Who Benefits From Trump’s Tax Plan?

Who are the Winners & Losers in Trump’s Proposed  Tax Plan

While the details are just emerging and the final plan is sure to change, the tax overhaul that Trump & the Republican party recently unveiled has clear beneficiaries; and early indications are it is NOT the “middle class”.  In fact, according to this analysis, Trump’s tax plan will see the majority of the benefits—i.e. tax cuts— to the rich; particularly the top 1% & 0.1%.

 In Indianapolis last Wednesday, Trump outlined his proposal and stated, “…the biggest winners will be the everyday American workers as jobs start pouring into our country, as companies start competing for American labor and as wages start going up at levels that you haven’t seen in many years…”.   This is your classic “trickle down economics” argument that has been made for decades; that by cutting taxes on big businesses and the wealthy, the average American worker will see the benefits work their way down to them in the form of higher wages and more jobs.  The only problem is that study after study has shown these benefits never really reach the middle class.  Staying true to theory of trickle down, Trump proposes slashing taxes dramatically for Americans who earn north of $730,000 a year.

What’s in Trump’s Tax Plan? 

Although far from finalized, the main points of the plan that affect Individual taxpayers are:

  1. Reduce the tax bracket from seven brackets to three: with tax rates of 12%, 25% and 35% percent with a possibility of adding a fourth bracket.
  2. Doubling the standard deduction from $6,000 to $12,000 for individuals and from $12,000 to $24,000 for those married filing jointly.
  3. Creation of a new tax credit for non-child dependents while increasing the current child tax credit.
  4. Elimination of most itemized deductions but keeping the mortgage interest and charitable giving deductions.  Tax incentives for retirement saving and education plans will be retained; i.e SEP, Traditional, Roth IRA’s and 529 college saving plans etc.

As far as business & corporate taxes, this proposal is just as ambitious.  In President Trump words: “This will be the lowest top marginal income tax rate for small and midsize businesses in this country in more than 80 years…”.  Under this plan, businesses and corporations would see:

  1. A decrease in overall tax rate from 35% to 20%
  2. A new tax rate of 25% for “pass-through” income for businesses like sole proprietorships and partnerships which currently make up nearly 95% of all businesses which are taxed at the rate of their owners.
  3. Limitation of the deductibility of corporate interest expenses, in exchange for the option to immediately expense business investments
  4. Preserves tax credits for research and development and low-income-housing from a business standpoint.

Although the tax plan has a vast amount of changes for individuals & business on many levels, the benefits overwhelming favor the affluent and business owners.

How is the Public Reacting to the Trump Tax Plan?

Proponents of this tax plan for companies are overjoyed: “An encouraging step forward in our shared goal of a tax system that delivers higher economic growth, job creation and wages that our country desperately needs.” said Jamie Dimon, the chief executive of JPMorgan Chase and the chairman of the Business Roundtable.  John Stephens, the AT&T chief financial officer, said it was “A big step toward meaningful reform that would encourage more investment and job creation in the United States.”

Opponents like Edward D. Kleinbard, a tax expert at the University of Southern California law school calls Trump’s Tax Plan “a very cynical document…The extraordinary thing about the proposal is that we know that it loses trillions of dollars in revenue, yet at the same time the only people we can identify as guaranteed winners are the most affluent.”  Even Republican Rand Paul recently came out against Trump’s tax plan calling it a “middle class tax hike”.

 

This analysis from the Tax Policy Center above clearly illustrates how the current tax proposal favors the wealthy; particularly  the top 1 percent and top 0.1% them.  Pay particular attention to the Share of Total Federal Tax Change.  It breaks down U.S. income earners into 5 categories—from those making the least in the lowest quintile to those making the most in the top quintile.  As you can see, the top quintile reaps a whopping 86.6% of these potential tax cuts!  The other 4 quintiles combined would only realize 13.4% of these cuts. Parsing these numbers even further for the top quintile the majority of tax cuts go to the top 1% (79.7%) and the top 0.1% (39.6%) which equate to an average tax cut of $207,060 & $1,022,120 respectively.  Most Americans don’t even come close to earning the amount of money the top 1% would gain in tax cuts. 

