Check your 2014 tax payments

Don’t let penalties for underpaid taxes increase your tax bill next April. Check the total you’ve paid in for 2014 through withholding and/or estimated taxes. If you’ve underpaid, consider adjusting your withholding for the final months of 2014 or increasing your remaining quarterly estimate. If you employ household workers, be sure your calculations include the payroll taxes you’ll owe for them.

Accurate inventory numbers are important

For many companies, inventory is a significant dollar amount on the company’s financial statements. So it’s crucial that recorded inventory balances reflect actual values. When such accounts aren’t properly stated, the cost of goods sold and current ratios – numbers that often matter to decision makers – may be skewed. If banks discover that your company’s inventory accounts are overstated, they may not extend credit. If, when necessary, inventories aren’t “written down” (their values lowered in the accounting records), fraud may go undetected or the company’s net profits may appear unrealistically rosy.

Inventories decline in value for a variety of reasons. You might be in the business of selling electronic equipment to retail customers. Over time, yesterday’s “latest and greatest” gadgets become today’s ho-hum commodities. Such goods still have value, but they can’t be sold at last year’s prices. Your inventory is experiencing “obsolescence.” [Read more…]

Investing in mutual funds? Watch for year-end tax issues

Mutual funds offer an efficient means of combining investment diversification with professional management. Their income tax effects can be complex, however, and poorly timed purchases or sales can create unpleasant year-end surprises.

Mutual fund investors (excluding qualifying retirement plans) are taxed based on activities within each fund. If a fund investment generates taxable income or the fund sells one of its investments, the income or gain must be passed through to the shareholders. The taxable event occurs on the date the proceeds are distributed to the shareholders, who then owe tax on their individual allocations. [Read more…]

Tax filing reminders

  • October 1 – Generally, the deadline for businesses to adopt a SIMPLE retirement plan for 2014.
  • October 15 – Filing deadline for 2013 individual tax returns on automatic six-month extension of the April 15 deadline.
  • October 15 – If you converted a regular IRA to a Roth in 2013 and now want to switch back to a regular IRA, you have until October 15, 2014, to do so without penalty.

Planning for estate tax vs. planning for income tax

Traditionally, the federal estate tax was extremely burdensome to wealthier individuals, and the bulk of estate planning involved finding ways to minimize this federal tax.

In the last few years, though, the federal estate tax rates and exemption amounts have changed and become much less of a problem. On the other hand, federal income taxes, capital gains taxes and other investment taxes have gone way up. And many states have increased their income, estate and inheritance taxes.

As a result, these days smart estate planning involves looking at all the different possible taxes that heirs might be facing, and figuring out how best to reduce the overall tax burden. [Read more…]

Thinking of retiring abroad? Know the rules first

The idea of retiring on a beach in Central America or in a quaint village in Europe might seem idyllic. But before you think seriously about retiring in another country, be sure you know all the tax and estate planning rules.

A lot of people have been tripped up by these rules in the past. For instance:

  • If you keep more than $10,000 in a foreign bank account, you’ll have to file annual reports with the U.S. government. And be sure you can even open a local account – a law passed by Congress in 2010 requires foreign banks to file detailed disclosures on accounts held by Americans, and many smaller foreign banks won’t even accept Americans as account holders anymore because they don’t want to deal with the paperwork.

[Read more…]

IRS allows many estates to save taxes – if they act quickly

A federal estate tax return doesn’t have to be filed every time someone dies. In fact, a return typically doesn’t have to be filed unless the estate is worth more than the federal estate tax exemption amount (which is currently $5,340,000). As a result, most estates never have to file one. However, a change in the law back in 2011 makes it advantageous to file a return if the deceased person is survived by a spouse – even if the estate is below the exemption amount and thus a return isn’t legally required.

If you know someone whose spouse passed away and who didn’t take advantage of this opportunity, the IRS is now giving them a second chance to file a return – but they must act by the end of this year in order to do so.

Here’s the background:Generally, when a person dies, his or her estate can give an unlimited amount to a surviving spouse tax-free. After that, if the person’s bequests (plus large lifetime gifts) total more than the exemption amount, then an estate tax is due. [Read more…]

What will happen to your online accounts if you pass away?

As more and more people live their lives online, the question of what happens to online assets and records after someone dies is becoming more important – and confusing.

Consider all the things that you might “own” on the Internet – thousands of photos and e-mails, Facebook and other social media accounts, music libraries, blogs, genealogy records, domain names, and much more.

Then consider how many financial accounts you have or manage online – including PayPal and other accounts with credit balances, as well as online accounts with detailed financial records, automatic bill-paying processes, etc.

If you haven’t given any thought to what will become of these things – and who will manage them after you’re gone – it’s probably a good time to do so. [Read more…]

Deadline for Roth change coming up

It turns out you can go back after all – at least when it comes to last year’s decision to convert your traditional IRA to a Roth. The question is, do you want to?

You might, if your circumstances have changed. For example, say the value of the assets in your new Roth account is currently less than when you made the conversion. Changing your mind could save tax dollars.

Recharacterizing your Roth conversion lets you go back in time, as if the conversion never happened. You’ll have to act soon, though, because the window for undoing a 2013 Roth conversion closes October 15, 2014. [Read more…]

C or S Corporation: Consider tax changes in reviewing your options

Changes to the federal income tax code can prompt you to review the legal structure of your business. Last year’s increase in the top tax rate for individuals is one such change, since corporate rates remain the same. At the most basic level, businesses are taxed as either stand-alone or pass-through entities, and a significant difference between corporate and individual tax rates is reason for a new assessment.

If you’re debating between operating as a C corporation or an S corporation, here are three tax aspects to consider.

  • Income taxes. A difference you’re probably aware of between the two types of corporations is the way earnings are taxed. C corporations are stand-alone entities and pay federal income tax at the corporate level, based on business earnings. If the corporation has a loss, the loss offsets business income in past or future years.

[Read more…]

IRS publishes 2015 HSA contribution limits

The IRS has announced the inflation-adjusted contribution limits for health savings accounts (HSAs) for 2015. HSAs allow taxpayers with high-deductible health insurance plans to set aside pretax dollars that can be withdrawn tax-free to pay unreimbursed medical expenses. The 2015 contribution limit for individuals is $3,350; the limit for family coverage is $6,650. A catch-up contribution of an additional $1,000 is permitted for individuals who are 55 or older.

Tax filing reminders

  • September 15 – Third quarter installment of 2014 individual estimated income tax is due.
  • September 15 – Filing deadline for 2013 tax returns for calendar-year corporations that received an automatic extension of the March 17 filing deadline.
  • September 15 – Filing deadline for 2013 partnership tax returns that received an extension of the April 15 filing deadline.
  • October 1 – Generally, the deadline for businesses to adopt a SIMPLE retirement plan for 2014.
  • October 15 – Deadline for filing 2013 individual tax returns on extension.