Preparing for Possible Tax Reform in 2013

Significant changes in the tax code are expected next year -- or even during the post-election Congressional session -- that could have a big impact on decisions that you -- the small business owner -- make regarding capital expenditures, acquisitions, and simply your overall business operations and strategies.

In what is being dubbed the "fiscal cliff", we could be seeing the effects of tax reform at the end of 2012 and into 2013. Due to the 2013 federal tax reform, as a small business, you need to consider making some adjustments in 2012 so that you are in the best position when any sweeping tax code changes roll in. The following provides insight into what your business can do to prepare for the upcoming 2013 federal tax reform.

Steps to Prepare for Possible 2013 Tax Reform

Preparing for Possible Tax Reform in 2013

Significant changes in the tax code are expected next year -- or even during the post-election Congressional session -- that could have a big impact on decisions that you -- the small business owner -- make regarding capital expenditures, acquisitions, and simply your overall business operations and strategies.

In what is being dubbed the "fiscal cliff", we could be seeing the effects of tax reform at the end of 2012 and into 2013. Due to the 2013 federal tax reform, as a small business, you need to consider making some adjustments in 2012 so that you are in the best position when any sweeping tax code changes roll in. The following provides insight into what your business can do to prepare for the upcoming 2013 federal tax reform.

• Review current tax operations. The first step to prepare for the 2013 federal tax reform is to review your current tax operations, including examining your accounting methods. Knowing where your tax rates stand right now can help you be better prepared about where they may head in 2013. During the Bush administration, tax cuts put the average tax rate from ordinary income between 10% and 33%. However, these rates may increase up to 39.6% for 2013 for certain levels of ordinary income.
  
  


• Decide if accelerating income makes sense. Many businesses typically defer income while accelerating expenses to have a more favorable tax situation. However, this approach may not end up being the best if certain tax code changes are made before the end of 2012. In other words, it may be more prudent for your business to accelerate income into 2012 and defer expenses into 2013 in order to minimize the potential of higher tax rates next year. If you decide to accelerate income, you'll need to fit certain criteria. This includes collecting a bonus before December 31st, selling a home before January 1st 2013, selling any assets with capital gains, billing your customers immediately so your payments come in before the end of 2012, and delaying your 2012 capital expenditures and expenses.
  
  


• Convert traditional IRAs to Roth IRA's. Your retirement savings, including IRAs, could result in negative consequences in the upcoming years due to the tax reform. One way to overcome this is to convert any traditional IRAs to a Roth IRA before the end of 2012.
  
  


• Consider delaying charitable contributions. If you typically make charitable donations near the end of 2012, consider holding off until January 1st 2013 or later. This will help reduce your taxable income in 2013, rather than being applicable for the 2012 tax year.
  
  


• Rebalance investment exposure to increase tax-exempt investments. One of the big hot topics for the 2013 tax reform is the Medicare surtax. This includes the addition of a 3.8% surtax for Medicare for anyone who has income not earned by salary or trade. As a business owner, consider rebalancing your portfolio of investments to increase tax-exempt investments exposure, which will lower your net investment income.

While the entirety of how the tax reform will play out in 2013 is uncertain, in all likelihood some substantial changes are on the horizon. Examine the above considerations to prepare for possible tax reform, and be sure to speak with us about how the possible upcoming tax code changes can impact your business.

Tax Breaks for Hiring Felons

Hiring a convicted felon may accomplish more than just giving someone a second chance. In fact, by employing someone who was recently convicted of a felony or released from incarceration for a felony conviction you may qualify for a tax break. Under the federal Work Opportunity Tax Credit, or WOTC, program, employers that hire convicted felons receive an incentive for doing so in the form of a tax credit.

The WOTC program is part of the broader 1996 Small Business Job Protection Act. In order to qualify for the credit, the employer must hire someone who was released or convicted within the past year. The amount of the credit will depend on the employee's wages during the first year of employment up to a cap of $6,000 in wages. For employees who work between 120 and 400 hours during the year, the employer will receive a credit equal to 25 percent of the qualifying wages. For employees who worked more than 400 hours, the employer receives a credit equal to 40 percent of the qualifying wages.

Along with the federal WOTC program, numerous states also offer a similar program that provides employers with a credit toward their state tax obligation.

Tax Benefits on Points Paid for a Refinanced Loan

When you refinance an existing mortgage loan on your home, you often have to pay points as part of the refinance process. One point is equal to one percent of the loan amount. For example, if the loan is for $200,000, then one point is equal to $2,000. As you can see, the amount paid in points can add up fast. The borrower typically agrees to pay points in exchange for a lower interest rate. The good news is that you may be able to claim a tax deduction for the points you pay to refinance your loan. Let's look at some of the basics of tax deductions for points paid on a refinance loan.

Unlike a primary mortgage, you cannot claim the entire amount paid in points during the year in which the points were paid.

As a general rule, you must spread out the amount paid in points over the life of the loan. For example, if you paid $5000 in points on a 30 year refinance, you would be entitled to deduct $13.89 for each month ($5000/360) or $166.67 per year.

You may be able to deduct more during the first year if you use some of the proceeds from the loan to make improvements to the property. In that case, you may deduct the amount associated with the percentage of the loan used for improvements in the first year. For example, if you refinanced a $200,000 loan but you used $20,000 of the proceeds to make improvements, you may deduct $200 in the first year which represents the amount you paid in points on the $20,000.

If you later refinance again, you can deduct the entire amount left that you paid in points from your original refinance during the year that you refinance again unless you refinance with the same lender.

Tax Credits for Veterans

As a small business owner, you are likely always looking for a way to minimize your tax obligation and maximize your productivity. Hiring a veteran may be a way to accomplish both of those goals at one time.

The Internal Revenue Service, or IRS, offers employers a credit when they hire an unemployed veteran under the Work Opportunity Tax Credit, or WOTC, program. A for-profit company can earn up to a $9,600 credit while a not-for-profit can earn up to a $6,240 credit. The amount of the credit depends on a number of factors including the length of time that the veteran was unemployed prior to being hired, the number of hours the veteran works during the first year of employment and the wages paid to the veteran during the first year of employment. An employer that hires a veteran who has a service-related disability may qualify for the maximum credit amount.

The credit is applied when the employer files taxes at the end of the year; however, an employer must request certification for the credit within a short time after hiring the veteran. Certification must be requested by completing IRS Form 8850 with the state workforce agency.