Time & time again, Trump has pledged on the campaign trail and as President that the middle class will see the rewards of his tax cuts and it was time for the rich to pay their fair share by closing tax loopholes amongst other things. However, it is hard to come to any other conclusion than this tax plan, if passed, would overwhelmingly benefit the wealthy and not the middle class. In fact, this plan may create even more tax loopholes that would directly benefit wealthy families.

How Does Trump’s Tax Plan Affect You?

If the previous health care battles are any guide, the political fight to get these cuts enacted will be fierce and has only just begun.  This means that the ordinarily taxpayer can most likely expect tax filing delays—similar or worse than in recent years—while congress bickers…especially for taxpayers who file early.  It will be a while before we can really dig into the ultimate affects of whichever Trump’s tax proposal is ultimately passed.  One thing is for certain: In it’s current form the only real beneficiaries to this proposal are those that make nearly a $1 million or more annually.  Because of all this uncertainty and the prospect for an increase in taxes for the middle class, hiring the services of a Tax Professional this tax season may be well worth the money as they can help you navigate this complicated tax climate as well as potentially unlock benefits you might ordinarily overlook.

If you’d like more information about out how Trump’s existing or eventual tax proposal will affect you, feel free to contact us via the web or call us toll-free at (888) APRIL-15 to speak to an R&G Brenner Tax Professional.

Please feel free to comment below on Trump’s proposed tax overhaul.

Does The Tax Code Favor The Rich?

New taxes in 2014 brought in an additional $23 Billion from the wealthy, but the tax code still heavily favors the 1%
New taxes in 2014 brought in an additional $23 Billion from the wealthy, but the tax code still heavily favors the 1%

Where the federal government is concerned, taxing the public is pretty much equivalent to federal spending. Don’t get lost in the legal language associated with taxing—tax credits, tax deductions, exemptions, and exclusions are colorful words that describe adding money to bank accounts, not subtracting money from them.

In 2013, the Corporation for Enterprise Development conducted an analysis of tax subsidies for education, housing, savings, and retirement. The organization discovered that of $340 billion in tax subsidies issued by the government, $95 billion wound up being distributed to the top 1 percent of income earners. By comparison, approximately $90 billion was divided among the bottom 80 percent.

On top of that, the Congressional Budget Office’s 2013 report analyzed the top 10 tax subsidies. These subsidies have a combined value of $900 billion. Congress found that more that 50 percent of these subsidies were issued to those in the top 20 percent of earners. Moreover, the extremely wealthy 1 percent of Americans, with a median income of $7.6 million annually, received an average tax return of $33,391. Meanwhile, those earning less than $65,000 per year make up 60 percent of the population and received an average income tax return of less than $1,000.

For example, in 2014, retirement tax spending in the United States totaled $146 billion. This was an increase from 2013’s spending budget of $128 billion. The Corporation for Enterprise Development found that these subsidies also unfairly favored high income earners. Of the total retirement tax spending, the top 1 percent received an average return of $13,088 while the lower 60 percent of income earners received an average of just $200.

The Push for Change

In recent years, conservatives have been applying pressure to reduce government spending. Because of this pressure, the federal tax code has become the main source of influence over social policies relating to retirement, housing, and education. Consequently, the budget for federal spending through taxes in these areas has been increasing steadily. For instance, federal tax spending in these combined areas totaled $540 billion in 2013, then increased to $640 billion in 2014. Nevertheless, combined federal tax spending in 15 other areas, such as health and human services, transportation and labor, totaled $464 billion.

Anti-Tax Advocates

Several anti-tax advocates have argued against the federal government’s notion that reductions in taxes are equivalent to public assistance. In fact, the Tax Policy Director of Americans for Tax Reform spokesperson Ryan Ellis stated “That’s just stupid and dishonest. Letting people keep their own money does not increase the size of government in any way.”

Many advocates for tax reform would like to see more tax dollars spent in areas that help the 27 million low-wage workers in need of assistance just to make ends meet rather than lining the pockets of the nation’s wealthiest taxpayers. The Earned-Income Tax Credit and the Tax Saver’s Credit are good examples of programs being highlighted by such advocates. Some argue that subsidies such as those mentioned above are the most effective anti-poverty measures in place at the moment and represent the direction that tax code reform should take.

