Tax Strategies and Considerations

Deductions for Home Office Expenses

It is possible to deduct home office expenses based on the number of rooms in the home. Typically, home office deductions are based on the percentage of business use. That is, the square footage of the business portion of the home divided by the total square footage. But according to Publication 587, Business Use of Your Home, of the IRS, a taxpayer can base the percentage on the number of rooms if the rooms are approximately the same size. For example, if you use one room in an eight-room house for business, and the room is 300 square feet out of a total of 3,000 square feet, then this method would yield a 12.5% deduction as opposed to 10% from the method based on the square footage.

Tax Break on Company Stock

If, after having been retired for several years, you hold company stock in a qualified retirement plan, you could be eligible for a unique tax break. If a retirement plan distribution is paid in company stock, you are taxed at ordinary income rates on the stock’s original cost. The appreciation is untaxed. When you sell the stock, the difference between the sales price and the original cost is taxed as capital gain.

Deduction of Education Costs for Child and Employee

If you have a business and your children work for the business while also attending college, and you found a course on family business at a college different from the school your children are attending, the costs for the course may be deductible. It is important, however, the course clearly improves the skills necessary for your children’s current job or if you just treat the company-paid costs as additional compensation paid to your children. If you personally pay the tuition as a parent, you cannot take the deduction. Therefore, it is best the company pays the expenses for the course.

Dividing a Spousal IRA

If you or your wife are retired and the other spouse is working, and you both are over the age of 50, you have until April 15 to jointly contribute up to S12,000.00 to your IRA’s (assuming either of you earned at least that much in compensation during the year.) The maximum S12,000.00 contribution can be divided among your IRA’s in any manner in which you choose as long as no more than S6,000.00 is allocated to either account. You have until your tax return due date to make the annual contribution. And to delay mandatory distributions from the IRA, you should allocate more of the contribution to the younger spouse.

The Difference Between Gifts and Compensation

If you give a favorite employee a big check at Christmas, you might consider it a gift. The IRS, however, will most likely consider it income. That could be true even if you and the employee are family. In one instance, the IRS stated payments to an owner’s daughter, who was an employee of his company, were for past service and not a gift. You should consult a tax professional if you encounter such a situation.

Stockpile Section 529 Funds for the Future

The amount you transfer to a Section 529 plan on behalf of a beneficiary qualifies for the annual gift tax exclusion. Under the exclusion, you can give away up to S14,000.00 a year-or S28,000.00 for joint gifts made by a married couple-to an account for the beneficiary without paying any gift tax.

Front-load your contributions to a Section 529 plan. The tax law allows you to give the equivalent of five years’ worth of contributions up front with no gift tax consequences. The gift is treated as if it were spread out over the five-year period.

Tax Strategies and Considerations

For example, you and your spouse might contribute together the maximum S140,000.00 (5 x S28,000.00) on behalf of a grandchild this year without paying any gift tax. If you have 5 grandchildren entering college soon, together you can contribute S140,000.00 to their Section 529 plans, completely free of any gift.

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Any excess above the annual gift tax exclusion may be sheltered by the lifetime gift tax exemption.

Fake IRS Emails

The IRS has reported scam artists are sending emails to random people, telling them they are either due for a refund or under investigation. The message directs people to a phony IRS website, which asks for personal data. You should be aware: The IRS will not contact you by email. Therefore, you should never send personal financial information or any kind of personal information-to any unsolicited emails.

Need of Old Tax Returns

Should a circumstance arise in which you need an old tax return, the IRS has a new service which allows tax practitioners to receive transcripts of their clients’ tax returns electronically in minutes. Taxpayers can also still receive a free paper transcript of their tax returns within 7 to 10 days by calling the IRS at (800)829-1040.

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