2012 TAX CHANGES FOR INDIVIDUALS

ABA Tax Accounting | Tax Services | St. Paul, MN Accounting Firm
Here's what individuals and families need to know about tax changes for 2012.

From personal deductions to tax credits and educational expenses, many of the tax changes relating to individuals remain in effect through 2012 and are the result of tax provisions that were either modified or extended by the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 that became law on December 17, 2010. 

• Personal Exemptions - The personal and dependent exemption for tax year 2012 is $3,800, up $100 from 2011. 
• Standard Deductions - In 2012 the standard deduction for married couples filing a joint return is $11,900, up $300 from 2011 and for singles and married individuals filing separately it's $5,950, up $150. For heads of household the deduction is $8,700, up $200 from 2011. The additional standard deduction for blind people and senior citizens in 2012 is unchanged from 2011, remaining at $1,150 for married individuals and $1,450 for singles and heads of household. 
• Income Tax Rates - Due to inflation, tax-bracket thresholds will increase for every filing status. For example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $70,700 for a married couple filing a joint return, up from $69,000 in 2011. 
• Estate and Gift Taxes - The recent overhaul of estate and gift taxes means that there is an exemption of $5.12 million per individual for estate, gift and generation-skipping taxes, with a top rate of 35%. The annual exclusion for gifts remains at $13,000. 
• Alternative Minimum Tax (AMT) - AMT exemption amounts for 2012 have reverted to 2000 levels and will remain significantly lower than in 2011 unless Congress takes action before year-end: $33,750 for single and head of household fliers, $45,000 for married people filing jointly and for qualifying widows or widowers, and $22,500 for married people filing separately. 
• Marriage Penalty Relief - For 2012, the basic standard deduction for a married couple filing jointly is $11,900, up $300 from 2011. 
• Long Term Capital Gains - In 2012, long-term gains for assets held at least one year are taxed at a flat rate of 15% for taxpayers above the 25% tax bracket. For taxpayers in lower tax brackets, the long-term capital gains rate is 0%.

Give us a call. We'll sit down with you, discuss your specific tax and financial needs, and develop a plan that works for your business.

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Standard Mileage Rates for 2013

ABA Tax Accounting | Small Business Accounting | St. Paul, MN Accounting Firm

Small Business Tax Planning – The Internal Revenue Service issued the 2013 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2013, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be: 

• 56.5 cents per mile for business miles driven
• 24 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations 

The rate for business miles driven during 2013 increases 1 cent from the 2012 rate.  The medical and moving rate is also up 1 cent per mile from the 2012 rate.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle.  In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical, or charitable expense are in Rev. Proc. 2010-51.  Notice 2012-72 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan. Considering a Tax Professional? For no obligation free consultation contact us today!

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Employers Hiring Veterans by Year’s End May Get Expanded Tax Credit

ABA Tax Accounting | Tax Services | St. Paul, MN Accounting Firm

Year- End Tax Planning – Employers planning to claim an expanded tax credit for hiring certain veterans should act soon, according to the IRS. Many businesses may qualify to receive thousands of dollars through the Work Opportunity Tax Credit, but only if the veteran begins work before the New Year.

Here are six key facts about the WOTC as expanded by VOW to Hire Heroes Act of 2011.

1.     Hiring Deadline: Employers may be able to claim the expanded WOTC for qualified veterans who begin work on or after Nov. 22, 2011, but before Jan. 1, 2013.

2.     Maximum Credit: The maximum tax credit is $9,600 per worker for employers that operate for-profit businesses, or $6,240 per worker for tax-exempt organizations.

3.     Credit Factors: The amount of credit will depend on a number of factors. Such factors include the length of the veteran’s unemployment before being hired, the number of hours the veteran works and the amount of the wages the veteran receives during the first-year of employment.

4.     Disabled Veterans: Employers hiring veterans with service-related disabilities may be eligible for the maximum tax credit.

5.    State Certification: Employers must file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with their state workforce agency. The form must be filed within 28 days after the qualified veteran starts work.

Be sure to contact us if you need assistance. We are here to help. Considering a Tax Professional? For no obligation free consultation contact us today!