The Obama administration has responded to current tax spending concerns by adding a $500 tax credit for working parents with children into the budget for 2016. The White House approximates that the majority of this credit will benefit workers earning less than $120,000 per year, while some credit will benefit households that earn up to $210,000 annually.

All Is Fair?

According to some economists, tax code spending is fair, at least from an accountant’s perspective. These economists argue that low-wage workers who use vouchers to help make rent payments are benefitting from the same incentives as a high-income earner deducting mortgage interests so that they can take a vacation. In fact, each of these incentives is derived from the federal tax budget. But this ignores the much larger issue of income inequality in the United States, and the role that the current tax code plays in perpetuating that inequality.

The Results Are In

Tax policies often lean in favor of the rich for a number of reasons. For instance, high-income earners are much more likely to receive passive income, which is taxed differently. High-income earners are also overwhelmingly more likely to be in a position to take advantage of corporate tax shelters and loopholes. Furthermore, wealthy households have more assets, such as houses and retirement accounts. As a result, wealthy households are able to capitalize on a greater amount of tax subsidies. The question isn’t whether the tax code favors the rich. In its current form, it does. The question is what we as a nation will do about it.

Giving to Charity This Holiday Season? Here’s How to Report it on Your Taxes

Reporting Charitable Deductions
Reporting Charitable Deductions

The end of 2014 is just days away, and if you’re like many Americans, you are planning to give to one or more charitable organizations before the new year dawns. Around 34 percent of all charitable giving is done in the last three months of the year and slightly more than half of that is during the month of December. Giving is up substantially this year over 2013, thanks in large part to the continued national economic recovery.

While the desire to help others is the main reason that most people give to charity, they also enjoy the ability to claim a deduction on their tax return. However, many Americans incorrectly report their charitable giving and do not receive the credits they are entitled to.

The biggest mistake, according to the Internal Revenue Service (IRS), is that people don’t verify that they are giving money or goods to a qualified charitable organization. They also make the mistake of assuming that donations made to individuals, political candidates and political organizations are deductible on their tax return. If you try to claim any of these as charitable donations, the IRS will deny your credit.

How to Claim a Charitable Deduction on Your Tax Return

If you plan to deduct your charitable contributions in 2014, you must use Form 1040 and itemize the deductions on a Schedule A. You may donate cash, tangible goods, services or personal property and write it off on your taxes this year. If you are donating a non-cash item, you should use IRS Publication 561 to determine its value.

In the event that you received merchandise in exchange for your donation, the IRS only allows you to deduct the amount of that item that exceeds fair market value. For example, if you donated money to fund a scholarship and the college gave you season tickets to watch its football team, you must deduct the value of those tickets from your charitable donation.

Stocks, bonds, and other deferred financial contributions are typically deducted at fair market value. This is the amount that the item would sell for if a competent buyer purchased it and the seller presented all relevant facts. In effect this means that all used items that you donate, such as cars and clothing, must be in good used condition in order to claim a tax deduction.

Proof of Donations

If the donation you itemized on Schedule A is worth more than $250, you must have written documentation that contains the name of the organization receiving the gift, the amount of the donation, and the date it changed hands. This communication can be in the form of a bank statement, a pay stub showing a payroll deduction, a letter from the receiver, or a printout of a text message or email.

For donations totaling more than $500 for the year, you need to complete IRS Form 8283 for Non-Cash Charitable Contributions and include it with your return. You should also use Section B of this form for non-cash donations worth more than $5,000 and include a professional appraisal when you submit your return. In most cases, the IRS limits the credits you can claim for charitable giving to 50 percent of your taxable income.

Tax Tips for Homeowners

Important Tax Tips For Homeowners
Important Tax Tips For Homeowners

There are tax breaks that come along with owning your home. These breaks may serve as an incentive for the purchase of homes within certain targeted areas of the country or may make up for any losses a homeowner might face when selling his or her home. As a homeowner it is important to understand what tax breaks are available to you in order for you to take advantage of them and help your tax situation.

These include tax breaks that come when you sell your home, breaks for losses associated with a sale and incentives for certain types of homebuyers, such as first-time home buyers. Here are some tax tips for homeowners or anyone looking to purchase their first home.

