Top 7 Overlooked Tax Deductions for Small Business

Congress knows that it takes money to make money, so the Internal Revenue Code makes pretty much any expenditure that is used to produce business income deductible. The list of items that can be deducted is so long and broad that many small business owners miss out on deductions they qualify for. Here is a list of the top 7 small business deductions that are commonly overlooked.

Home Office

If you have a home-based business, you may be able to deduct part of your rent or, if you own your home, take a depreciation deduction on your property. This tax break is known as the home office deduction. An apartment, house, boat, mobile home, condominium, or any other place with cooking and sleeping facilities will qualify. According to the IRS, just over two million small business owners claim the home office deduction. Undoubtedly, more people qualify for it but are either unaware or afraid they will be audited if they do.

Employees and Independent Contractors

At some point, as your business grows, you will need to hire employees and/or independent contractors to perform specific tasks. Salaries, wages, and money paid to hired hands are tax deductible. This includes regular wages, vacation pay, sick leave, bonuses, training expenses, and reimbursements.

Inventory

If you are a business that sells goods, usually you have to maintain an inventory. It is important to know that only your net profit from goods sold is taxed as income. This means that you deduct what you spent for your inventory as well as general business expenses. The IRS demands that small business owners list the fair market value of their inventory.

Retirement Account Deposits

Employer-made contributions to retirement accounts are tax deductible as compensation paid to employees. These contributions must come from earned income, not investing or inheritance.

Fees Paid to Professionals

Business related fees paid to accountants, lawyers, and consultants are always deductible, however, sometimes the deduction must be spread over future years.

One-Time Deals:

  • Fees related to one-time business deals or sales are immediately deductible.

Long-Term:

  • Professional services that provide a benefit that goes beyond the present year, a long-term contract or example, must be deducted over the life of the expected benefit.

Start-Up Costs

You can claim tax deductions for money spent on your business before it was even operational. There are three start-up tax rules and one bonus rule to choose from and each provides its own benefit.

  • Rule One: Allows you to deduct up to $10,000 of your start-up costs your first year. Anything over $10,000 must be deducted over the following 15 years.
  • Rule Two: You may choose to deduct your start-up costs pro rata over 15 years.
  • Rule Three: You may choose not to deduct start-up costs. Instead, you may choose to recover start-up expenses after you sell or close your business.
  • Bonus Rule: In addition to the start-up cost deduction, corporations, partnerships, and limited liability companies can claim an extra $10,000 deduction as long as total start-up expenses do not exceed $60,000.

Education Expenses

Tuition, books, fees, and supplies are deductible as business expenses if they are related to your established business, occupation, or trade, and are used to maintain or develop skills that are required in your field or by law.

Posted in Tax Law |

The Pros and Cons of Getting a Tax Extension

What is a Tax Extension?

A tax extension is a simple form that you file with the Internal Revenue Service (IRS) to get an increase of time to file your tax return. You must complete form 4868 to get the automatic six month filing extension. This means your 2014 tax form will need to be filed by October 15, 2015 instead of April 15, 2015.
One of the most important things to know is that this is an extension for filing the tax paperwork but not for paying your taxes. You will still have to pay any owed taxes by April 15th or pay interest and payment penalties. You will need to do your best to estimate the amount of tax that must be paid. You can print out and file the required paper form by mail with a payment check, if needed, or you can file and pay electronically via e-filing. You can also pay by phone with a credit or debit card.

When An Extension is Useful

A tax extension can be a lifesaver if you simply require some additional time to get your tax paperwork together and properly complete your tax return. It is much better to get an extension rather than not filing a return or throwing together your return and potentially making serious mistakes. Not filing or filing improperly are great ways to get audited.
The IRS does not require any explanation of why you are requesting an extension, you just have to fill out the form and file it before the tax deadline. If you file for the extension before the April 15th due date you will avoid the late filing penalty. And if you make a proper payment, you will also avoid the interest and late payment penalty; that is if you correctly estimate your liability. Even if you miscalculate the amount, your prepayment will still lessen the interest and any penalties.

