Reduce Your Income

Tax Tips

Reduce Your Income: Hire Your Kids

If you own your own business, by hiring your children you can save in the following ways:

• Salaries paid to children under 18 are not subject to Social Security or unemployment taxes (in most states).
• No Federal withholding taxes are required if the child is under age 21 and earns under $5,950 per year.
• Even if the child must pay taxes, the child’s rate of tax is normally lower than your own rate.
• You should not have to pay worker’s compensation for the child as you would on a non-family member.

Set it up correctly

To ensure your child’s income is not challenged here are some suggestions:

• Provide a job that your child can reasonably handle. Ideas include; filling the company vending machine, copying, clean up, mailing, help with advertising, light packaging, light typing and customer service.
• Pay your child at least minimum wage and a wage rate that is comparable to what you would pay someone else to do the work.
• Make payments periodic (at least once per month).
• Include a W-2 at year-end.
• Keep the same payroll records as you do for other employees.

Other things to note

• Hiring your children to work for you does not apply if your business is a C-Corporation.
• This benefit works best if your business is unincorporated (sole-proprietor).
• Do not have children conduct dangerous or heavy industrial work as this could come under review by the Department of Labor.
• Treat your child like other employees. This includes time-cards and training.

Besides the tax benefits, hiring your children can gain them valuable experience and help them understand what you do every day.

These tax benefits are gone after 2013

Use Them or Lose Them

These tax benefits are gone after 2013

With the massive tax changes made at the beginning of 2013, it is hard to believe that many tax laws are still set to expire at the end of the year unless Congress acts. As the year winds down, now is a good time to review some of the key expiring tax provisions and take action if you wish to benefit from them.
	Direct charitable contributions from your retirement account. If you are age 70 1/2 or older you can make a direct contribution from your tax-deferred retirement account directly to a qualified charitable organization.
	Benefit: If handled correctly, this pre-tax donation does not have to be reported as income on your tax return.
	Federal tax credit for energy-saving home improvements. This credit for qualified energy-saving home improvements expires in 2013. Benefit: $500 credit (this is a lifetime credit, not annual) for energy saving purchases. The limit is $200 for windows and skylights.
	Optional itemized deduction of sales tax in lieu of state income taxes. In low or no income tax states, you may use a sales tax itemized deduction instead of a state income tax deduction. Benefit: If you made major purchases or live in a state with no/low income taxes your itemized deductions could be much higher.
	Itemized deduction of qualified mortgage insurance premiums. Through 2013 you can continue to deduct your qualified mortgage insurance premiums as an itemized deduction. Benefit: A meaningful increase in your itemized deductions.
	Qualified higher-education tuition and expense deduction. You can offset the tuition and expense of qualified education using the tuition and fees deduction through 2013. Benefit: Up to a $4,000 income deduction. Planning is required as this deduction may not be used in conjunction with many other educational tax benefits.
	Numerous small business tax incentives. Many small business tax credits and accelerated depreciation incentives are also scheduled to expire after 2013. These range from bonus depreciation to the expiration of the research and development credit.If your business anticipates using any credits this year, it is best to review your situation.

This sneaky fraud could be costing you

The New Cramming

This sneaky fraud could be costing you The art of adding unapproved, deceptive or misleading services to your phone bill is commonly known as cramming. Historically these charges could be seen within your traditional telephone bill. With the shift from traditional land-lines to cell phones, a new form of cramming is making its presence felt. Here are some suggestions to help keep you from becoming a victim of this practice:
	Check your bill. Check your cell-phone bill every month and identify all items on your bill. Call your provider to get an explanation for anything that appears unclear. Look for key words that may be masking the unapproved charges. Words like:  Minimum charge Service fee Other fees Connection fees Or any non-phone related terms like internet or web
	Question changes. Your phone bill should be predictable. If you see the bill increase from one month to the next, consider it a warning sign. While the change may not be fraudulent billing, the review could point to a need to change your phone agree mentor phone habits.
	Know the culprits. Companies that are commonly adding a monthly charge to cell phones include; gaming companies, sports applications, online entertainment, security services, credit monitoring, wi-fi connection services, and financial services.
	Guard your phone number distribution. To access your cell phone bill the thieves need your phone number. If you start receiving a number of unwanted calls, it can be a clue that your billing might be compromised in the future.

The problem of cramming has found a new home on cell phone bills in part because many users no longer see a paper statement and are set up for automatic bill payment. If either of these applies to you, it makes a monthly review of your billing statement that much more important.