Common Tax Breaks

As a homeowner, one of the most common deductions you will take is the one for the interest you pay on your mortgage. The mortgage interest deduction allows a homeowner to receive a reduction in their taxes, with the ability to deduct interest for a home valued at $1.1 million or less. In addition to the mortgage interest deduction, low-income homeowners who were required to take out private mortgage insurance to secure a loan (not to be confused with homeowner’s insurance). This particular deduction may be expiring soon, so it is important to claim it as a homeowner if you qualify.

Tax Incentives for First-time Homebuyers

If you first purchased a home in 2008, 2009 or 2010, you may qualify for a first-time homebuyer credit. This credit, which was extended for purchases with a closing between June 30 and September 30, 2010, reduces your tax bill or increases your refund, depending on how much you owe in taxes already. Qualifying for the credit is based on when you purchased and closed on the purchase, income (based on your modified adjusted gross income) and can be enhanced by military service or working for the federal government. If you received the credit and the home is no longer your primary place of residence, you may be required to repay the balance you received.  

Home Seller Tax Breaks

IRS Publication 523 explains ways in which you as a homeowner can either take an exclusion for any gains from the sale of your home or write off a loss associated with such a transaction. As an example, if you failed to deduct all of the points paid to secure a loan for your mortgage, you may be able to deduct those remaining points in the year in which you sell the house.

Points represent 1% of the loan’s amount that a lender charges in exchange for a lower mortgage interest rate. A maximum exclusion in gains of up to $250,000 from the sale of your home may be taken. The ability to take the exclusion depends on a few factors, which include your meeting the ownership test, use test and other rules. A home owned jointly where separate returns are files permit you and the co-owner to claim up to the maximum exclusion amount on an individual basis.

Tax Help for Homeowners that Experience a Loss

If you were the victim of a catastrophic loss, such as damage from a fire or an earthquake, it may have been covered by insurance but require you to meet an out-of-pocket cost (such as a deductible). You may be able to deduct your costs associated with those losses on your taxes. Although your out-of-pocket amount may be deductible, any loss covered by insurance would not be considered deductible for income tax purposes.

If you’re a homeowner, there are plenty of tax breaks and incentives available to you. Talk with an experienced R&G Brenner tax professional to make sure you’re taking advantage of all the tax credits, deductions, and write-offs to which you are entitled. 

What If I Forgot To Include Information On My Taxes?

Forgot Something On Your Tax Return?  Don't Worry!
Forgot Something On Your Tax Return? Don’t Worry!

So, you worked hours on your tax return, gathered your documents, filed on time and you are now awaiting your tax refund with eager anticipation. All is well until that moment of mild terror when you realize you forgot to include a vital document or deduction on your taxes. Don’t panic: all is not lost. There are ways to include missed information on your taxes, even if you’ve already filed them.

File an Amended Tax Return

When you’ve omitted information on your return, the IRS allows you to file an Amended U.S. Individual Income Tax Return called Form 1040X. However, you can’t e-file amended returns; they’ll have to be submitted it in paper form which increases the wait time by many weeks for any potential additional refunds.

Reasons to File

There are lots of reasons you might need to file an amended tax return, but there are some things that don’t necessitate one. You’ll need to file a 1040X form if you have experienced a change in your filing status, income, credits or deductions. But you do not have to file if you caught a math error after the fact. The IRS is pretty good about catching these types of mistakes and usually adjust these automatically for you. For example, If you forgot to attach the proper tax forms and a W2 is missing,  there’s no need to file this amended form. You should get a request from the IRS requesting any missing items. The IRS can easily find income that you may have omitted from your tax return, but sometimes it can take a very long time for the IRS to notify you.  That means if you made an error where you underpaid your taxes in some manner, you will accrue penalties and interest until your tax liability is paid in full.  It could pay for you to file an amended return to minimize penalties & interests.  On the other hand,  the IRS isn’t as well-equipped for finding missing credits or deductions that you may have overlooked, and which could increase your refund.  In this case, don’t wait until you get a letter from the IRS looking for more information. Instead, be proactive and file the amended return.  After all it’s your money and the IRS does NOT have to pay you interest for holding onto your well deserved refunds.

