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Tax Tips

Consider the Tax Consequences Before Making an Employee a Partner

Consider the Tax Consequences Before Making an Employee a Partner

In today’s competitive environment, offering your employees an equity interest in your business can be a powerful tool for attracting, retaining and motivating quality talent. However, if your business is organized as a partnership, there are some tax traps you need to watch out for. Once an employee becomes a partner, you generally can no longer treat him or her as an employee for tax and benefits purposes, which has significant tax implications. Employment taxes Employees pay half of the Social Security and Medicare taxes on their wages, through withholdings from their paychecks. The...

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Donating a Vehicle Might Not Provide the Tax Deduction You Expect

Donating a Vehicle Might Not Provide the Tax Deduction You Expect

All charitable donations aren’t created equal. Some of them provide larger deductions than others. How much or even what you donate isn’t always what matters. How the charity uses your donation might also affect your deduction. Take vehicle donations, for example. If you donate your vehicle, the value of your deduction can vary greatly depending on what the charity does with it. Determining your deduction You can deduct the vehicle’s fair market value (FMV) if the charity: Uses the vehicle for a significant charitable purpose (such as delivering meals-on-wheels to the elderly), Sells the...

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A “Back Door” Roth IRA Can Benefit Higher-Income Taxpayers

A “Back Door” Roth IRA Can Benefit Higher-Income Taxpayers

One of the potential downsides to tax-deferred saving through a traditional retirement plan is that you’ll have to pay taxes when you make withdrawals at retirement. Roth plans, on the other hand, allow tax-free distributions; the tradeoff is that contributions to these plans don’t reduce your current-year’s taxable income. Unfortunately, your employer might not offer a Roth 401(k) or another Roth option, and modified adjusted gross income (MAGI)-based phaseouts may reduce or eliminate your ability to contribute to a Roth IRA. Fortunately, there is a solution: the “back door” Roth IRA. Are...

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Business Owners: When It Comes to IRS Audits, Be Prepared

Business Owners: When It Comes to IRS Audits, Be Prepared

If you filed your 2016 income tax return in April, rather than filing for an extension, you may be wondering if it’s likely your business could be audited by the IRS based on your filing. Here’s what every business owner should know about the auditing process. Catching the IRS’s eye Many business audits occur randomly, but a variety of tax-return-related items are likely to raise red flags with the IRS and may lead to an audit. Here are a few examples: Significant inconsistencies between previous years’ filings and your most current filing, Gross profit margin or expenses markedly different...

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Real Estate Investor vs. Professional: Why It Matters

Real Estate Investor vs. Professional: Why It Matters

Income and losses from investment real estate or rental property are passive by definition — unless you’re a real estate professional. Why does this matter? Passive income may be subject to the 3.8% net investment income tax (NIIT), and passive losses generally are deductible only against passive income, with the excess being carried forward. Of course the NIIT is part of the Affordable Care Act (ACA) and might be eliminated under ACA repeal and replace legislation or tax reform legislation. But if or when such legislation will be passed and signed into law is not certain. Even if the NIIT...

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Want to Help Your Child (or Grandchild) Buy a Home? Don’t Wait!

Want to Help Your Child (or Grandchild) Buy a Home? Don’t Wait!

Mortgage interest rates are still at low levels, but are likely to increase as the Fed continues to raise rates. So if you’ve been thinking about helping your child — or grandchild — buy a home, consider acting soon. There also are some favorable tax factors that will help: 0% capital gains rate. If the child is in the 10% or 15% income tax bracket, instead of giving cash to help fund a down payment, consider giving long-term appreciated assets such as stock or mutual fund shares. The child can sell the assets without incurring any federal income taxes on the gain, and you can save the taxes...

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