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Year-End Tax Planning For Individuals - Strategize Tuition Payments

ABA Tax Accounting | Tax Services | St. Paul, MN Accounting Firm

Federal, State, Local and International Taxes - The American Opportunity Tax Credit, which offsets higher education expenses, is set to expire after 2012. It may be beneficial to pay 2013 tuition in 2012 to take full advantage of this tax credit, up to $2,500, before it expires.

CALL US FIRST – This is just one of the year-end planning tax moves that could make a substantial difference in your tax bill for 2012. But the best advice we can give you is to give us a call. We'll sit down with you, discuss your specific tax and financial needs, and develop a plan that works for your business.

ABA Tax Accounting

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Come and visit us at Booth #4, Minneapolis Convention Center

ABA Tax Accounting | CPA Outsourcing Solutions

58th Annual Tax Conference

November 15, 2012 at 8:00 AM - November 16, 2012 at 5:00 PM

ABA Tax Accounting will exhibit at the MNCPA's largest event of the year. This tax conference teaches EAs, CPAs, Tax & Accounting Professionals what’s new, what's changed and what's coming in the world of tax. These Professionals will receive practical preparation, filing and reporting tips for individuals and businesses. Discover new tax planning strategies that minimize liabilities while maximizing credits and deductions. Plus, explore the many tax-related tools and resources available to practitioners and businesses.

Year-End Tax Planning For Individuals - Check Your Withholdings

ABA Tax Accounting | Tax Services | St. Paul, MN Accounting Firm

Federal, State, Local and International Taxes - With less than two months remaining in the calendar year, it's a great time to double check your federal withholding.

Most people have taxes withheld from each paycheck or pay taxes on a quarterly basis through estimated tax payments. But each year millions of American workers have far more taxes withheld from their pay than is required. In fact, the average refund for 2011 was just under $3,000. Although it's a slight decrease from 2010, ($2,973 vs. $3,003), taxpayers might want to consider adjusting their tax withholding to bring the taxes they must pay closer to what they actually owe--and put more money in their pocket right now.

On the flip side, is that some workers and retirees still need to take steps to make sure enough tax is being taken out of their checks to avoid penalties they might have to pay. Certain folks should pay particular attention to their withholding. These include:

• Married couples with two incomes
• Individuals with multiple jobs
• Dependents
• Some Social Security recipients who work
• Workers who do not have valid Social Security numbers
• Retirees who receive pension payments

Whether you're starting a new job, retiring, or self-employed, you can use the following tips to help bring the taxes you pay during the year closer to what you will actually owe when you file your tax return.

Employees

• New Job. When you start a new job your employer will ask you to complete Form W-4, Employee's Withholding Allowance Certificate. Your employer will use this form to figure the amount of federal income tax to withhold from your paychecks. Be sure to complete the Form W-4 accurately.
• Life Event. You may want to change your Form W-4 when certain life events happen to you during the year. Examples of events in your life that can change the amount of taxes you owe include a change in your marital status, the birth of a child, getting or losing a job, and purchasing a home. Keep your Form W-4 up-to-date.

You typically can submit a new Form W-4 anytime that you wish to change the number of your withholding allowances. However, if your life event results in the need to decrease your withholding allowances or changes your marital status from married to single; you must give your employer a new Form W-4 within 10 days of that life event.

Self-Employed

• Form 1040-ES. If you are self-employed and expect to owe a thousand dollars or more in taxes for the year, then you normally must make estimated tax payments to pay your income tax, Social Security and Medicare taxes. You can use the worksheet in Form 1040-ES, Estimated Tax for Individuals, to find out if you are required to pay estimated tax on a quarterly basis. Remember to make estimated payments to avoid owing taxes at tax time. 

If you're not sure how much you need to withhold from your paycheck, just give us a call and we'll figure it out with you.

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Try Intuit Full Service Payroll for one year free

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Year- End Tax Planning – Income From Foreign Sources

ABA Tax Accounting | International Tax Services | St. Paul, MN Accounting Firm

Income From Foreign Sources - Many U.S. citizens earn money from foreign sources. But unless it is exempt under federal law, taxpayers sometimes forget that they have to report all such income on their tax return.

