Archived Tax Planning Tips:
November, 2004
Here We Go Again!
On October 11, 2004 the Senate Passes the American Jobs Creation Act of 2004
Below are some brief highlights:
Section 179 Expensing:
The Jobs and Growth Tax Relief Reconciliation Act of 2003 increased the amount a taxpayer can deduct, for the tax years beginning 2003 through 2005, to $100,000 of the cost of qualifying property placed in service during the year. The 2004 Act extends for an additional two years the increased amount that a taxpayer may deduct, and other changes made by the 2003 Tax Act.
Expensing Sport Utility Vehicles:
The 2004 Act places a $25,000 limit on the Section 179 deduction for certain vehicles placed in service after the date of enactment. This limitation applies to sport utility vehicles rated at 14,000 pounds gross vehicle weight or less (in place of the present law's 6,000 pound rating).
Deduction of State and Local Sales Taxes:
Under current law, an itemized deduction is permitted for certain state and local taxes paid, including individual income taxes, real property taxes, and personal property taxes. The 2004 Act allows taxpayers to choose one of two options:
Deduction for Charitable Contribution of Vehicles:
Under the Act, the charitable contribution deduction for vehicles depends on the use of the vehicle by the donee organization. If the donee organization sells the vehicle without any significant intervening use or material improvement of the vehicle by the organization, the deduction shall not exceed the gross proceeds received from the sale.
Next month we will highlight additional features of the American Jobs Creation Act of 2004.
October, 2004
These days just about everyone has a cell phone. For many business people, they have become an integral part of doing business. Nevertheless, because these phones are usually used for personal calls as well as business calls, they are considered "listed property" under the Internal Revenue Code. Therefore, no business deduction is allowed for the cost of your cell phone unless you keep adequate records collaborating the phone's business usage. And then only the portion of the costs attributable to your business is deductible.
The courts have made it entirely clear-if there's no substantiation as to the phone's business usage, no deduction is allowed. So what constitutes "adequate substantiation?"
September, 2004
Are You Working Out Of Your Home?
You may qualify for significant Home Office deductions!
A fast growing portion of America's labor force is now working out of their home. Whether you are self-employed or an employee, if you use a portion of your home exclusively and regularly for business purposes, you may be able to take a home office deduction.
You can deduct certain expenses if your home office is the principal place where your trade or business is conducted, or where you meet and deal with clients or patients in the course of your business.
The area used for business must be used regularly and exclusively:
1. As the principal place of business (including
administrative use),
2. As a place to meet with clients in the normal course of business, or
3. In connection with the business if it is a separate structure not attached to
the taxpayer's personal residence.
If you are an employee, you have additional requirements to meet. You cannot take the home office deduction unless the business use of your home is for the convenience of your employer. Also, you cannot take deductions for space you are renting to your employer.
The business percentage of the home is determined by dividing the area exclusively used for business by the total area of the home.
The business percentage of the expenses listed below is generally deductible:
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Mortgage interest |
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Real estate taxes |
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Home repairs/maintenance |
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Rent |
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Utilities |
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Depreciation |
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House insurance |
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Security system |
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Other expenses such as water, sewer, garbage removal, snow plowing, etc. |
*Note: Lawn care/landscaping expenses are not deductible.
Your deduction will be limited if your gross income from your business is less than your total business expenses.
For more information, please contact one of our professional advisors.
August, 2004
TAX BENEFITS FOR HIGHER EDUCATION
It's almost school time once again.and you could be eligible for a tax credit and/or a deduction for qualified tuition and related expenses you have paid. The credits and/or deduction are available under three tax benefits designed to help students or their parents finance a post-secondary education.
The Hope Scholarship Tax Credit ("Hope") is available to students enrolled in one of the first two years of post-secondary education, and who are carrying at least a half-time workload while pursuing an undergraduate degree, certificate, or other recognized credential.
The Lifetime Learning Tax Credit is available to students who take one or more classes from a college or university to purse an undergraduate or graduate degree, certificate, other recognized credential, or to acquire or improve job skills.
The Higher Education Tuition and Fees Deduction is available to tax filers whose modified Adjusted Gross Income (AGI) is too high to quality for the Hope and Lifetime Learning Tax Credits.
For more details concerning tax benefits for higher education expenses, or to make sure that you are receiving the largest credit and/or deduction available to you, please contact a Strategic Financial Group, LLC tax advisor at 219-736-8902.
July, 2004
Are you concerned about the ever-rising cost of
your health insurance premiums?
Are you or someone you know between the ages of 55 to 65?
If so, you could save 65 cents on every dollar you pay for health insurance with the Health Coverage Tax Credit.
The Health Coverage Tax Credit (HCTC) is a federal tax credit that pays 65% of the qualified health plan premiums paid by eligible individuals. Potential candidates for this credit are individuals who receive benefits from the Pension Benefit Guaranty Corporation (PBGC). An example is someone who retired from the Gary, IN steel mills, lost some or all of their pension benefits, and now receives those benefits from PBGC. Other trade workers who have been displaced, or have had their hours reduced may be covered under the TAA or ATAA programs.