When an Extension is Not Recommended

The main reason to not request an extension is if you are going to get a large refund. Filing an extension in that situation basically just delays the return of your money. It allows the IRS to keep your money longer with no extra compensation. While the IRS charges you interest on late payments they do not give you any interest on the money they hold while you wait to file. In fact, if you are owed a large refund, you should probably change your withholding paperwork so that the proper amount is withheld and that should be done sooner rather than later.

If you are procrastinating and simply need a jump start then get to work and get that tax return done. You don’t want to be in this same position, six months from now, when there are no more extensions available. If you run into trouble or find you are missing some necessary papers, then you still can file for an extension before the 15th.

And if your return is complete but you cannot pay the full amount, do not file an extension. In this situation, the IRS says it is best to file, pay what you can, and make payment arrangements with them.

Posted in Tax Law |

Tax Scams to Watch for in 2015

Tax season is one of scammers’ favorites to gain and abuse the confidence of unwary individuals. Every year sees the emergence of new and creative ways to steal personal information from taxpayers, but knowing a few simple facts goes a long way for identifying what is real and what isn’t.

Basic Tips

The IRS explicitly does not issue phone calls or emails asking for personal information or demanding payments. All communication between the IRS and taxpayers starts with mailed notices, and any communication afterwards will only be to inform individuals of any actions they need to take, not to collect. Scammers will do everything they can to appear legitimate, including fake caller IDs, fraudulent use of the IRS logo, and impersonating agents. Before taking any actions or revealing personal information, taxpayers are advised to verify whom they are speaking to on their own. The more aggressively a phone call or email attempts to gain sensitive information, the more likely it is to be a scam.

Phone Scams

One of the most prevalent scamming methods involves criminals attempting to deceive people over the phone. They will do this by impersonating IRS agents, representatives of charities, or anything else they can use as a pretext to get valuable information from their targets. Pretending to be representatives of an organization people trust, they will use any angle, from using threats of penalties to offering special rewards and opportunities, provided the victim give over their credit card or Social Security numbers. Anyone who presses people for this kind of information is most likely a scammer.

Fraudulent Tax Preparation Services

The information included in every tax return is the responsibility of the taxpayer. However, many individuals use tax preparers to handle the details of their return. Most of these agencies provide excellent services to their clients, but it is important to verify their credentials, policies, and examine their work when it’s done. Tax preparers that make outstanding claims compared to their competitors may try to submit falsified information on the behalf of unknowing taxpayers to make money for themselves. These agents will often base their fee on how big the return is, and inflate a return illegally to increase their pay. Reputable agencies will be happy to display their dedication to educational and ethical standards that guarantee taxpayers the best return they can legally get.

IRS “Dirty Dozen” Tax Scams

Every year, the IRS compiles a list of the most prevalent schemes targetting taxpayers. People who are aware of these scams are more capable of filtering out any attempts by criminals to steal their money and identities, and are also warned to pay attention to the details of their return forms. In addition to phone scams, return preparer fraud, and fake charities, taxpayers should be on the lookout for:

  • Phishing: Describes attempts to gain personal information through fake websites and email.
  • Identity Theft: Especially common during tax season.
  • Offshore Tax Avoidance and Hiding/Falsifying Income with Fake Documents: The IRS is getting better at finding hidden incomes and will act on any discoveries it makes both overseas and domestically.
  • Excessive Claims for Fuel Tax Credits: Fuel tax credits are primarily used by farmers and associated businesses and should not be abused.
  • Frivolous Tax Arguments: Individuals should not attempt to avoid paying their taxes without very good reasons.
Posted in Tax Fraud |

Tax Deductions and Filing Your Taxes

Every year, Americans scramble to get their paper work together to go file their taxes. It is a stressful time, leaving tax payers wondering how their tax situation will effect their financial situation overall. With new healthcare penalties being carried out this year, taxpayers are more uncertain than usual; however, they still harbor a little faith in the role deductions play within the tax process.

What Is a Tax Deduction?