As such, some U.S. taxpayers living abroad have failed to timely file U.S. federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs). Some of these taxpayers have recently become aware of their filing requirements and want to comply with the law.

Effective September 1, 2012, taxpayers who are low compliance risks are able to get current with their tax requirements without facing penalties or additional enforcement action. These taxpayers generally have simple tax returns and owe $1,500 or less in tax for any of the covered years.

U.S. citizens are taxed on their income regardless of whether they live inside or outside the United States. The foreign income rule also applies regardless of whether the person receives a Form W-2, Wage and Tax Statement, or Form 1099.

Foreign source income includes earned and unearned income, such as:

• Wages and tips
• Interest
• Dividends
• Capital gains
• Pensions
• Rents
• Royalties

But there is some good news. Citizens living outside the United States may be able to exclude up to $95,100 of their 2012 foreign source income if they meet certain requirements. This will increase to $97,600 in 2013.

If you're married and you and your spouse both work abroad and meet either the bona fide residence test or the physical presence test, each of you can choose the foreign earned income exclusion. Together, you can exclude as much as $190,200 for the 2012 tax year.

Caution: The exclusion does not apply to payments made to U.S. government employees or folks in the military living outside the United States.

If you earn income from outside the country, please be sure to meet with us about it. We can advise you on how to address all of the tax implications of this situation. For no obligation free consultation contact us today!

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Tap Your Retirement Money Early & Minimize Penalties - www.abataxaccounting.com

ABA Tax Accounting | Tax Services | St. Paul, MN Accounting Firm

Year- End Tax Planning – The purpose of retirement plans such as the 401(k) and Individual Retirement Account (IRA) is to save money for your retirement years. As such, the IRS imposes a penalty of 10% for early withdrawals taken from qualified retirement plans before age 59 1/2. Qualified retirement plans include section 401(k) plans, individual retirement accounts (IRAs), and 401(k) plan, tax-sheltered annuity plans under section 403(b) for employees of public schools or tax-exempt organizations.

While you should always think carefully about taking money out of your retirement plan before you've reached retirement age, there may be times when you need access to those funds, whether it's buying a new house or pay for out of pocket medical expenses. Fortunately, IRS provisions allow a number of exceptions that may be used to avoid the tax penalty. 

1. If you are the beneficiary of a deceased IRA owner, you do not have to pay the 10% penalty on distributions taken before age 59 1/2 unless you inherit a traditional IRA from your deceased spouse and elect to treat it as your own. In this case, any distribution you later receive before you reach age 59 1/2 may be subject to the 10% additional tax. 
2. Distributions made because you are totally and permanently disabled are exempt from the early withdrawal penalty. You are considered disabled if you can furnish proof that you cannot do any substantial gainful activity because of your physical or mental condition. A physician must determine that your condition can be expected to result in death or to be of long, continued, and indefinite duration. 
3. Distributions for qualified higher educational expenses are also exempt, provided they are not paid through tax-free distributions from a Coverdell education savings account, scholarships and fellowships, Pell grants, employer-provided educational assistance, and Veterans' educational assistance. Qualified higher education expenses include tuition, fees, books, supplies, and equipment required for the enrollment or attendance of a student at an eligible educational institution, as well as expenses incurred by special needs students in connection with their enrollment or attendance. If the individual is at least a half-time student, then room and board are considered qualified higher education expenses. This exception applies to expenses incurred by you, your spouse, children and grandchildren. 
4. Distributions due to an IRS levy of the qualified plan. 
5. Distributions that are not more than the cost of your medical insurance. Even if you are under age 59 1/2, you may not have to pay the 10% additional tax on distributions during the year that are not more than the amount you paid during the year for medical insurance for yourself, your spouse, and your dependents. You will not have to pay the tax on these amounts if all of the following conditions apply: you lost your job, you received unemployment compensation paid under any federal or state law for 12 consecutive weeks because you lost your job, you receive the distributions during either the year you received the unemployment compensation or the following year, you receive the distributions no later than 60 days after you have been reemployed. 
6. Distributions to qualified reservists. Generally, these are distributions made to individuals called to active duty after September 11, 2001 and on or after December 31, 2007. 
7. Distributions in the form of an annuity. You can take the money as part of a series of substantially equal periodic payments over your estimated lifespan or the joint lives of you and your designated beneficiary. These payments must be made at least annually and payments are based on IRS life expectancy tables. If payments are from a qualified employee plan, they must begin after you have left the job. The payments must be made at least once each year until age 59 1/2, or for five years, whichever period is longer. 
8. If you have out-of-pocket medical expenses that exceed 7.5% (10% in 2013) of your adjusted gross income, you can withdraw funds from a retirement account to pay those expenses without paying a penalty. For example, if you had an adjusted gross income of $100,000 for tax year 2012 and medical expenses of $12,500, you could withdraw as much as $5,000 ($2,500 in 2013) from your pension or IRA without incurring the 10% penalty tax. You do not have to itemize your deductions to take advantage of this exception. 
9. An IRA distribution used to buy, build, or rebuild a first home also escapes the penalty; however, you need to understand the government's definition of a "first time" home buyer. In this case, it's defined as someone who hasn't owned a home for the last two years prior to the date of the new acquisition. You could have owned five prior houses, but if you haven't owned one in at least two years, you qualify. 

