Will the dreaded AMT affect your pocketbook this year?

With the attention surrounding the alternative minimum tax (AMT) year after year, you may be wondering if you’ll be snared by it in 2011. What can cause you to owe the tax?

The answer lies in items that are treated differently when calculating the AMT than they are when figuring your regular tax. Certain itemized deductions fall into this category. For instance, under the regular federal income tax computation, you can claim an itemized deduction for medical and dental expenses in excess of 7.5% of adjusted gross income.

For the AMT, these expenses must exceed 10% of your adjusted gross income, which means your deduction is limited even more.

Another example: Taxes, including real estate taxes, state income taxes, and sales taxes, are not allowed under the AMT calculation.

The same restriction applies to miscellaneous itemized deductions such as investment expenses and employee business expenses.

Your mortgage interest deduction may differ for AMT purposes, too. Why? Interest you pay on home equity loans is generally not deductible unless you use the loan proceeds to buy, build, or improve your primary or second residence.

Don’t itemize? The standard deduction is also not allowed for the AMT calculation. That’s one reason it can sometimes make sense to itemize even when your standard deduction is higher.

In addition to the items mentioned here, the IRS form used to compute your AMT liability includes other adjustments that may affect you. Give us a call for an AMT review. We can help with planning suggestions and strategies you may be able to implement before year-end.

David Bradsher, CPA

Small companies get additional time for reporting benefits

The IRS has just announced that small companies will get an additional year before being required to report the value of employee health benefits on their employees’ W-2 forms.

Health reform legislation passed in 2010 included a requirement that employers report on W-2 forms the value of health coverage they provide to employees. The IRS had already provided relief for all businesses by making reporting optional for 2011 W-2 forms.

Now, small companies that file fewer than 250 W-2s need not report the value of benefits until filing 2012 W-2 forms early in 2013.

David Bradsher, CPA

Lease or buy business equipment?

It’s not easy to decide whether it’s wiser to buy or lease a piece of business equipment. For most business owners, the first impulse is to buy. But there may be times when leasing is preferable.

* Capital conservation. Purchases normally require a 10% to 20% down payment, whereas equipment leases require a smaller down payment. Additionally, “soft costs” such as shipping, installation, and warranties can be built into the lease.

* Obsolescence. If the equipment becomes obsolete before the end of its useful life, leasing the equipment may allow for a “turn back” or upgrade at the end of the lease, thereby keeping the technology current and minimizing repair and replacement costs.

* Urgency. For expensive equipment that is required immediately, leasing might be the best way to obtain it quickly. If you purchase, you might be tied up with your lender for some time, providing financial statements necessary for loan approval.

* Deductions. If you find that you’re unable to expense the equipment, a lease might allow for a shorter deduction period compared to depreciation.

Sold on leasing equipment? Don’t be. Buying has its advantages also.

* Immediate deduction. You may be able to immediately deduct up to $500,000 of the cost of qualified equipment in the year of purchase, using the first-year expensing rules. That’s significant and can reduce your taxes substantially.

* Appreciation. Some equipment actually increases in value over time. Buying such equipment can create future wealth.

* Useful life. The equipment may be valuable and productive long after the lease has expired. Purchasing will allow you to continue to use that equipment and avoid the need to return or upgrade it at the end of the lease term.

For help in deciding whether to lease or buy, give us a call.

David Bradsher, CPA

Tax savings for your summer plans?

Summertime fun can be made even more enjoyable by adding tax savings. Here are some tax-saving ideas to consider.

* If you have summer travel plans and the primary purpose of your trip is business, you can deduct all the travel costs to and from your business destination and all other business-related costs even if you add on a few extra days for pleasure. You can’t deduct costs related to the pleasure portion. Including a spouse or friend on your trip is permissible, but you can’t deduct the additional costs for that person.

* If you itemize your deductions, you can deduct the mortgage interest and property taxes paid for your vacation home. A boat or RV can qualify as a vacation home if it has sleeping quarters, cooking facilities, and a bathroom. If a retreat also serves as rental property, you can control your tax deductions by changing the number of days you use it for vacation.

* If you and your spouse work, the cost of sending your children to a summer day camp may qualify for the child care credit.

* If you own a business, consider hiring your child for the summer. Your child can earn up to $5,800 tax-free this year, and your business is entitled to a deduction for the wages paid. You must pay your child a reasonable wage for the work performed. (You must document the work performed!)

David Bradsher, CPA