DiSabatino CPA Blog

Mike DiSabatino CPA

Mike is the founder of the firm of Michael DiSabatino, CPA.  He produces this blog to keep his clients and friends informed of new tax laws, tax saving strategies, as well as, business tips. 

If you have a question or comment for Mike, please use our Contact Form to reach out for us.

Will business growth bring more profits?

Will business growth bring more profits?

My business has not been growing but it seems as though I add more people and equipment without increasing my net profit. What am I doing wrong?

Answer: Let's see what happens in a typical company as the business grows. Suppose that a company is netting $50,000 on total sales of $1,000,000 (a 5% net profit). If this company has a 40% gross profit (on items sold), a $100,000 increase in sales should add $40,000 to the bottom line. I say "should" because the increase in sales may cause the need for more equipment, space, or inventory.

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Understanding Tax Terms: Basis

Understanding Tax Terms: Basis
Covering the bases on basis

Basis is a common term to the IRS, but one that probably does not enter into your everyday conversation. Understanding what it means, however, can have an impact on the taxes you pay.

Definition

Per the IRS;

Basis is generally the amount of your capital investment in a property for tax purposes. Use your basis to figure depreciation, amortization, depletion, casualty losses, and any gain or loss on the sale, exchange or other disposition of the property.

In plain language, basis is the collection of tax rules that establishes the cost of your property. Once the tax basis is established, you can then apply that basis to determine whether there is a gain or loss on your property when it is disposed, exchanged or sold. Unfortunately, it is not quite that easy. There is also Cost Basis, Adjusted Basis, and Basis other than cost.

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Beware the Tax Torpedo - Large retirement account balances can cause Social Security tax problems

Beware the Tax Torpedo
Large retirement account balances can cause Social Security tax problems

W
hen you reach age 70 ½, the trigger requiring distributions from qualified retirement accounts is pulled. This annual Required Minimum Distribution (RMD) applies to Traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k), 403(b) and other defined contribution plans. Amounts not distributed on a timely basis could be subject to a 50% penalty. Thankfully, the RMD rules do not apply to Roth IRAs.

The RMD rules are established to ensure the deferred tax benefit for certain retirement accounts does not go indefinitely into the future. In other words, the IRS now wants their cut of your tax-deferred savings accounts. The amount you must take out each year is based upon your age, your spouse’s age and your filing status.

The Tax Torpedo

The Tax Torpedo refers to the surprising event of having your Social Security Income taxed. Depending on your income and filing status, up to 85% of your Social Security Benefit could be subject to income tax.

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August 2014 DiSabatino CPA Newsletter

news-header

In this issue:

  • Tax Benefits of Home Ownership
  • The 3D Printing Phenomenon
  • In the News. IRS Limits Direct Deposit of Refunds
  • Seven Little Money Savings Ideas

The Month of May:

    September 7th: Labor Day


Now that home values are on the rise once more, it makes sense to review the tax benefits of home ownership. Also included this month are simple ideas to save money, a summary of an IRS announcement regarding direct deposit of refunds, and an overview of an interesting 3D printing phenomenon that may impact all of us in the next few years.

As always, should you know of someone who may benefit from this information please feel free to forward this newsletter to them.

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Capital Lease or Operating Lease?

Capital Lease or Operating Lease?

Businesses often choose to lease long-term assets rather than buy them for a variety of reasons

  • the tax benefits are greater to the lessor (think seller) than the lessees (the person making payments)
  • leases offer more flexibility in terms of adjusting to changes in technology and capacity needs.

Lease payments create the same kind of obligation that traditional loan payments create, and have to be viewed in a similar light. If a business is allowed to lease a significant portion of its assets and keep it off its financial statements, in particular, the Balance Sheet, the reader of the statements will be given a very misleading view of the company's financial strength, by not showing all the debt. Consequently, accounting rules have been devised to force businesses to reveal the extent of their lease obligations on their books.

There are two ways of accounting for leases.

