Sep IRA’s Planning for Retirement

Posted on November 10, 2014 by in Blog

SEP IRA’s are retirement plans under which employers contribute to employee’s retirement plan accounts. These are optional contributions each year, subject to certain employee compensation limits.  These contributions are not taxable to the employees, but they are deductible to the employer for tax purposes.

One of the benefits of a SEP IRA is the ability for self-employed individuals to contribute an amount higher than their standard 401K limit each year. The calculation for the amount an employer can contribute is 25% of each employee’s compensation, or $52,000 for 2014, whichever is greater.

Only cash contributions are considered (not property contributions).

Some SEP IRA plans allow for the employee to make non-SEP (traditional or Roth IRA) contributions to the plan.   The amount of these IRA contributions that can be deducted on the employee’s tax return may be reduced or eliminated by their participation in the SEP plan.

Employers are required to contribute for a participant who may not be employed on the last day of the year. A SEP cannot have a “last day of the year” employment requirement.  If the employee or former employee is otherwise eligible, they must share in any SEP contribution.

Employers must make these deposits for their employees by the extended due date of their federal income tax return for the year. Returns that are filed without an extension cannot be amended to include contributions that may have been made after the filing date.  Likewise, if SEP contributions are improperly deducted on the return, it must be amended as soon as possible to reflect the correct amount.

On some occasions excess contributions are made for employees. These amounts are to be included in the employee’s income for the year.  If the employee withdraws the excess amounts before the filing deadline for their return, they will eliminate the 6% excise tax imposed on their excess.  Employers also may be subject to a 10% excess tax on the excess nondeductible contributions.

Total cash contributions for the year are reported to the employee on Form 5498, for the year the contributions are made, not the year for which they apply.

More information on SEP IRA’s can be found here:

http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-SEPs-Contributions

 

Obamacare for Business in 2015 and 2016

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Obamacare for businesses in 2015 and 2016

 

Writing about the Affordable Care Act can be complicated and controversial as the regulations and rules seem to be fluid. The president and lawmakers are always changing the laws. However, there are a few solid ideas about what to expect for 2015 and 2016.

Businesses with 100 or more employees will have to comply with these Obamacare requirements in 2015:

  • Affordable coverage should not cost employees more than 9.5 percent of their W-2 income
  • For coverage to meet minimum standards, it must pay at least 60 percent of costs
  • Employers who do not offer insurance have to report the cost of their employee health care premiums on their employees’ W-2 forms
  • They will also have to include health care costs on their business income taxes
  • These employees who do not offer insurance will face fines
  • Fines are levied if at least one worker uses the health insurance marketplace and the worker qualifies for a tax credit
  • The fine will be $2000 per employee after the first 30 employees
  • A full time employee is someone who works 30 hours or more in one week.
  • Each batch of seasonal or part-time employees must calculate those hours as well.
  • Each batch of 30 hours is equivalent to a full-time job.
  • If those hours bring an employer’s full time equivalent to 50 or more, the business faces the mandate

Employers with 50-99 employees will need to pay close attention to these regulations as they will be mandatory in 2016. These employers will face little change in 2015.

  • These business owners are not required to offer health care coverage.
  • They may also be eligible for a health care credit if they use the Small Business Health Options Program (SHOP) and offer insurance to their employees
  • Employers can claim the credit on their business income tax returns
  • They can also go to the marketplace and make changes at any time

The upcoming year will require businesses to gain an understanding of the Affordable Care Act requirements. They need to continuously provide a voice on ways to improve these laws. Employee apprehensions allowed these deadlines to be pushed back.

Donations to Charity Auction, What does Donor Receive? Cost Basis, FMV

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Charity Auctions

Donors who purchase items at a charity auction may claim a charitable contribution deduction for the excess of the purchase price paid for an item over its fair market value. The donor must be able to show, however, that he or she knew that the value of the item was less than the amount paid.  For example, a charity may publish a catalog, given to each person who attends an auction, providing a good faith estimate of items that will be available for bidding.  Assuming the donor has no reason to doubt the accuracy of the published estimate, if he or she pays more than the published value, the difference between the amount paid and the published value may constitute a charitable contribution deduction.

In addition, donors who provide goods for charities to sell at an auction often ask the charity if the donor is entitled to claim a fair market value charitable deduction for a contribution of appreciated property to the charity that will later be sold.  Under these circumstances, the law limits a donor’s charitable deduction to the donor’s tax basis in the contributed property and does not permit the donor to claim a fair market value charitable deduction for the contribution.  Specifically, the Treasury Regulations under section 170 provide that if a donor contributes tangible personal property to a charity that is put to an unrelated use, the donor’s contribution is limited to the donor’s tax basis in the contributed property.  The term unrelated use means a use that is unrelated to the charity’s exempt purposes or function, or, in the case of a governmental unit, a use of the contributed property for other than exclusively public purposes.  The sale of an item is considered unrelated, even if the sale raises money for the charity to use in its programs.

