ABA Tax Accounting: 2016

(651) 300-4777

Moving Expenses Can Be Deductible

Experienced Small Business Accountant - Did you move due to a change in your job or business location? If so, you may be able to deduct your moving expenses, except for meals. Here are the top tax tips for moving expenses.

In order to deduct moving expenses, your move must meet three requirements:

The move must closely relate to the start of work. Generally, you can consider moving expenses within one year of the date you start work at a new job location. Additional rules apply to this requirement.

Your move must meet the distance test. Your new main job location must be at least 50 miles farther from your old home than your previous job location. For example, if your old job was three miles from your old home, your new job must be at least 53 miles from your old home.

You must meet the time test. After the move, you must work full-time at your new job for at least 39 weeks in the first year. If you’re self-employed, you must meet this test and work full-time for a total of at least 78 weeks during the first two years at your new job site. If your income tax return is due before you’ve met this test, you can still deduct moving expenses if you expect to meet it. If you would like any additional information please feel free to contact me.

Amare Berhie, Senior Tax Accountant

(651) 300-4777

Friday, May 20, 2016

Small Business Accounting

Small Business Accounting - Accurate accounting is just as essential for the mom-and-pop as it is for the big-box store. Meaningful financial records set a firm foundation for any

successful business, and sloppy methods can harm you in more ways than you think. If you don't have time to deal with your own small business accounting requirements, you'll need the help of trusted accounting consulting services.

At the accounting and bookkeeping service of ABA Tax Accounting, you'll find small business accounting and bookkeeping professionals who are willing to build the close relationships you need to add to your company's long-term value. Not all small business accounting firms or accounting consulting firms will offer such affordable bookkeeping.

Each accountant at our tax accounting company will:

· Assure the solidity of your financial records.

· Evaluate your financial procedures.

· Fashion the strategies you need to plan and execute your business.

· Perform an objective analysis to increase efficiency while controlling costs.

· Keep you abreast of fluctuating tax laws and accounting standards.

Since 1989, our accounting company has successfully responded to the financial concerns of entrepreneurs just like you. Our small business accounting and bookkeeping professionals are aware of the issues you face and will happily use their expertise to minimize your worries and maximize your gains.

If you would like any additional information please feel free to contact me.

Amare Berhie, Enrolled Agent (EA)

amare@abataxaccounting.com

(651) 300-4777, (612)424-1540, (651) 621-5777

Monday, May 9, 2016

Tax Implications of Retiring Overseas

Are you approaching retirement age and wondering where you can retire to make your retirement nest egg last longer? Retiring abroad may be the answer. But first, it's important

to look at the tax implications because not all retirement country destinations are created equal. Here's what you need to know.

Taxes on Worldwide Income

Leaving the United States does not exempt U.S. citizens from their U.S. tax obligations. While some retirees may not owe any U.S. income tax while living abroad, they must still file a return annually with the IRS. This would be the case even if all of their assets were moved to a foreign country. The bottom line is that you may still be taxed on income regardless of where it is earned.

Unlike most countries, the United States taxes individuals based on citizenship and not residency. As such, every U.S. citizen (and resident alien) must file a tax return reporting worldwide income (including income from foreign trusts and foreign bank and securities accounts) in any given taxable year that exceeds threshold limits for filing.

The filing requirement generally applies even if a taxpayer qualifies for tax benefits, such as the foreign earned income exclusion or the foreign tax credit, that substantially reduce or eliminate U.S. tax liability.

Note: These tax benefits are not automatic and are only available if an eligible taxpayer files a U.S. income tax return.

Any income received or deductible expenses paid in foreign currency must be reported on a U.S. return in U.S. dollars. Likewise, any tax payments must be made in U.S. dollars.

In addition, taxpayers who are retired may have to file tax forms in the foreign country in which they reside. You may, however, be able to take a tax credit or a deduction for income taxes you paid to a foreign country. These benefits can reduce your taxes if both countries tax the same income.

Nonresident aliens who receive income from U.S. sources must determine whether they have a U.S. tax obligation. The filing deadline for nonresident aliens is generally April 15 or June 15 depending on sources of income.

If you would like any additional information please feel free to contact me.

Amare Berhie, Senior Tax Accountant

amare@abataxaccounting.com

(651) 300-4777, (612)424-1540, (651) 621-5777

Sunday, March 13, 2016

What You Need to Know About the Child and Dependent Care Tax Credit

Don’t overlook the Child and Dependent Care Tax Credit. It can reduce the taxes you pay. Here are facts about this important tax credit:

1. Child, Dependent or Spouse. You may be able to claim the credit if you paid someone to care for your child, dependent or spouse last year.

2. Work-Related Expense. The care must have been necessary so you could work or look for work. If you are married, the care also must have been necessary so your spouse could work or look for work. This rule does not apply if your spouse was disabled or a full-time student.

3. Qualifying Person. The care must have been for “qualifying persons.” A qualifying person can be your child under age 13. A qualifying person can also be your spouse or dependent who lived with you for more than half the year and is physically or mentally incapable of self-care.