Tax Credits for Veterans

As a small business owner, you are likely always looking for a way to minimize your tax obligation and maximize your productivity. Hiring a veteran may be a way to accomplish both of those goals at one time.

The Internal Revenue Service, or IRS, offers employers a credit when they hire an unemployed veteran under the Work Opportunity Tax Credit, or WOTC, program. A for-profit company can earn up to a $9,600 credit while a not-for-profit can earn up to a $6,240 credit. The amount of the credit depends on a number of factors including the length of time that the veteran was unemployed prior to being hired, the number of hours the veteran works during the first year of employment and the wages paid to the veteran during the first year of employment. An employer that hires a veteran who has a service-related disability may qualify for the maximum credit amount.

The credit is applied when the employer files taxes at the end of the year; however, an employer must request certification for the credit within a short time after hiring the veteran. Certification must be requested by completing IRS Form 8850 with the state workforce agency.

5 Ways Life Insurance Benefits Small Business Owners

The primary purpose of life insurance is to pay a death benefit – almost always tax free – when the insured dies. We’re all familiar with the need to insure the life of a breadwinner to protect a spouse and children from financial catastrophe. But business owners have some special needs to address, too, over and above their role as breadwinners for their families. Let's take a closer look at the use of life insurance in a business context.

Life Insurance as an Employee Benefit

You can buy life insurance for your employees as an employee benefit, similar to any other benefit, under Section 7702 of the Internal Revenue Code. Generally, the law lets business owners deduct the premiums for up to $50,000 of term life insurance for their employees. This is important in a society where employees are more and more used to getting insurance coverage from work. In some cases, this coverage may be the only life insurance a worker has.

Funding Buy Sell Agreements

If you have a business with one or more partners or other shareholders who are active in managing or running your business, you should have a buy-sell agreement in place. In a nutshell, this is a written agreement that the survivor will purchase the deceased partner's interest in the business for cash from the deceased's estate – and that the deceased's estate will sell.
If you fail to create a buy-sell agreement, you may find yourself in business with your partner's spouse. Or worse, your partners' spouse's lawyers. Your partner's heirs may have no expertise in or interest in running your business, which could create big problems down the road. They will still be entitled to your ex-partner's share of any dividends or distributions from the business, and will demand their fair share of cash even though they may contribute little or nothing to the business's operation. A buy-sell agreement protects both sides by ensuring the heirs get the cash they need, while you get to continue running the business. 
And where does the cash to fund the agreement come from? Life insurance. Each partner can own a policy on each of the other partners, or the business itself can own the policy. 

Key Person Insurance

Does your business have a key salesperson, manager or technician who is so productive, or so crucial to your operation, that it would severely damage your business if this person were to unexpectedly pass away? If so, you have an insurable interest in that individual, and you may want to consider owning a policy on him or her. If the worst happens, the policy will provide your business with enough cash to keep functioning while you search for, hire and train a replacement. This could cost tens or even hundreds of thousands of dollars.

Bonus Plans

Some life insurance policies – specifically ‘permanent' insurance policies such as whole life or universal life policies, build cash value. The policy owner can use this cash value for any purpose. In some cases, you can structure a plan to award the cash value to a key employee as a bonus after a certain number of years of service. This so-called "golden handcuffs” plan gives your top employees a powerful incentive to stay with your company, and as time goes by, it gets very difficult for competitors to "poach" your key people.

Supplemental Retirement Planning

Cash value plans can also be a great way for you to supplement your retirement income, without all the many restrictions that come with standard retirement plans such as 401(k)s and IRAs. You can restrict life insurance-based retirement plans to owners and executives, for example, to supplement your other retirement savings. By purchasing a modest-sized death benefit, and funding the policy with substantial premiums, you can build significant cash value over time. You can use this for retirement or even as a source of reserve capital for your business. You don't have to wait until you are age 59 1/2 to use the money. Or you can simply keep the policy in force and use it for the purpose for which it was designed: Life insurance. 

There are nearly as many ways to use a life insurance policy to benefit a business or business owner as there are businesses. Every business is different.

Group Long Term Care Insurance - An Introduction

Long term care insurance provides a daily benefit in case the insured needs custodial care for a chronic medical condition. This is incredibly important, because neither major medical plans, nor Medicare, provides significant benefits for this kind of care.

For example: Suppose you or one of your workers suffered a stroke. The workplace major medical plan would cover hospitalization costs, and possibly prescriptions and durable medical
goods, depending on your policy.

But once a disabled stroke victim leaves the hospital, but still needs help handling the basic activities of daily living (ADLs), the major medical insurance doesn't cover that. If you or your worker needs help with things like feeding, toileting, transferring, eating, drinking or dressing, that's got to come out of pocket - or out of a long-term care insurance policy.

Disability insurance doesn't cover long term care. All disability insurance does is replace a fraction of the victim's income prior to being disabled. So the insured may have some income coming in, but it's not generally sufficient to cover the costs of long-term care, which can range up to $200 per day and more, in some markets, for full-time nursing home care.

By making long term care available in the workplace, you are helping your employees with a valuable benefit that they may not have thought to get on their own. In some cases, carriers will simplify the application process for group long term care plans.

In addition, your business can also qualify for a tax deduction: Generally, long term care insurance premiums you incur to begin and sustain a group long term care insurance plan are deductible as an ordinary business expense. However, some special rules may apply, depending on whether you are an S-corporation, C-corporation or LLC.

Improved morale and retention.

Differentiation from other employers. Long term care is not as commonly offered as other benefits. Productivity. If you extend coverage to include family members, and an employee has a loved one who needs long term care, your valued employee may have to take time off work to provide it. If coverage is in place, your employee can direct care for that loved one, and not have to provide it herself. This keeps her on the job and productive.

This also applies to your family members, as well. If you have your spouse covered, you won’t need to be providing care yourself. You can hire someone to handle the day-to-day care, leaving you free to run your business. Likewise, your spouse won’t have to be the one providing all the day to day care for you.

Wealth Protection.

Long term care is vital for business owners as well. If you own an ongoing business, chances are good you will not qualify for Medicaid. That results in a potential long term care cost of $80,000 or more every year that must come out of your pocket. You may have to sell your business assets in a fire sale to raise money to pay long term care costs. Long term care insurance coverage protects your business and your retirement savings from being rerouted to pay for care.

