ERock Tax Tip of the Day – Keep Track of Your Contributions to a ROTH IRA

A ROTH IRA is a unique retirement savings vehicle.

Unlike a traditional IRAs where taxpayer contributions are tax deductible in most cases, contributions to a ROTH IRA are not. The tax benefit of contributing to a ROTH IRA comes at the distribution stage where contributions can always be withdrawn tax free and earnings, when considered a qualified withdrawal, are also tax free. In order to avoid being doubly taxed and penalized on contributions made to a ROTH IRA withdrawn prior to the age of 59 ½  , it is important that all ROTH IRA contributions are filed with your tax return using form 8606. That way, when premature distributions are made, the IRS knows the portion that is taxable and that which is not. Your qualified tax advisor will help you organize and plan for this very valuable savings tool.

Stuart Steinberg, CPA, MBA has owned a strategic tax planning practice on the North Shore for 23 years.  Please feel free to contact him anytime and let Erock Tax take care of you!

ERock Tax Tip of the Day – Pay Estimated Taxes

The law requires us to pay taxes in a timely manner, either through our w2 or via estimated taxes.  Did you recently start a business or become a consultant in the past year? If you did and expect to make more than a few thousand dollars, paying estimated taxes will help you avoid paying lots of tax (and possibly interest and penalties) come filing time. Paying estimated taxes also enables you to incorporate this expense into your budget. The IRS and Massachusetts Department of Revenue welcome estimated payments and even will send you estimated payment vouchers at the beginning of each new tax year to make sure you know where to mail the payments!  The payments are due 4 times a year, in April, June, September, and January. It is very important to consult your qualified tax advisor when making these payments to insure that you are not overpaying or underpyaing by too much!

Stuart Steinberg, CPA, MBA has owned a strategic tax planning practice on the North Shore for 23 years.  Please feel free to contact him anytime and let Erock Tax take care of you!

ERock Tax Tip of the Day – Learn About the Adoption Credit

The adoption credit is an extremely valuable IRS credit that often goes unnoticed.

Over the years, i have known many families who have adopted children from the Unites States and beyond. Adopting a child is not only a life changing event for both you and a child, but is recognized by the IRS in a favorable manner with a valuable adoption credit worth up to $13,360. This credit is for expenses incurred to adopt an eligible child and includes adoption costs, court costs, attorney fees, travel expenses and re-adoption expenses to adopt a foreign child.  When adopting a special needs child, no expenses are needed to take the full credit. Read more about this credit at:

http://www.irs.gov/publications/p17/ch36.html#en_US_2011_publink1000246887

Stuart Steinberg, CPA, MBA has owned a strategic tax planning practice on the North Shore for 23 years.  Please feel free to contact him anytime and let Erock Tax take care of you!

ERock Tax Tip of the day – Deduct your Gambling Losses

Do you gamble? You may get tax write offs.

Gambling as a source of revenues for state governments can be a hot button for many citizens, but the IRS has decided that gambling is a necessary evil that is not going away. To demonstrate this belief, the IRS allows taxpayers to deduct any gambling losses from gambling winnings to avoid paying additional taxes on your winnings. However, you may deduct gambling losses only if you itemize deductions and the amount of losses you deduct may not be more than the amount of gambling income reported on your return. The key here is that gambling losses can only be deducted from like kind gambling winnings (playing a specific scratch ticket or poker game at a casino). For more information on deducting gambling losses, visit: http://www.irs.gov/taxtopics/tc419.html.

Stuart Steinberg, CPA, MBA has owned a strategic tax planning practice on the North Shore for 23 years.  Please feel free to contact him anytime and let Erock Tax take care of you!

5 Money Tips for Small Business Owners

I’ve worked with clients so wide and varied over the years you could say a lot of them have shared nothing in common. Not personally, not physically, not culturally or politically. Yet, in one crucial way, so many of them are alike. They are small business owners. And they share a dream: to build a successful business.

Yet, over the years I’ve seen too many of them fail. In many instances, it did not have to happen.