If this is the first time you have ever paid taxes, then it is critical that you know what a deduction is. Deductions are a mechanism used by taxpayers to save themselves from having to pay hefty taxes. It is important to understand the difference between a tax deduction and a tax credit. A tax credit directly reduces the amount of taxes you are said to have to pay. For example, if you owe the IRS 2,500-dollars in taxes, a tax credit of 500-dollars will reduce that amount down to 2000-dollars. A tax deduction, on the other hand, directly reduces the amount of taxable income you are bringing to the table. In other words, if you earned 40,000 in income, but you have 5,000 in tax deductions, this means that the IRS can only tax you on 35,000-dollars of your income, rather than the full amount. After all your tax deductions are factored in, the amount of income you will have to pay taxes on will typically be far less than the amount you actually earned as income. What taxpayers truly like to see are a lot of tax deductions and tax credits at the same time. In this situation, both the amount of money you can be taxed on and the amount of actual taxes you owe are being reduced to a more manageable value. This means, after all tax issues have been factored in, that you get to keep more of the money you earned.

Types of Deductions

There are two primary types of deductions. These are the Standard Deduction and Itemized deductions. The most straight forward deduction a person can take is the Standard Deduction. It is a set figure that a single income earner, or that people filing jointly, are able to deduct from their earned income. Once this deduction is subtracted from their income, what is left over is taxable income. Alternatively, a person, or people filing jointly, are able to refuse the Standard deduction and take an Itemized deduction instead. An Itemized deduction allows the person filing their taxes to claim deductions, item by item, from a number of different categories that they may qualify for. Generally, it is best to take the option that best reduces your taxable income.

Smart Tax Deductions

When a person gets to know the tax code better, it becomes evident that there are quite a few different deductions that can be taken during an itemization. For this reason, savvy taxpayers tend to like to itemize their taxes to try and maximize their savings. Taking deductions for healthcare costs, interest paid on certain investments and even job related expenses are all smart deductions to claim. If a person digs deeper, they will often find tax deductions that some tax professionals are not aware exist. Provided that they can document these deductions as being a legitimate part of the tax code and demonstrate why they qualify to take them, it is a smart idea to make the effort. When you get a handle on how to effectively use deductions, then you will be able to save money on your taxes like a pro.

Posted in Tax Law |

When You Don’t Pay Your Taxes

Paying taxes can be one of the more arduous responsibilities for those that earn income. While it might be tempting to not pay your taxes or you simply don’t have enough money to do so at the moment, there are some large legal and monetary ramifications for those that don’t pay their taxes on time. The following will provide in-depth details on what these consequences are.

You’ll Eventually Have to Pay More

Skipping one or two years of paying taxes because you just don’t feel like it is not something that will slip by the IRS. It’s important to note that this is different than situations where you file taxes and just aren’t able to pay all that you owe. Doing so will only serve to add to the amount that you eventually have to pay once you decide to pay your taxes again. While the standard deadline for filing taxes is April 15th, you can always choose to file Form 4868 as a means of asking for a 6 month extension on the due date for your taxes.

If this isn’t done, the penalties won’t involve anything like jail time, but you will be subjected to a large amount of fees the next time you do file. If you don’t file, you will eventually receive a letter from the IRS detailing the amount of taxes that you owe, complete with a penalty fee and an interest fee. Interest rate accrues over time and is set to the federal short-term rate, as well as an additional 3 percent in interest of what you owe.

Your Credit Score Could Be Affected

Once you have reached a certain amount of back taxes from not paying, generally around $10,000, a lien will be placed on the property you own, which is typically a house. A state tax lien could also be provided to you upon failing to pay state taxes. If this happens, the lien will appear on your credit report and will dramatically affect your credit score for the worse. While this doesn’t necessarily mean you won’t be able to get a loan, it does mean that the loan will likely have a high interest rate.