If you think you have been a victim of cramming visit the Federal Communications Commission, www.fcc.gov, to learn more and to register a complaint.

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The New Premium Tax Credit Claim it now or take it later?

Category: What's New The New Premium Tax Credit Claim it now or take it later? Effective October 1st, there is a new tax credit available; The Premium Tax Credit. If you are eligible for this credit you can decide to take it now based on your estimated income for 2014 or take it later when you file your tax return for 2014. Who does this impact and what should you do? What is the Credit and who is eligible? Topline: If you have health insurance available from your employer, this credit is not for you. If, on the other hand, you are self-employed, your employer recently provided you a notice they are moving health insurance coverage to the “exchange or marketplace”, or you currently do not have health insurance then this information is important to understand. Beginning in October, 2013 there is a new Health Insurance Marketplace established as part of Obamacare. Open enrollment in these health insurance plans runs from October 1, 2013 through March 31, 2014. If you are eligible and enroll in one of these plans through the Insurance Marketplace you may be eligible to have your premium reduced by the new Premium Tax Credit. To be eligible for the Premium Tax Credit you must; buy your health insurance through the new Health Insurance Marketplace (state exchanges) be ineligible for health insurance coverage through an employer or through other government programs not be claimed as a dependent on someone else’s tax return if married, file a joint tax return meet certain income requirements Take it now or claim it later? One of the tricky decisions you’ll make if enrolling for health insurance through the Marketplace is deciding to take the Premium Tax Credit to reduce your monthly health insurance premium payments or wait and receive the tax credit when you file your 2014 tax return. Here are some tips: Predictable income? If your can accurately predict your 2014 income and number of dependents consider applying an estimated credit now to reduce your monthly health insurance cost. Predictable family situation? If you know the number of dependents you will have in 2014 and your status (married, single, etc.) in addition to your income consider applying the credit during the year. If your family situation changes during the year you can always update your profile in the plan. Understand the downside. If you misrepresent your income and it impacts your eligibility for the Premium Tax Credit you will have to repay the credit on your tax return. This could become a real financial hardship. Middle ground? Consider estimating your income, but make it slightly higher than you anticipate. This way your monthly health insurance premium will be a bit higher, but you may also receive a larger refund at the end of the year. Remember, beginning in 2014 if you do not have health insurance you may be subject to new penalties payable when you file your tax return.

The New Premium Tax Credit

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Understanding Tax Terms: Fair Market Value

In the thousands of pages of U.S. Tax Code, there is a collection of terms used by the IRS that is unique to federal income taxes. One of the more important to understand is the phrase: Fair Market Value or FMV.

"Fair market value (FMV) is the price that property would sell for on the open market. It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts."

Source: IRS Publication 561

This is the standard the IRS uses to determine if an item sold or donated by you is valued correctly for income tax purposes.

When is it Used?

FMV is used whenever an item that is bought, sold, exchanged, or donated has tax consequences. The most common examples are:

	Buying or selling your home or other real estate
	Buying or selling personal property
	Buying or selling business property
	Establishing values of other business assets like inventory
	Valuing donations of personal goods and property like automobiles
	Valuing bartered services
	Valuing transfer of business ownership
	Valuing the assets in an estate of a deceased taxpayer

Sound simple? As you can imagine FMV can be open to wide interpretation and disagreements with the IRS that have led to some very high-profile tax cases. For instance, the IRS believes the FMV of the estate of pop icon Michael Jackson is over $900 million while the representatives of the estate think its FMV is $7 million. This difference could lead to additional taxes and penalties of over $700 million!

What you need to know

While you don''t probably own anything close to the value of Michael Jackson''s estate, properly documenting FMV can help you defend against any potential IRS challenges. Here are some suggestions to help you defend your FMV determinations.