4. Earned Income. You must have earned income for the year, such as wages from a job. If you are married and file a joint tax return, your spouse must also have earned income. Special rules apply to a spouse who is a student or disabled.

5. Credit Percentage / Expense Limits. The credit is worth between 20 and 35 percent of your allowable expenses. The percentage depends on the amount of your income. Your allowable expenses are limited to $3,000 if you paid for the care of one qualifying person. The limit is $6,000 if you paid for the care of two or more.

6. Dependent Care Benefits. If your employer gives you dependent care benefits, special rules apply. For more on these rules see Form 2441, Child and Dependent Care Expenses.

7. Qualifying Person’s SSN. You must include the Social Security number of each qualifying person to claim the credit.

8. Care Provider Information. You must include the name, address and taxpayer identification number of your care provider on your tax return.

9. Form 2441. You file Form 2441 with your tax return to claim the credit.

10. IRS Free File. You can use IRS Free File to prepare and e-file your federal tax return, including Form 2441, Child and Dependent Care Expenses, for free. Free File is the fastest and easiest way to file your tax return and it’s only available at IRS.gov/freefile.

We can help you determine which reduction credits you qualify for, and will also recommend the credits that give you the best tax outcome. If you would like any additional information please feel free to contact me.

Amare Berhie, Senior Tax Accountant

(651) 300-4777, (612)424-1540, (651) 621-5777

Tuesday, March 8, 2016

Foreign Exchange Student Tax

If you have a foreign or American exchange student living with you, you might be able to deduct some of the qualifying expenses if the student:

1. Lives in your home under a written agreement between you and a qualified organization as part of a program of the organization to provide educational opportunities for the student,

2. Is not your relative or dependent, and

3. Is a full-time student in the twelfth or any lower grade at a school in the United States.

You can deduct up to $50 a month for each full calendar month the student lives with you as a charitable deduction to the qualified organization. Any month when conditions (1) through (3) above are met for 15 or more days counts as a full month.

Qualified organization. For these purposes, a qualified organization can be any of these organizations:

· A community chest, corporation, trust, fund, or foundation organized or created in or under the laws of the United States, any state, the District of Columbia, or any possession of the United States (including Puerto Rico). It must, however, be organized and operated only for charitable, religious, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals.

· Certain organizations that foster national or international amateur sports competition also qualify.

· War veterans' organizations, including posts, auxiliaries, trusts, or foundations, organized in the United States or any of its possessions (including Puerto Rico).

· Domestic fraternal societies, orders, and associations operating under the lodge system. (Your contribution to this type of organization is deductible only if it is to be used solely for charitable, religious, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals.)

· For example, if you are providing a home for a student as part of a state or local government program, you cannot deduct your expenses as charitable contributions.

· Foreign students brought to this country under a qualified international education exchange program and placed in American homes for a temporary period generally are not U.S. residents and cannot be claimed as dependents.

Qualifying expenses. You may be able to deduct the cost of books, tuition, food, clothing, transportation, medical and dental care, entertainment, and other amounts you actually spend for the well-being of the student.

Expenses that do not qualify. You cannot deduct depreciation on your home, the fair market value of lodging, and similar items not considered amounts actually spent by you. Nor can you deduct general household expenses, such as taxes, insurance, and repairs.

Reimbursed expenses. In most cases, you cannot claim a charitable contribution deduction if you are compensated or reimbursed for any part of the costs of having a student live with you. However, you may be able to claim a charitable contribution deduction for the unreimbursed portion of your expenses if you are reimbursed only for an extraordinary or one-time item, such as a hospital bill or vacation trip, you paid in advance at the request of the student's parents or the sponsoring organization.

Mutual exchange program. You cannot deduct the costs of a foreign student living in your home under a mutual exchange program through which your child will live with a family in a foreign country.

Reporting expenses for student living with you. If you claim amounts paid for a student who lives with you, as described earlier under you must submit with your return:

· A copy of your agreement with the organization sponsoring the student placed in your household,

· A summary of the various items you paid to maintain the student, and

· A statement that gives:

a. The date the student became a member of your household,

b. The dates of his or her full-time attendance at school, and

c. The name and location of the school.

We can help you determine which reduction credits you qualify for, and will also recommend the credits that give you the best tax outcome.

If you would like any additional information please feel free to contact me.

Amare Berhie, Senior Tax Accountant

(651) 300-4777, (612)424-1540, (651) 621-5777

Tax Breaks for Students and New Grads

If you’re a college student (or the parent of one), you should know about some key tax breaks that are available to you when you do your taxes. Let’s take a look.

Tax Credits

There are two tax credits for higher education. They’re targeted at different types of students, so it pays to know the differences.

American Opportunity Credit

This credit is for students who are earning their undergraduate degrees. The credit is specifically limited to those expenses incurred in the first four years of college.

