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Tax Strategy for the Week (October 25th, 2013)

Funding a Buy-Sell Agreement
 
Tax Issue

Buy-sell agreements are part of a succession plan put in place to protect the financial interests of the owners and their heirs and to protect the company’s stability in case of an untimely death of one of the owners. The agreement is a legally binding contract that determines who can buy an interest in the company, how much the deceased owner’s share in the company was worth, and whether or not the estate of the deceased must sell.

However, the agreement itself does not fund the buyout. The surviving business partner(s) must come up with the […]

Tax Strategy for the Week (October 18th, 2013)

Does it Make Sense to Refinance a Mortgage?
 
Tax Issue

The chance to refinance a mortgage and get a lower interest rate is sure to get a homeowners’s attention. Most people assume that refinancing will put them ahead economically, but that’s not always the case. Any number of situations can arise which will make the decision to refinance unwise. Refinancing a mortgage should be done with just as much care as was put into the decision to obtain the original mortgage. Sometimes a mortgage refinance makes sense. Other times, it is better to stay with the current arrangement.

Applicable Tax Law

Home mortgage […]

Tax Strategy for the Week (October 11th, 2013)

Employee Business Expenses – Avoiding Tax Problems
 
Tax Issue

Employees may be able to deduct their unreimbursed work-related expenses as itemized deductions subject to the 2% AGI limitation. Deductible expenses are those that are ordinary and necessary expenses and which are not reimbursed. Various substantiation rules apply depending on the type of deduction that is claimed. Without properly planning ahead of time so that the taxpayer retains the necessary documentation required, the IRS could disallow deductions for unreimbursed employee business expenses.

Applicable Tax Law

Ordinary and necessary expenses which are not reimbursed by an employer are deductible.

1.) Ordinary expense: An expense that is […]

Tax Strategy for the Week (October 4th,2013)

Married Filing Separately Tax Planning

 

Tax Issue

In general, married taxpayers living in the same household usually file joint returns. Tax preparers tend to assume the Married Filing Jointly filing status is best for married taxpayers living together and that the few returns that may save a little bit of tax by Married Filing Separately (MFS) are not worth the extra tax preparation fees that would apply for filing two separate returns.

Applicable Tax Law

Any taxpayer that was married at the end of the tax year can file MFS. A spouse does not need permission from the other spouse to choose to […]

Tax Strategy for the Week (September 20th,2013)

Split Funding an Annuity
 
Tax Issue

Taxpayers often use interest income to supplement earned income or retirement income. Interest income generated by bank savings accounts or certificated of deposit (CD) is subject to ordinary income tax at the taxpayer’s marginal rate.

When interest rates are low, taxpayers look for ways to generate the same amount of income as when interest was higher.

Applicable Tax Law

Earnings on nonqualified annuities are taxed at ordinary income tax rates when withdrawn.
Earnings on nonqualified annuities are tax deferred until withdrawn.
Interest earned from bank savings account and CDs are taxed at the taxpayer’s marginal rate in the year earned.
Taxpayers […]

Tax Strategy for the Week (September 13th,2013)

Nonqualified Annuities – Tax Benefits
 
Tax Issue

Nonqualified annuities offer tax-deffered earnings. However, upon distribution, nonqualified annuity earnings are taxed as ordinary income. Nonqualified annuity withdrawals are treated an income-first, meaning that the earnings are withdrawn before removing the principal. In addition, if the taxpayer is younger than 59 ½, withdrawals of earnings are generally subject to an additional 10% tax.

 

Other investment income, such as stock or mutual fund dividends, is often taxed as qualified dividends at a lower rate than ordinary income. In addition, equity investments help for greater than one year are generally taxed at a lower capital gains […]

Small Business Requirements for Obamacare

The health insurance marketplaces created by the Affordable Care Act (commonly known as Obamacare) will open on October 1, 2013.  Most small-business employers—those with 50 or fewer full-time employees—are not required to offer health insurance coverage under the Affordable Care Act.  Additionally, businesses with more than 50 full-time employees have gotten a reprieve from penalties if they don’t offer insurance for at least one-year. However, all companies, regardless of size, are required to notify their employees about the Obamacare health insurance marketplace.  The state and federal insurance exchanges are websites on which individuals and small businesses can shop for […]

Tax Strategy for the Week (September 6, 2013)

Does it Make Sense to Refinance a Mortgage?
 
Tax Issue

The chance to refinance a mortgage and get a lower interest rate is sure to get a homeowners’s attention. Most people assume that refinancing will put them ahead economically, but that’s not always the case. Any number of situations can arise which will make the decision to refinance unwise. Refinancing a mortgage should be done with just as much care as was put into the decision to obtain the original mortgage. Sometimes a mortgage refinance makes sense. Other times, it is better to stay with the current arrangement.

Applicable Tax Law

Home mortgage […]

Tax Strategy for the Week (August 30th, 2013)

First Time Homebuyer – Deducting Points
 
Tax Issue

 

Points paid to purchase a home are fully deductible in the year paid if the loan meets certain criteria. However, first-time homebuyers who purchase a residence late in the year often find they do not have enough mortgage interest or property taxes accumulated to benefit from itemizing deductions. The deduction for points paid on the purchase of their home may be lost.

 

Applicable Tax Law

 

For points to be deductible, the loan must be secured by the taxpayer’s main home, paying points must be an established business practice in the area, the points paid most […]

Criminal Penalties for Sales Tax Audits

Recent changes in the law have significantly broadened the conduct and increased the penalties for criminal state tax violations. Given these changes and the State Comptroller’s increased enforcement efforts in this area, businesses need to understand where they may have exposure and how to limit it.

What used to be a routine civil sales tax audit may now lead to a criminal prosecution. These cases have generally resulted in felony convictions. Examples of some of the prosecutions can be found at the State Comptroller website at www.window.state.tx.us/about/cid.
I. Changes in the Law
Recordkeeping Requirements. Taxpayers now must keep their records open for inspection for at least four […]