Financial Incentives for Hiring People with Disabilities

As a small business, you may wish to hire employees with a disability. The Americans with Disabilities Act, or ADA, actually requires businesses with 15 or more employees to provide reasonable accommodation for individuals with disabilities, unless it would cause undue hardship. If you choose to hire an employee with a disability, you may qualify for a federal or state tax incentive to help cover the cost of making the necessary accommodations required for the employee to be able to perform the job.  While individual states may also offer tax incentives, the following three federal tax incentives apply to all U.S. employers.

Architectural/Transportation Tax Deduction: This deduction can be used each year by a business that incurred expenses for removing physical, structural, and transportation barriers for persons with disabilities, for example, providing parking, building ramps or widening hallways. A deduction of up to $15,000 may be claimed each year.

Small Business Tax Credit: This is a credit that is specifically aimed at small business that employed less than 30 full-time employees or had less than $1 million in gross receipts. The credit may be taken each year for expenses related to making your business more accessible to persons with disabilities. Examples of covered expenses include sign language interpreters, adaptive equipment, or printed materials in alternate formats such as braille. A business may claim 50 percent of expenses over $250 up to a maximum credit of $5,000.

Work Opportunity Tax Credit: This credit provides an incentive for businesses that hire employees from certain targeted groups. An employer who hires an employee receiving Supplemental Security Income or who is a certified vocational rehabilitation participant may claim the WOTC. An employee may claim a credit in the amount of 40 percent of the first $6000 in wages during the first year the employee works for the company.

Employee Benefits: Too Much? Too Little?

According to a 2009 Bureau of Labor Statistics report, 61% of private industry employees had access to paid retirement benefits. Medical care benefits were available to 71% of private industry workers. Employers paid 83% of the cost of premiums for single coverage and 71% of the cost for family coverage for workers participating in employer-sponsored medical plans.

How does your business measure up? Few small businesses in this economy would likely feel they’re offering too much, so you’re probably looking for way to cut. There’s no magic formula, but your accountant can help you determine if benefits are taking up a disproportionate amount of your bottom line.

Communicate, communicate, communicate
Who’s in charge of communicating with your employees about benefits? If you don’t have a full-time human resources professional, it’s probably you – or nobody. Someone needs to be researching and communicating about benefits regularly, emphasizing that benefits are an important part of compensation. And that they reach beyond retirement and health care.

This person can contribute to the company’s blog or Twitter presence, continuing to outline what’s available and providing an area for employee input. He or she should look for free or low-cost benefit opportunities, and occasionally evaluate current retirement and medical plans, comparison-shopping for better opportunities with reduced fees.

Ask select employees (or all, if you're a small shop) to lunch, to discuss benefits frankly. What's missing? What do they like that they would hate to lose? This gives the benefits person a chance to say a few words about why you can't do more. Your employees are already nervous about their jobs. It's better to be frank with them than be silent. Have a contest—with a prize, like an afternoon off or company swag or a restaurant gift card—that asks employees to come up with ideas for saving money on benefits.

Retirement
If you're fully matching employee retirement accounts, great. This is an area where you can trim down if you're having budget problems: consider decreasing your match. If things are good, bump it up some. It's good for morale, and encourages employees to save.

Whatever your contribution to your employees' retirement, there are inexpensive and free ways to help them plan for retirement. Bring in a local financial advisor for presentations. He or she can cover topics like budgeting, ways to reduce debt, and asset allocation.

Use social media here, too, or at least a physical bulletin board in a prominent place. Where can employees go for good investing and retirement advice? Your employees can help here. Encourage them to visit their portfolios frequently and use the resources offered by your plan provider, to ensure a potentially profitable mix of holdings.

Health care
Make sure they understand the wellness programs that are available to them, to minimize both your health care costs and theirs. Some insurance companies offer a discount if you make a specified number of visits to a participating health club every month. Bring in a professional for a stress evaluation/reduction session or series. Post notices about local health screenings. And be a good example.

Health care costs killing you? Consider switching to a combination high-deductible/Health Savings Account (HSA) plan. If you must cut health care entirely, try to contribute at least $100/
month to each employee to subsidize their health care. Many states have low-income health care programs; do a search on the Web and have this information available.

Another option is to contribute less to your employees' plan. It's better than cutting it entirely. But again, it's very important to communicate well with your employees when changes like this occur.

QuickBooks Can Do Much More Than You Think

No, you'll never max out all of its features, but here are some tips on tools that extend QuickBooks' usefulness – and save you time.
Zero In On Key Report Figures
You've undoubtedly created reports that were so lengthy that you got tired of scrolling up and down to find totals for each individual section. QuickBooks lets you collapse and expand reports to see primary totals only, but this command affects the entire report.
If you want to just collapse a section or two, here's how you do it. As an example, go toReports | Company & Financial | Balance Sheet Standard. In QuickBooks 2012, you'd click the Excel button (your version may say Export). Indicate that you want to create a new worksheet and click Advanced. This window opens:
Figure 1: The Advanced Excel Options window displays the formatting tools you can carry over from QuickBooks and the features in Excel that you want to be active.
Make sure that )Auto Outline (allows collapsing/expanding) is checked, then click OK and start the export. When your report opens as an Excel spreadsheet, you'll notice that there is a series of vertical lines to the left of your data, and a group of numbers that corresponds to them running above horizontally.
Figure 2: Excel's Auto Outline feature adds tools to the left of your data that let you collapse and expand subsections.
To collapse a section so that only the totals show, click on the minus (-) sign next to the line that should remain (in this example, it's Total Checking/Savings). Do the same for Total Accounts Receivable and Total Other Current Assets. Then scroll down and do the same thing for the other asset subtotals. Here's what you'll see:
Figure 3: As you can see, the minus (-) signs have turned into plus (+) signs, which allows you to expand the rows back to their original states.
Auto Outline is a very useful feature, but there's more than one way to implement it. And its availability and operation can vary in different versions of both Excel and QuickBooks. We can help you master this, as well as other QuickBooks-to-Excel tools.
Hidden Gems
Here are some other less-commonly-used QuickBooks features that you may want to try:
•  Getting ready to send an invoice but want to check a related transaction from the same job a few months ago? You could use the Find tool, which is a seriously underused feature that can often answer a question quickly. But that takes a few clicks. Instead, just hit Ctrl + L, and that Customer/Job screen pops open in the Customer Center. Click Ctrl + E from that screen to see the Edit Job dialog box.
•  CTRL+Y on transaction screens opens the Transaction Journal, which shows you the behind-the-scenes debits and credits. If the Account column is truncated, click and drag the little diamond symbol to the right.
•  QuickBooks offers numerous helpful payroll reports, but it also transfers your data into Excel for more comprehensive views of your employee compensation information over customizable date ranges. Go to Reports | Employees & Payroll | Summarize Payroll Data in Excel and More Payroll Reports in Excel.
Figure 4: Summarize Payroll Data in Excel is actually a series of reports, available by clicking this navigational bar at the bottom of the screen.
•  Allowing multiple windows in QuickBooks and tired of clicking the little x repeatedly to start with a clean slate? Click Window | Close All. This drop-down menu also displays the list of open windows; click on one to go there.
•  There may be no more frustrating task than reconciling your bank accounts. If you're using online banking, consider doing this more than once monthly. Also, don't let QuickBooks do an automatic adjustment for a considerable discrepancy unless it was a mistake made by a financial institution: Click the Undo Last Reconciliation button and try to find the error. And don't forget about the Leave button. You may do better attacking it later.
•  If you occasionally need to enter a transaction for an entity that isn't a customer, vendor or employee, go to Banking | Other Names List. You can add, edit and delete these, as well as converting them to customers, vendors or employees.
There's more than one way to do a lot of things in QuickBooks. We can tell you about more, and evaluate your workflow to see how else we can improve your accounting experience.