That’s why I’ve put together this list, based on my observations and my experience as a business owner, of five tips that can help you build your business and live your dream.

1)      Understand what you’re getting into. Start with a budget. A single year budget is good, but just as important is a budgetary plan for the long-term. Imagine you’re starting a cupcake company. How many cupcakes do you want to make a week? In your research you might determine that 2,000 would overextend your resources and leave you vulnerable. So maybe its 1,000 cupcakes you can afford at the outset. You can make a plan for doubling and quadrupling that output down the road. But start with good planning and you’ll sustain your business, and you’ll be around in the long-term to hit other milestones.

 2)      Hire a payroll company.  It’s hands down the best money a small business owner can spend. Even if you only have one employee. Why? Because payroll companies do more than issue checks. They analyze your situation and help you make the best plan for your biggest investment: your employees. Also, they file the necessary quarterly forms with the IRS and they do it on time. Believe me, this reduces stress.

3)      Understand your competition.  People come through my office with business ideas all the time. I congratulation them for having the imagination, the enthusiasm, and drive to start their own business. But before they plunge precious time, energy, and resources into a particular market, I want to know if they’ve done their research.

For example, in the market for real estate brokers the attrition rate is notoriously high. To put it roughly, real estate has a boom and bust nature, and long-term success requires good planning. But all markets require planning, and I always say it helps to find someone to emulate. If there’s someone in your field who is doing something well, take note.

4)      Invest your pretax earnings in a retirement account. It’s a great way to save on taxes in the short term and it allows you to invest for long-term security.  There are many different options that apply, depending on the account you’ve set up, how many employees you have, and what kind of business you’re in. It might surprise you, for example, that a wealthy small business owner over the age of 50 can salt away more than $54k a year toward retirement, tax-free.

5)      Seriously consider the legal structure of your business. Should you be a sole proprietor? Or should you form an LLC, or small business incorporation? And, if you choose the latter, in which state should you incorporate? 

If you iron out these legal matters in the beginning, chances are you won’t have to think about them again. Get the legal advice you need and take the peace of mind that comes with that.

And, of course there is more. Feel free to contact me, Stu Steinberg, CPA, MBA, of Erock tax for help in small business strategy.  I have owned a strategic tax practice on the North Shore for more than 23 years. Reach out and let Erock Tax take care of you.

Listen to Stu and Win Damon of Radio 1450 AM WNBP and wnbp.com review this topic below:


 

ERock Tax Tip – Start a Flexible Spending Account (FSA)

Tax Tip of the Day – Start an FSA

If you incur out-of-pocket medical expenses that are not reimbursed by your health plan, you may benefit from a Flexible Spending Account (FSA). Many employers offer a FSA to pay for those expenses on a pretax basis. Also known as a cafeteria plan, a FSA allows a taxpayer to pay for medical expenses such as doctor appointments, prescriptions, dental work and eyeglasses. On a $2,500 allocation to a FSA (generally deducted from your paycheck throughout the year), a married filing jointly taxpayer will save between $250 and $875 depending on his/her tax bracket. Two quick notes: over the counter medications without a doctor’s prescription no longer qualify for FSA reimbursement; and if you do not use the funds by December 31 you lose them!

Stuart Steinberg, CPA, MBA has owned a strategic tax planning practice on the North Shore for 23 years.  Please feel free to contact him anytime and let Erock Tax take care of you!

ERock Tax Tip of the Day – Unemployed: Make Sure to Have Taxes Withheld

Unemployed individuals often need to pay tax too!

As of January 6, 13.1 million people, or 8.5% of the workforce still remain unemployed.*  Both the U.S. and state government departments of employment assistance created a vast safety net for those workers who lost their jobs providing them with unemployment income for up to 99 weeks. While this government benefit is a true marker of a nation that cares for the downtrodden, unemployment income often does not replace the full incomes unemployed workers once had.

