Many parents consider and assume that one of their children will succeed them in living in the family residence. Of course, this place may be the house in which the child grew up and spent a considerable amount of time. To return to such a place can be very special. But what in fact are the tax consequences of such an event? What happens if the parents wait until death? What if they want to make an outright gift of the property? Perhaps they wish to make a sale at a bargain price? What if they make a more traditional sale that involves financing?
Tax Breaks For Small Businesses
The US government defines a small business as one with sales of $7 million to $25 million a year and up to 1,000 employees. There are more than a few tax breaks available for small businesses and many have been extended for 2016. Some notable tax extenders include I.R.C. § 179 and bonus depreciation as well as tax credits for research and development, work opportunity, and energy production.
*I.R.C. §179 & Bonus Depreciation
Two important tax breaks for small business have been extended: I.R.C. § 179 and bonus depreciation. I.R.C. § 179 allows businesses to deduct the full price of any qualifying equipment or software purchased or leased during the year. The tax-extension bill makes permanent the $500,000 maximum deduction for new and used equipment that was purchased or leased in 2015. Bonus depreciation, which was extended through 2017, allows business owners to depreciate 50 percent of the cost of new equipment purchased in 2015. The two tax incentives can be used together.
Under I.R.C. § 179, taxpayers may claim certain business expenses in the year in which they were incurred rather than depreciating the costs over several tax years. The limit of $500,000 is double the previous limit and large enough that the average small business owner can write off most, if not all, of their equipment purchases in the year of the transaction.
The 50 percent bonus depreciation provision also was extended. After the full $500,000 is taken, exhausting the claim, an additional 50 percent of the adjusted basis of certain depreciable business property purchased and placed in service during 2015 may be deducted.
*Research and Development Credit
Originally enacted to act as an economic stimulus. Internal Revenue Code (IRC) § 41 enables a taxpayer to claim a tax credit for qualified research expenses paid or incurred by the taxpayer during the taxable year in carrying on any trade or business. The availability of this tax credit is established by the definition of qualified research expenses under I.R.C. § 41 and the regulations under I.R.C. § 174. New York State income tax law also permits an New York tax credit for qualified research expenses. An investment tax credit equal to 9% of qualified investment in R&D buildings and tangible personal property (the credit is 7% for personal income taxpayers).
*Work Opportunity Tax Credit
The Work Opportunity Tax Credit (WOTC) is a Federal tax credit available to employers who hire veterans and individuals from other target groups with significant barriers to employment. There is no limit on the number of individuals an employer can hire to qualify to claim the tax credit, and there are only a few simple steps to follow to apply for the WOTC. After the required certification is secured, qualifying employers can claim the tax credit as a general business credit against their income tax.
*Energy Tax Credits: Investment Tax Credit & Production Tax Credit
The Federal Production Tax Credit (PTC) and Investment Tax Credit (ITC) are incentives for
development and deployment of renewable energy technologies. The Production Tax Credit (PTC) reduces the federal income taxes of qualified tax-paying owners of renewable energy projects. The Investment Tax Credit (ITC) reduces federal income taxes for qualified tax-paying owners based on capital investment in renewable energy projects. The ITC is earned when the equipment is placed into service.
In December of 2015, the House and Senate agreed by significant margins to grant extensions to the 30 percent investment tax credit (ITC) for solar energy and the 2.3-cent-per-kilowatt-hour production tax credit (PTC) for wind power. Other technologies—including geothermal, marine energy and small hydropower—received one-year extensions to their 30 percent ITC under the joint spending and tax measures passed. New York State also offers a tax credit for biofuel production.
*Deductions
In addition to the tax breaks mentioned above, there are an abundance of good old-fashioned deductions that can help lower a small business owner’s tax liability, including:
• Automobile expenses related to business;
• Membership fees in trade organizations, professional groups and chambers of commerce;
• Classes, seminars, and other training in a profession;
• Banking, credit card and ATM fees incurred in business;
• Business travel and meal costs;
• Professional journals, newspapers and books necessary to conduct business.
• Internet and other telecommunication, including cellphone, charges for business use. Only the amount used for business may be deducted;
• If a small business operates from home, expenses relating to that portion of the residence that is work space should be deducted;
• State and local sales taxes.