	Properly document donations. Charitable donations of non-cash items are a big area that FMV is challenged by the IRS. Ensure your donated items are in good or better condition. Properly document the items donated and keep copies of published valuations from charities like the Salvation Army. Don''t forget to ask for a receipt (confirmation) of your donations.
	Donate capital items like automobiles to the correct places. You may use the FMV of a donated automobile but only if the charity you donate the item to will use it themselves, or will provide it to someone who will use it. Websites like Kelley Blue Book (kbb.com) can help establish the value of your vehicle when you donate it. Otherwise, the FMV of the donated vehicle will be limited to the amount the charity receives when they re-sell it.
	Get an appraisal. If you sell a small business, collection, art, or capital asset make sure you have an independent appraisal of the property prior to selling it. While still open to interpretation by the IRS, this appraisal can be a solid basis for defending any differences between your valuation and the IRS.
	Keep copies of similar item transactions. This is especially important if you barter goods and services. If you have a copy of an advertisement for a similar item to the one you bartered or sold, it can readily support your FMV claim.
	Take photos. The condition of an item is often a key determinate in establishing FMV. It is fair to assume an item has wear and tear when you sell or donate it. Visual documentation can be used to support your claimed amount.
	Keep good records. Keep copies of invoices for major purchases. Retain bills for any improvements. Make sure your sale of property includes a dated bill of sale that clearly states transfer of ownership and amount paid for the item.

With proper planning, establishing the fair market value of an item sold or donated can be done in a reasonably defendable way.

Hospitality Exchanges

Catching the FREE Travel Wave 401K fee disclosures delayed So you want to see the world but do not have a lot of money? What can you do? One option, that has been used by millions over the past decade, often allows you to stay FREE in virtually any city of your choice. You simply join a hospitality exchange community. What is a Hospitality Exchange? Per Wikipedia, a hospitality exchange or home stay network is "an organization that connects travelers with local residents in the cities they're visiting." In the purest form there is no money exchanged. You simply sign up as a member to a service, create your profile and then either become a host or a guest to others in the network. The more information you provide, the more likely you will be trusted and accepted by others in the network. As a host you might simply provide a place to sleep or you might provide a local experience to a fellow traveler new to your country or city. These networks can get very detailed and involved. As a community they often organize events, provide feedback/rankings on places to go, and provide ratings of fellow members. There are a number of hospitality exchanges that have popped up over the past decade with the largest being CouchSurfing.com with over 4 million members. Here is a list of some of them: Est. Members Organization 4,500,000 CouchSurfing Project 647,000 Hospitality Club 89,525 GlobalFreeLoaders 50,000 Tripping 20,000 BeWelcome 19,172 Servas 10,824 WarmShowers 4,000 Evergreen Bed and Breakfast Club 4,000 Affordable Travel Club 1,350 Pasporta Servo 700 Hospitality Exchange ? Casa Casa ? Belodged Source: Wikipedia.com Why use a Hospitality Exchange? Circle It saves money. If you are traveling extensively you can save a lot of money on hotel rooms by crashing on a spare bed or couch. Circle You get out of the tourist bubble. Instead of hopping from one tourist stop to another, staying with a local can give you a more realistic experience of a city when seen through the eyes of a local resident. Circle You gain connections throughout the world. The social network allows you to connect with people that sound interesting to you. Many of the members in these exchange communities form long-lasting friendships. Circle It makes the world smaller. Perhaps CouchSurfing says it best: "At CouchSurfing, we envision a world where everyone can explore and create meaningful connections with the people and places they encounter. Building meaningful connections across cultures enables us to respond to diversity with curiosity, appreciation and respect. The appreciation of diversity spreads tolerance and creates a global community." Are There Problems? Hospitality exchanges are not for everyone. Circle Safety. You are staying with someone you have never met. While the exchanges try to weed out bad members from their communities, there is always the chance you have a bad encounter. Circle Hippie Factor. In the early phases of this renewed social phenomena, those who used this network tended to be younger travelers. In addition, this travel concept tends to attract more "free spirit" types than the traditional travel crowd. This however, is changing as social networking attracts a broader segment of the population. Circle Hidden Agendas. Sometimes the exchange is more interested in collecting and building their network than in serving as a means of connecting travelers with hosts. Circle Privacy Issues. Your privacy is often the currency of these services. Some services do not allow you to delete your information, images, or emails from their service...ever. If privacy is important to you, read the fine print before you join. Circle It's only for Young People. The average age of people using hospitality exchanges tends to be between 18 - 29 years old. But this is changing as the service matures and additional services are added to the exchange. While hospitality exchanges may not destroy the hotel industry, it certainly appears to be growing in popularity and it could impact how each of us experiences travel in the future.

Taxes are up. What Can You Do?

