Tax Planning & Preparation

What is it?

The child tax credit is a credit of up to $1,000 per qualifying child under age 17.  Remember that a credit directly reduces your tax due. 

So, who is a qualifying child?

A qualifying child is someone who meets the seven tests of age, relationship, support, dependent, joint return, citizenship and residence.  The seven ‘wonders of the world’ of a qualifying child sounds ominous, but is simple and most taxpayers with children will meet these tests.  Basically, the qualifying child must...

Earlier this week, President Obama released his federal budget proposal for fiscal year 2013 which begins on October 1, 2012.  Included in the proposal are over 130 proposed tax changes for both businesses and individuals.  The following are some of the highlights of the proposed tax changes.

Business tax highlights

• The current payroll tax cut reducing employee social security contributions from 6.2% down to 4.2% is set to expire February 29, 2012.  The proposal includes extending the payroll tax...

Generally, insurance companies can defer the unearned portion of gross premiums and can also deduct reserves for unpaid losses, including IBNR/incurred but not reported items.  If the captive is qualified, the premium payments made by the parent/affiliates should qualify as an ordinary business expense.  In some cases, the IRS may assert that the captive is without substance because the risk of loss has not been shifted or a sufficient risk distribution has not been achieved and the favorable...

Effective for tax years beginning after December 31, 2010, if you paid 1099 contractors or vendors using payment forms other than cash or check, you need to be aware that the IRS has issued new reporting regulations for tax year 2011. These regulations will exclude payment types such as credit cards, debit cards, and those from third party payment networks, like PayPal, from the 1099-MISC form that will instead be reported on the new third party form 1099-K.

If an incorrect information return is...

Estate planning generally has three purposes: to reduce estate taxes, to avoid probate and to protect beneficiaries.

Failing to plan can result in unnecessary expenses and leave your executor with the task of sorting through your estate. But creating a plan isn’t enough; you have to revisit it to ensure it remains relevant.

When it comes to estate planning to protect your business, your family and your assets, you need a good estate plan that is flexible, allowing you to take advantage of what...

A limited liability company (LLC) often makes the most sense, as it provides the most flexibility, but there are other options to consider. Even with an LLC, you need to determine the best way to be taxed.

What types of entity structures can businesses choose from?

The most common options are a C corporation, an...

New Tax Credit

Are you ready to take advantage of the new InvestOhio tax credit?  The registration period is now open and registration must be completed before you can apply for the credit. The application date is expected to be the first full week in December and now is the time to ensure that you are ready to apply.
 
What is InvestOhio?

InvestOhio is a tool for helping Ohio small businesses gain the capital they need to succeed and create jobs.  Through the program, individuals who invest up to...

Tax planning for the year ending 2011 and beyond will again prove challenging due to uncertainties over whether Congress will enact sweeping tax reform.  And even if there’s no major tax legislation, Congress will have to deal with the “patch” to the alternative minimum tax, and decide what to do about the expiring of the Bush-era income tax cuts.

Regardless of what Congress does late this year or early the next, there are solid tax savings to be realized by taking advantage of tax breaks that...

Year-end tax planning is especially challenging this year because of uncertainty over whether Congress will enact sweeping tax reform that could have a major impact in 2012 and beyond.  Regardless of what Congress does late this year or early the next, there are solid tax savings to be realized by taking advantage of four tax breaks that are on the books for 2011 but may be gone next year unless they are extended by Congress: 

• Option to deduct state and local sales and use taxes instead of state...

There’s one word that can be used to describe the stock market as well as estate and gift tax laws over the past few years and that is “volatile”  Unfortunately, volatility often scares clients into taking the “wait and see” approach but in reality, there’s no time like the present to do some estate planning and make lifetime gifts.

What are the current laws:

• Beginning January 1, 2011, the federal estate, gift, and generation-skipping transfer tax exemptions were all set at $5 million with a top...

Several tax breaks are on the books for 2011 but may be gone next year unless they are extended by Congress. One of them is the small energy credit.