The credit is worth $2,500; the really good news is that $1,000 of that is refundable, meaning you could get that back as a refund even if you don’t owe any taxes. There’s an $80,000 income ceiling for single filers to qualify for the credit ($160,000 if you’re married filing jointly). If income is more than those amounts, the credit starts to decrease.

The credit is available through the 2017 tax year.

Lifetime Learning Credit

Where the American Opportunity Credit is limited to the first four years of college, the Lifetime Learning Credit has a wider availability. This credit can be used for graduate school, undergraduate expenses, even professional or vocational courses. Plus, there’s no limit to how many years you can claim it.

This credit, however, is nonrefundable, which means it’s limited to your tax liability. For example, if you qualified for the full $2,000 Lifetime Learning Credit, but had a tax liability of $500 for the year, you’d get a credit for $500.

Credits vs. deductions: What’s the difference?

Tax breaks for higher education come in two basic forms: credits and deductions.

Credits reduce the amount of tax that you owe on your tax return.

Deductions reduce the amount of income that’s considered taxable: less income taxed means less income tax.

Deductions

The two deductions below are not available if you are filing married filing separately, or if someone else – such as a parent – claims you as a dependent on their return. Parents can still claim the deductions, provided they paid the expenses.

Tuition and Fees Deduction

If you don’t qualify for one of the education credits, you may still be able to deduct your tuition and fees. The deduction can cut your taxable income by up to $4,000. It’s taken as an adjustment to income, which means you can claim this deduction even if you don’t itemize deductions.

The income limit for this deduction is $80,000 for single taxpayers, or $160,000 for married filing jointly.

Student Loan Interest Deduction

This deduction helps to defray the interest you have on your student loans. This deduction can reduce your taxable income by up to $2,500. Like the tuition and fees deduction, it’s taken as an adjustment to income, so you can claim it even if you don’t itemize deductions.

One Per Customer, Please

One thing to remember, though: for each student, you can claim either the American Opportunity Credit, or the Lifetime Learning Credit, or the tuition and fees deduction. The IRS won’t let you take more than one of these particular tax breaks for the same person on the same return.

But: Parents claiming two or more college kids as dependents on their return can claim one of these tax breaks for one student and another for a different student.

And but: You can still take the student loan interest deduction even if you’re claiming one of the other tax breaks.

How to Claim Education Tax Breaks

When you’re doing your taxes with abtaxonline.com, you can apply for either education credit or the tuition and fees deduction on our Form 1098-T and Education Expenses screen.

Report your student loan interest on line 33 of our Form 1040 – Adjustments Section screen.

Amare Berhie, Senior Tax Accountant

(651) 300-4777, (612)424-1540, (651) 621-5777

Monday, March 7, 2016

Are College Entrance Exams Tax Deductible?

The fees for taking SAT, ACT and other college entrance exams are not tax-deductible, but the federal government does allow a number of educational deductions and tax credits Find

out more about these educational deductions and credits and how they can benefit you.

Unfortunately for mom and dad, the fees for taking SAT, ACT and other college entrance exams are not tax-deductible, but the federal government does allow a number of educational deductions and tax credits. Though they only pertain to the current expenses of students who have already enrolled, you may be able to use those listed deductions and credits to offset your family's other college expenses

Deducting expenses

You can claim a tax deduction for college expenses incurred for yourself, your spouse or your children. The deduction is available even if you don't itemize and it covers tuition and mandatory college expenses up to the maximum set by the IRS for the current tax year.

Mandatory expenses include, for example, student activity fees if every student is required to pay them. The IRS halves the deduction for taxpayers above a certain income level, and as income rises further, the deduction is phased out completely.

Lifetime Learning Credit

The Lifetime Learning Credit allows you to claim up to 20 percent of your out-of-pocket college expenses each year for yourself, your spouse and your children. You can claim a maximum credit of $2,000, if your family's total college expenses add up to $10,000.

You can claim Lifetime Learning for as many years as the student attends college and for both undergraduate and postgraduate studies, even if the student attends only one class a year. The IRS lists other educational tax credits in Publication 970.

Tax credit restrictions

The Lifetime Learning Credit has several restrictions. The student must attend what the IRS considers a "qualified college" to claim the credit. A qualified college is one that is eligible to participate in Department of Education student aid programs.

In addition, you can't claim the credit if your annual income exceeds the limit set by the IRS for the current tax year or you are married but you and your spouse file taxes separately.

Claiming education credits

When you file your tax return, you claim your tax credits using IRS Form 8863. You can only claim the credits for out-of-pocket expenses, not costs covered by grants or veterans' benefits. You cannot claim the same expense as both a tax credit and a tax deduction.

The IRS also cautions that you cannot claim deductions or tax credits for room, board, medical expenses, student health fees, transportation or insurance, even if the fees are mandatory for students.

We can help you determine which reduction credits you qualify for, and will also recommend the credits that give you the best tax outcome.

If you would like any additional information please feel free to contact me.

Amare Berhie, Senior Tax Accountant