Who Should Own the Business Car? You or Your Corporation?

Who Should Own the Business Car? You or Your Corporation?

When deciding whether to put the company car in your name or the name of your corporation, one of the most important issues to consider is the tax consequences of the decision.

If you put the company car in your own name, you can deduct a portion of expenses related to the business use of the car on your personal income tax return. However, if the company reimburses you for these expenses, the reimbursement counts as taxable compensation. It's possible to set up a plan that allows you to receive reimbursements tax-free, but doing so will disqualify you from deducting the expenses you pay out-of-pocket.

Conversely, if you decide to put the vehicle in the corporation's name, the corporation can deduct all car expenses up to a certain limit from its business income. The car will also appear as an asset on the corporation's balance sheet. However, if you use the company car for your own purposes, the usage will be considered taxable compensation and must be reported on your W-2. If you pay certain expenses related to the use of the vehicle, such as oil or gasoline, you can deduct these expenses on your personal income tax return as long as you didn't receive reimbursement from the company. Keep in mind that you can only deduct the actual value of the expenses. You cannot use the standard mileage rate in this situation.

The car's ownership also has an effect on financing, insurance and legal issues. For example, corporations sometimes receive better insurance rates than individuals. Similarly, your corporation may be able to finance the vehicle with a lower interest rate than you can. However, if someone files a lawsuit against the corporation, it would be better to have the car in your name, as it would be protected from the litigation.

In the end, deciding who should own a company vehicle is largely based on your preferences. To make the best decision, run the numbers for both scenarios and weigh the pros and cons carefully.

Why It Pays to Hire Your Kids

Why It Pays to Hire Your Kids

Hiring your children not only prepares them for their future and allows you to spend more time with them, but it also offers significant tax advantages.

Having your kids as employees will be most beneficial if they are under the age of 18. The government assumes that you will take care of your underage children if they lose their jobs, so you will not be required to pay unemployment insurance premiums. For similar reasons, the federal government will not require you to pay taxes for Social Security or Medicare.

If your child works for you, you can also open an Individual Retirement Account on his or her behalf. Opening a traditional IRA allows your child to earn a larger income without paying taxes. Conversely, opening a Roth IRA allows your child to put money away into account that can be tapped without penalties in the future.

In order to claim any of these financial benefits, you must follow certain rules when you take your children on as employees. First of all, any work your children perform must be reasonable and necessary for the business. If you would usually pay someone else to perform a task your child is doing, the IRS will most likely consider it to be a valid job. Jobs must also be appropriate for your child's age. For example,
you probably shouldn't hire your eight-year-old to program the computers in your office.

In order to hire your children legally, you must also pay them a wage that is consistent with the wage you would pay another employee to do the same work, and you must treat them like all other employees in your company. Make sure that you keep good records in case you are chosen for an audit.

Hiring your kids isn't always the right decision, but it can be rewarding if done correctly. Acting as your child's employer allows you to teach the child financial responsibility while simultaneously reaping tax benefits for your business.

When Does Affordable Healthcare Act become Effective?

When Does Affordable Healthcare Act become Effective?

The Affordable Healthcare Act, formerly known as the Patient Protection and Affordable Care Act (PPACA) and recently known as Obamacare, is a federal law that was signed by President Obama in March 2010.

The healthcare act's purpose is to provide affordable healthcare to individuals who do not have adequate medical insurance and to increase the costs of health care overall. As part of the Affordable Healthcare Act, changes have been made and are continuing to be made, including requiring that insurance companies offer the same rates to all of their applicants, despite their gender or pre-existing conditions.

Key Implementation Dates – The following is a list of the important provisions that have become effective along with those that will be effective in the coming months and years under the Affordable Healthcare Act.

Effective:

* June 2010 – Early retirees, between the ages of 55 and 65, became eligible for expanded medical insurance benefits.
* September 2010 - Free preventative care, such as mammograms and colonoscopies.
* January 2011 – In order to bring down health care premiums, the law put into effect that insurance companies must spend 85% of premium dollars on improving health care services.
* January 2011 – The Affordable Healthcare Act is improving the health care quality and efficiency to reduce the rate of Medicare and Medicaid.
* January 2012 – Providing incentives for medical professionals to join Accountable Care Organizations in order to encourage integrated health care systems.

To Become Effective:

* October 2013 – Provide new funding for the Children's Health Insurance Program (CHIP).
* January 2014 – Remove annual limits on group insurance coverage plans.
* January 2014 – Prohibit insurance companies from discriminating members based on gender and pre-existing conditions.
* January 2014 - Affordable Insurance Exchanges become available.

The Affordable Healthcare Act has many upcoming changes, aside from the ones that have already become effective. Its main focus is to offer healthcare to those without insurance as well as individuals who are not able to afford the healthcare they need.