• What it is:  Credit of up to $500 total and $200 for windows for the installation of energy efficient doors, windows, furnaces and air conditioning units, to your main home (includes boats, motorhomes, condominiums) if the items are installed before 2012.  This credit is reduced by the amount of energy tax credits taken from 2006-2010.
• Who it applies...

What a year it has been. In 2011 we have witnessed devastation caused by a wide variety of natural disasters, ranging from tornadoes to floods to wildfires. Although it is a small consolation if your home or other property is damaged as a result, at least you may be able to deduct a casualty loss on your tax return.

Basic rules: You may qualify for a casualty loss deduction if damage is caused by an event that is “sudden, unexpected or unusual.” This not only includes natural disasters already...

Several tax breaks are on the books for 2011 but may be gone next year unless they are extended by Congress. One of them is tax free distributions by those age 70 ½ or older for charitable purposes.

• What it is: Taxpayers who have reached age 70 ½ can make a distribution of up to $100,000 directly (by the trustee of the IRA) from the IRA to a charitable organization.  The distribution is not taxable and the charitable deduction is not allowed, but the distribution counts towards a taxpayer’s...

Several tax breaks are on the books for 2011 but may be gone next year unless they are extended by Congress. One of them is the above the line deduction for qualified higher education expenses.

• What it is: 
  - American Opportunity Credit - taxpayers have the option of either deducting higher education expenses or taking a credit for them of up to $2,500 per student.  This credit is partially refundable (40%). 
  - Lifetime Learning Credit - taxpayers have the option of either deducting higher...

Several tax breaks are on the books for 2011 but may be gone next year unless they are extended by Congress. One of those is the option to deduct state and local sales and use taxes instead of state and local income taxes.

• What it is:  Currently, taxpayers have the ability to deduct, as an itemized deduction, either State and Local sales tax or State and Local income tax.
• Who it applies to: Although this deduction usually applies to our snow birds that have moved their residency to Florida,...

As you may remember from our July e-newsletter, Ohio recently created a new small business investment tax credit. New details of the program have now emerged and quick action may be required to take advantage of this tax credit which begins Monday, November 14^th.

What is InvestOhio?

Through the program, individuals who invest up to $10 million in eligible small businesses

may receive a 10 percent income tax credit if the investment is held for two years.

The credit is a non-refundable personal...

If you own real estate, a cost segregation study is one of the best tools to help you reduce taxes and improve cash flow. Although a cost segregation study will not provide additional tax deductions, it will enable the taxpayer to accelerate a portion of the depreciation on the building. Cost segregation is the process of breaking out a portion of a building’s cost that can be depreciated quicker than the standard life of 39 years.

Where should a property owner start when considering a...

A new small business investment tax credit is available as a part of the recently passed Ohio Budget Bill. The nonrefundable credit of 10% of a qualifying investment is available for investments in certain small business enterprises operating in Ohio. The credit is up to $1,000,000 per taxpayer or $2,000,000 for married couples filing jointly.

What businesses qualify for investment?

• At the time of the investment, either total assets do not exceed $50,000,000, or annual sales do not exceed...

According to the IRS, if you plan to travel, or have traveled, on or after July 23, 2011, and you purchased your ticket on or before July 22, 2011, you are entitled to a refund for the federal air transportation excise taxes that was paid when you purchased your ticket.

Airlines are now permitted to refund the tax to the passenger, just as they do in the ordinary course of business when issuing refunds for unused refundable tickets (including the associated taxes). Because the airlines and travel...

Ohio recently enacted legislation creating two tax amnesty programs that may affect you or your business. 

Use Tax Amnesty Program

The first program is a change to the Ohio Use Tax Education Program. In case you are unaware, here is a quick refresher on Ohio use tax.

Use tax is a tax on the storage, use or other consumption of tangible personal property and certain taxable services in Ohio. The use tax is a complement to the sales tax.   In general, if you have paid Ohio sales tax on an item,...