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Tax savings for your summer plans?

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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!)

Extension Time!

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April 18 is the due date for filing your 2010 tax return. If you won’t have all your tax information assembled in time to meet the filing deadline, getting an extension will give you an extra six months – until October 17, 2011 – to file your return.

Over the years, the IRS has made requesting an extension easier. The extension is automatic; you simply have to file Form 4868 with the IRS by the April 18 filing deadline. Be aware, however, that an extension to file does not extend your time to pay. The IRS will still assess interest on any unpaid tax balance. In addition, unless you pay at least 90% of your estimated tax liability by April 18, you may be hit with a late-payment penalty.

If you are a U.S. citizen living abroad, you have until June 15, 2011, to file your 2010 return. This does not require the filing of an extension form. This two-month extension does not apply to taxpayers who are just traveling outside the U.S. on April 18. When you file your tax return, you must attach a statement showing that you qualified for the extension. If additional time beyond June 15 is needed, Form 2350 should be filed to obtain an automatic extension until October 17, 2011. Interest will be calculated on any balance due from the April 18 due date.

Military personnel serving in combat qualify for an extension for filing returns and paying tax for the period of combat service plus 180 days.

For additional information or filing assistance, contact our office.

More information on the new “Small Business Jobs Act”

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Hire Act & Jobs

“The Small Business Jobs Act of 2010,” signed into law on September 27, creates several tax-saving opportunities for businesses. Here’s a summary of the key tax breaks.

* Section 179 deduction. The new law doubles the maximum amount that can be deducted for business equipment purchases to $500,000 annually for 2010 and 2011. Also, the dollar threshold at which the maximum deduction is phased out is increased from $800,000 to $2 million.

* Bonus depreciation. The new law revives the 50% bonus depreciation for qualified property placed in service in 2010 (through 2011 for certain property).

* Start-up expenses. For 2010, the maximum first year deduction for qualified costs of starting a business is increased to $10,000, with a $60,000 phase-out threshold.

* Qualified small business stock. Investors in “qualified small business stock” may be able to exclude 100% of the gain from the stock’s sale if it is held at least five years (for acquisitions from September 28, 2010, through December 31, 2010).

* Business credits. Normally, general business credits can’t offset alternative minimum tax (AMT) liability. The new law removes this restriction for an “eligible small business” and permits carrybacks of general business credits for five years.

* Health insurance. For 2010 only, self-employed individuals can deduct health insurance costs from their self-employment income in computing self-employment tax.

* Cell phones. The new law removes strict substantiation requirements for cell phones and similar devices used in business and treats employee use as a tax-free fringe benefit.

* Roth accounts. Participants in 401(k), 403(b), and 457(b) plans can now roll over funds to a Roth account. For rollovers in 2010, the resulting taxable income can be divided between 2011 and 2012.

Will Congress cause your Paycheck to be incorrect?

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Unless congress acts by December 10, your paycheck may or may not be correct. It all depends on the if the Bush-era tax cuts are extended. If they are extended to some degree, which most expect that they will be the IRS may not have enough time to update the information used by your payroll department to withhold the correct amount of tax from your paycheck.

See this for more infomation –

Senate tax-vote delay causes headaches for payroll departments

Will the kiddie tax apply to you?

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Kiddie Tax - What you need to know

Got college-bound kids? Then you might have questions about the kiddie tax, since these federal rules can apply to the unearned income of full-time students up to age 24.

Here’s an overview of the rules.

* The basics. The kiddie tax affects how much you’ll pay on part of the investment income your child receives, such as interest or dividends. When the rules come into play, this “unearned income” is taxed using your rates.

* How the tax is applied. For 2010, the first $950 of your child’s unearned income is tax-free. Tax is calculated on the next $950 using your child’s federal tax rate, which can be as low as 5%. Unearned income over $1,900 is taxed at your federal income tax rate, when that rate is higher than your child’s.

For an 18-year-old, the kiddie tax applies when your child’s earned income â?? that is, money received from wages, salary, tips, commissions, and bonuses â?? is less than half the cost of providing necessities such as food, clothing, and shelter.

The same 50% support exception applies when your child is a full-time student and age 19 through 23.

* Planning tip. Consider hiring your college student in your family business. Wages are earned income and can lessen or eliminate the kiddie tax.

Still have questions about the kiddie tax? Give us a call. We have answers, information, and planning strategies.

David Bradsher, CPA  is a Washington DC / Northern Virginia area CPA who works with small business owners and non profit leaders on a monthly basis to provide them with guidance and advice on how to grow their organizations, minimize their tax liabilities and increase their bottom line.