 

Background Check Laws

As a small business owner, you may be concerned about whether you are required to conduct background checks on prospective or current employers, or whether you are allowed to do so even if you are not required to do so. Understanding when a background check is required, when one is allowed, and what information can be used as the result of a background check is crucial for a small business owner in order to avoid fines, penalties and even litigation.
A background check may be required by federal or state law. Government employers often conduct background checks as a matter of course. Individual state laws also frequently require backgrounds checks when an employee will be working around certain "vulnerable" individuals such as children, elderly or the disabled. Failure to comply with state or federal laws that require a background check could subject you, as the employer, to fines and penalties or may open you up to a lawsuit on the basis of negligent hiring in the event someone is ultimately injured by your employee. Be sure to check your individual state laws with regard to background checks.
Many businesses are choosing to conduct background checks as a precautionary measure, even when not required to do so. While no measure is fool-proof for preventing fraud, tortious conduct or other libelous actions by an employee, a background check can offer some reassurance as well as provide a defense in the event something does go wrong and you are sued for damages.
What can, and cannot, be reported on a background check is extremely important to understand as a small business owner. Because a background check is considered a "consumer report", the Fair Credit Reporting Act (FCRA) sets the federal standards for what can be included; however, state laws may set further limitations. In general, anything that is considered "public record" may be included in a background check including things such as criminal convictions, bankruptcy filings and workers' compensation claims.
To further complicate matters, however, some things may be included on a background check but cannot be used against the employee when making a hiring decision. A bankruptcy, for example, may be included on a background check; however, you may not, as a general rule, discriminate against a prospective employee on the basis of the bankruptcy. Likewise, although workers' compensation claims may be included in a background check, the fact that an employee filed a claim can only be considered with regard to whether the reason for the claim may interfere with the prospective employee's ability to perform the job.

Federal Income Tax Return Filed Incorrectly: What Should I Do?

Because the IRS's tax laws are complicated, it is possible to mistake a mistake -- whether minor or major -- when preparing your federal tax return. In fact, the IRS encounters thousands every year. If you have already sent in your federal tax return, but realize you made an error, you need to amend the return. In light of this, the IRS makes this as easy as possible by providing you with printable forms that give you detailed instructions on how to amend previous filed incorrect federal tax return.
Steps to File an Amended Return
1. Obtain and print Form 1040X, which is titled "Amended US Individual Income Tax Return." From the IRS website. Form 1040X should be used if you originally filed forms 1040, 1040A, 1040EZ, 1040NR, or 1040NR-EZ.
2. Write the amending return year at the top of the form, complete your corrections on the form, and sign it at the bottom. The Form 1040X makes it easy to amend your return by listing step-by-step instructions on how to enter your corrections. Double-check that the amended return is 100% correct before signing it and preparing it to be sent.
3. Mail the completed and signed form to the address listed on the Form 1040X. If you are amending more than one tax return, you should fill out and send two separate forms and envelopes.
If you send in your amended tax return quickly, or shortly after the original return was sent, you may have a chance to get your return processed in a timely manner. However, you should expect a minor delay in your tax refund while the IRS verifies the old return versus the amended return. The amended refund form gives you the chance to make your corrections and receive the appropriate refund. In addition, if your federal income tax return had a mistake, your state tax liability may be affected.

What is a High Deductible HRA?

The acronym "HRA" stands for Health Reimbursement Arrangement, which is a defined contribution plan often tied to a high deductible insurance policy. HRAs allow employers to reimburse their employees for a portion of their medical costs using tax deductible funds.

 

When employees are insured under a high deductible policy, each employee must pay more money out-of-pocket for medical costs before the insurance company will begin to pay its portion. Employers typically choose high deductible policies when they can't afford to offer more coverage, but the extra cost associated with the deductible is often burdensome for employees.

 

To reduce the financial strain on employees, employers sometimes open HRAs in addition to the high deductible insurance policy. Employers deposit money into the HRA, which can then be used to reimburse employees when they incur out-of-pocket medical expenses. The funds the employer deposits into the account is tax-deductible, and the money in the account can be used to reimburse employees for any tax-deductible medical expense.

 

It is important to note that the IRS has established certain rules that govern HRA accounts. When the plan is established, employers must define the types of expensive the HRA will cover. They must also limit the amount of money each employee is entitled to receive as reimbursement. Funds from HRAs can only be dispersed to cover the medical expenses of current employees, former employees and the dependents of employees.

 

The combination of a high deductible insurance policy and an HRA is ideal for some employees. It allows the employer to save money on health insurance coverage without placing an unreasonable burden on employees. Because an HRA's limits and covered expenses are determined by employers, they also provide employers with more control and flexibility when it comes to medical coverage. Furthermore, high deductible HRAs offers a significant tax advantage to employers who open them.

HRA Qualified Medical Expenses for 2012

A Health Reimbursement Arrangement, or HRA, is a plan offered to employees that will reimburse certain qualified medical expenses tax-free. Your individual HRA will be unique to what your business offers, but the basic eligible medical expenses and non-eligible medical expenses are the same. Understanding which expenses qualify under the HRA can help you get the most out of your plan.
HRA Qualified Medical Expenses for 2012
Under each HRA plan, there will be qualified medical expenses. These expenses include a certain amount that will be covered for the prevention, treatment, or diagnosis of certain medical conditions or illnesses as defined under Section 213(d) of the IRS Code.
For example, some of the common qualified medical expenses for 2012 HRA plans are ambulance fees, prescription birth control pills, acupuncture, dental treatment, chiropractic care, crutches, diabetes blood sugar test devices, eye glasses, hearing aid and batteries, laser eye surgery, lab fees, sterilization, surgery, optometrist, physician prescribed stop-smoking programs, x-rays and a list of dozens more eligible medical expenses.
HRA Non-Qualified Medical Expenses for 2012
There are also medical expenses that are not eligible for the HRA plan, including over-the-counter medications without a prescription, which became ineligible for HRA's, along with Health Savings Accounts and Flexible Spending Accounts, as of January 1st 2011. Any medical expenses that occurred before you signed up for your HRA will not qualify under the HRA.
Other non-qualified medical expenses for 2012 include health club memberships, cosmetic surgery, bottled water, diaper service, hair transplant, maternity clothing, nutritional supplements, and other expenses.
The HRA provided by your company lets you receive reimbursements that are tax-free from medical expenses you are going to make throughout the year. If you know ahead of time that you will have many of the expenses that qualify for 2012, it can be extremely beneficial for you to sign up for your company's HRA plan.