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In the Military? Special Tax Benefits May Apply

In the Military? Special Tax Benefits May Apply

There are special tax benefits to members of the U.S. Armed Forces. If you or someone you know is in the military, prior to filing a tax return it makes sense to review your situation. Outlined here are some of the more common.

Combat Pay Income Exclusion.

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18 IMPORTANT TIPS!

18 IMPORTANT TIPS!

  1. All of the following are under 140 characters for tweets:
  2. May 15 is the deadline for calendar-year nonprofit organizations to file 2013 information returns.
  3. A recent court ruling will limit IRA rollovers to one per year applied to all IRAs owned by the taxpayer, not one per year, per IRA.
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I Need a Copy of My Tax Return...

I Need a Copy of My Tax Return...

R
etaining copies of your federal tax return is important. Not only will you need the return in case of audit, but the tax return is often used to secure student aid, obtain loans, purchase a home or business, plus much more. What can you do if you cannot find a copy of your tax return?

Bullet
ArrowProfessional Preparers - A professional preparer is required (in most States) to provide you with a copy of your tax return.  Our firm always provides printed copies, which can be archived.  Additionally, you may ask us for a PDF/digital copy of the return.

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New limit on IRA rollovers

WARNING!!   New limit on IRA rollovers

For years, the IRS interpreted the IRA rules to allow taxpayers to do one rollover per year in each IRA he or she owned. In doing a rollover, the taxpayer is not taxed on the funds taken from the IRA so long as the funds are redeposited into an IRA within 60 days of the withdrawal.

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Consider a disciplined investment strategy

Consider a disciplined investment strategy...

In today's rabbit-fast world, it pays to remember that the tortoise won the race. For investors, dollar-cost averaging - a slow and steady investment plan - can be a winning strategy.

With dollar-cost averaging, you invest a set amount of money on a regular basis, typically in a mutual fund. The idea of investing a fixed dollar amount at regular intervals is simple, but the benefits add up. Here are some advantages offered by dollar-cost averaging:

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Save you Vacation Home Deduction!

Save you Vacation Home Deduction!

You can enjoy a vacation home and cut your taxes - with some careful planning and a little discipline.

The IRS rules can be complex and potentially restrictive, so a word of caution is in order as you plan the use of your vacation home.

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Prepare, prepare, prepare if you want to get your bank loan

Prepare, prepare, prepare if you want to get your bank loan...

Getting a bank loan for your business may be more difficult than usual in today's troubled economy. However, if you give your bank a thorough, organized, and well-supported loan proposal, you'll increase your chances of getting the money your business needs.

* Apply early. Applying early shows that you're planning, not reacting. Also, if you wait until the last minute, you're likely to leave out necessary information.

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Is a business valuation useful? Yes!

Is a business valuation useful? Yes!

For many business owners, a business appraisal or "valuation" can furnish vital planning information and help mitigate risk. Consider the following:

* Establishing a verifiable value for your business can show whether assets have appreciated at a reasonable rate. If not, the firm's strategy may need to be adjusted.

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Is your business dependent on too few?

Is your business dependent on too few?

Many small business owners share one problem, especially in their early days. It's being over-reliant on a single customer or supplier for much of their business. If you're in that position, your business is operating with higher risk. Just as with investments, you don't want all your eggs in one basket. Your goal should be a well-diversified portfolio of customers and suppliers.

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Premium Tax Credit: Upcoming Tax Surprise?

Premium Tax Credit: Upcoming Tax Surprise?
Here is a quick quiz to see if you are at risk

Based upon a recent report given to the Federal government evaluating data inconsistencies with the new health insurance market exchanges, over a million taxpayers could owe the government money at tax time. Here is a quick quiz to see if this risk applies to you.

Q1. Did you apply for health care insurance on either the new Federal Marketplace or a state run insurance exchange?

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Retirement attitudes are subject of recent survey

Retirement attitudes are subject of recent survey

A recent study conducted by Harris Interactive of 1,000 middle class individuals aged 25 to 75 revealed some interesting statistics about retirement attitudes.