Your Monetary Livelihood Could Take a Big Hit

Though it’s difficult to go to jail unless the government deems that you are trying to defraud it, which doesn’t usually happen unless you’re rich, you will still face the possibility that your property will be seized or your wages garnished. Once you start to file again, any return you would have received will go straight to the IRS, while you will have to pay interest for any money you still owe. If you have to, try filing Form 9465 in order to settle on a monthly payment for the taxes you owe. This should only be done if you don’t have the ability to pay back the full amount of what you owe.

You’ll Waste Time Trying to Fix the Situation

Even if you’re quick to change your mind on paying your taxes and decide to do so, filing late will still bring with it a whole host of problems that typically requires a tax professional to properly fix. As such, this will invariably cost you time and money that could have been better used elsewhere.

Posted in Tax Law |

Economics of Valentine’s Day

According to a popular 2015 media news report, Americans spent $17.3 billion in 2014 on jewelry, flowers, candy and other Valentine’s Day gifts. In 2015, it was expected to rise to $19 billion. Interesting statistics on Valentine’s Day spending include:

  • The average amount spent is $142.31 by most individuals
  • $96.63 is the average expected to be spent on spouses or a significant other
  • Americans, age 35 to 44 will spend the most
  • Less than half the seniors over the age of 65 will celebrate Valentine’s Day

Facts and Figures of Valentine’s Day Spending

While the jump in spending for Valentine’s Day from 2014 to 2015 is just 2% higher, it does show that even in economically austere times, Valentine’s Day gifts are considered an important symbol of love and/or generosity. Interviews of average individuals by journalists show a slightly different attitude about this particular day. Single men, even those engaged or about to be, consider the expense of Valentine’s Day to be out of control. Single women feel it accentuates their lifestyle as devoid of romance.

The Best Economical Strategy for Valentine’s Day

The depth of expense on Valentine’s Day depends on individual financial resources. Those who feel the celebration of this day has become too commercialized may want to consider other strategies to reduce the economical burden without appearing too mercenary.

The best economical strategy for Valentine’s Day is to consider the recipient of the gift and their particular ideas about this day. For some spouses, a quiet evening together at home with a nice dinner and candlelight might be a better choice than spending $150 for a dozen red roses.

According to one major media source, a 50% hike in the price of roses can be expected on Valentine’s Day in 2015. Jewelry is another costly expense that ranks No. Two, in terms of most popular gifts. Jewelry prices rise 35% around Valentine’s Day. The strategy to use here is to determine if jewelry is necessary or the cost spent on jewelry could be better spent on a special, more memorable evening at a favorite restaurant, concert or other event.

Candy is the other pricey gift most popular on Valentine’s Day. It ranks No. 3 among most popular gifts. Chocolates, ornately packaged, are the top choice. Imported and hand turned chocolates can cost nearly $50 for a single box.

Single is Better on Valentine’s Day

For spouses and those with significant others, the aura of expectation of Valentine’s Day gifts can be quite costly.

Perhaps, single is better. Florists are claiming there’s been a rise in orders for black roses for those about to shed partners. Single is more economical on Valentine’s Day. It can be a wonderful day for singles to be good to themselves. Singles should use the day to treat themselves to things they may have wanted, but never got around to doing or buying. Singles can enjoy a quiet interlude at a luxury spa or plan a special dinner. Nothing precludes a single’s ability to lavish themselves on Valentine’s Day with a box of chocolates, flowers or a piece of jewelry in their price range. In effect, busy singles might arrive at the realization Valentine’s Day is not just a day for couples. It can be the one day singles celebrate being single.

http://time.com/3703157/valentines-day-single-is-better/

Posted in Economy |

The Advantages and Disadvantages of a Company Buyout

There may come a time when the management of one company considers giving a buyout offer to another company. There will probably be many advantages and disadvantages on both sides. Several things must be taken into consideration for this to be successful. The agreement should be structured so the needs of both companies are met. Neither side will get everything they want or be required to give up everything. All the pros and cons of a company buyout need to be carefully considered on both sides.

ADVANTAGE: Gaining New Products Or Technology

There are situations where an established company desires to purchase a smaller company that has developed a very promising new product or technology. This can quickly benefit each company. The smaller business will have access to more and better resources. It will also be able to offer its products or technology to a larger customer base. The larger business will be able to incorporate new products or technology into their existing product line. This can be done without paying to license the acquired company’s product or technology.