If you are a small business owner and have questions about any credits or deductions that may reduce your business tax liability, call THE TAX EXPERTS at the Thorgood Law Firm www.thorgoodlaw.com. For a FREE consultation call 212-490-0704.
Converting Your IRA To A Roth IRA
In 1997, the Roth IRA was introduced. Since then, many people have converted all or a portion of their existing traditional IRAs to a Roth IRAs, where interest earned may be completely tax-free. This benefit applies as, once a taxpayer has held the account for five years, no taxes will be owed when the money is withdrawn at retirement. This is the opposite of a traditional IRA where a tax break is received in the present, but income taxes are paid in retirement.
What Is A 125 Cafeteria Plan?
A Cafeteria Plan, sometimes called a “Flexible Spending Account” or FSA, is available to taxpayers under §125 of the Internal Revenue Code. It derives its name from the earliest plans of this form that allowed employees to choose between different types of benefits, similar to the ability of a customer to choose among available items in a cafeteria. Qualified cafeteria plans are excluded from gross income. To qualify, a cafeteria plan must allow employees to choose from two or more benefits consisting of cash or qualified benefit plans.
Taking A Short-Term Loan From Your IRA
When strapped for cash, IRA owners have traditionally been able to take a short-term loan from their IRA, although this has been limited in recent years. Taxpayers may withdraw money from an IRA, without penalty or any tax liability, for up to sixty (60) days. The borrowed monies must be “rolled back” into an IRA within 60 days from the day after the date of the withdrawal, or income tax and penalties apply to the amount withdrawn and unreturned. Similar rules exist for rolling over one Roth IRA to another Roth IRA. The sixty day count involves calendar days, not business days. Keep in mind there is no extension for the sixtieth day falling on a weekend or holiday.
Children And Tax Credits: The Child Tax Credit
The popular $1,000-per-child tax credit was made a permanent part of the tax code by the American Taxpayer Relief Act. Depending upon a parent’s income, the Child Tax Credit is an important and useful tax credit that may be worth as much as $1,000 per qualifying child under the age of seventeen (17). A qualifying child for this credit is someone who meets the criteria of six tests: age, relationship, support, dependent, citizenship, and residence.
Age Test – To qualify, a child must have been age 16 or younger at the end of the applicable tax year.
Deduction Thresholds And Bunching Expenses
All of us as taxpayers continually think we have a lot of expenses that we can itemize and deduct to help reduce our respective tax bills. But they come, they go, all for naught and no effect. The problem usually arises from the fact that our costs regularly fall just short of the required income thresholds for some categories of deductions. One solution is “bunching expenses,” which is a term used to describe incurring as many expenses as possible in a particular category during a particular tax year. Of course, doing this in one tax year will usually significantly diminish any chance of repeating it the following year.
Ways To Reduce Taxes In Retirement
Which retirement account, vehicle or venture is best? One thing is certain, diversity still carries the day when it comes to investments as different ones afford the most flexibility. The returns on different types of investments are treated differently by the tax code, which logically means that some get better tax treatment than others. Qualified dividends and capital gains, for example, are taxed at a lower rate than ordinary income, and thus are attractive investment options for retirement.
Some Things To Know About New York State Tax
It’s not news that most people complain about having to pay taxes. New Yorkers seem to especially complain about their state and local tax burden. The Tax Foundation, with a database that currently covers the years 1977-2012, interprets the tax burden of individual taxpayers by measuring what they actually spend in local and state taxes. Its. According to its rankings of states with the highest state and local tax burdens, Americans paid an average rate of 9.9 percent in state and local taxes in 2012. Further, the state with the highest state-local tax burden was New York at 12.7 %. In fact, the top three states – New York, New Jersey and Connecticut – have been ranked as the top three in this category since 2005. Not surprisingly, New York’s tax laws are relatively complex compared to other U.S. states. Here are some things to know about taxes in the Empire State.
Red Flags That Attract IRS Auditors
People typically think that the amount of their income is the biggest red flag that attracts an IRS auditor, and they would probably be right. But what are some of the other items on a tax return that may attract their attention? Some say that simple, plain returns are fairly safe and likely to avoid extended scrutiny by IRS auditors. According to the IRS, there are multiple ways a return may end up audited, here are some examples: