10 FREQUENTLY ASKED TAX QUESTIONS
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1- What tax deductions are available for college education?
A $4,000 above the line deduction for qualified tuition expenses was extended through tax year 2014 by ATRA, but starting in 2015, unless extended by Congress, the deduction will no longer be available.
2- What is the difference between a Tax Deduction and a Tax Credit?
A tax deduction is usually taken if income is too high for the tax credits. The tax deduction reduces your amount of income. The tax credits reduce the amount of tax you pay.
3- If I am self-employed or a business owner what documents do I need to keep in order to do my taxes?
Keep detailed records of your income, expenses, and other information you report on your tax return. A good set of records can help you save money when you do your taxes and will be your trusty ally in case you are audited. There are several types of records that you should keep. Most experts believe it’s wise to keep most types of records for at least seven years, and some you should keep indefinitely.
4- What special deductions can I get if I’m self-employed?
You may be able to take an immediate expense deduction of up to $25,000 for 2015 ($500,000 in 2014), for equipment purchased for use in your business, instead of writing it off over many years. Additionally, self-employed individuals can deduct 100 percent of their health insurance premiums. You may also be able to establish a Keogh, SEP or SIMPLE IRA plan and deduct your contributions (investments).
5- Can I ever save tax by filing a separate return instead of jointly with my spouse?
You sometimes may benefit from filing separately instead of jointly. Consider filing separately if you meet the following criteria:
• One spouse has large medical expenses, miscellaneous itemized deductions, or casualty losses.
• The spouses’ incomes are about equal.
Separate filing may benefit such couples because the adjusted gross income “floors” for taking the listed deductions will be computed separately.
6- What tax-deferred investments are possible if I’m self-employed?
Consider setting up and contributing as much as possible to a retirement plan. These are allowed even for sideline or moonlighting businesses. Several types of plan are available: the Keogh plan, the SEP, and the SIMPLE IRA plan. TaxBiz USA can help you decide which plan fit best.
7- What can I do to defer income?
If you are due a bonus at year-end, you may be able to defer receipt of these funds until January. This can defer the payment of taxes (other than the portion withheld) for another year. If you’re self-employed, defer sending invoices or bills to clients or customers until after the New Year begins. Here, too, you can defer some of the tax, subject to estimated tax requirements.
8- I have a large capital gain this year. What should I do?
If you also have an investment on which you have an accumulated loss, it may be advantageous to sell it prior to year-end. Capital losses are deductible up to the amount of your capital gains plus $3,000. If you are planning on selling an investment on which you have an accumulated gain, it may be best to wait until after the end of the year to defer payment of the taxes for another year (subject to estimated tax requirements).
9- What’s the best way to give to charity?
If you’re planning to make a charitable gift, it generally makes more sense to give appreciated long-term capital assets to the charity, instead of selling the assets and giving the charity the after-tax proceeds. Donating the assets instead of the cash avoids capital gains tax on the sale, and you can obtain a tax deduction for the full fair market value of the property.
10- What kind of recordkeeping system do I need?
Unless you own or operate your own business, partnership, or S corporation, recordkeeping does not have to be fancy.
Your recordkeeping system can be as casual as storing receipts in a box until the end of the year, then transferring the records, along with a copy of the tax return you file, to an envelope or file folder for longer storage.
To make it easy on yourself, you might want to separate your records and receipts into categories, and file them in labeled envelopes or folders. It’s also helpful to keep each year’s records separate and clearly labeled.
If you have your own business, or if you’re a partner in a partnership or an S corporation shareholder, you might find it valuable to hire a bookkeeper or accountant. Taxbiz USA specialize in accounting, payroll and tax services for the self-employed and small businesses.
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