DISADVANTAGE: Increased Debt

It’s possible the larger company may have to borrow money to acquire the new company. This will change their debt structure and increase any loan payments on the books. This also can require a company to make drastic cuts in their expenses. It may require layoffs or selling another part of the business to remain profitable. The money a company uses to buyout a business also takes funds away from any in-house product development.

ADVANTAGE: Reduced Competition

When a business is able to purchase its competition, it is able to increase its profits. The buyout will provide them with an increased scale of economics. It will also eliminate the need to participate in a price war with the competition. This can have a positive impact on customers if they experience decreased prices for a company’s products or services. Less competition means a business can spend more time expanding.

DISADVANTAGE: Loss of Key Personnel

Company buyouts can be viewed as a time for founders or key personnel to leave for a new challenge or retirement. Depending on their contract with the business, they may sell their interest to the company or an outside business. It can be a challenge for a company to find individuals with the same level of knowledge and experience. This may cause a period of adjustment that could be hard on the business.

ADVANTAGE: Increased Efficiency

A buyout may do away with any areas of product or service duplication between businesses. This could lead to a raise in profits resulting from a decrease in expenses. The companies involved in the buyout will be able to compare their processes and choose the best one. The newly formed company will be able to get better prices for products, insurance and more. Office spaces and other working areas can be combined for additional cost savings.

DISADVANTAGE: Integration

It will take time to integrate the procedures and personnel of one company into another. The two companies may do similar things but have very opposite corporate cultures. Resistance to change is a very real thing in the business world. It has been known to cause serious problems. Unless there is a plan to address integration issues, it could take a long time and become costly. It could lead to a loss in productivity and have a negative impact on the newly formed business.

Posted in Buying or Selling a Business |

The Two Tiered Economy Emerging in the U.S.

Income inequality in the U.S. is continuing to expand, and the issue is beginning to attract widespread attention. Although the country’s economic recovery has prompted more discussion about the conspicuous income gap, it is really a continuation of a trend that existed before the recession. The trend is, however, growing undeniably stronger since the recovery. As these conditions persist, a two-tiered economy that shrinks the middle class is emerging.

The Privileges of Wealth

Many factors have contributed to the growing wealth gap, and they have created a powerful trajectory that will be difficult to alter. Privatization and the perpetuation of deregulation have stimulated income growth for the wealthiest sectors, and this has increasingly strengthened their influence over political and economic policies. Money, power and influence have naturally made it easier for the wealthy to advance their own interests.

To further widen the wealth gap, the outsourcing of jobs to nations offering cheap labor has driven profits to the wealthiest sectors, leaving workers at home scrambling for sources of income. Companies raking in record profits are also following a trend of holding cash rather than reinvesting it. This funnels incomes to shareholders in the short term, but it stagnates opportunities for the workforce and the economy.

The wealthiest sectors also have access to avenues of income that are closed to other segments of the population. The middle and working class families with their wealth tied to their home values suffered devastating losses in the recession, but affluent Americans with wealth invested in stocks, mutual funds and complex investment vehicles rebounded tremendously and continue to prosper.

Impact on the Middle Class

As the rich get richer and the poor get poorer, many members of the middle class find themselves sinking into the poorer classes. In an economy that requires money and influence to succeed, the declining wealth of the middle and poorer classes means fewer people have the opportunity to elevate their economic status. Higher education and financial investments, two of the major resources used for income improvement, are increasingly out of reach. The decline of income that perpetuates a deterioration of opportunities has become cyclical, and the solution is fast becoming a matter of debate among economists and policymakers.

What the Future Might Hold

Rather than a thriving economy creating a strong middle class, it is a strong middle class that ensures a thriving economy. Buying power from only one small segment of the population does not nurture a healthy economy, even if that small segment is wealthy. To flourish, an economy requires a robust middle class. When an economic system features a strong middle class, it has a broad sector of the population to spend money in ways that are productive for the economy as a whole.