Rules

You have three years from the original filing date to submit Form 1040X, or two years from the date of tax payment.   You’ll need to submit a separate 1040X form for each tax return you’re amending and mail them separately to the IRS. Also, don’t assume they are all being mailed to the same mailing address.  There are usually separate processing PO Boxes for each tax year you are amending.  If you plan on claiming more of a refund, you must wait until you get your original refund in the mail or via direct deposit before filing the 1040X. Again, keep in mind that amended refunds take awhile to process, so it could take up to 12 weeks before you receive anything. If you owe more taxes as a result of the amended return, pay what you owe right away to avoid fees and penalties from piling up, as the IRS will begin charging you based on the due date of your original tax return.

Track Your Status

Similar to tracking your original refund status, the IRS has a Where’s My Amended Return? tool (you can also check R&G Brenner’s Where’s My Refund page as we include State Refund links as well) that you can use to track your amended return’s status. Alternatively, you can call the IRS at 866-464-2050. Have your taxpayer identification number or social security number handy, along with your date of birth and zip code.

If you forgot to include some vital information on your tax return, follow the steps above to make sure you pay all the right taxes and get your full refund.  Or, simply contact an experience R&G Brenner tax professional today, and we’d be happy to assist you.

Making Sense of Tricky Tax Terms: AGI vs. Taxable Income, Dividends, Exemptions & Deductions

tax (tăks) n. : One of the only things certain in life.  See also Death.
tax (tăks) n. : One of the only things certain in life. See also Death.

Tax season can be intimidating to those who aren’t certified accountants or tax professionals. With all the tax terminology out there, simply understanding the terms on the form you’re filling out can be daunting. No fear—a tax-terminology-debunker is here:

Understanding: Adjustable Gross Income

First things first, you need to understand the total income. Total income refers to all income that was made in the fiscal year, either earned or unearned, before any exemptions or deductions. So, total income will refer to all the money you made in the year, including money from social security benefits, unemployment, alimony, wages/tips, pensions, etc.

Your adjustable gross income (AGI) refers to your total income minus adjustments that were made for moving expenses, IRA contributions, student loan interest, and alimony. Any adjustments can be found on your 1040, on lines 23-35. Don’t panic; If you need help filing your taxes, you can always consult an R&G Brenner tax professional.

Understanding: Taxable Income

Taxable income is pretty simple, and refers to the amount of money that you can be taxed for. This number is found by taking your AGI less your deductions and personal exemptions. This number will be used to find what tax bracket you fall into, and to then calculate your tax rate.

Understanding: Exemptions

A tax exemption can be taken by an individual, a business, or a charity, and refers to money or property that taxes do not have to be paid on, or may be reduced for. For example, charitable organizations do not have to pay property taxes. Another exemption sometimes granted is the case of those who inherit larges amount of money not having to pay an inheritance tax. In some cases, a tax exemption entirely precludes an individual from paying taxes, or significantly reduces the amount of money one has to pay.

Understanding: Deductions

A tax deduction, or a “tax write-off,” refers to an amount of money you get to subtract from your AGI due to various expenses that you paid or incurred throughout the year. For example, a deduction may be educational expenses, health insurance, mortgage interest, royalties, a home office, or auto expenses. Depending on whether you’re filing taxes as an individual or as a business, the types of deductions you quality for will differ as will the total percentage one is allowed to deduct.

Understanding: Dividends

A dividend is a percentage of profit that is paid out, in the form of income, to shareholders of stock and the like. A dividend tax is a tax that is levied on the amount of money that is allocated to each shareholder. If you are a shareholder and received money from those shares this year, you can expect to pay a dividend tax.

Understanding: Tax Due

Perhaps the most simple of tax terms (and the most detested), tax due means exactly what it says. The last line of your 1040, the tax due box, will tell you the total amount of money you owe to the IRS for any given tax year after all your deductions and exemptions have been calculated and applied.

Making sense of tax terms can initially feel frustrating—but it shouldn’t be. With a little bit of research, and a FREE consultation with an R&G Brenner tax professional, you can make this tax season your easiest yet!

Will Inflation Affect Your 2014 Taxes?

