Self-Employment Tax

Self-Employment Tax

by | Jan 21, 2019 | self employment tax, Taxtips

The most beneficial deductions are business deductions that offset both income tax and, depending upon the circumstances, self-employment tax. For 2018, the self-employment tax rate is 12.4% of the first $128,400 of net self-employment income plus 2.9% for the Medicare tax, with no cap. Some high-income taxpayers may pay an additional 0.9% Medicare tax. For self-employed businesses with less than $128,400 of net income, the self-employment tax rate is 15.3%. Thus, for small businesses with profits of less than $128,400, the benefit derived from deductions generally will include the taxpayer’s tax bracket plus 15.3%. For example, for a taxpayer in the 24% tax bracket, the benefit could be as much as 39.3% (24% + 15.3%) of the deduction. If the deduction were $2,000, the tax savings could be as much as $806 or more, when the taxpayer’s state income tax bracket is included. It might so happen that one fine day you decide to pack your bags and come back home. When you do, there are a few things that you must take special care of. For starters, your investments and tax implications. In general, the tax laws for NRIs returning to the country are fairly generous. However, you must not be complacent. A bit of careful planning will ensure that you do not run into any surprises when you come to India, as far as your overseas income and investment are concerned. Tax Resident Status Your tax liability on the income largely depends on your residential status. The FEMA (Foreign Exchange Management Act) and the Income Tax Act govern all these tax rules and regulations. The FEMA keeps a track of all the transactions taking place outside the country for Indian residents. These transactions include foreign bank accounts, money transfers, remittances, lending, gifting, etc. Any investment in real estate or mutual funds is also taken care of by the FEMA. The income tax act  on the other hand, looks after the tax liability arising out of such investments. As per the FEMA guidelines, an NRI is someone who currently stays out of India but either is a citizen of India or a person of Indian origin. They must meet either of the following conditions to become a PIO or a person of Indian origin.
Deductions of IRA and self-employed retirement plan contributions, alimony, and student loan interest

Deductions of IRA and self-employed retirement plan contributions, alimony, and student loan interest

by | Jan 19, 2019 | Deduction & Credits, IRA, Student loan interest, Taxtips

deductions of  IRA and self-employed retirement plan contributions, alimony, and student loan interest, are adjustments to income or what we call above-the-line deductions. These deductions, to the extent permitted by law, provide a dollar deduction for every dollar claimed. Deductions IRA that fall into the itemized category must exceed the standard deduction for your filing status before any benefit can be derived. In addition, medical deductions are reduced by 7.5% of your adjusted gross income (AGI) in 2018, and most cash charitable deductions are limited to a maximum of 60% of your AGI. Under the tax reform, the deduction for state and local taxes has been capped at $10,000. As we all (hopefully) know, there are some basic steps investors can take to withdraw funds from a traditional IRA without incurring a 10% penalty. Let’s start with the obvious, like waiting until after 59 ½ years old to withdraw funds. Withdrawing annual allowed contributions before your taxes are due will also avoid the penalty, and the same goes for withdrawing excess contributions. If you discover that you’ve contributed more than allowed (due to income limits or error) you are free to remove the excess and any associated growth before the tax return is due for the year. Additionally, taking your required minimum distributions will keep the 10% penalty at bay. Technically this is covered by waiting to withdraw after age 59 ½ but sometimes required minimum distribution is required of a person who has inherited an IRA, regardless of age.
Maximize Business Expenses

Maximize Business Expenses

by | Jan 19, 2019 | Investment & Income, New Business, Taxtips

Maximize Business Expenses

Maximize Business Expenses: Beginning in 2018, business owners are able to write off most business purchases using the very liberal 100% bonus depreciation and the Sec. 179 expensing allowance. The property must be placed in service during the tax year for which the deduction is being claimed.

Changing jobs is a part and parcel of life. One can either look for better job opportunities or could be unfortunately part of corporate downsizing. In either case, there could be quite a few tax implications and impacts on your Tax  benefits.

Being aware of them will help you overcome such situations gracefully. Here are the top tax benefits that you should not forget while switching jobs or businesses.

Withholding Tax

A vast majority of employees have a lot of taxes deducted from their paycheck. In fact, the number stands at about 100 million people receiving a fat refund cheque. With a new job, you have the option to set it right.

  • With your new employer, it is time to revisit your W4 form.
  • Allowances section in the form determines the amount of taxes that you will have to pay or the amount that is withheld from your income.
  • Do you choose the right structure for your business? How your business is structured can have a significant impact on the taxes that you pay. For example LLC’s, S-corporations are Pass-through entities which means your profit will be taxed at the ordinary tax rate, while shareholders of C Corp are taxed at corporate tax rate and then again when they report the distribution on their tax return, as a result, the income is “Taxed Twice”
Remember the Annual Gift Tax Exemption

Remember the Annual Gift Tax Exemption

by | Jan 17, 2019 | Taxtips

Remember the Annual Gift Tax Exemption

Remember the Annual Gift Tax Exemption: One of the best ways to ultimately reduce your estate taxes and at the same time give to those you love is to take advantage of the annual gift tax exemption. Although the gifts are not tax-deductible, for tax year 2018, you are able to give $15,000 to each of as many people as you want without having to report the transfer to the government or pay any gift tax. If this is something that you want to do, make sure that you do so by the end of the year, as you are not able to carry the $15,000 over into 2019.

A personal exemption is an amount that a resident taxpayer is entitled to claim as a tax deduction against personal income in calculating taxable income and consequently federal income tax. It has the effect of reducing income tax payable, even to tax-free level, but not so as to result in a tax refund.

Exemption Phase-Out.  Taxpayers earning above a certain amount will lose part or all the $4,050 exemption. See Publication 501 for details.

Feel free to reach us for any Tax consulting service. Our Tax Experts are happy to help you

Make the Most of Higher Education Tax Credits

Make the Most of Higher Education Tax Credits

by | Jan 8, 2019 | Taxtips

Make the Most of Higher Education Tax Credits: Both the Lifetime Learning education credit and the American Opportunity Credit allow qualified taxpayers who prepaid tuition bills in 2018 for an academic period that begins by the end of March 2019 to use the prepayments when claiming the 2018 credit. Education Tax Credits That means that if you are eligible to take the credit and you have not yet reached the 2018 maximum credit for qualified tuition and related expenses paid, you can bump up your credits by paying early for 2019 now.

Student Eligibility

A student is eligible to benefit from the American Opportunity Tax Credit system is the person has not completed their four years of schooling. The student must also have enrolled themselves for at least one semester for the financial year in consideration and must main a half time status for the course they have enrolled. Any student having a drug related offense against their name is automatically disqualified from the program.

Expenses Qualified under the program

Any fees that you pay to an educational institution that is eligible and recognized, you can claim the same for tax credits. The tax credit system is not restricted to colleges and universities alone. It is applicable to post-secondary schools also as long as these schools meet the requirements set by the United States Department of Education Financial Aid Program. As a part of the credit system, you can also claim costs spent on supplies, books and other equipment necessary as per your course curriculum.

Paying for the expenses

Fees and other expenses that you pay via funds borrowed such as a credit card of loan qualify for the tax credit. There usually aren’t any deductions from those amounts. However, there are restrictions when it comes to tuition grants, tax free scholarships, Pell grants, or other gifts and non-taxable expenses that you inherit. The credit system also doesn’t cover expenses such as room rent, boarding, food expenses, transportation or even medical insurance. One can think of these as exclusions.