Tuesday December 10, 2013
Individuals may want to evaluate their investment portfolio before the end of the year whether to sell off any investments that have lost value in an effort to book capital losses for this year.
From a tax perspective, higher-income people may find that their investment income, including capital gains, is subject to the new 3.8% Net Investment Income Tax. Higher-income people also face higher tax brackets with a new 20% rate on long-term gains for people in the 39.6% tax bracket, while short-term gains are subject to the ordinary tax rates which could be as high as 39.6%. Selling investments that have lost value can help lower the amount of net gain subject to the income tax and the net investment income tax.
From a non-tax perspective, the end of the year may be a good time to take evaluate your investments and how they are performing. "Are you satisfied with their performance compared to the rest of the market?," is a crucial question, according to Deborah Fowles (About Financial Planning, How To Do An Annual Financial Checkup). You may also want to adjust your investment strategies, and here I'd recommend reviewing the Eight Secrets to Improving Your Portfolio Returns from Joshua Kennon (About Investing for Beginners). Read More...
Monday December 9, 2013
Parents and college students may want to consider which education-related tax incentives they plan to take in 2013. Here's why. If taxpayers need additional qualifying expenses to reach the maximum $4,000 limit for the American Opportunity Credit and for the Tuition and Fees Deduction, taxpayers can prepay tuition for the Spring 2014 semester in 2013, thereby accelerating the tuition expense so as to take full advantage of either of these tax breaks on their 2013 returns. The IRS permits tuition expenses to be accelerated into the previous tax year and still be eligible for the American Opportunity Credit or the Tuition Deduction, as long as classes begin in the first three months of the following year Read More...
Sunday December 8, 2013
Self-employed persons and small business owners may want to review their business structure to see if it their structure will be tax-efficient in the coming years.
The issue we're facing is higher tax rates. There's a new 39.6% top ordinary tax rate and there's a new 0.9% additional Medicare tax on net self-employment income. Plus, there's a new 3.8% tax on net investment income. While the 3.8% surtax does not apply directly to business income, if business income increases a person's adjusted gross income over the threshold for the tax, then this could trigger the 3.8% tax. Both the additional Medicare tax and the net investment income tax impact taxpayers earning over $200,000 per year (or $250,000 for married couples filing jointly).
Small business owners who expect or who might be in the threshold ranges for these new taxes might want to consider options for how they structure their business for tax purposes.
We'll quickly review the choices available and discuss how changing the business structure could impact taxes in future years. Read More...
Saturday December 7, 2013
Self-employed persons and small business owners may want to review their retirement plan before the end of the year.
Here are some retirement plan issues to consider:
Do you currently have a retirement plan for your small business? If not, consider your options. You could set up a SEP-IRA, 401(k), or SIMPLE IRA to cover yourself and your employees. Consider how much could be contributed under each plan and its impact on your tax return.
If you do already have a retirement plan, is it meeting your needs and the needs of your business? I often recommend SEP-IRAs to self-employed persons due to the ease of setting up and administering the plan, and the simplicity of calculating the contribution amount. But sometimes a solo 401(k) works better, especially for middle-income self-employed people with no employees due to the potential for higher contributions and the potential to have some of the contributions placed into a Roth account. Analyzing which plan is right for your needs depends on a lot of factors, and so it's best to run calculations to see what the contribution levels and tax impact could be with different plans.
How it impacts your 2013 taxes: contributions can be made as late as October 15, 2014, which is one of the benefits of filing an extension.