Check the tax rules before lending money to relatives

There are many worthwhile reasons to lend money to a relative. For example, you may want to help a child or sibling continue their education or start their own business.

But lending money to relatives can have tax consequences.

Don't overlook the "nanny tax"

As you review your filing requirements for 2013, make sure you don't overlook the so-called "nanny tax." If you have a household employee, you could be liable to pay state and federal payroll taxes.

First, you must determine whether you have a household employee. Generally, this is someone you hire to work in or around your house. It could be a babysitter, nurse, maid, housekeeper, or gardener. It doesn't matter whether they work part-time or full-time, or whether you pay them hourly, weekly, or by the job.

Should you adjust your withholding for 2014?

Early this year, review the amount of income tax you're having withheld from your wages to see if it should be adjusted. While you must meet minimum tax payment requirements, don't overwithhold or you'll be giving the IRS interest-free use of your money for a year. Don't underwithhold either, or you face penalty and interest charges on the underpayment.

Check your children's filing requirements

Your children may need to file a 2013 income tax return. A return is needed if wages exceeded $6,100, the child had self-employment income over $400, or investment income exceeded $1,000. If the child had both wages and investment income, other thresholds apply. Contact us for more information or filing assistance.

Flexible spending accounts (FSAs) allow taxpayers to set aside pre-tax dollars to pay for out-of-pocket medical expenses. The drawback has been the fact that unused amounts each year are forfeited. Plans could provide a 2½ month grace period to use up unspent set-asides.

Now a change announced by the IRS adds more flexibility to these accounts. Plans can be modified by employers to allow up to $500 of unused amounts to be carried over into the following year. Health FSAs cannot have both the old 2½ month grace period and the $500 carryover; they can have one or the other (or neither).

a Quick Reminder that 1099 reporting due in January.

Nearly every company, large or small, has to file Form 1099-MISC with the IRS and send a copy to recipients by January 31, 2014.

You use Form 1099-MISC to report miscellaneous payments to non-employees. This includes fees for services paid to independent contractors, such as consultants, lawyers, cleaning services, and others. Generally, you don't report fees paid to corporations, but there are exceptions (payments to lawyers, for example).

Reminder! If you have a rental property and pay a contractor, such as a landscaper or pool cleaner... they are now required to be issued a 1099 or your deduction may be jeopardized.

For details or filing assistance, contact our office.

Take Note - Don't Miss Out

• IRS will open the 2014 filing season on January 31, a 10-day delay due to the October government shutdown.
• January 31 is the deadline for employers to provide 2013 W-2s to employees.
• Payers must furnish payees with Form 1099s by January 31. The deadline for providing Form 1099-B to customers is February 18.
• January 31 is the deadline for employers to file annual federal unemployment tax returns.

Do you want to simplify your tax return, yet still claim a deduction for your home office?  Beginning in tax year 2013 (returns that we will file in 2014), taxpayers may use a simplified option when figuring the deduction for business use of their home.  

Get 'extra credit' for your kids in college

The price tag on a college diploma keeps going up, but at least you might be able to salvage some tax benefits if you're paying the tab.

An Example: If your child is attending college this fall, you may have a chance to claim an enhanced tax break for higher education expenses.

How to Secure a Home Office Deduction

Even if you have never before qualified for a home office deduction, you may be able to now. Starting a few years ago, the IRS began to apply more liberal rules, allowing more people to qualify for the write-off. Specifically, the old, hard-to-meet “principal place of business” standard was made much more taxpayer-friendly. But there are other scenarios that allow you to claim deductions as well.

Can a Self-Emplyed person, who is still working full-time skip thier Pension/IRA RMD (Required Minimum Distribution)?

No. Generally, you must begin taking "required minimum distributions" (RMDs) from your qualified retirement plans and IRAs after you turn age 70 1/2. Then you must continue taking RMDs for each succeeding tax year.
However, you can delay RMDs from qualified plans if you're still working full time and you don't own 5% or more of the company.  There is no such exception for IRAs. Because your Simplified Employee Pension (SEP) is treated as an IRA rather than a qualified plan, you must start taking RMDs after you turn 701/2 whether you are still working or not.

So, remeber: In any event, full-time workers can't postpone RMDs from an IRA.

Government Shutdown Impacts Return Processing
...but only a little

As part of your planning for next year, now is the time to review funding your retirement accounts. By establishing your contribution amounts at the beginning of each year, the financial impact of saving for your future should be more manageable. Here are annual contribution limits for the more popular programs:

Lost in the recent news regarding stolen identities at Snapchat and the credit and debit card theft at major retailers, is the dramatic increase in identity theft and scams using the IRS. One of the more recent scams announced by the IRS is worth noting.

Phone: 805-389-7300 • Fax: 805-435-7498 • This email address is being protected from spambots. You need JavaScript enabled to view it. • www.SharpCPA.com

January 2014 Monthly Client Newsletter

This Month:

• January 15^th:
• 4th Quarter Estimated Payments Due
• Action Items:
• Start gathering 2013 tax information
• Review 2014 W-2
• Set 2014 financial goals
• Dividend income

In This Issue:

• These Oft-extended Tax Provisions are Now Gone
• Crowdfunding: Using the Internet to Raise Funds
• Five Ideas for a Better 2014
• Health Insurance Penalty Starts Now Time to be thinking about health insurance

Every year,the General Services Administration (GSA) establishes per diem rates for government employees in the 48 states in the continental U.S. and the District of Columbia ("CONUS" rates); in areas outside the continental United States (Hawaii, Puerto Rico and U.S. possessions ("OCONUS" rates); and in foreign countries.

The IRS says that private employers may use these "per diem" rates as a record keeping shortcut to reimburse employees for business travel with no hassles.

Working late? Give yourself some tax perks...

Do you find yourself often burning the midnight oil at the office? It takes long hours and hard work to make a business a success. 

Here are three common options to get the most out of working late... from a tax perspective.

Zero Percent Tax on Capital Gains?

Zero Percent Tax on Capital Gains?

Yes, Assuming you've held the property longer than a year (i.e., a long-term gain), the federal capital gains tax rate is 0% for taxpayers on gains that fall within the 10% and 15% tax rackets.