How Inflation Affects Your Taxes
How Inflation Affects Your Taxes

Everyone know the old adage ‘The only things certain in life are death and taxes”. As it turns out, inflation may have to be included in this saying. Inflation decreases the value of money as time goes on, ultimately making the dollar of today worth more than the dollar of the future. It influences how much we spend on everyday items, how much we make, and how much things like houses and cars cost. It even helps dictate what we owe the government come April 15th. In fact, in regards to tax season, inflation can actually help us save a few bucks.

The Rate of Inflation

In the past few years, the rate of inflation has been consistently inconsistent: it has fluctuated among the one, two, or three percentiles (with a few months that presented negative numbers). While inflation isn’t always all that noticeable on a month-to-month basis, its impact is truly felt over a period of several years. For example, according to the Bureau of Labor and Statistics, a $250,000 house purchased in 2008 would be worth approximately $270,000 in present day (if inflation is the only variable taken into consideration).

Inflation and Taxes

Each year, annual inflation leads to a number of tax changes. In 2014, per the Internal Revenue Service, more than 40 tax provisions are scheduled to be adjusted. Some of these adjustments include:

  • Tax Rate: The 2014 rate has changed to 39.6 percent for singles who have an income level higher than $406,750 and married couples (filing a joint return) who have an income level higher than $457,600. These numbers are up from $400,000 and $450,000, respectively.
  • Deductions: The 2014 standard deduction amount has increased to $6,200 for singles and $12,400 for married couples (filing a joint return). These numbers are up from $6,100 and $12,200, respectively. The 2014 standard deduction amount for heads of the household also increases, up to $9,100 from $8,950.
  • Personal Exemptions: The 2014 personal exemption amount rises to $3,950, up from $3,900. However, this phases out at $376,700 (for singles) and $427,550 (for married couples who are filing a joint return).
  • Earned Income Credit: The 2014 maximum Earned Income Credit rises to $6,143 for married taxpayers (who are filing jointly and have three or more qualifying children). This is an increase from the 2013 amount of $6,044.
  • Estate Exclusions: For people who pass away in 2014, the basic exclusion amount for their estates to descendants rises to $5,340,000. This is an increase from $5,250,000 for the estates of decedents for people who died in 2013.
  • Foreign Earned Income: The 2014 foreign earned income increases to $99,200. This is an increase from the 2013 amount of $97,600.
  • Alternative Minimum Tax Exemption: The 2014 Alternative Minimum Tax Exemption increases to $52,800 for singles and to $82,100 for married couples (filing jointly). This is an increase from the 2013 amounts of $51,900 and $80,800, respectively.

Provisions that Remain Unchanged

Despite the rate of inflation, some tax provisions remain unchanged. For example, the 2014 annual exclusion for gifts is $14,000 (the same as it was in 2013). Healthcare flexible spending arrangements (FSA) also stay at their 2013 level: the annual dollar limit on employer contributions to employer sponsored health FSAs remains at $2,500.

Is Your Small Business Taking Advantage of Tax Deductions?

Is Your Business Taking Advantage of Credits & Deductions?
Is Your Business Taking Advantage of Credits & Deductions?

As a small business owner, this is the time of the year to begin thinking about the tax filing deadline. According to a study commissioned by the U.S. Small Business Administration (SBA), small businesses in the United States pay an effective federal tax rate of 19.8%. Sole proprietors pay the smallest effective rate of 13.3% while partnerships and Subchapter S Corporations classified as small businesses pay an effective rate of 23.6% and 26.9%, respectively.

Because much of the tax burden borne by small business is due to compliance with complex rules and filing requirements, as a small business owner you should look for any and all deductions you are eligible for in order to reduce your tax burden. There are many of deductions available; many of which were enacted through the Small Business Jobs Act of 2010. These include a deduction for the purchase of mobile telephones for the business, a health care tax credit for businesses with 25 or fewer employees, mileage expense deduction for vehicles placed in service for the business, work opportunity tax credits, and a startup deduction. 