The first time homeowner can be yourself, your spouse, your or your spouse's child or grandchild, parent or other ancestor. The "date of acquisition" is the day you sign the contract for purchase of an existing house or the day construction of your new principal residence begins. The amount withdrawn for the purchase of a home must be used within 120 days of withdrawal and the maximum lifetime withdrawal exemption is $10,000. If both you and your spouse are first-time home buyers, each of you can receive distributions up to $10,000 for a first home without having to pay the 10% penalty.

Remember that although using the above techniques will help you avoid the 10% penalty tax, you are still liable for any regular income tax that's owed on the funds that you've withdrawn. Distributions rolled over into another qualified retirement plan or distributions from a Roth IRA however, escape both the regular income tax and the 10% penalty tax. Rollovers should be made directly between your brokers, to avoid paying the 20% withholding required on distributions that you touch. Considering a Tax Professional? For no obligation free consultation contact us today!

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Year-End Tax Planning For Individuals - Accelerating Deductions

ABA Tax Accounting | Tax Planning | St. Paul, MN Accounting Firm

Federal, State, Local and International Taxes - A deferral strategy shifts income to a following year if tax rates in that subsequent year will be lower overall than in the current year. If you'll be in a lower tax bracket next year, you may wish to accelerate your deductions into this year and postpone your income into the following year. Here are some of the ways you can do this:

• Pay a state estimated tax installment in December instead of at the January due date. However, make sure the payment is based on a reasonable estimate of your state tax.
• Pay your entire property tax bill, including installments due in year 2013, by year-end. This does not apply to mortgage escrow accounts.
•  Try to bunch "threshold" expenses, such as medical expenses and miscellaneous itemized deductions. Threshold expenses are deductible only to the extent they exceed a certain percentage of adjusted gross income (AGI). By bunching these expenses into one year, rather than spreading them out over two years, you have a better chance of exceeding the thresholds, thereby maximizing your deduction.

For example, you might pay medical bills and dues and subscriptions in whichever year they would do you the most tax good.

Ø  Tip: Now is the time to bunch deductible medical expenses. Medical expense deductions are 7.5% of AGI this year, but in 2013 increase to 10% of AGI.

In cases where tax benefits are phased out over a certain adjusted gross income (AGI) amount, a strategy of accelerating income and deductions might allow you to claim larger deductions, credits, and other tax breaks for 2012, depending on your situation. The latter benefits include Roth IRA contributions, conversions of regular IRAs to Roth IRAs, child credits, higher education tax credits and deductions for student loan interest.

Ø  Tip: Accelerating income into 2012 is an especially good idea for taxpayers who anticipate being in a higher tax bracket next year.

Ø  Tip: If you know you have a set amount of income coming in this year that is not covered by withholding taxes, increasing your withholding before year-end can avoid or reduce any estimated tax penalty that might otherwise be due.

On the other hand, the penalty could be avoided by covering the extra tax in your final estimated tax payment and computing the penalty using the annualized income method.

If you have any questions about estimated taxes, please call us.

Ø  Caution: The Alternative Minimum Tax (AMT) no longer just impacts the wealthy! Do not overlook the effect of any year-end planning moves on the AMT for 2012.

Due to tax changes in recent years, AMT impacts many more taxpayers than ever before and, the tax is not indexed to inflation. As a result, growing numbers of middle-income taxpayers have been finding themselves subject to this higher tax.

Items that may affect AMT include deductions for state property taxes and state income taxes, miscellaneous itemized deductions, and personal exemptions.

Note: Thanks to the "AMT Patch" AMT exemption amounts for 2012 remain the same as 2011 (see below), but are set to drop in 2013. For example, the AMT exemption amount in 2013 drops from $74,450 in 2012 to $45,000 for married filing jointly taxpayers. Here are the 2012 exemption amounts:

Ø  $48,450 for single and head of household filers,

Ø  $74,450 for married people filing jointly and for qualifying widows or widowers,

Ø  $37,225 for married people filing separately.

Please call us if you'd like more information or if you're not sure whether AMT applies to you. We're happy to assist you.

CALL US FIRST – This is just one of the year-end planning tax moves that could make a substantial difference in your tax bill for 2012. But the best advice we can give you is to give us a call. We'll sit down with you, discuss your specific tax and financial needs, and develop a plan that works for your business.

ABA Tax Accounting

Amare Berhie, Senior Tax Accountant

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Year-End Tax Planning For Businesses – Three Most Common Budgeting Errors

ABA Tax Accounting | Small Business Accounting | St. Paul, MN Accounting Firm

Small Business Tax Planning – When it comes to creating a budget, it's essential to estimate your spending as realistically as possible. Here are three budget-related errors commonly made by small businesses, and some tips for avoiding them.

Not Setting Goals. It's almost impossible to set spending priorities without clear goals for the coming year. It's important to identify, in detail, your business and financial goals and what you want or need to achieve in your business.

Underestimating Costs. Every business has ancillary or incidental costs that don't always make it into the budget--for whatever reason. A good example of this is buying a new piece of equipment or software. While you probably accounted for the cost of the equipment in your budget, you might not have remembered to budget time and money needed to train staff or for equipment maintenance.

Failing to Adjust Your Budget. Don't be afraid to update your forecasted expenditures whenever new circumstances affect your business. Several times a year you should set aside time to compare budget estimates against the amount you actually spent, and then adjust your budget accordingly.

Call our office if you want to discuss setting up a budget to meet your business financial goals. We're happy to help.

ABA Tax Accounting

Amare Berhie, Senior Tax Accountant

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YEAR-END TAX PLANNING FOR BUSINESSES – Year-End Moves to Take Advantage Of

ABA Tax Accounting | Small Business Accounting | St. Paul, MN Accounting Firm

Small Business Tax Planning – YEAR-END TAX PLANNING FOR BUSINESSES – Year-End Moves to Take Advantage Of- Partnership or S Corporation Basis - Partners or S corporation shareholders in entities that have a loss for 2012 can deduct that loss only up to their basis in the entity. However, they can take steps to increase their basis to allow a larger deduction. Basis in the entity can be increased by lending the entity money or making a capital contribution by the end of the entity's tax year.

Caution: Remember that by increasing basis, you're putting more of your funds at risk. Consider whether the loss signals further troubles ahead.

Retirement Plans. Self-employed individuals who have not yet done so should set up self-employed retirement plans before the end of 2012. Call us today if you need help setting up a retirement plan.

Dividend Planning. Reduce accumulated corporate profits and earnings by issuing corporate dividends to shareholders, which continue to be taxed at the 15 percent rate through 2012.

Budgets. Every business, whether small or large should have a budget. The need for a business budget may seem obvious, but many companies overlook this critical business planning tool.

