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Tax Strategy for the Week (August 2nd, 2013)

Equipment Leasing Programs
 
Tax Issue

Taxpayers often have the desire to have investments earn high current income while paying little or no income tax on that income. This is especially true for taxpayers with higher income. These investors are also looking to diversify assets to reduce risk.

 

Applicable Tax Law

Equipment leasing programs are usually set up as limited partnerships. Investors have limited liability and the general partner manages the investment.
As a limited partnership, income and losses flow through to the individual investor. Because the investor does not materially participate in the partnership, the deductions of losses of the partnership are limited to […]

Tax Strategy for the Week (July 26, 2013)

Buying vs. Leasing a Vehicle
 
Tax Issue

 

When it comes time to purchase a new vehicle, the process of haggling over price and negotiating financing overwhelms many consumers. In addition, many shopper struggle with the decision of whether they should lease a vehicle or buy it. Unfortunately, one size does not fit all. The answer depends on the specific needs and priorities of each consumer.

 

Applicable Tax Law

A taxpayer using his or her own vehicle for business purposes can ordinarily deduct expenses related that vehicle using either actual expense or a standard mileage rate.
When the actual expense method is used and the […]

Tax Strategy for the Week (July 19, 2013)

Tax-Exempt Bond Investing
 
Tax Issue

 Taxpayers pay tax on the interest income earned on taxable investments. Often the interest income is left to reinvest in the interest-earning investment. Therefore, the taxpayer is paying tax on interest earned even if the earnings are not being withdrawn and used for living expenses.

Even if the taxpayer is withdrawing the interest earnings and using this for living expenses, the interest earnings are subject to income tax. Taxpayers may be foregoing tax-free income and also may be earning a lower net rate of return on the investment when the effect of taxes is computed on the […]

Tax Strategy for the Week (July 12, 2013)

Funding a Roth IRA With a Variable Annuity
 
Tax Issue

 

Both IRAs offer an investor tax-deferred growth. Contributions to Roth IRAs are made on an after-tax basis. Distributions of these contributions are not taxed to the taxpayer or the beneficiary. Qualifying distributions of the gain in a Roth IRA are tax free to the Roth IRA owner or the beneficiaries. However, if no gain above the basis in a Roth IRA exists, there is no tax benefit to having a Roth IRA.

 

Because of stock market volatility and historic low interest rates on bonds and bank products, investors are looking for places […]

Tax Strategy for the Week (June 28th, 2013)

Tax Strategy for the Week (June 28th, 2013)
Real Estate Investment Trusts
Tax Issue
Investors often seek to diversify the assets they hold by investing in the real estate market. A direct investment in real estate, however, requires the investor to be quite savvy in how he or she conducts the day-to-day management of the property. Often, an investor may have limited cash or poor credit and cannot invest in such property.

Applicable Tax Law

A real estate investment trust (REIT) collects investment money from several investors and uses this to purchase commerical real estate. The rental income is passed on to the investors.
An […]

Tax Strategy for the Week (June 21st, 2013)

Tax Strategy for the Week (June 21st, 2013)
Investments That Help Reduce Medicare Tax on Unearned Income
Tax Issue

Effective for taxable years beginning after December 31st, 2012, high-income individuals, estates, and trusts are subject to an unearned income Medicare contributions tax. The tax applies when the individual, estate, or trust has earning from certain investments, and total earnings exceed a threshold amount. The tax does not apply if the taxpayer’s income is below the threshold amount.

Applicable Tax Law

In the case of an individual, the tax is 3.8% of the lesser of net investment income, or the excess of modified adjusted gross […]

Tax Strategy for the Week (June 14th, 2013)

Tax Strategy for the Week (June 14th, 2013)
Vacation Homes-Maximizing Deductions
Tax Issue

Any dwelling used for both personal purposes and rented out during the year is subject to special tax rules. The amount of rental expenses allowed as a deduction against rental income is based on an allocation between personal and rental use. The rental expense deduction for mixed use property may be further limited by the amount of rental income received each year, resulting in a potential disallowance and carry forward of excess rental expenses.

Applicable Tax Law

·        When a dwelling unit is used for both personal purposes and rented out […]

Tax Strategy for the Week (June 7th, 2013)

Tax Strategy for the Week (June 7th, 2013)
Home Office Tax Deduction
Tax Issue

Many small business owners have an office in the home. Under the general rule for business use of a home, no business deduction is allowed with respect to the use of a home that is used as a residence by the taxpayer. This is true even if the residence is used in the taxpayer’s trade or business. The general rule contains certain exceptions for business use and limitations on those deductions. One disadvantage to a home office is the specific requirements that must be met in order to […]