Section 125 Cafeteria Plans: Benefits and Key Considerations

What is a Section 125 Cafeteria Plan?The Cafeteria Plan is a benefit offered to employees that combines flexible spending accounts and premium only plans into a benefit program that co-exists with the Internal Revenue Code's Section 125. The benefits program offers the ability for employees who enroll in the plan to agree to paying a certain dollar amount from their salary into the plan, and receive reimbursement of qualified expenses that will not be taxed. Employers and employees benefit from the program as the money becomes pre-tax dollars and increases spendable income.
What are the benefits to the small business owner?A number of benefits for the small business owner arise from allowing employees to enroll in the Section 125 Cafeteria plan: Benefits include:

• Employers receive an overall reduced rate in their employee benefits package, including a reduced payroll tax liability, worker's compensation taxes, and a reduction in taxes from other benefits including FICA, state unemployment and federal unemployment taxes.
  
  


• Employees receive additional benefits and savings from the cafeteria plan, and therefore have a higher level of appreciation and satisfaction in regard to their employment. This ultimately leads to improved morale, increased motivation, and enhanced focus on their work duties.

What are the benefits to the employee?The cafeteria plan allows the employee to receive a variety of benefits from enrolling in the program and transferring some of their salary to pre-tax dollars. Benefits include:

• More take-home pay that is not taxed; employees that take advantage of the cafeteria plan will have more of their salary by the end of the year as they will be paying less taxes.
  
  


• Employees benefit from the program when they file their taxes the following year with reduced gross income.
  
  


• Employees are able to use pre-tax dollars for certain insurance premiums, dependent care expenses, medical expenses, and other qualified expenses.

Special Considerations

• Use It or Lose It
  As with a medical flexible spending account, funds that are added to the cafeteria plan throughout the calendar year must be used before the year is over, otherwise the remaining funds will go back to the employer. Employees should be aware of how much they plan to spend on qualified expenses, such as medical care expenses or insurance premiums, so that they are able to calculate their participating dollar amount accordingly.
  
  


• Discrimination Testing
  The offered cafeteria plan is required to follow a strict non-discriminatory code for all employees. The Internal Revenue Code requires employers to offer the Section 125 benefits program under the same terms to every employee that is eligible, regardless of their current compensation, job title, ownership, or other forms of discrimination. The Internal Revenue Code has testing requirements to be sure the employer is following their non-discrimination rule for the cafeteria plan.
  
  


• Exceptions to Participation
  While the cafeteria plan is offered to many employees of corporations, there are some restrictions. Sole proprietors are not eligible for the cafeteria plan, but their spouse is able to enroll if they are employed by the company as long as they follow the non-discriminatory rule of the Internal Revenue Code. The same goes for a partnership in which the spouse may enroll in the program if they are an employee of the company; however partners may not enroll. Employees of S-corporations are only able to participate in the program if they are not highly compensated according to the Section 125 requirements and are not shareholders of the company.
  
  


• Funds Access
  Employees that choose to enroll in the cafeteria plan must be aware of the funds available. The annual election of the flexible spending account under the cafeteria plan is available beginning on the first day of the plan year, which may vary for different businesses. The cafeteria plan may or may not start on the same day as their other insurance program. Each year, the employee must re-enroll in the cafeteria plan and use their funds within the calendar year, with a grace period of up to 75 days.

The Section 125 Cafeteria Plan offers a multitude of benefits for the employer and the employee thanks to the reduced taxes and pre-tax dollars for qualified expenses. Along with other benefits offered by employers, the cafeteria plan is enticing for inclusion in an overall benefits package.

Rules of the Road on Fringe Benefits

What are fringe benefits?Many small business employers offer fringe benefits as an addition to salary, and many of these are exempt from taxation if certain rules and conditions are followed. Examples of fringe benefits offered to employees by small business owners include insurance, reimbursement for education, various discounts, and other programs that fall under the fringe benefit rules. These fringe benefits are attractive to potential job candidates as they begin their search for an ideal job position.
What are common examples of fringe benefits?Job seekers are now exploring the possibility of choosing a position with a company that offers the most benefits to them aside from salary. Fringe benefits often come in benefit packages, which may include various types of insurance including medical, dental, disability and life, as well as paid time off (PTO) which may be paid sick days, holidays, and accrued vacation time.
Additional fringe benefits now offered by many small business owners include retirement plans, child care services or reimbursement, education reimbursement, maternity leave, cafeteria plan, discounts for local services, bank or credit union benefits, flexible work schedules, and more. Some businesses also allow the employee to use their company vehicles or equipment for personal use as part of their enticing fringe benefit package.
What is the tax treatment of fringe benefits?The term "fringe benefit" may seem self-explanatory to the general observer, but the Internal Revenue Code also includes their own set of rules in regards to tax treatment of each individual benefit.
The IRS has specific requirements and conditions for fringe benefits to be tax exempt; however some benefits may also be partially non-taxable even if they are not fully exempt.

• Income Taxes on Benefits- Aside from the fringe benefits that are considered excluded from tax, some benefits will be taxable and included as part of compensation. These benefits are typically reported on the W-2 form. Some special rules apply to the income tax of fringe benefits for withholding, depositing, and reporting the employment tax of these benefits. The IRS provides a detailed guide on the types and tax treatment of fringe benefits in their Taxable Fringe Benefits Guide.
  
  


• Benefits Excluded from Tax - Some fringe benefits are commonly considered to be excluded from tax and therefore become non-taxable benefits. Some exclusions typically include assistance for adoption, childcare, education, or dependant care, achievement awards, health care insurance, group term life insurance, reimbursements for moving expenses, retirement planning, transportation benefits, and working condition benefits.

While some fringe benefits are not excluded from tax, they still provide employees with the advantage of receiving benefits that go beyond their normal salary and bonuses. In light of some preferential tax treatment and favorable view by job seekers, it's worthwhile for the small business owner to consider offering fringe benefits.

What Is the Age Limit for Claiming a Child as a Dependent for Federal Tax Purposes?

Claiming a child as a dependent for federal tax purposes offers the taxpayer a number of tax related benefits. Along with being able to claim an exemption for the child, the taxpayer may also be able to take advantage of the Child and Dependent Care Credit and the Earned Income Credit, further reducing a taxpayer's federal income tax obligation. In order to claim a child as a dependent, there are five basic tests that must be passed first. Those tests are the relationship, residency, support, joint return, and age test.
According to the age test, a child must be under the age of 19 at the end of the tax year in which a taxpayer plans to claim the child. In addition, the child must be younger than the taxpayer or the taxpayer's spouse if filing jointly. If, however, the child is a full-time student, the age limit is raised. In that case, the child must be under the age of 24 at the end of the tax year and younger than the taxpayer, or the taxpayer's spouse if filing jointly.