Mobile Telephones Deduction for Small Business

If you purchased a mobile telephone for use in your small business, you are eligible to deduct the expense of the device(s) purchased on your small business tax return. This deduction, which was a part of the Small Business Jobs Act, is often ignored by small business owners, meaning that you may be leaving money on the table by ignoring this simple deduction. If you purchased a mobile device (which does not have to be a smartphone) and used it for any percentage of time in your business, you can take a proportionate usage deduction. 

Health Care Tax Credit

This tax credit–as opposed to the deduction that is available to small businesses– is a result of the Jobs Act and the Affordable Care Act. A credit is an amount that is used to lower the amount of taxes owed, while a deduction is an amount that is used to lower your taxable income. Both are valuable for small business owners, and the health care tax credit can provide a valuable benefit.

If you are a small business owner with 25 or fewer employees, you can take a credit of up to 35% of the premiums paid for any health insurance plan in place. Starting in 2014, the maximum credit increases to 50% of health insurance premiums paid by a small business owner. 

Mileage Expense Deduction

The mileage expense deduction is another often overlooked deduction that is easy for small business owners to take. If you use your car or any other vehicle for business purposes, as most small business owners do, you are permitted to deduct a percentage of the expense based on mileage. The mileage rates used to calculate the deduction are provided by the Internal Revenue Service, which in for tax year 2013 is 56.5 cents for vehicles used for business purposes. 

Work Opportunity Tax Credits

If you employ certain at-risk individuals or returning persons (those convicted of a crime), you are eligible for a credit. This program is an incentive of the U.S. Department of Labor to move certain individuals from dependency to self-sufficiency and provides a credit to a small business that ranges from $1,200 to $9,600. 

Startup Cost Tax Deduction

As a small business and particularly as one that commenced operation on or after October 22, 2004, you can take a startup deduction of up to $5,000 for any expense associated with creating the business. This deduction is available to your business provided that the total costs incurred are $50,000 or less. For startup costs that exceed $50,000, the deduction is reduced by the corresponding amount over $50,000, with a phase out of the deduction at $55,000.

For small business owners, saving money is important. Contact an R&G Brenner professional today to see if you can use a few of these tax deductions to cut costs, and use your funds for what matters most: growing your company

15 Ways To Get Audited By The IRS

15 Ways to Get Audited
15 Ways to Get Audited

While there are reports circulating that the IRS’ budget has been slashed and audits are going down, there are still many sure shot ways you can get yourself audited by the IRS.  Forbes.com list the 15 most common ways to invite an Audit by the IRS:

Be Super Wealthy

This may seem like a “duh” moment. But the IRS finally is increasing the percentage of really rich people it audits, on the reasonable theory there’s a lot more potential to uncover big dollars owed. It even has special “wealth squads” looking at all their holdings.

Hide Offshore Accounts

It’s not illegal for U.S. taxpayers to have accounts in Switzerland or Hong Kong or some Caribbean island. It’s only illegal not to declare them or their income. Ask the ex-clients (some now convicts) of Swiss banking giant UBS.

Be a Tax Protestor

Let’s be blunt. The IRS simply does not like it when you claim you owe no taxes because the income tax is illegal or only applies to weird income categories that don’t apply to you. Such wacky theories landed actor Wesley Snipes in jail.

Claim Huge Charitable Contributions

Rules require complete before-you-file documentation of your gifts to nonprofits. The IRS’ use of correspondence audits, in which it demands you mail in the documents backing various deductions, makes claims of substantial contributions a tempting target.

Omit Some Reported Income

IRS computers are very good at matching all the little pieces of paper you get reporting your income with what you put on your 1040. These papers include employer W-2s and independent contractor, brokerage and bank 1099s.

Take a Big Home-Based Business Loss Every Year

The IRS presumes that a Schedule C business losing money three years out of five is not necessarily all that legitimate. You might have to produce evidence of a profit motive.

Claim a Loss On a Hobby

By definition, a hobby is not pursued for profit. But that doesn’t stop some taxpayers from trying to write off expenses for their dog showing, comic book trading or other “business.”

Use a Sleazy Tax Preparer

The IRS’ efforts to regulate all paid tax preparers were just shot down by a federal judge. But that doesn’t stop its ongoing campaign to ferret out and shut down the sleazy ones. When the feds get onto a tax pro playing fast and loose, his or her clients become easy target

Write Off Big Unreimbursed Employee Business Expenses

They’re only deductible beyond 2% of adjusted gross income. The IRS may use a by-mail audit to ask for back-up paperwork, thinking you are trying to write off ordinary work clothes, commuting costs and other not-allowed items.

