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Obamacare is about to collide with the US-Tax filing season, adding frustration for millions of taxpayers who are trying to figure out how to comply and figure their taxes. The 2014 tax season starts January 20 and because of Obamamcare we will all have more complicated calculations to complete.
The IRS has informed us that refunds will be slower this year. Due to extra work caused from the Affordable Care Act, budget cut backs and layoffs, refunds will take at least a week longer if you get it through direct deposit. Also, these things will make it more difficult to get help from the IRS. Wait times for calling the IRS will be longer and agents will not be able to answer many questions if they feel you can find on the IRS website yourself.
Another problem that is clogging up the system is one that the IRS has been working on for several years now – criminals who steal others refunds by identity theft. This is especially an issue early in the tax season, when criminals can file tax returns and get refunds before legitimate taxpayers even know what happened. In our experience working with people who have had their identity stolen this way, it appears that it happens most frequently with taxpayers that have filed extensions and waited until the last minute to file their taxes.
We are strongly encouraging people to file on time this year – even early to lower the possibility of getting their refunds stolen. We are also reminding taxpayers to remember that the IRS never contacts you by phone. If you get a phone call from someone claiming to be from the IRS, hang up and call the IRS.
At Soulence Tax and Accounting, we are ready to help you through this year’s complicated Obamacare laws and assist you in getting as big a refund as possible as quickly as possible.
One of the biggest changes in taxes for businesses this year has to do with how business owners can deduct equipment and furniture. Before 2014, if you had a piece of equipment that cost under about $200 and lasted less than 5 years, you could just deduct it as office expense or small equipment. If it was over about $200 and lasted 5 or more years, you needed to depreciate it over its useful life. There has also been Section 179 depreciation in which you can take the cost a piece of equipment all in one year.
Many business owners use Section 179 depreciation to be able to deduct equipment in the current year and take advantage of the deduction. But the past few years, congress has been threatening to reduce the amount of Section 179 that can be deducted in one year. So, in anticipation of that there is a new law. The new law says that you can expense a piece of equipment that costs under $500 all in one year if you do two things:
- You must have a company policy that says your company agrees to deduct equipment each year in this manner.
- There is a form you must file one time for the life of your business.
We are recommending that every business owner file the form this year with their tax return so that they are covered under the new law. It will require an additional signature, but we feel that to ensure that each business is compliant with the new law, and so that no one forgets in the future, this is a good time to take care of it. If you do expense equipment that costs under $500 without doing the above two requirements you could be subject up to a $5,000 penalty.
Another law change that has come from this same bill affects people with rental properties. In the past, the cost of many repairs and remodels had to be depreciated over 27 to 35 years. Under the new law, any repair (such as a new roof or carpet) can be deducted all in the year it is paid for as long as it is something that would be replaced at least twice over the life of the property. We are very excited about this change as it can mean larger deductions and tax savings for property owners.
Here at Soulence Tax and Accounting, we are ready and anxious to assist you in all your tax needs. Feel free to call or email us with your questions and concerns.
Photo provided by flickr.com
Christmas Surprise from the IRS
This week Congress gave us all a Christmas gift. The Senate finally passed the tax extender bill but only for 2014. Yes, it is retroactive to January 1, 2014 and it means it expires December 31, 2014 in two weeks. The bill now goes to President Obama, who is expected to sign it into law this week. Although it is a pretty last minute change, it is good news for your 2014 tax returns.
The bill includes:
- Above the line educator expense deduction
- Tuition and fees deduction
- Mortgage debt forgiveness
- Equalization of employer-provided commuter transit and parking benefits
- Deduction for mortgage interest premiums
- Deduction for state and local sales tax deduction
- Up to $100,000 distribution from IRA to charity
- Work opportunity tax credit
- Increased Sec 179 deduction
- Tax credit for residential energy efficiency improvement
Looking for Help with Health Insurance?
Also, this week we discovered the Guru of Health Insurance. He has been a client of ours for some time and we have a lot of respect for him. We invited him to our office this week to teach us a little more about Obamacare and to see if he could help our employees and us with health insurance. This man has read the entire Affordable Care Act from beginning to end. He has started helping our staff find affordable health insurance. Maneuvering through the exchange is very complicated to try and do yourself so if you are not happy with your health insurance situation, feel free to give our office a call and we will be happy to refer you to our Guru.
We wish all of you the happiest Holiday season and hope that it is filled with family, friends and great joy.
Photo courtesy of flickr.com
There is an IRS rule called a 1031 Exchange that allows you to exchange property used for business or investment for other property that is like it and therefore to postpone paying taxes. For example, let’s say you own a rental house and you decide to sell it. Let’s say you will make $30,000 on the sale. If you are planning on purchasing another rental property, you can do it with a 1031 exchange and postpone paying taxes on the sale until you sell the new property. This could potentially save you between $5,000 and $8,000 in taxes.