You may be eligible for this credit if you:
· are between the ages of 55 to 65,
· are not entitled to Medicare, nor enrolled in Medicare,
· are currently enrolled in a qualified health plan, and
· are receiving benefits from one of the above-mentioned programs.
Eligible recipients can receive benefits either in advance to help pay health plan premiums as they come due, or in a lump sum as a credit on their federal tax returns.
It's not too late to claim this credit, even if you have already filed your 2003 tax return! Contact us for more details.
June, 2004
Retirement Communities may be more affordable than you think!
As America ages, more and more elderly individuals are opting for retirement community living arrangements. These communities can be quite deluxe and very expensive. They often require a substantial one-time entrance fee that can cost several hundred thousand dollars. These communities also typically charge recurring fees that can run as high as $5,000 per month or more. In exchange, retirees are promised lifetime care in the form of accommodations, meals, and services, including certain medical care and treatment.
Did you know that you can reduce some of the cost of retirement community living by claiming itemized deductions for medical expenses implicitly included in these fees?
A percentage of these costs may be a deductible medical expense. The percentage is usually calculated by dividing a retirement community's total annual medical expense by its total annual operating expenses.
Example: Over the last three, years one of our advisors has assisted a client in deducting about 30 percent of her retirement home expenses, and as a result, pay no income taxes.
See your SFG tax advisor on how to uncover deductible medical expenses that are part of the fees charged by retirement communities
May, 2004
Are you ready to Simplify your Life? Have you thought about selling your business or rental property? With capital gains tax rates at record lows, now could be the best time to do so. When you sell a business or rental property, there are two types of taxes that will apply to the sale price.
The first type is depreciation recapture. If you depreciated fixed assets, the sale price allocated to this property will be subject to ordinary tax rates up to the amount of depreciation taken.
The second type of tax associated with the sale of a business or rental property is capital gains tax. Currently, the rate for capital gains is 15%. Capital gains tax is calculated as the difference between your selling price and your purchase price.
If you are serious about selling your business, you must consider attending the Frank Helstab seminar on June 2nd in Chesterton, Indiana. This seminar will help you maximize the selling price of your business. Please contact Strategic Financial Group, LLC at 219-736-8902 for more information.
April, 2004
THINKING OF RETIRING THIS SUMMER?
AREADY RETIRED!
Did you know that there is a high probability that part or all of your social security benefits will be taxable?
If you are married, filing a joint tax return, and your combined income is above $44,000, then 85% of your social security benefits are taxable. Combined income is the sum of your adjusted gross income, plus non-taxable interest, plus 50% of your social security benefits. How much extra income tax will you end up paying over the rest of your retirement life as a result?
If you are, or will be paying taxes on your social security benefits, and you want to find out ways to reduce or eliminate this problem, contact one of our financial advisors to help you address this problem. They are ready and willing to help you TODAY to save taxes for 2004 and the rest of your retirement.
March, 2004
The Internal
Revenue Service reminds taxpayers who took advantage of this year’s low
interest rates to refinance their mortgages that they may be eligible to deduct
some costs associated with their loans.
Generally,
taxpayers who itemize may deduct the “points” paid to obtain a home mortgage
as interest. They may deduct the
points on the mortgage related to a home purchase or a home improvement in the
year paid, but for other loans – such as a refinanced mortgage – they must
deduct the points over the life of the loan.
To
figure the annual deduction amount, divide the total points paid by the number
of payments to be made over the life of the loan.
When
refinancing for a second time, or paying off a loan early, a taxpayer may deduct
all the not-yet-deducted points from the first refinancing when that loan is
paid off.
Other
closing costs, such as appraisal fees and processing fees, generally are not
deductible. Taxpayers with adjusted
gross income above $139,500 ($69,750
if married filing separately) also face limits on the amount of deductions they
can take.
Februrary, 2004
Are
you thinking about starting your own business?
Are
you currently a business owner?
The Internal Revenue
Service released the optional standard mileage rates to use for 2004 in
computing the deductible costs of operating an automobile for business,
charitable, medical or moving expense purposes.
To
reduce a recordkeeping burden, the IRS also announced that starting in 2004,
taxpayers who use no more than four vehicles at the same time for business
purposes may use the standard mileage rate.
Currently, those using more than one vehicle at a time cannot use the
standard rate at all, leaving them to track the actual expenses for each
vehicle.
With
this change, more than 800,000 businesses will become eligible to use the
standard mileage rate.
Beginning
January 1, 2004, the standard mileage
rates will be:
January, 2004
HERE YE, HERE YE, HAVE YOU HEARD? It is estimated that under the Jobs and Growth Tax Relief Reconciliation Act of 2003 that over 17 million taxpayers will be paying Alternative Minimum Tax compared to 1 million in 2002!
Are you one of those 17 million taxpayers? If you have any of the following items you may be subject to Alternative Minimum Tax:
The concept for alternative minimum tax was to eliminate certain tax preferences for high-income taxpayers. However, Congress has failed to increase the exemption amounts annually and with the large disparity between tax brackets for qualified dividend and capital gain income, more middle class taxpayers will feel the bite of this tax!