Texas Franchise Tax Apportioning Rules

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Texas Franchise Tax Apportioning Rules

What is Texas Gross Receipt? A sale of tangible personal property that is delivered to a customer in Texas, a service that

is performed in Texas and rents on properties located in Texas. These types of revenue are fairly easy to understand and

calculate. The fun begins with interest, dividends and securities.

Interest, dividends and securities are based on the location of the Payor. Most people will receive interest from a local

bank and will include it in Texas Gross Receipts. A bank not located in Texas will only be included in Gross Receipts

Everywhere. The sale of a security that is on an exchange can use 7.9% as Texas Gross Receipts. The 7.9% can only be

used when the location of the buyer is unknown.

Brian

 

Obamacare in 2014-What is Required for Individual

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Obamacare in 2014 – What is Required for Individual

With the implantation of the Affordable Care Act (“Obamacare”), each individual is required to have the minimum essential health coverage for each month in 2014 and be able to prove that coverage (or pay a penalty) when they file their individual tax return on April 15, 2015.

What counts as minimum essential health coverage?

  • Employer-sponsored coverage:
    • Employee coverage (including self-insured plans0
    • COBRA coverage
    • Retiree coverage
  • Individual health coverage
    • Health insurance you purchase from an insurance company directly
    • Health insurance you purchase through the Health Insurance Marketplace
    • Health insurance provided through a student health plan
    • Health coverage provided through a student health plan that is self-funded by a university (only for a plan year beginning on or before December 31, 2014, unless recognized as minimum essential coverage by HHS)
  • Coverage under govenment-sponsored programs:
    • Medicare Part A coverage
    • Medicare Advantage plans
    • Most Medicaid coverage
    • Children’s Health Insurance Program (CHIP)
    • Most types of TRICARE coverage under chapter 55, title 10 of the United States Code
    • Comprehensive health care programs offered by the Department of Veterans Affairs
    • State high-risk health insurance pools (only for a plan year beginning on or before December 31, 2014, unless recognized as minimum essential coverage by HHS)
    • Health coverage provided to Peace Corps volunteers
    • Department of Defense Nonappropriated Fund Health Benefits Program
    • Refugee Medical Assistance

What does not count as minimum essential health coverage?

  • Coverage consisting solely of excepted benefits, such as:
    • Stand-alone dental and vision insurance
    • Accident or disability income insurance
    • Workers’ compensation insurance
  • Medicaid providing only family planning services*
  • Medicaid providing only tuberculosis-related services*
  • Medicaid providing only coverage limited to treatment of emergency medical conditions*
  • Pregnancy-related Medicaid coverage*
  • Medicaid coverage for the medically needy*
  • Section 1115 Medicaid demonstration projects*
  • Space available TRICARE coverage provided under chapter 55 of title 10 of the United States Code for individuals who are not eligible for TRICARE coverage for health services from private sector providers*
  • Line of duty TRICARE coverage provided under chapter 55 of title 10 of the United States Code*
  • AmeriCorps coverage for those serving in programs receiving AmeriCorps State and National grants
  • AfterCorps coverage purchased by returning members of the PeaceCorps

*In Notice 2014-10, the IRS announced relief from the individual shared responsibility payment for months in 2014 in which individuals are covered under one of these programs. Information will be made available later about how to claim an exemption for one of these programs on your income tax return.

 

What happens if an individual does not have the required minimum essential health coverage?

The fee for not having insurance in 2014 is $95 per adult and $47.50 per child (up to $285 for a family) or 1% of your taxable income, whichever is greater. If a person is not covered, be prepared to pay the penalty.

 

 

 

Home Office Deduction-How to Deduct

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Home Office Deduction – How to Deduct

If you use part of your home for business, you may be able to deduct expenses for the business use of your home. The home office deduction is available for homeowners and renters, and applies to all types of homes. The home office deduction is available for homeowners and renters, and applies to all types of homes.

 

For 2014, use Simplified Option:

  • Does not change the criteria for who may claim a home office deduction, just simplifies the calculation and recordkeeping requirements of the allowable deduction.
  • Standard deduction of $5 per square foot of home used for business (maximum 300 square feet).
  • Allowable home-related itemized deductions claimed in full on Schedule A. (For example: Mortgage interest, real estate taxes).
  • No home depreciation deduction or later recapture of depreciation for the years the simplified option is used.

