In a survey of small businesses conducted by the National Small Business Association, 59% of respondents said taxes were more of an administrative burden than a financial one. Most businesses put payroll taxes at the top of the list of taxes with the greatest administrative burden. Payroll taxes also outranked other taxes, such as income, property, and sales taxes, as the top financial burden to businesses.
The IRS recently announced inflation-adjusted contribution limits for health savings accounts (HSAs) for 2016. HSAs are a combination of a high-deductible health insurance plan and a savings account in which you set aside pretax dollars that can be withdrawn tax-free to pay unreimbursed medical expenses. The 2016 HSA contribution limit for individuals is $3,350; the limit for family coverage is $6,750. You can make a catch-up contribution of an additional $1,000 when you’re 55 or older.
Buyer beware! Both the Better Business Bureau and the Federal Trade Commission have issued warnings about vacation fraud. By some estimates, this type of scam costs travelers over $10 billion each year. How do you know whether you’re dealing with a legitimate travel agent or a huckster? Here are pointers.
- Do your research. Get contact information for hotels, rental car companies, and airlines; then confirm reservations and prices directly. Research properties on the Internet before you travel. (Is that “five star hotel” really near the beach?) Check out the Better Business Bureau. Although bad companies may not always appear on BBB radar, a history of complaints is a tip-off that you’re dealing with a less-than-reputable firm.
- Get it in writing. Obtain a copy of the firm’s cancellation and refund policies. Get written confirmation of your travel arrangements. Read the fine print, especially verbiage about availability of travel dates and additional charges.
- Beware the bait and switch. You don’t want to learn the hard way that “luxury” has an unexpected definition. In one scam, a “luxury” Caribbean cruise booked for dollars a day was actually a six-hour ferry ride. In another, a “luxury” hotel was located next to the city dump. Of course, the travel company will be glad to move you to better accommodations – for a hefty fee.
- Say “no” to high-pressure sales tactics. If the salesperson says you’re missing the deal of a lifetime and you’re a fool to pass it up, walk away. Reputable firms want your business and will be happy to let you think over an offer.
- Pay with a credit card. If a company asks for an overnight payment or cash in advance, go elsewhere. Legitimate companies will bill your credit card in the normal course of business. In addition, your card offers travel protection such as accident insurance.
The idea of saving money can be alluring. But remember that “too good to be true” is a cliché for a reason. Don’t let fraudsters take your dream vacation.
On June 25, the U.S. Supreme Court issued its ruling on the controversial King v. Burwell case.
The main issue in the case was whether federal subsidies could be offered to people who purchased health insurance through the federal health insurance marketplace rather than through a state-run exchange. Under a literal reading of the law, subsidies are allowed through exchanges “established by the state.” It was argued that the wording of the Affordable Care Act (ACA) prohibits subsidies from being granted in states that did not set up their own insurance exchange, but instead defaulted to the federal health insurance marketplace. More than half of the states use the federal exchange.
Had the Court’s decision gone the other way, an estimated six million people would have lost the subsidies that help them pay for their health insurance. However, the Supreme Court decided by a 6-3 margin that this distinction between state and federal exchanges was not the intent of Congress and ruled to preserve the right for subsidies to be offered in all states. The majority opinion was written by Chief Justice Roberts.
Education tax planning can optimize the available breaks for saving and paying for school expenses. Here are some tips.
Saving for education
- Section 529 plans include prepaid tuition programs and college savings accounts. Prepaid tuition programs let you buy future tuition credits at today’s rates, while college savings accounts let you set aside funds in an investment account. You get no tax deduction, but you can use the money tax-free for qualified college expenses.
- Coverdell education savings accounts have some characteristics of Section 529 plans – and a few important differences. Nondeductible annual contributions of $2,000 can be made not only for qualified college costs, but also for many K-12 expenses. Unlike 529 plans, phase-out rules prevent contributions when your income exceeds certain levels.
Paying for education
- If you’re currently paying college expenses, your tax planning should take the various available deductions and credits into account. These include the American opportunity credit, the lifetime learning credit, and the student loan interest deduction.
If you have education expenses to pay now or in the future, planning will help you take advantage of the tax breaks. Contact us for details and assistance.
Although the tax code contains some exceptions, income is generally taxable in the tax year received and expenses are claimed as deductions in the year paid. But “carryforwards” and “carrybacks” have special rules. In this case, certain losses and deductions can be carried forward to offset income in future years or carried back to offset income in prior years, providing tax benefits.
- Capital losses. After you net annual capital gains and capital losses, you can use any excess loss to offset up to $3,000 of ordinary income. Remaining losses can be carried over to offset gains in future years. The carryforward continues until the excess loss is exhausted.
- Charitable deductions. Your annual charitable deductions are limited by a “ceiling” or maximum amount, as measured by a percentage. For example, the general rule is that your itemized deduction for most charitable donations for a year can’t exceed 50% of your adjusted gross income (AGI). Gifts of appreciated property are limited to 30% of your AGI (20% in some cases) in the tax year in which the donations are made. When you contribute more than these limits in a year, you can deduct the excess on future tax returns. The carryover period for charitable deductions is five years.
- Home office deduction. If you qualify for a home office deduction and you calculate your deduction using the regular method, your benefit for the current year can’t exceed the gross income from your business minus business expenses (other than home office expenses). Any excess is carried forward to the next year. Caution: No carryforward is available when you choose the “simplified” method to compute your home office deduction.
- Net operating losses (NOLs). Business NOLs can be carried back two years and forward 20 years. Tip: As an alternative, you may opt to forego the carryback and instead carry the entire NOL forward.
Give us a call for help in maximizing the tax benefits of carryforwards or carrybacks.
Wedding bells bring rejoicing – and financial changes. If you’re marrying for the second time, the changes might seem overwhelming. On the surface, tax and financial planning for a second marriage is similar to that of a first marriage.
For example, no matter what month you hold the ceremony, the IRS will consider you married for the full year. That means employer-provided fringe benefits and taxes withheld from your paychecks could require adjustment. Depending on how much each of you earns and your past financial history, you’ll have to decide what filing status will be most beneficial, and how best to take advantage of tax breaks that may become available.
With a second marriage, you have even more decisions to make, including how you’ll merge your assets. Will you purchase a new home? If both of you already own separate homes, you may each qualify for a $250,000 federal income tax exclusion on the profit from the sale, as long as you have lived in the home for at least two of the last five years. If only one of you meets the requirements for the exclusion, consider selling the qualifying home and living in the other for a while.
You or your spouse might also have substantial debt or financial obligations. Discuss your financial histories, including alimony or child support still owed and past bankruptcies. Decide who will provide for the college expenses of the children in your now-combined household. Depending on your age, you may want to investigate the effect of the marriage on your social security benefits.
A second wedding is a joyful event for you, your new spouse, and your extended families. To give your marriage an added advantage, call us before you say, “I do.” We’ll offer our congratulations – followed by useful financial and tax planning advice.
Are problems beginning to surface in your business? Have profits been dwindling? Are customers complaining with greater frequency? Are competitors encroaching on your market share? These are warning signs that you’re headed in the wrong direction – and you don’t want to ignore them until it’s too late. Here are suggestions for turning things around.
- Focus on the money-makers. Perhaps your business has developed products your customers aren’t willing to buy. If so, it may make sense to redirect your company’s available resources. Does that mean you should never create new product lines or expand into new markets? No. But new products must eventually improve the bottom line. If they don’t make money within a reasonable time, refocus.
- Establish (or reestablish) your brand. Identify what you do best; then tell everyone. Your goal is to educate customers, vendors, and employees on the reasons why your product or service is better than the competition. Be specific. Of course, to remain credible you must back up your claims, so be realistic as well. Win trust by following through.
- Track results. Once you’re refocused on the money-making segments of your business, keep a close eye on the numbers. Know whether customer complaints are down, cash flow is improving, back orders are declining, and market share is holding steady or increasing. If profits aren’t showing an upward trend, take another look – then adjust and remeasure.
For help getting your business back on track, give us a call.
July 31 is the deadline for filing 2015 retirement or employee benefit returns (5500 series) for plans on a calendar year.