Tax rates are up. Itemized deductions and personal exemptions are being phased out. Long-term capital gains and ordinary dividends maximum tax rates are up 5%. What action can you take to reduce the potential tax bite? Here are five ideas. 1 Take full advantage of capital gains tax law. Remember losses on investments can be used to offset any investment gains. The best-case scenario for tax savings is to offset losses with short-term capital gains that could be taxed as high as 39.6%. In addition, you may take up to $3,000 in excess losses against your ordinary income. A dozen tax planning triggers 1 Maximize Tax-deferred Retirement Savings. Numerous retirement plans allow you to defer paying income taxes until funds are withdrawn. Primary examples are 401(k)s, Individual Retirement Accounts (IRAs), and 403(b)s. The pre-tax money you contribute reduces your taxable income this year. Funds are not taxed until you withdraw the contributions, usually during your lower income retirement years. 1 Consider Utilizing Home Equity. Interest on most debt, except home mortgage interest, is no longer tax deductible. But since interest secured by your primary home is deductible, you can often leverage the equity in your home via a home equity loan and deduct the interest expense. This can effectively move non-deductible interest to deductible interest. Some caution should be taken here as non-payment could put your house in jeopardy. Limits apply. 3 Shift income and expense. Remember for most of us, taxes use the cash versus accrual method of reporting. That means your income and deductible expense is based upon when you receive the funds or when you pay them. So pre-paying an obligation due the following month can move that expense into the current tax year. Delaying receipt of a bonus from December to January will lower your income in the current year. 4 Take advantage of tax credits. The bad news? There are thousands of pages in our current tax code. The good news? Included in those thousands of pages are numerous tax credits that can reduce your tax obligation. From Child Credits to Foreign Tax Credits, the options are vast. Understanding them all is almost impossible, but a quick planning session could help identify some tax savings opportunities for you.

Boomerang Kids: Problem or Opportunity

Problem or opportunity? Picture yourself returning home from your last graduation party and settling in for a quiet evening with your spouse to begin the "empty nest" phase of your life. The kids are now gone. Or are they? A recent phenomena is hitting America as an unprecedented number of grown kids are returning to the nest. This trend is becoming so well known it has fostered the phrase the "boomerang generation". What Happened? With the advent of high unemployment and record levels of college and graduate school debt, adult kids are struggling to make it on their own. There are also discussions about a shift in parents' willingness to help out financially and emotionally more so than in prior generations. In the 1940s 18 year olds were fighting wars in Europe or the Pacific. In the 1960s and 1970s kids were being drafted and many were protesting. Today's world is different, but is it bordering on over-indulging our children. So what to do if you find yourself in a boomerang situation? Whether you are a parent or a "boomerang" child, here are suggestions that may turn an uncomfortable situation into a rewarding experience.
Understand the reason. Understanding why the request to move back home will help you set expectations for each other. Having trouble finding a job is one thing, breaking up with a boyfriend or girlfriend brings quite another. What are your child's motives for moving back? Saving money for a new home? Are they going through a recent divorce? Trying to pay off debt? Getting ready for graduate school? Or perhaps it is simply for emotional stability. Understand the potential problems and discuss them. Having a serious discussion before moving back in is important. As a child, you need to make sure being a boomerang hild does not foster a lack of motivation or having you become more passive in a job search. As a parent, you need to be concerned you are not stifling your child's development as a person or as a professional in their desired career. Set expectations. Some discussion topics could include: Establishing a timeframe Sharing of household duties Understanding house rules. (curfew, guest policy, groceries etc.) Setting up an agreement; consider putting it in writing Discussing if rent should be charged. How much? Define space. The tolerance to accept a messy house when the kids were small is one thing. It's quite different having to pick up after a grown child. Clearly defining each other's space in the house and setting expectations on keeping things like bathrooms clean can help tremendously. Be careful with debt. Make sure you do not enable financial behavior that is acceptable as a small child, but enables an adult child to become more passive about developing financial skills necessary to live independently as an adult. Do not sacrifice your own financial future by paying your child's debt. Funding your retirement is usually more important than bailing a child out of their financial predicament. What will they do when you need money in old age because you spent it on them to reduce their debt? Turn lemons into lemonade. While there are many inherent problems with the concept of the boomerang generation, there are wonderful opportunities as well. A few examples include: Reconnecting with each other when both the child and parents are adults. With a roof over their head, the boomerang adult can use the opportunity to explore and develop marketability as an employee by taking an unpaid internship or volunteering to help others. Help your child save money for their future goals. Adults can get help maintaining their home as they age. Remember many cultures value the benefits of multi-generational living. The wisdom of experience is passed from one generation to the next and the healthy bond established between generations helps those of all ages. If managed properly the boomerang experience could bring its own rewards.