Unless policy making begins to address the income gap, the population will have gradually less effective spending power. In this case, impaired growth for the entirety of the economy will be inevitable. An economic system that performs poorly is also linked to environmental decay, increased crime rates, and declining health of the people. History has not been kind to societies with significant economic stratification. For a rosier outlook, the opposing political ideologies currently responsible for policy making will have to acknowledge the causes of the wealth gap, and they will need to put aside the polarization that allows it to persist.

Posted in Economy |

President’s State of the Union Address and the Economy

On January 20th of 2015, President Barack Obama gave his traditional State of the Union speech to the nation. The speech covered a number of topics, ranging from education to immigration. His thoughts regarding the economy provided a number of statements and proposals:

Economic Recovery

Unlike previous occasions in which the President downplayed the improving economic numbers, in his recent speeches, he enumerated the individual data points indicating that the “shadow of the crisis has passed.” He touched these specific facts:

  • The national unemployment rate is now at 5.6 percent.
  • No sign of inflation threatens the economic picture
  • Gasoline prices are down to $2 per gallon, helping the recovery.
  • Consumer sentiment is improving as more people return to work.

Educational Access For New Jobs

To counteract stagnant wages that have beset the country, the President hopes to increase training that will help to prepare workers for better paying jobs in today’s highly technical workplace by offering free community college for students who keep a 2.5 grade point average and graduate on time.

Proposals To Boost the Middle Class

President Obama proposed legislation to require sick pay for the 43 million American workers who do not yet have it, noting that loss of wages during minor illnesses negatively impacts many American families’ financial stability and affects the health of workers across the nation. He also proposed tripling the child tax credit to $3,000, and increasing the federal minimum wage.

Increased Taxes on the Wealthy

One of the President’s proposals asks for a higher tax on long-term gains, such as stocks held for more than one year. In 2014, the maximum tax rate on these investments was 23.8 percent. The President would raise this rate to 28 percent. In addition, he would eliminate the step-up inheritance tax loophole that allows stocks that increase significantly in value to pass on to heirs without taxation of their increased value. However, capital gains of $100,000 for individuals and $200,000 would be tax-free.

Infrastructure Building and Repair

The nation’s infrastructure is in serious disrepair, and the President hopes to correct this problem with a comprehensive bill that would modernize ports, build high-speed rail systems and expand broadband connection to all cities. The President downplayed the building of the Keystone XL pipeline as a significant infrastructure project that would help to create more jobs for Americans.

Trade Policy

One area that President Obama is likely to get more support from the opposition party is on trade. He emphasized the importance of fast-tracking two trade deals that are currently under consideration, one involving the Pacific Rim countries and another involving countries around the Atlantic. Some secrecy surrounds the details of these trade deals, which has made them controversial even in the President’s own party.

The Republicans in Congress, who hold majority votes in both houses, are likely to be a stumbling block for implementation of many of these proposals. However, they may have to contend with significant public support of the programs that would help the vast majority of Americans.

http://www.slate.com/blogs/moneybox/2015/01/20/state_of_the_union_2015_obama_s_new_economic_agenda_is_progressivism_on.html

http://www.npr.org/blogs/itsallpolitics/2015/01/21/378706028/state-of-the-union-primer-what-president-obama-proposed

http://www.usatoday.com/story/money/2015/01/20/obama-tax-proposals/22064109

http://www.foxnews.com/politics/2015/01/21/obama-to-tout-middle-class-economics-in-state-union-address/

Posted in Economy, Tax Law |

Wages Flatline While Unemployment Goes Down

People in the workforce, particularly those who have come out of college in a time when the economy has been floundering, know what it is like to search for work under such conditions. In 2015, they are starting to see a ray of light, though that glow is larger in some fields than others, but they are not noticing all the benefits of a thriving economy yet.

