Tax Archives - Page 44 of 48 - Whalen & Company, CPAs

Lower FSA contribution limit may make HSAs more attractive

mnarog on March 27, 2013

Previously, employers could set whatever limit they wanted on employee contributions to Flexible Spending Accounts (FSAs) for health care. But starting this year, the maximum limit is $2,500.

If you’re concerned about a lower limit and aren’t contributing to a Health Savings Account (HSA), look into whether you’re eligible — you must be covered by a qualified high-deductible health plan. As with FSA withdrawals, HSA withdrawals for qualified medical expenses are tax-free. But the HSA contribution limits are higher: $3,250 for self-only coverage and $6,450 for family coverage, plus an additional $1,000 for taxpayers age 55 or older.

HSAs also may be more beneficial because they can bear interest or be invested and can grow tax-deferred similar to an IRA. Additionally, you can carry over a balance from year to year. If you have an HSA, however, your FSA is limited to funding certain “permitted” expenses.

An HSA also can provide a way to do some post-Dec. 31 tax planning: You have until the April filing deadline to make your contribution. Please contact us to learn whether you could benefit from an HSA.

Do you need to file a 2012 gift tax return by April 15?

atreasure on March 26, 2013

Generally, you’ll need to file a gift tax return for 2012 if, during the tax year, you made gifts:

That exceeded the $13,000-per-recipient gift tax annual exclusion (other than to your U.S. citizen spouse),
That you wish to split with your spouse to take advantage of your combined $26,000 annual exclusions, or
Of future interests — such as remainder interests in a trust — regardless of amount.

If you transferred hard-to-value property, consider filing a gift tax return even if you’re not required to. Adequate disclosure of the transfer in a return triggers the statute of limitations, preventing the IRS from challenging your valuation more than three years after you file.

There may be other instances where you’ll need to file a gift tax return — or where you won’t need to file one even though a gift exceeds your annual exclusion. Contact me at anne.treasure@whalencpa.com for details.

Yes, there’s still time to make a 2012 IRA contribution!

mnarog on March 19, 2013

The deadline for 2012 IRA contributions is April 15, 2013. The limit for total contributions to all IRAs generally is $5,000 ($6,000 if you were age 50 or older on Dec. 31, 2012). Any unused limit can’t be carried forward to make larger contributions in future years.

So if you haven’t already maxed out your 2012 limit, consider taking advantage of one of these three contribution options by April 15:

1. Deductible traditional. If you and your spouse don’t participate in an employer-sponsored plan such as a 401(k) — or you do but your income doesn’t exceed certain limits — your traditional IRA contribution is fully deductible on your 2012 tax return. Account growth is tax-deferred; distributions are subject to income tax.

2. Roth. Contributions to a Roth IRA aren’t deductible, but qualified distributions — including growth — are tax-free. Income-based limits may reduce or eliminate your ability to contribute, however.

3. Nondeductible traditional. If your income is too high for you to fully deduct a traditional IRA contribution or make the maximum Roth IRA contribution, you may benefit from a nondeductible contribution to a traditional IRA. The account can still grow tax-deferred, and when you take distributions you’ll be taxed only on the growth. Alternatively, shortly after contributing, you may be able to convert the account to a Roth IRA with minimal tax liability.

Want to know which option best fits your situation? Contact us.

You don’t have to be a manufacturer to take the “manufacturers’ deduction”

mnarog on March 15, 2013

The manufacturers’ deduction, also called the “Section 199” or “domestic production activities deduction,” is 9% of the lesser of qualified production activities income or taxable income. The deduction is also limited to 50% of W-2 wages paid by the taxpayer that are allocable to domestic production gross receipts.

Yes, the deduction is available to traditional manufacturers. But businesses engaged in activities such as construction, engineering, architecture, computer software production and agricultural processing also may be eligible.

The deduction isn’t allowed in determining net self-employment earnings and generally can’t reduce net income below zero. But it can be used against the AMT.

IRS Makes Deducting From Home Office Expenses Easier

mnarog on January 25, 2013

On Jan. 15, the IRS announced a new simplified home office deduction, which is available beginning with 2013 income tax returns (not the 2012 returns generally due April 15, 2013).

Normally, if your home office qualifies, you can deduct a portion of your mortgage interest, property taxes, insurance, utilities and certain other expenses. Further, you can take a deduction for the depreciation allocable to the portion of your home used for the office. You can also deduct direct expenses, such as a business-only phone line and office supplies. However, the deduction generally requires completion of a 43-line form (Form 8829), often along with complex calculations.

The new simplified deduction is $5 per square foot for up to 300 square feet of home office space. So the maximum annual deduction is $1,500. If you choose this option, you can’t deduct depreciation for this portion of your home. But you can take itemized deductions for otherwise allowable mortgage interest and property taxes without allocating them between personal and business use.

Please contact us to determine whether you’re eligible for the home office deduction.

Image courtesy of www.freedigitalphotos.net.

Category: Tax

News & Tech Tips

Lower FSA contribution limit may make HSAs more attractive

Do you need to file a 2012 gift tax return by April 15?

Yes, there’s still time to make a 2012 IRA contribution!

You don’t have to be a manufacturer to take the “manufacturers’ deduction”

IRS Makes Deducting From Home Office Expenses Easier