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SEPs: A Powerful Retroactive Tax Planning Tool

SEPs: A Powerful Retroactive Tax Planning Tool

Simplified Employee Pensions (SEPs) are sometimes regarded as the “no-brainer” first choice for high-income small-business owners who don’t currently have tax-advantaged retirement plans set up for themselves. Why? A SEP is easy to establish, unlike other types of retirement plans, and a powerful retroactive tax planning tool: The deadline for setting up a SEP is favorable and contribution limits are generous. There are a couple of downsides to SEPs if the business has employees other than the owner: 1) Contributions must be made for all eligible employees using the same percentage of...

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What You Need to Know About the Tax Treatment of ISOs

What You Need to Know About the Tax Treatment of ISOs

Incentive stock options (ISOs) allow you to buy company stock in the future at a fixed price equal to or greater than the stock’s fair market value on the grant date. If the stock appreciates, you can buy shares at a price below what they’re then trading for. However, complex tax rules apply to this type of compensation. Current tax treatment ISOs must comply with many rules but receive tax-favored treatment: You owe no tax when ISOs are granted. You owe no regular income tax when you exercise ISOs, but there could be alternative minimum tax (AMT) consequences. If you sell the stock after...

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Take Small-Business Tax Credits Where Credits Are Due

Take Small-Business Tax Credits Where Credits Are Due

Tax credits reduce tax liability dollar-for-dollar, making them particularly valuable. Two available credits are especially for small businesses that provide certain employee benefits. And one of them might not be available after 2017. 1. Small-business health care credit The Affordable Care Act (ACA) offers a credit to certain small employers that provide employees with health coverage. The maximum credit is 50% of group health coverage premiums paid by the employer, provided it contributes at least 50% of the total premium or of a benchmark premium. For 2016, the full credit is available...

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The “Manufacturers’ Deduction” Isn’t Just for Manufacturers

The “Manufacturers’ Deduction” Isn’t Just for Manufacturers

The Section 199 deduction is intended to encourage domestic manufacturing. In fact, it’s often referred to as the “manufacturers’ deduction.” But this potentially valuable tax break can be used by many other types of businesses besides manufacturing companies. Sec. 199 deduction 101 The Sec. 199 deduction, also called the “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...

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2016 Higher-Education Breaks Can Save Your Family Taxes

2016 Higher-Education Breaks Can Save Your Family Taxes

Did you have a college student in your family last year? Were you a student yourself? If so, you may be eligible for some valuable tax breaks on your 2016 return. To max out your higher education breaks, you need to see which ones you’re eligible for and then claim the one(s) that provide the greatest benefit. In most cases you can take only one break per student, and, for some breaks, only one per tax return. Credits vs. deductions Tax credits can be especially valuable because they reduce taxes dollar-for-dollar; deductions reduce only the amount of income that’s taxed. A couple of credits...

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The Investment Interest Expense Deduction: Less Beneficial Than You Might Think

The Investment Interest Expense Deduction: Less Beneficial Than You Might Think

Investment interest — interest on debt used to buy assets held for investment, such as margin debt used to buy securities — is generally deductible for both regular tax and alternative minimum tax (AMT) purposes. But special rules apply that can make this itemized deduction less beneficial than you might think. Limits on the deduction First, you can’t deduct interest you incurred to produce tax-exempt income. For example, if you borrow money to invest in municipal bonds, which are exempt from federal income tax, you can’t deduct the interest. Second, and perhaps more significant, your...

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