Wages Continue to Flatline

When the economy is in a recession, people generally know that finding a job is going to be a challenging task, and they likely realize that the wages they receive are going to be lower than normal as well. However, as the economy starts to pick back up and positions open up in the marketplace, the workforce also expects that they are going to start making more money. However, in many fields, wages have not increased. The cost of living has though, and individuals are starting to wonder why they are not making more money and when the changes are going to end.

Nervous Businesses

Employees are not the only people who suffer from the economy is a mess; the owners of companies do as well. Therefore, many of them are nervous about the economy. While it is improving, it is still in a recovery state. They worry that if they begin to pay their employees more money, they will find themselves in a desperate situation if the economy starts to rapidly decline again. Once the economy overall, or at least their niche of the economy, has enjoyed a longer lasting level of stability, they may be more likely to increase wages.

Complacent Employees

The owners are not the only ones responsible for the flatline of wages. In the past, asking for a raise was a fairly commonplace practice. If individuals felt that they had enough experience at the job or had been working there for a long time, they would ask for a raise. However, during the economic downturn, some of these requests were suddenly deemed unreasonable. Companies could not be expected to provide employees with raises when the businesses were threatened themselves. Employees have, in a number of fields, become used to this situation. If they were to speak to their employers about a possible wage increase in the future, then they may be more likely to get one. Other workers are afraid to leave their jobs because they remember how burdensome it was to find this one.

When Changes Will Come

Predicting exactly when wages are going to rise again is impossible. First of all, people have different opinions on the matter. Some believe that the current federal government is at-fault for the way wages currently are, so they often do not believe that a change will come into the power in the country shifts. The specific field is another reason predicting an exact moment of change is impossible. Different fields are doing better than others, so they will likely start to increase wages before fields that are still struggling to survive.

The hope is that all fields will start to increase their wages again in the near future. This hope is held by both employees and employers alike, and both parties need to work together to meet in the middle when it comes to this situation.

Posted in Economy |

The United States’ Strong Dollar

The terms weak dollar and strong dollar are used in the foreign exchange market to explain the relative value of United States currency when compared to other currencies on the market. One must look at the value of two or more particular currencies over a fixed period of time in order to accurately evaluate money in this way. If the dollar has a historically high exchange rate relative to its normal value when compared with another currency, it is considered to be strong. If the dollar has a low exchange rate relative to normal when compared with the value of another currency, the dollar is considered weak. When a currency is strong, it essentially means that investors trust that currency. They expect it to remain relatively stable and to retain its value. Strong currency is usually a sign of a healthy economy, but that is not always the case.

The Current Strength of the U.S. Dollar

The United States currently has what is referred to as a strong dollar. At the close of 2014, it was trading at its highest since 2009. Because it is strong against several major world currencies at a time when the country is still recovering from an unstable economy, the sudden rise in value took many people by surprise. Gas prices dropped significantly all across America during the first few weeks of 2015. This was the result of increased purchasing power. The dollar’s higher value meant being able to buy certain commodities for much cheaper than it could when the dollar was weak.

What contributed to the Rise of the U.S. Dollar?

Several factors explain the rise of the dollar’s strength. Unemployment is decreasing, retail sales are increasing, and more economic growth is expected. The return to normal interest rates by the Federal Reserve is also being pointed to as another major reason that explains why the U.S. dollar is regaining strength. As the American jobs market continues recovering, interest rates are expected to continue rising throughout 2015. Because the measure of dollar value is relative, another reason for the increased value is that other countries’ currencies have weakened. If the American economy continues improving, the dollar’s value is likely to keep gaining strength.

What Are the Upsides and Downsides of a Strong Dollar?

One benefit of having a strong dollar is that the price of certain highly desirable commodities drop. Oil prices in the United States tend to drop, sometimes quite significantly, when the dollar gains strength. This translates to lower prices at the gas pump. For people involved in Forex trading on the foreign exchange market, the upside of a strong dollar is being able to buy foreign currencies at a much more favorable rate than normal. However, there are plenty of downsides. One is that federal interest rates are likely to rise even more. Another downside is that companies that do a great deal of business in foreign markets are likely to be negatively affected. Their sales are likely to drop. Even if those companies’ sales continue at normal rates, their profits will still be lower. Weaker currencies can help a country regain balance after periods economic instability. Since the U.S. is still in the midst of a rebounding economy, not everyone is expecting the return of strong currency to be without its problems.

