allows the borrower to sell a house for less than the outstanding loan balance, eliminating the obligation to make any further repayments.

Foreclosure Tax Implications Often in a foreclosure scenario, the lender also cancels the outstanding mortgage balance. When a foreclosure includes a cancellation of debt, the borrower has an obligation to report it as regular income only if they are personally liable for the entire mortgage. Borrowers are also responsible for any capital gains that result from the foreclosure. That is, the purchase price plus the cost of any home improvements made subtracted from the home’s fair market value. However, if a borrower is not personally liable for the debt that remains, the capital gains calculation would use the outstanding mortgage balance at the time of foreclosure instead of the home’s fair market value.

Short Sale Tax Implications Similar to a foreclosure, any debt that a mortgage lender cancels because of a short sale is taxable only if the terms of a mortgage that the borrower is held personally liable for in the full amount of the loan. For example, if a borrower owes $500,000 on a mortgage and the short sale of the home is for $450,000, the lender will report $50,000 of canceled debt. Since short sales inherently do not produce a gain for either the lender or the borrower, usually no capital gains issues exist.

Potential Tax Exclusions Through the end of 2013 borrowers may be eligible to exclude canceled debt, and possibly even capital gains, from their tax returns if it relates to qualified principal residence indebtedness and meets the requirements of the Mortgage Forgiveness Debt Relief Act.

Our tax professionals can help you navigate the tax implications of short sales and foreclosures. Contact us today.

Investment Tax Considerations for High Income Earners
A frequent tax strategy question is whether investing for tax-free or taxable interest is better. Generally, taxable interest will provide the greater return, but this may not hold true after taking into account taxes on the income. This is especially true for higher-income individuals with the new 3.8% surtax on the net investment income of higher- income taxpayers, instated as part of the Affordable Care Act. Investors should consider which investment vehicles provide the greater after-tax return. For example, interest derived from municipal bonds is tax-free for federal purposes and also is tax-free for a particular state if that state or its local governments issue the bonds. Plus, states cannot levy tax on interest from United States Government bonds.

Therefore, tax-free bonds are likely to be an attractive option to taxpayers in higher brackets, because they will receive greater benefit from excluding interest from income. However, for lower-bracket taxpayers, the tax benefit of excluding interest from income may not offset the lower interest rate generally paid on this type of bond.

Of course, bonds are just one investment vehicle and there are many factors to consider when making investment decisions. This year the new Net Investment Income Tax must also figure into the investment picture of high-income individuals. Starting this tax year, high-income taxpayers will be subject to a 3.8% surtax on net investment income. Tax-exempt interest is not subject to the tax. For individuals, the tax is 3.8% or the lesser of:

1. The taxpayer’s net investment income or

2. The excess of modified adjusted gross income over the threshold amount ($250,000 for a joint return or surviving spouse, $125,000 for a married individual filing a separate return, and $200,000 for all others).

The tax experts at Williams and Company can help you make the right decisions to ensure you reap the tax advantages of your investment strategy. Contact us today.

Charitable Giving Can Lower Tax Liabilities for High-Income Earners
For top-earners with annual income of $450,000 or higher, the 2013 tax season could bring some unwanted surprises—in the name of significantly higher tax liabilities. For couples with incomes of more than $450,000 or single individuals with income of $400,000 tax changes including increases in federal income tax and the Medicare surtax will result in a total tax rate of close to 42 percent on earned income in 2013—which is an increase of more than 5 percent over last year. In addition, taxes on dividends and long-term capital gains have also increased significantly over the past year. However, there are steps that individuals in the higher tax brackets take now, to lower their tax bill. High-income earners such as physicians, dentists, and attorneys should consider implementing tax strategies such as charitable giving to reduce their tax burden. While charitable giving tax rules have changed since last year, individuals in the highest income tax brackets can still receive considerable tax deductions (up to 39.6% based on Annual Gross Income, or AGI) when they make a charitable gift. Donors should evaluate any potential charitable contributions based on factors such as the type of asset donated (i.e. whether the gift is cash or another asset type), their maximum allowable charitable deduction based on their AGI, the amount of the charitable deduction based on their tax bracket, and any potential IRS-imposed limitations. Our tax planning experts can help you answer any questions you may have about charitable giving and its effect on your tax situation. Contact us today.

‘Tis the Season for Family Gifts
Are you considering making a monetary or an asset-based gift to a loved one within the remainder of this tax year? If so, you should be aware that generally, under IRS regulations, you are responsible for paying gift tax if the amount is greater than the annual exclusion. In 2013, the annual exclusion is $14,000. The IRS considers a gift “Any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money's worth) is not received in return” and considers any gift a taxable gift. However, there are many exceptions, including the following, which are not considered taxable gifts. • Gifts that do not exceed the annual exclusion for the calendar year. • Tuition or medical expenses you pay for someone (these are considered educational and medical exclusions). • Gifts to your spouse. • Gifts to a political organization for its use. • Gifts to qualifying charities are deductible from the value of the gift(s) made. Keep in mind that making a gift or leaving your estate to your heirs does not ordinarily affect your federal income tax .You cannot deduct the value of gifts you make (other than gifts that are deductible charitable contributions). If you are not sure whether the gift tax or the estate tax applies to your situation, our tax planning experts can help you. Contact us today.