Spending a little bit of time thinking about your expenses for the year might lead to lower taxes. We often see taxpayers cheat themselves when it comes to the following:
- Medical expenses for themselves and their dependents. These are harder to deduct for federal income tax purposes than in the past. First you must not be taking the standard deduction and then expenses must exceed 10% of adjusted gross income (for those born before 1/1/52, 7.5%). For New Jersey, however, the threshold is 2% of New Jersey gross income. Expenses include everything from eyeglasses and hearing aids to long term care insurance. A partial list of deductible expenses can be found at:
If you use part of your home regularly and exclusively for business you may be entitled to a deduction for the expenses associated with maintaining that work space whether you are self-employed or an employee. However, for an employee expenses are deductible only if the space is used for the convenience of the employer.
This deduction is most valuable to the self-employed because it is a deduction against self-employment income. For employees the business use of a home is a miscellaneous itemized deduction, grouped with other deductions that must exceed 2% of adjusted gross income to be added to itemized deductions.
Beginning January 1, 2017 the rate drops from 7% to 6.875%. Next year there will be another decrease to 6.625%. There has been no change in the items subject to sales tax.
Periodically we will highlight a ratio or benchmark and demonstrate how you can use it to better understand your business
The disclaimer: Benchmarks and ratios, blindly applied, can be dangerous. Benchmarks can be useful in understanding areas to investigate, but it’s important to understand what’s being compared and why variances might exist.
The Ratio: Current Ratio
The current ratio is one of many financial ratios used by business analysts to assess the health of a business. The current ratio is calculated by taking a business’s total current assets (cash, accounts receivable, inventory, etc.) and dividing that by a business’s total current liabilities (accounts payable, accrued expenses, current portion of long-term debt, etc.). For example, if Calvin’s Clam Bar has $100,000 in current assets and $50,000 in current liabilities, then its current ratio is 2:1.
There are many types of IRAs. This article will discuss Traditional IRAs, Roth IRAs and non-deductible IRAs, available to individuals (or a spouse of an individual) with earned income or collecting alimony.
The first criterion to consider is your age. If you are over 70 ½ at the end of the tax year, the only IRA to which you can contribute is a Roth IRA.
If you or your spouse is covered by an employer retirement plan, there are limits to the amount that can be contributed to a traditional (deductible) IRA. If you are the covered employee, your ability to contribute to a traditional IRA begins to phase out for 2016 at $98,000 of modified adjusted gross income (AGI) and is completely phased out at $118,000 if married filing jointly. Filing separately won’t help unless your AGI is less than $10,000. However, the phase out range is $61,000-$71,000 if you’re filing single or head of household. If your spouse is covered by a retirement plan it will affect your ability to fund a retirement plan beginning at AGI of $184,000 with a complete phase out at $194,000. Filing separately again is not a viable strategy since the ability to make a contribution phases out completely at $10,000.
While due dates for individual income tax returns, Form 1040, and estimated tax payments will remain the same, there are new requirements that affect individuals. One of the most important new deadlines for individuals is the April 15 deadline to file the FinCen 114, used by taxpayers with a financial interest in or signature authority over certain financial accounts.
The IRS has imposed a number of changes to the due dates and extended due dates for various business tax returns. Many of these changes will impact the tax returns being filed in the upcoming months. For example, partnerships will now have to file their 2016 tax returns by the fifteenth day of the third month after the end of the tax year, for calendar year taxpayers March 15. Form 1120S is due the same date. Form 1120, however, is now due the fifteenth day of the forth month of the year or April 18 this year. The extended due date for all calendar year partnership and corporate returns is September 15. At this time, New Jersey has not announced any revised due dates.
I file a Sales & Use Tax every month based on my taxable sales. I never remit Use Tax. What is it?
Generally, Use Tax is due on out-of-state purchases of goods or services that would have been subject to sales tax had they been purchased New Jersey on which either (a) no sales tax was collected or (b) sales tax was collected at less than the New Jersey rate, currently 7%. The difference between the actual sales tax paid and the 7% due had the purchase been made in New Jersey is the use tax owed. However, when taxable goods and services are purchased in another state and delivered to New Jersey for use in New Jersey, no credit is allowed for sales tax paid to the other state. Use tax is due at the rate of 7% of the purchase price, including delivery charges.
Businesses can pay any Use Tax due with the Sales Tax due for the reporting period. Businesses that do not remit Sales Tax and have had an average Use Tax liability of less than $2,000 over the last three years can file an Annual Use Tax return, Form ST-18B, to report all Use Tax due for the previous calendar year. Form ST-18B is due by May 1. If a business sells taxable goods or services or leases taxable property to others, or if the average annual use tax liability for the last three calendar years was more than $2,000, the business must include sales tax eligibility in its NJ Business Registration and must begin to file quarterly/monthly sales and use tax returns.
Individuals can remit Use Tax due on out of state purchases on either on Form ST-18 within 20 days after property is brought into New Jersey or by reporting any Use Tax due for the prior year on Form NJ-1040.
by Patrick J. McCormick
When clients admit to a retroactive failure to meet filing requirements involving their offshore assets, the overarching question is typically the proper route for making a disclosure to the U.S. IRS. For a multitude of reasons, ‘‘quiet’’ disclosures (through which a client makes an informal disclosure to the IRS of past failures to report without participating in an IRS-authorized program) and prospective-only reporting (where, as the name implies, the client only reports the assets in the future and does not address the past failure) are problematic, often putting clients in extremely hazardous positions.
By: Terri L. Marakos, CPA
With the expansion of the global economy, the involvement of taxpayers in foreign activities has become commonplace. Even not-so-sophisticated investors often hold the securities of companies with foreign activities and that pay foreign taxes in their brokerage accounts. Individuals work earning wages in a foreign country and have foreign taxes withheld from these wages. Do these individuals know how to recoup the foreign tax paid in these scenarios? According to the IRS, each year you can choose to take the amount of any foreign taxes paid or accrued during the year either as a foreign tax credit or as an itemized deduction. Of course, this raises the question of how you choose whether to take a credit or a deduction.
Ctrl+Y- A useful tool
Did you ever wonder how to easily find the way a transaction was entered into Quickbooks? Ctrl + Y is the answer. Using those keys when in an open Quickbooks screen for a vendor bill, check, or invoice, etc. will bring up a screen showing which accounts recorded the transaction.