TAX ADVICE DISCLAIMER: In accordance with IRS Circular 230, any tax advice included in this communication, including attachments, is not intended or written to be used, and cannot be used by you or any other person or entity, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, nor may any such advice be used to promote, market or recommend to another party any transaction or matter addressed within this communication. If you would like such advice, please contact us.

Does My Business Need to Collect Sales Tax?

A small business faces numerous hurdles along the way to success. At the top of the list is navigating the various local, state, and federal taxes obligations the business incurs. Neglecting to file taxes that the company owes can cause a fledging business to fail before it even gets off the ground. Among the potential tax obligations that a business may incur is the requirement that the business collect sales tax. Calculating the amount of sales tax due is complicated; however, before a business gets to that point it must decide whether or not it is even required to collect the tax, and if so at what rate.

Sales tax laws and rates vary from one state to the next, and sometimes from one city to the next within the same state. In addition, the rates are subject to change, and do change on a regular basis. If you deliver products or services to people in a state within the United States in which your business has any type of physical presence, you may need to collect sales tax if that state imposes a sales tax.

Almost all products that are sold on a retail level are taxed, assuming the state in question collects sales tax. Some of the important exceptions include food, prescription drugs, animal feed and products that are intended for re-sale. Services are much more complicated. Some states exempt all services while others only exempt some services.

The requirement that your business has a "physical presence" in the state also leads to much confusion. A "physical presence" does not just mean an actual brick and mortar office. A call center, sales agents, warehouse, or other "presence" in the state can create the legal nexus required to trigger the sales tax obligation.

If you are in doubt about your situation, feel free to call our office.

TAX ADVICE DISCLAIMER: In accordance with IRS Circular 230, any tax advice included in this communication, including attachments, is not intended or written to be used, and cannot be used by you or any other person or entity, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, nor may any such advice be used to promote, market or recommend to another party any transaction or matter addressed within this communication. If you would like such advice, please contact us.

Planning for Possible Changes to Estate and Gift Taxes for 2013

Estate planning has evolved into an art form over the last century. The days when a simple Last Will and Testament sufficed to distribute estate assets upon your death are long over. Without a carefully thought out estate plan, you could lose over half of your estate assets to estate taxes. Although gifting assets during your lifetime is an option, the gift tax can also take a significant bite out of your estate assets without careful planning. This year, both the estate and gift tax rates are at historically low rates. Likewise, the estate tax and gift tax exemption amounts are at all time highs. Both of these are currently set to change for 2013 unless Congress acts before the end of the year. If your estate will be affected by the changes, now is the time to consult with your estate planning attorney about how best to handle the upcoming changes.

The estate tax is levied on a decedent's estate if the total estate assets at the time of death exceed the estate tax exemption amount. For 2012, the estate tax exemption amount is set at $5.12 million. That means that only estate assets over $5.12 million would be taxed if an individual died this year. For assets that exceed the exemption amount, they are currently taxed at a rate of 35 percent.

The current rate and limit are both set to expire at the end of 2012 and return to the previous tax rate of 55 percent and the previous exemption amount of just $1 million. To put this in perspective, imagine that you have an estate valued at $7 million. If you die this year, $1.88 million will be subject to the estate tax at a rate of 35 percent for a total tax liability of $658,000. If the rate and limit return as scheduled for 2013, the same estate would incur a tax bill of $3.3 million.. Every dollar paid in estate taxes is a dollar less left to your loved ones.

Although the average taxpayer is not impacted by estate taxes at the 2012 exemption amount, many more will be affected if the amount is reduced to just $1 million. If you are one of those people, be sure to talk to your estate planning attorney about estate planning tools that can be used to help minimize estate taxes upon your death.

The gift tax faces the same potential scenario for 2013. The gift tax lifetime exemption amount is also currently set at $5.12 million at a rate of 35 percent. It too will return to a lifetime exemption amount of $1 million with gifts over that amount taxed at 55 percent. A taxpayer may also take advantage of the yearly gift tax exclusion rules which allow you to make as many gifts of up to $13,000 to as many beneficiaries as you wish each year free from gift taxes. In addition, yearly gifts made pursuant to the gift tax exclusion do not count toward your lifetime exemption limit. If gifting is part of your overall estate plan, be sure to talk to your estate planning attorney to decide whether you should gift more this year than originally planned or wait to see what ultimately happens to the gift tax.

Follow Us On Twitter!

TAX ADVICE DISCLAIMER: In accordance with IRS Circular 230, any tax advice included in this communication, including attachments, is not intended or written to be used, and cannot be used by you or any other person or entity, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, nor may any such advice be used to promote, market or recommend to another party any transaction or matter addressed within this communication. If you would like such advice, please contact us.

The Importance of Creating a Last Will and Testament

Many people make the mistake of assuming that estate planning is only important if you have a substantial estate to leave behind to beneficiaries. Nothing could be farther from the truth. Although an elaborate estate plan may not be necessary if your estate assets are modest, there are a variety of reasons why a basic Last Will and Testament should be executed anyway.

Probate -- Probate is the legal process by which a decedent's estate is inventoried, valued, and the assets ultimately transferred to beneficiaries. Probate can be a lengthy process and may incur significant fees. In some states, a small estate may be eligible for a less formal process that will save the estate time and expense; however, if the decedent failed to execute a Will, formal probate is typically required in order to determine who the legal heirs are to the estate.

Intestate Succession Laws -- If you fail to execute a Will, the state laws of intestate succession will determine what happens to your assets. Friends, charities and distant relatives that were important to you will receive nothing from your estate if you give up control to the state.

Tax Consequences -- If your estate assets are significant, a comprehensive estate plan is necessary to avoid the often high rate of estate taxes levied on an estate upon the death of the decedent. While a Will alone will not prevent your estate from incurring estate taxes, it is the foundation for an estate plan that can include tools aimed at minimizing your tax burden.

Fees and Expenses -- By not leaving a Will, additional expenses will be incurred by your estate. Costs involved in locating and notifying heirs, locating and valuing assets, and defending any claims or challenges to your estate can reduce the value of your estate, leaving less for your heirs.

Guardianship of Minor Children -- If you have minor children, your Will is the only chance you have to nominate someone as guardian in the event of your death. Although the court will ultimately decide who is appointed as guardian, your wishes will carry significant weight in the decision.