 One way that unemployed workers compensate for less income is not by tax planning, but by not withholding any taxes from their unemployment income checks. Be aware – unemployment income is taxable! Those taxpayers collecting unemployment income must be cognizant of withholding taxes so that they don’t get surprised at tax filing time with a big tax bill. The best remedy to prevent this from happening is to meet with a CPA or Enrolled Agent to do some tax planning to figure how much tax you should withhold from each unemployment check

*http://www.bls.gov/news.release/pdf/empsit.pdf

Stuart Steinberg, CPA, MBA has owned a strategic tax planning practice on the North Shore for 23 years.  Please feel free to contact him anytime and let Erock Tax take care of you!

ERock Tax Tip of the Day – Patience Pays with Incentive Stock Options

Incentive Stock Options – Cut your taxes and plan!

One way to incentivize employees to work harder is to provide them with employee incentive stock options.  This type of stock option usually vests in one year or more after the employee has been with a company.  Once vested, a beneficial incentive stock option allows the employee to buy the stock at a below market price thus locking in an immediate profit.  Many times the amount of money required to cover the purchase of the stock is far more then the cash on hand the employee has so they elect to sell the stock immediately.  A major problem with this strategy is that the profit on the incentive stock option is taxed at an ordinary tax rate if sold immediately; whereas holding the exercised incentive stock option for more than a year will result in a capital gains tax rate of 15% or less.  Thus, an exercised stock option that is sold right away with a big profit can result in a taxpayer paying thousands of dollars more in income taxes than if they hold the incentive stock option for more than one year.  

Stuart Steinberg, CPA, MBA has owned a strategic tax planning practice on the North Shore for 23 years.  Please feel free to contact him anytime and let Erock Tax take care of you!

IRS Tax Return Fun Facts 2011-2012

Tax Fun Facts

  • 140 million tax returns were filed in 2011
  • 100 million refunds were issued totaling $300 billion!
  • 80% of all returns were e-filed
  • The IRS cost per e-filed tax return is $.80. A paper return cost $3.50!
  • 2012 estimated time to get your refund if you e-file and elect direct deposit: 4-6 days
  • The IRS fielded 83 million phone calls in 2011. Wait times are long and the best times to call are later in the week in the evening to avoid longer wait times.
  • Be aware of tax preparation companies that offer refund anticipation checks. Ask them what the fees are for this service and how much quicker will your refund arrive than if you have direct deposit into your bank!

Information compiled by the GAO office

Stuart Steinberg, CPA, MBA has owned a strategic tax planning practice on the North Shore for 23 years.  Please feel free to contact him anytime and let Erock Tax take care of you!

Income Tax Benefits of Contributing to a ROTH IRA

ROTH IRA
A Roth IRA is a unique retirement savings vehicle that has multiple uses. For individuals who qualify for a ROTH IRA, the account funds can be used to help pay for education expenses or a first time home purchase tax free. In addition, the amount that you contribute (the principal) can always be withdrawn tax and penalty free!

Qualifying for a ROTH IRA
In 2012, if you earn less than $173,000, you can contribute up to $5,000 per year for both you and your spouse ($10,000 total). If you are over 50, you can contribute $6,000. If you earn more than $183,000, you are not able to contribute to a ROTH IRA.

Unlike a traditional IRA that is often tax deductible, the ROTH IRA has no up front tax benefit. The benefit comes when you withdraw qualified funds which do not incur any income taxes on the earnings.

The earnings, however, can’t be withdrawn without incurring a penalty until you are age 59.5 and have had the ROTH for five years.

Converting to a ROTH IRA
If you have a traditional IRA, you can convert it to a ROTH IRA regardless of your income. If you decide to convert to a ROTH IRA, you will have to pay taxes on the amount that you convert in the year that you convert.

Please remember that even though there is no up front tax deduction, you must report any ROTH IRA contributions on form 8606 of your tax return. Failure to file form 8606 may result in having to pay tax and a penalty on your contributions!

Stuart Steinberg, CPA, MBA has owned a strategic tax planning practice on the North Shore for 23 years.  Please feel free to contact him anytime and let Erock Tax take care of you!

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