A budget is extremely effective in making sure your business has adequate cash flow and in ensuring financial success. Once the budget has been created, then monthly actual revenue amounts can be compared to monthly budgeted amounts. If actual revenues fall short of budgeted revenues, expenses must generally be cut.

Tip: Year-end is the best time for business owners to meet with their accountants to budget revenues and expenses for the following year.

If you need help developing a budget for your business don't hesitate to call us today!

ABA Tax Accounting

Amare Berhie, Senior Tax Accountant

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Year-End Tax Planning For Individuals - Accelerating Income

ABA Tax Accounting | Tax Services | St. Paul, MN Accounting Firm

Federal, State, Local and International Taxes -Tax planning is always a good idea, but with the Bush-era tax cuts set to expire and tax rates set to rise to pre-2010 levels, it's more important than ever. With that in mind, accelerating income is one tax planning strategies you can use this year to help you cut your tax bill in 2013.

ACCELERATING INCOME

In most years, taxpayers adopt a strategy of deferring income, but with the Bush-era tax cuts set to expire on December 31, 2012, income tax rates and capital gains taxes set to rise, and a 0.9 percent Hospital Insurance (HI) tax applicable to earnings of self-employed individuals or employee wages in excess of $200,000 ($250,000 if filing jointly) effective January 1, 2013, it might make more sense to accelerate income into 2012 instead of deferring it to 2013. Here are some of the ways you can do this:

• Sell any investments on which you have a gain this year and take advantage of the zero percent long-term capital gains tax rate if you're in the 10% or 15% tax bracket, or a 15% tax rate for higher tax brackets.
• If you are expecting a bonus at year-end, try to get it before December 31. However, keep in mind that contractual bonuses are different, in that they are typically not paid out until the first quarter of the following year. Therefore, any taxes owed on a contractual bonus would not be due until you file a tax return for tax year 2013.
• If your company grants stock options, you may want to exercise the option or sell stock acquired by exercise of an option this year if you think your tax bracket will be higher in 2013. Exercise of the option is often but not always a taxable event; sale of the stock is almost always a taxable event.
• If you're self employed, send invoices or bills to clients or customers this year in order to be paid in full by the end of December.
• Caution: Keep an eye on the estimated tax requirements.

CALL US FIRST – This is just one of the year-end planning tax moves that could make a substantial difference in your tax bill for 2012. But the best advice we can give you is to give us a call. We'll sit down with you, discuss your specific tax and financial needs, and develop a plan that works for your business.

ABA Tax Accounting

Amare Berhie, Senior Tax Accountant

amare@abataxaccounting.com

612-282-3200

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YEAR-END TAX PLANNING FOR BUSINESSES – Purchase New Business Equipment

ABA Tax Accounting | Tax Planning | St. Paul, MN Accounting Firm

Small Business Tax Planning – There are a number of end of year tax strategies businesses can use to reduce their tax burden for 2012. Here's the lowdown on the Purchase New Business Equipment option.

Section 179 Expensing. Business should take advantage of Section 179 expensing this year for a couple of reasons. First, is that in 2012 businesses can elect to expense (deduct immediately) the entire cost of most new equipment up to a maximum of $139,000 for property placed in service by December 31, 2012. The maximum threshold amount for capital purchases in 2012 is $560,000, but in 2013, that amount drops to $25,000. Also in 2012, businesses can take advantage of an accelerated first year bonus depreciation of 50% of the purchase price of new equipment and software placed in service by December 31, 2012 that exceeds the threshold amount of $560,000. This bonus depreciation is phased out in 2013.

Qualified property is defined as property that you placed in service during the tax year and used predominantly (more than 50 percent) in your trade or business. Property that is placed in service and then disposed of in that same tax year does not qualify, nor does property converted to personal use in the same tax year it is acquired. 

• Note: Many states have not matched these amounts and, therefore, state tax may not allow for the maximum federal deduction. In this case, two sets of depreciation records will be needed to track the federal and state tax impact. 

Please contact our office if you have any questions regarding qualified property and bonus depreciation.

