November Tax Newsletter

Come check out our November Tax Newsletter...
http://www.meckcpaaustin.com/newsletter.php

We'd love for you to schedule a meeting to come in to meet us. We have been preparing tax returns in Austin for over 25 years.

Hot Topics

Come check out this month's tax article discussing: Renting Out a Vacation Home, Moving Expenses, and A SIMPLE retirement plan for the self-employed. http://www.meckcpaaustin.com/newsletter.php

Hot Topics for the Month of May

Click on the link to read more about: How to Avoid Penalties on Your Household Helpers, Employee or Independent Contractor- Which is it?, and Turning Your Vacation into a Tax Deduction. http://www.meckcpaaustin.com/newsletter.php#1

New Tax Rules for 2012

Increased Savings Opportunities

• Due to cost-of-living adjustments, you are allowed to sock away more money into certain retirement plans.

Last licks for low capital gains taxes?

• The historically low rates have been used for taking capital gains and qualified dividends in recent years- 15% (zero for those in the 10% or 15% tax bracket)- are set to expire at the end of 2012. Rates could be higher, even significantly higher starting in 2013 (especially if the additional Medicare tax on investments scheduled for 2013 takes effect)

Good Record-keeping Habits for the New Year

Start the year off right by learning which items you’re required to substantiate with receipts or other records. Then get organized to track these items throughout they year. Suggestions:

• Use a 3- ring binder to file the receipts and acknowledgments for charitable contributions, estimated tax payments, information returns, and other tax-related information you’ll need at tax time.

• Use an expandable file to keep receipts for medical and other deductible costs. Alternatively, scan receipts into your computer (or use an app to scan) to create a permanent record.

• Use apps to track your driving that may be deductible (e.g., for business, medical, moving, or charitable purposes)

Happy New Year!

Wish everyone a safe and Happy New Year!

Hiring Children to Work for Parent's Unincorporated Business

Here is a tax-saving idea for those who operate a business as a sole proprietorship, a single- member LLC treated as a sole proprietorship for tax purposes, a husband-wife partnership, or a husband-wife LLC treated as a partnership for tax purposes. Consider hiring your under 18 child as a legitimate employee for your business. It can be part-time or full-time.

Your under age 18 child's wages are exempt from Social Security, Medicare, and federal unemployment taxes. In addition, your child can use his or her standard deduction to shelter up to $5,590 of 2012 wages from federal income tax (for 2011, the standard deduction was $5,800). Under this arrangement, your child will probably owe absolutely zero federal taxes on the first $5,590 of wages (for 2012). Your child can set aside some or all of the wages and invest the money. Hopefully, the cash stash will eventually be used to help pay for college, which means less stress for you.

Meanwhile, you can deduct the wages paid to your child as a business expense, as long as they are reasonable for the work performed. The write- off will cut your income tax bills and your self-employment tax bill (if applicable). The write- off will also lower your adjusted gross income, which will lower the odds of getting hit with unfavorable phase-out rules that can reduce or eliminate various tax brackets.

After your child reaches age 18, Social Security and Medicare taxes will kick in, however no federal unemployment tax will be due until age 21. The child's standard deduction will still shelter up to $5,950 (for 2010) from federal income tax. And, you can deduct the wages and employer's share of the related employment taxes as a business expense.

Even if your business is incorporated, hiring your child can still make tax-savings sense. In this scenario, the child's wages are subject to Social Security, Medicare, and federal unemployment taxes regardless of his or her age. The good news: The child's standard deduction still provides an income tax shelter for the child, and you can claim business deductions for the wages and employer's share of the employment taxes.

Please contact us if you have questions or want more information about this strategy!