 

Comparison of methods

Simplified Option Regular Method
Deduction for home office use of a portion of a residence allowed only if that portion is exclusively used on a regular basis for business purposes Same
Allowable square footage of home use for business (not to exceed 300 square feet) Percentage of home used for business
Standard $5 per square foot used to determine home business deduction Actual expenses determined and records maintained
Home-related itemized deductions claimed in full on Schedule A Home-related itemized deductions apportioned between Schedule A and business schedule (Sch. C or Sch. F)
No depreciation deduction Depreciation deduction for portion of home used for business
No recapture of depreciation upon sale of home Recapture of depreciation on gain upon sale of home
Deduction cannot exceed gross income from business use of home less business expenses Same
Amount in excess of gross income limitation may not be carried over Amount in excess of gross income limitation may be carried over

 

Selecting a Method:

  • Can choose to use simplified method or the regular method for any tax year.
  • Cannot change methods during the year.
  • If you used the simplified method for one year and use the regular method for any subsequent year, you must calculate the depreciation deduction for the subsequent year using the appropriate optional depreciation table.

Requirements to Claim the Deduction:

  • Must regularly use part of home exclusively for conducting business.
  • Must show that you use your home as your principal place of business.
  • You can conduct business at a location outside of your home, but also use your home substantially and regularly to conduct business.

 

Additional tests for employee use:

If you are an employee and you use a part of your home for business, you may qualify for a deduction for its business use. You must meet the tests discussed above plus:

  • Your business use must be for the convenience of your employer, and
  • You must not rent any part of your home to your employer and use the rented portion to perform services as an employee for that employer.

If the use of the home office is merely appropriate and helpful, you cannot deduct expenses for the business use of your home.

Refer to Pub. 587, Business Use of Your Home for full explanation of tax deductions for your home office.

Donating Real Estate

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Donating Real Estate

We are all aware that taxpayers can benefit by both donating cash and non-cash items such as clothing, furniture, and appliances to Goodwill or The Salvation Army. But what about larger items such as real estate?  What about a house?

The majority of taxpayer’s do not have a large real estate portfolio that they are looking to unload but many have a second home or maybe a home they inherited after the death of a loved one.   There are many costs that go into owning real estate…property taxes, maintenance costs, and income taxes and then if the property is sold…legal fees, brokerage fees, not mention capital gains tax, inheritance tax and estate tax.  These costs and the headache of keeping up with it all may make simply donating the property the better choice.  The taxpayer gains a tax deduction while helping out the community as well.

In order to donate Real Estate, the taxpayer will need an appraisal and in some cases the appraisal will need to be attached to Form 8283 and submitted with the tax return. The following terms and limitations apply:

  • All expenses related to the donation are the responsibility of the donor in most cases.
  • The property should be long term (held for at least 1 year).
  • The donation value is FMV up to 30% of the taxpayer’s AGI or cost basis up to 50% of the taxpayer’s AGI.
  • Total donations exceeding the taxpayer’s limit are carried over for up to 5 years.
  • If the donated property has been depreciated, the donation is reduced by the amount of depreciation that would be recaptured as ordinary income if the property were sold.
  • Different limits apply to Corporate and Partnership donors.

For additional support:

http://helpinghandsofamerica.org/real_estate_donation_details

http://greenpeace.givingplan.net/pp/giving-real-estate/3070

http://www.irs.gov/publications/p526/ar02.html#en_US_2013_publink1000229755

 

Deconstruction of Real Estate

Another option available to taxpayer’s as a donation is deconstruction. I am sure you have noticed all around us in our area of the Heights, home are being demolished and rebuilt.  Rather than totally knocking down a house and receiving no tax benefit, a taxpayer can bring in a trained deconstruction crew and salvage many reusable items such as doors, windows, cabinets, lighting, lumber, and flooring to name a few.  This option allows the taxpayer to receive a deduction and keeps these reusable materials out of our landfills.

In order to donate via Deconstruction, the taxpayer will need a qualified appraiser to value the materials in the home and assess a value. If you choose to move forward with deconstruction rather than demolition a Deconstruction Contractor will need to prepare a bid for Deconstruction.  A donation letter should be submitted to the receiving organization which can provide the taxpayer with a receipt for their donation.  Form 8283 is completed.

For additional support:

http://www.thereusepeople.org/deconstruction

 

Other Factors to Consider

Regardless of which donation choice is chosen by the taxpayer, it is important to take into consideration that based on AGI, the taxpayer’s Itemized Deductions could be greatly limited and while Charitable Donations are not a preference item for AMT, the taxpayer would receive a higher deduction if larger donations were to be put off to a tax year where the taxpayer is not subject to AMT.

For additional support on Itemized Deduction limitations:

http://www.irs.gov/publications/p17/ch29.html

For additional support on how AMT affects charitable giving:

http://programforgiving.org/charitable/pages/understandingAMTImpact.jsp