Timing. If you plan to purchase business equipment this year, consider the timing. You might be able to increase your tax benefit if you buy equipment at the right time. Here's a simplified explanation:

Conventions. The tax rules for depreciation include "conventions" or rules for figuring out how many months of depreciation you can claim. There are three types of conventions. To select the correct convention, you must know the type of property and when you placed the property in service.

The half-year convention: This convention applies to all property except residential rental property, nonresidential real property, and railroad gradings and tunnel bores (see mid-month convention below) unless the mid-quarter convention applies. All property that you begin using during the year is treated as "placed in service" (or "disposed of") at the midpoint of the year. This means that no matter when you begin using (or dispose of) the property, you treat it as if you began using it in the middle of the year.

Example: You buy a $40,000 piece of machinery on December 15. If the half-year convention applies, you get one-half year of depreciation on that machine.

The mid-quarter convention: The mid-quarter convention must be used if the cost of equipment placed in service during the last three months of the tax year is more than 40% of the total cost of all property placed in service for the entire year. If the mid-quarter convention applies, the half-year rule does not apply, and you treat all equipment placed in service during the year as if it were placed in service at the midpoint of the quarter in which you began using it.

The mid-month convention: This convention applies only to residential rental property, nonresidential real property, and railroad gradings and tunnel bores. It treats all property placed in service (or disposed of) during any month as placed in service (or disposed of) on the midpoint of that month.

If you're planning on buying equipment for your business, call us first. We'll help you figure out the best time to buy it to take full advantage of these tax rules. Considering a Tax Professional? For no obligation free consultation contact us today!

ABA Tax Accounting

Amare Berhie, Senior Tax Accountant

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Charitable contributions may help lower your tax bill – www.abataxaccounting.com

ABA Tax Accounting | Tax Planning | St. Paul, MN Accounting Firm

Federal, State, Local and International Taxes - If you made charitable contributions to a qualified organization, it may help lower your tax bill. Here are some tips to help ensure your contributions pay off on your tax return.

To get a tax deduction, you must give to a qualified organization. You cannot take a deduction for contributions made to specific individuals, political organizations or candidates; you must file Form 1040 and itemize the deduction on Schedule A.

A key thing to remember is, if you receive a benefit in connection with your contribution — such as dinner at a gala, merchandise, tickets to a ball game or other goods and services — then you can only deduct the amount that exceeds the fair market value of the benefit you received.  For

instance, if you make a contribution of $75 or more, the charitable organization should tell you the fair market value of any merchandise or other benefits you receive. 

Stock or other non-cash donations are usually valued at the fair market value of the property.

Clothing and household items must generally be in good used condition or better to be deductible. Special rules apply to vehicle donations.  

So, what do we mean by fair market value? This is generally the price at which property would

change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts.

Another key thing to remember is regardless of the amount, to deduct a contribution of cash,

check or other monetary gift, you must maintain:

• a bank record, 
• payroll deduction records, or 
• a written communication from the organization containing the name of the organization, the date of the contribution and amount of the contribution. 

If you, by chance, made a donation through a text message, a telephone bill will meet the recordkeeping requirement as long as it shows the name of the receiving organization, the date of the contribution and the amount given.

If you want to claim a deduction for contributions of cash or property equaling $250 or more, you

must have:

• a bank record, 
• payroll deduction records, or
• a written acknowledgment from the qualified organization showing the amount of the cash and
• a description of any property contributed, and whether the organization provided any goods or services in exchange for the gift.  

One document may satisfy both the written communication requirement for monetary gifts and the written acknowledgement requirement for all contributions of $250 or more. 

If your total deduction for all noncash contributions for the year is over $500, you must complete

and attach IRS Form 8283, Noncash Charitable Contributions, to your return. Additionally, if you

claim a deduction for a contribution of noncash property worth $5,000 or less, you must fill out

Form 8283, Section A.

If you donate an item or a group of similar items valued at more than $5,000, you must also

complete Section B of Form 8283, which generally requires an appraisal by a qualified appraiser. Considering a Tax Professional? For no obligation free consultation contact us today!

ABA Tax Accounting

Amare Berhie, Senior Tax Accountant

amare@abataxaccounting.com

612-282-3200

866-936-0430 Toll Free

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