Taxation

Tax Savings Opportunity for Exporters and Others 08-25-2015

Exporters and others: Save taxes with an IC-DISC

If your business exports American-made goods or performs architectural or engineering services for foreign construction projects, an interest-charge domestic international sales corporation (IC-DISC) can help slash your tax bill.

An IC-DISC is a “paper” corporation you set up to receive commissions on export sales, up to the greater of 50% of net income or 4% of gross receipts from qualified exports. Your business deducts the commission payments, while distributions received from the IC-DISC are treated as qualified dividends, not capital gains.

Essentially, an IC-DISC allows you to convert ordinary income taxed at rates as high as 39.6% into dividends taxed at 15% or 20%. An IC-DISC also allows you to defer taxes on up to $10 million in commissions held by the IC-DISC by paying a modest interest charge to the IRS.

Think an IC-DISC might be right for you? Contact us for more information.

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What You Need to Know Before Donating Collectibles 08-18-2015

If you’re a collector, donating from your collection instead of your bank account or investment portfolio can be tax-smart. When you donate appreciated property rather than selling it, you avoid the capital gains tax you would have incurred on a sale. And long-term gains on collectibles are subject to a higher maximum rate (28%) than long-term gains on most long-term property (15% or 20%, depending on your tax bracket) — so you can save even more taxes.

But choose the charity wisely. For you to receive a deduction equal to fair market value rather than your basis in the collectible, the item must be consistent with the charity’s purpose, such as an antique to a historical society.

Properly substantiating the donation is also critical, and this may include an appraisal. If you donate works of art with a collective value of $5,000 or more, you’ll need a qualified appraisal, and if the collective value is $20,000 or more, a copy of the appraisal must be attached to your tax return. If an individual item is valued at $20,000 or more, you may also be required to provide a photograph of that item.

If you’re considering a donation of artwork or other collectibles, contact us for help ensuring you can maximize your tax deduction.

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How to begin collecting your 2015 tax refund now 08-02-2015

If you usually receive a large federal income tax refund, you’re essentially making an interest-free loan to the IRS. Rather than wait until you file your 2015 tax return in 2016, why not begin enjoying your “refund” now by reducing your withholdings or estimated tax payments for the remainder of 2015?

It’s particularly important to review your withholdings, and adjust them if necessary, when you experience a major life event, such as marriage, divorce, birth or adoption of a child, or a layoff suffered by you or your spouse.

If you’d like help determining what your withholding or estimated tax payments should be for the second half of the year, please contact us.

© 2015

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Tax impact of the Supreme Court’s same-sex marriage decision 08-02-2015

On June 26, the U.S. Supreme Court ruled that same-sex couples have a constitutional right to marry, making same-sex marriage legal in all 50 states. For federal tax purposes, same-sex married couples were already considered married, under the Court’s 2013 decision in United States v. Windsor and subsequent IRS guidance — even if their state of residence didn’t recognize their marriage.

From a tax planning perspective, the latest ruling means that, in states where same-sex marriage hadn’t been recognized, same-sex married couples no longer will need to deal with the complications of being treated as married for federal tax purposes but not married for state tax purposes. So their tax and estate planning will be simplified and they can take advantage of state-level tax benefits for married couples. But in some cases, these couples will also be subject to some tax burdens, such as the “marriage penalty.”

Same-sex married couples should review their tax planning strategies and estate plans to determine what new opportunities may be available to them and whether there are any new burdens they should plan for. Employers will need to keep a close eye on how these developments will affect their tax obligations in relation to employees who have same-sex spouses. Please contact us if you have questions.

© 2015

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Tax treatment of NQSOs differs from that of their better-known counterpart 07-24-2015

With nonqualified stock options (NQSOs), if the stock appreciates beyond your exercise price, you can buy shares at a price below what they’re trading for. This is the same as for the perhaps better-known incentive stock options (ISOs).

The tax treatment of NQSOs, however, differs from that of ISOs: NQSOs create compensation income — taxed at ordinary-income rates — on the “bargain element” (the difference between the stock’s fair market value and the exercise price) when exercised. This is regardless of whether the stock is held or sold immediately. Also, NQSO exercises don’t create an alternative minimum tax (AMT) preference item that can trigger AMT liability.

When you exercise NQSOs, you may need to make estimated tax payments or increase withholding to fully cover the tax. Keep in mind that an exercise could trigger or increase exposure to top tax rates, the additional 0.9% Medicare tax and the 3.8% net investment income tax.

 

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Tax Deduction Rules for Business Start-Up Expenses 06-10-2015

If you have started a new business this year or are planning on starting a new business there are some important rules related to the deductibility of certain start-up expenses.  Many taxpayers struggle with the question of when to deduct costs related to starting a business. A recent U.S Tax Court case demonstrates how it can be difficult to differentiate between Section 162 expenses that are deductible in the current year and Section 195 start-up costs that are deductible after the start-up commences business operations. Here's some guidance on deducting start-up expenses with confidence. Continue reading


Update on Tax Rules Related to Gambling 05-11-2015

Are you headed to Las Vegas or Biloxi in the near future? The recent Floyd Mayweather/Manny Pacquiao boxing match put a brief spotlight on sports gambling. Gambling is more than just fun and games. It can also have serious federal tax implications. So it's important for amateur gamblers to know the latest IRS reporting requirements for winnings, losses and expenses, including time spent on electronically tracked slot machines. Here are the details, including information about new proposed rules. Continue reading


Non-Cash Charitable Contributions – How to Maintain Adequate Records of Your Gifts? 04-27-2015

Non-cash contributions, or charitable contributions of used property, provide more than the satisfaction of cleaning out your home of unused and unneeded items and the self gratification that accompanies giving those items to a worthy cause. They can also lower your income tax liability, if you follow the strict substantiation rules set forth by the IRS. A recent U.S. Tax Court cases shows how failure to retain detailed records for donations can be a costly mistake.  Please let us know if you have any questions after reading this article. Continue reading


Tax Documents and Related Records: What Should You Keep 04-13-2015

After a few years, tax and other paper records can begin to accumulate and become overwhelming. Many individuals and companies keep records longer than necessary, just in case the IRS, state tax authorities or another regulatory body makes an inquiry.  Here are some record retention guidelines we hope will help prevent you from becoming the subject of an upcoming episode of Hoarders. Continue reading


The April 15 Deadline is Quickly Approaching: Last-Minute Personal Tax Filing Reminders 04-06-2015

If you have not filed your 2014 personal tax return (or an extension) yet, here are some end-of-tax-season thoughts to help minimize potential errors and track any refunds you may receive. You may also have to make first quarter estimated tax payments by April 15 if you earn income that's not subject to withholding. If you fail to properly make estimated tax payments you could be subject to penalties. Continue reading