Take Deductions In Round Numbers

The world is an uneven place. So if you file a tax return taking deductions ending in lots of zeros, the IRS might think you don’t have the required paper backup. You risk an audit by mail.

Make Math Errors

IRS computers are programmed to check your math. Returns with errors can invite scrutiny that might trigger more IRS requests for back-up information.

Brag A Lot

Laws require the IRS to pay minimum rewards for tips in cases that result in big collections. The neighbor overhearing your expansive claims may become a government informant.

Anger An Ex-Business Partner, Employee or Spouse.

They might blow the whistle on you too. And it’s possible they won’t do it just for the informant’s bounty.

Make Careless Mistakes

These can include not signing a return, leaving off your Social Security number or miswriting it. All are red flags.

Fail to File On Time or at All

The IRS has a special program that will generate a substitute return using W-2 and 1099 paperwork. Don’t expect it to allow your deductions.

Source: Forbes

5 Tips for Avoiding an IRS Tax Audit

Tips To Avoid An Audit
Tips To Avoid An Audit

IRS audits are feared for good reason: at best, they’re disruptive, and at worst they can cost you vast amounts of money. Though the percentage of audited returns is relatively low, every year the IRS still audits a huge number of returns. Following these tips can help you reduce the chances you’ll end up as one of their targets. 

Be Diligent With Business Deductions

This primarily pertains to the self-employed and business owners. While it may be tempting to write off your apartment as a home office or your car as a business investment, the IRS has careful formulas for determining whether or not particular expenses are deductible. For instance, only the part of your home used exclusively counts towards the home-office deduction—meaning writing off too much square footage could get you noticed. Car expenses, likewise, must be carefully calculated. If you’re thinking of writing something off,  you should do some research or contact a tax professional.

Keep Everything

No, not “everything” as in money. “Everything” here means documentation, like receipts, pay stubs, leasing agreements—really, anything that might be slightly relevant during tax time. Tax returns gets much more difficult to complete when you’re missing documents–and complications could lead to you miscalculating a deduction or forgetting to declare an income source. And, in the unfortunate event of an audit, you will need all of your documentation to verify your deductions.

Choose Your Professional Wisely

Many people, especially those with complicated tax situations, hire tax professionals to help take the headache out of tax season. But according to MSN Money, choosing the wrong tax “pro” can be disastrous.  So, when picking a tax preparer, check out their track record, customer reviews, how long they’ve been in business, their Better Business Bureau standing—just do your homework, as you would when hiring any other type of professional.  R&G Brenner currently has an A+ Rating with the BBB

Pay Quarterly Taxes (If Necessary)

If you’re self-employed, the IRS expects you to keep up with your tax obligations throughout the year. This means not only filing an annual return, but also paying quarterly taxes if a certain proportion of your income comes from self-employment. It’s especially vital for the self-employed to keep up with their taxes because they have no employer withholding income taxes or chipping in on Medicare and Social Security taxes. Some tools you can use to keep up with your quarterly taxes are Form 1040-ES, which can help you determine if you need to pay quarterly taxes, and the Electronic Federal Tax Payment System, which you can then use to pay quarterly taxes. 

Electronically File

Depending on the system you use, electronic filing (e-filing) can have several advantages: less paperwork cluttering your desk, easy deduction-tracking systems, built-in calculators, and so on. But perhaps the biggest advantage is that, according to the IRS, e-filed returns have an error rate of only 1%, compared to 20% for paper returns. And if there is an error, e-filed returns can report back to the sender much more quickly, hopefully allowing them to correct the problem.  Furthermore, the IRS & states like NY require all tax returns to be e-filed unless you have a legitimate excuse for not filing electronically.  If they don’t like your excuse, they can fine you.

These tips are general, but every taxpayer’s situtation is unique. For more help, the IRS website—while sometimes complex—has resources for just about all tax situations. You can also talk to an R&G Brenner qualified tax professional to help you navigate the nuances of the tax code.