Among the survey's findings:

* 37% of respondents say they don't expect to retire; instead they expect to work until they are too sick or die.

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Know the tax rules for selling online

Know the tax rules for selling online

Selling items on eBay and other online auction Web sites has become a very popular way to get rid of unwanted household stuff, as well as a way to turn a little profit. Many users have even started full-time businesses auctioning merchandise on the Web. But like any business venture, selling items in the virtual world has tax implications that are all too real.

From a tax standpoint, casual selling on eBay is essentially the same as holding a garage sale. If you sell an item for less than you paid for it, you cannot deduct the loss. When you sell something for a profit, however, you must report it on your tax return. Long-term gains on the sale of collectibles, such as artwork, antiques, or rare coins, are taxed by as much as 28%.

Profit is the difference between the selling price and your "basis" in the item. In most cases, basis is simply the amount you paid for it. Inherited items generally have a basis equal to their fair market value at the time of receipt. If the basis cannot be documented, it becomes zero, and you pay tax on the entire selling price.

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Selling vacant land could bring a tax break

Selling vacant land could bring a tax break

You probably know that you can exclude up to $250,000 of gain ($500,000 for most joint filers) when you sell your principal residence. IRS regulations may now allow you to apply this gain exclusion when you sell vacant land that is adjacent to your home.

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Employee attitudes affect customer service

Employee attitudes affect customer service

The quality of the customer service your company provides will have an effect on the net profit of your business.

Even with the best of intentions, many companies only give lip service to this very critical area. It is necessary that every employee be tuned in to how he or she can contribute to outstanding customer service – the kind of customer service that keeps customers coming back again and again.

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Maximize the Child & Dependent Care Credit

The Child & Dependent Care Credit provides a reduction in taxes to offset the cost of daycare when you are employed. The maximum amount of the credit is $3,000 for one dependent or $6,000 for two or more qualifying persons.*

To take advantage of the credit here is what you need to know.

  1. Qualified dependent(s). Your dependent must be under the age of 13. A spouse or older dependent who is physically or mentally unable to care for themselves can also qualify.
  2. Earned Income. You must have earned income to support the credit.
  3. Qualified daycare expenses. You must actually incur the care expense for the qualified dependent.
  4. Financial support requirement. You must maintain the home and financial support for the qualified dependent (more than half the cost and more than half the year).

Here are some tips;

  • Partial expense coverage. The credit only covers a percentage of your qualified care expenses. The amount depends on your income with a high of 35% of qualified expense down to a low of 20% of the daycare expense.
  • Obtain proper ID. Most daycare organizations will provide you with an expense summary at the end of each tax year. This form will tell you how much you spent in care and will provide you with the proper tax id for their organization. If you have someone else caring for your dependent, make sure you receive their tax information. It will be needed when you file for the credit on your tax return.
  • Not equal. If you have two or more qualified dependents, the daycare expenses do not have to be equal for each of them. For example, you could use $5,000 for one dependent and $1,000 for the rest of them.
  • Education expenses. Pre-school, nursery and other educational programs can qualify if levels are lower than kindergarten. Full-day kindergarten fees DO NOT qualify.
  • Leverage summer. Summer day camps and similar activities can qualify for the credit. So too can hiring a nanny to care for the kids while you are at work and the kids are out of school.

Other details apply. Please ask for help if you wish to review your situation.

*Note: If your employer provides daycare reimbursement as a benefit on your W-2, the employer benefit is limited to $5,000 or $2,500 if married filing separate or single. You can still use excess daycare expenses to maximize your credit to the full $3,000/$6,000 amount.

Call us if you have questions about the tax consequences of employing family members.

DiSabatino CPA
Michael DiSabatino
651 Via Alondra Suite 715
Camarillo, CA 93012
Phone: 805-389-7300
ww.sharpcpa.com

This publication provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, rewritten or redistributed without permission, except as noted here.  All rights reserved.

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