Follow Us On LinkedIn

TAX ADVICE DISCLAIMER: In accordance with IRS Circular 230, any tax advice included in this communication, including attachments, is not intended or written to be used, and cannot be used by you or any other person or entity, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, nor may any such advice be used to promote, market or recommend to another party any transaction or matter addressed within this communication. If you would like such advice, please contact us.

Home Office Deductions

Whether your small business is run out of your home because there is no need to rent office space, or because you are just getting it off the ground and cannot afford a separate office yet, home office deductions can save you a substantial amount in taxes at the end of the year. Knowing what you are entitled to deduct, and keeping well organized and detailed documentation of those potential deductions, is crucial to taking advantage of the tax benefits of keeping a home office.

Qualifying for the Deduction -- The first thing you must determine is if your home office qualifies for the home office deduction. There are two tests that must be passed to qualify your home office. First, you must regularly and exclusively use part of your home for your business. This could be an extra bedroom, a garage or a family room you have converted into an office. Second, you must use your home office as your principal place of business. This does not mean you cannot have another separate place where you conduct business, but your home must be used "substantially and regularly” for your business.

What Can Be Deducted--Home office deductions fall into either a direct or indirect expense. Direct expenses are expenses that most businesses incur, such as advertising, supplies, attorney fees, and wages. As a general rule, the full amount of a direct expense is deductible. Indirect expenses are things related to running or keeping up your home. Expenses such as utility bills, home owners insurance and repairs fall into the indirect expense category. These expenses are calculated by determining the percentage of your home used for your home office and then multiplying the expense by that percentage. For instance, if you use 20 percent of the total area of your home for your home office, and your utility bills for the year were $3,000, then you could deduct $600 for your home office portion of the expense ($3,000 x .20 = $600)

By keeping track of all your direct and indirect expenses throughout the year, you should find that your tax obligation is substantially less at the end of the year.

TAX ADVICE DISCLAIMER: In accordance with IRS Circular 230, any tax advice included in this communication, including attachments, is not intended or written to be used, and cannot be used by you or any other person or entity, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, nor may any such advice be used to promote, market or recommend to another party any transaction or matter addressed within this communication. If you would like such advice, please contact us.

Like Us On Facebook

Retirement Savings Options for Small Businesses

Getting a small business up and running is its own challenge, and no matter how much you love your business you won't be able to keep it up forever. Eventually, you'll want to retire, and even if you only have a few employees it's likely they will want to retire too. So, as a small business owner what can you offer your employees and yourself to move them closer to retirement?

• 401K - While a 401K option is usually thought of in terms of something offered by large corporations, you can set up a 401K plan as part of your small business. Many people hear 401K and think that the employer has to match contributions, but that isn't the case. If you can afford a match, great, if not it still gives employees a way to make regular contributions totalling up to $16,500 for those under 50 years, and $22,000 for those over 50. 401Ks come in both the regular and Roth varieties, letting you decide whether it is best for you to be taxed up-front with a Roth 401K or later on with a regular 401(k). 401(k)s are also good in case of an emergency, since loans are available in a pinch. Of course, there are tax implications, and plenty of paperwork to file with the IRS.
• SEP- SEP (Simplified Employee Pensions) IRAs are a good choice for many small businesses because they are relatively easy to manage. For these plans, employees do not contribute to the plan and contribution limits are around the same amount as they are for a 401(k). Unless you are able to make large contributions, employees may want to set up a separate IRA of their own, but it's something that gets the ball rolling in the right direction. With a SEP there is less of a safety net before that retirement day actually comes. No loans, early withdrawals, or catch up contributions are allowed, but there are also fewer IRS regulations to worry about, which can be a big relief to a lot of small business owners.
• SIMPLE IRA - Just because the name says "simple" doesn't mean that it is, but the SIMPLE IRA isn't rocket science either. SIMPLE stands for Savings Insentive Match for Employees. In this plan, employers are required to match contributions, although those contributions are far less than 401(k) or SEP options, only $11,500 is allowed for a SIMPLE IRA. There are also fewer reporting requirements with the SIMPLE IRA as well.

Of course, whatever you choose to offer by way of retirement plans for your employees or for yourself will depend a lot on the state of your business, what you can afford, and how much you are willing to invest in your employees future

5 Tips for Saving on Your Taxes for 2012

Few people enjoy filing their tax returns. For this reason, people tend to go through the process hastily, often missing key tax deductions, credits or filing strategies that could save them a great deal of money. Below are some tips taxpayers can use to save money at tax time.

1. Keep thorough records. Many taxpayers choose to take the standard deduction simply because it's easier. However, in many cases, itemizing your deductions is much more beneficial. However, you can't itemize your deductions without accurate, comprehensive financial records. Throughout the year, file receipts from non-reimbursed medical expenses, job search costs, donations to charity and major purchases.

2. Make some green upgrades. The Internal Revenue Service offers a variety of tax credits to taxpayers who install energy efficient, eco-friendly equipment in their homes. Examples of equipment that may qualify you for a tax credit include solar water heaters or a solar electric system. You may also be able to claim a tax credit for the purchase of an electric automobile.

3. Save for retirement. Contributions you make to retirement plans, such as traditional IRAs and employer-sponsored 401(k)s, are tax-deductible. If you open a Roth IRA, your contributions will be taxed, but the money you put away will grow tax-free. If you don't already have a retirement plan, consider opening one this year. If you do have one, consider increasing your contributions to the maximum allowed.

4. Donate to charity. If you have extra items lying around the house, consider donating them to charity. Items worthy of donation include furniture, books, electronics, old toys and clothes. If you choose to make donations, keep an accurate list of everything you donate during the year. All donations worth more than $250 must be documented with a receipt. Keep in mind that there may be limits to the amount you donate.

5. Optimize your withholdings. Some taxpayers choose to have more money withheld from their income than they need to in order to receive a larger tax refund check. However, this is not a wise practice in most cases. When you qualify for a tax refund, you are essentially receiving money that belonged to you all along.

Instead of allowing the government to borrow from you interest-free, reduce your withholdings and invest the extra money in a CD or retirement account. Alternatively, you can also use the extra cash to pay down debts with high interest rates.

The tax system can be confusing. However, using these tips, you can save a lot of money on your taxes. To save even more, make sure that you consider any deduction you may qualify to claim. Examples of overlooked deductions include self-employed tax deductions, tax preparation fee deductions, job relocation expenses and the childcare tax credit. If your tax situation is complicated, or if you will be claiming a lot of complex deductions, consider hiring a tax preparation professional to help you complete the required paperwork and identify money-saving opportunities.