Here is how it works. Once you have a buyer and a closing date for the sale of the property, you hire what is known as a Qualified Interm. This is a person that holds the proceeds of the sale until you purchase the new property. Then you have 45 days from the time you sell the old property to find and name the new property. Also, you have 180 days from the time you sell the old property to close on the new property. Now you do not have to pay the taxes on the sale of the old property until you have sold the new property. The most important thing to remember is that you cannot take possession of the money from the sale of the property and you must use a Qualified Interm.
This can be done with business equipment and even farm animals. If you are thinking of replacing any asset from your business or from an investment, check with your tax prepare before you do anything. They can inform you of the tax consequences of your plans and help you to know what to do to minimize your tax liability. At Soulence Tax and Accounting we are available to speak with you all throughout the year and to help guide you through decisions that will impact your taxes.
Photo courtesy of Flickr.com
2014’s tax rules still haven’t been finalized but help is on the way as year- end nears. Congress had all year to revive a series of tax breaks that lapsed after 2013, but, as usual, tax writers procrastinated.
The word is that all major tax provisions that lapsed at the end of 2013 will be reinstated. For individuals some of the deductions are:
- Deductions for state sales taxes in lieu of income taxes
- College tuition
- Up yo $250 of teachers classroom supplies
- Direct payouts of $100,000 or less from IRA’s to charity for folks 70 ½ and older
- 50% bonus depreciation
- R&D credit
- Higher ceilings on expensing assets (179 deduction)
President Obama nixed a tentative deal by the House and Senate negotiators that would have made a number of the breaks permanent, including many key ones for businesses. But the House has OK’d a fallback plan that will revive all key breaks just for 2014. It is expected that the Senate will reluctantly accept the House Bill. However, as a result, the extensions will expire again at the end of 2014 so businesses and individuals will face the same uncertainty again next year about the tax rules as they try to make their business and investment decisions.
A couple of final 2014 tax reminders:
- Check the balance in your flexible spending account. You must clean it out by Dec. 31 if your employer has not implemented either the 2 ½ month grace period of the $500 carryover rule. Otherwise, you will forfeit any money left in your account.
- Mail checks for tax-deductible items before Dec 31 to ensure a 2014 write-off. You’re able to claim the deduction for this year even if the checks don’t clear until January. Thus, mailing a charitable donation in late December will nail down the deduction for 2014.
- Make sure you know the rules if you are charging deductible items. For charges that you make with a retail store credit card (such as Kohls, Cabelas, etc) you are allowed to claim the deduction for the item only in the year in which you pay the bill. For transactions made with a bank credit card, you can take the write-off in the tax year you charge the goods, even if you pay the bill the next year.
As always contact us for help creating your year-end tax strategy.
As Thanksgiving Day and the Holidays approach, we at Soulence, would like to express our gratitude for all of our clients, friends and all those who follow our blog. We recognize that our business would not exist without you. We appreciate the faith you have in us as we continually strive to provide good, quality service and value for all of you. We hope that your Thanksgiving holiday will be filled with family and friends and joy.
Photo provided by Flickr.com
My mother was a single mom and raised two children. She was a very organized person and very thrifty. She rarely bought anything unless it was on sale. One day when her children were grown and gone, she went shopping with her sister. She found a dress she loved, but it wasn’t on sale. Her sister said to her, “You know you can buy something that isn’t on sale now”. My mom was so used to scrimping and saving every penny she had not thought to look at her situation and maybe revise her strategy. Taking a step back and looking at your finances is what we like to call monitoring your cash flow.
Whether you have a business or not, monitoring where your money is coming from and where it is going is important. Maybe you are eating out more than you need to. Maybe you could be spending less on office supplies. Maybe you are spending money on advertising that isn’t bringing in enough business to be worth it. Or, like Mom, maybe you could be spending money on some things you would like to have.
How do you monitor cash flow? There are several computer programs that can help you track your income and outflow. Many of them are easy and take little time by allowing you to download your bank account and credit card statements into the program. Set aside a certain time each month to do your bookkeeping and then stick to it. At least every quarter, print up a cash flow statement. Look at where your income is coming from. Is there anything you could do to easily increase your income? Evaluate what you are spending money on. What things could you change to free up more cash?
Monitoring your cash flow on a regular basis helps you spend money wisely. It also helps you to make good financial planning decisions. And of course, when tax time comes, you will be prepared to file your taxes with all the necessary information at your finger tips.
At Soulence, we like to assist individuals and businesses to find a method of tracking Cash flow that works well with their circumstances. If you are not sure what will work best for you feel free to contact us and we can show you your options.