Posted in Economy |

The Affordable Care Act and Your Tax Return

The Affordable Care Act, known by many simply as Obamacare, is the new healthcare law that requires individuals to purchase health insurance on their own if they do not have insurance provided by an employer. Americans without employer-based insurance may qualify for tax credits that offset the costs of complying with this law. If you did not claim your credit in order to get reduced monthly premiums, you may receive a tax refund for any amount you did not already use. Alternatively, if you did not have health insurance for most of the year, you could face a penalty at tax time.

How the Affordable Care Act Affects Tax Refunds

The Affordable Care Act can affect your tax refund in two ways. People who opted not to get insurance at all may face a tax penalty. You might pay a reduced penalty if you were uninsured for only part of the year. The amount owed will depend on your income and the number of uninsured people in the household. This will be taken out of any tax refund that may be due.

If you had health insurance for at least 10 months of the year, you will not have to pay a penalty. You might actually receive a larger tax refund if you did not take advantage of reduced monthly premiums. If you chose not to claim the tax credit at the time you applied for insurance, you still might be able to claim this refundable credit on your tax return. The amount of the credit will depend on your income, your household size, and the cost of your marketplace premiums. If you did not get health insurance through the marketplace, your premiums may not qualify for the credit since only certain plans are available through the program.

Filing Taxes with the Affordable Care Act in Mind

Because the health tax credit can be used to pay for some out-of-pocket expenses in addition to deductibles, be sure to have all your financial information that relates to these health care costs with you when you file your tax return. You will need to know which health care plan you have and how much the premiums cost. You may also need information about your copayments and coinsurance.

If you file taxes yourself, most online tax programs will guide you through the process of reporting these costs and determining whether you qualify for the tax credit.
If your tax credit was paid directly to your insurance company to lower your monthly premiums, you likely received your total credit throughout the year. However, if you did not use the full amount you qualified for over the course of the year you might receive a partial refund to make up the difference.

The Affordable Care Act has created a few additional steps when filing taxes, so be sure you provide all related information accurately so that you can receive the full credit you might be due or pay the penalty you owe.

Posted in Tax Law |

2015 Tax Law Changes

Tax laws and regulations change from year-to-year. Learning what new tax laws have been created or what former ones have been revised is important for accurate tax returns. Here are five changes to tax regulations for 2015:

  1. IRA Limitation Rollovers
  2. In 2015, the maximum contribution that taxpayers will be able to make to a 401(k), 403(b) and 457 plan, as well as to the federal government’s Thrift Savings Plan, is $18,000. There’ll also be an increase of $6,000 on catch-up contributions for employees age 50 and older. Therefore, the limit will be capped at $24,000 for workers 50 and above.

  3. Roth IRA Contributions Higher Income Limits
  4. There’ll be an increase in how much you can contribute to your Roth IRA in 2015. It will be increased by $2,000 and will affect those with incomes of $116,000 or more but less than $131,000 for individuals ($183,000 or more but less than $193,000 for married partners). If you have both a traditional and a Roth IRA, the maximum contribution that you can make for both accounts is capped at $5,500 (or $6,500 if you’re 50 or older).

  5. IRA Contributors’ Higher Limits
  6. The maximum contribution for an IRA in 2015 for taxpayers under the age of 50 stays at $5,500. If you’re 50 and older, though, you can make an additional catch-up contribution of $1,000 for a total of $6,500. For people who aren’t employed and are on their spouse’s retirement plan, the tax deduction for their IRA contribution will not apply if they are listed as having a joint income of more than $183,000 but less than $193,000 in 2015.

  7. Higher Employer Plan Contribution Limits
  8. The new tax law will restrict you to only one IRA-to-IRA rollover within the year. It’ll also affect the limits on your contribution to the retirement plan you have through your employer. A second one would incur income tax on the rollover, an excess-contributions tax of 6% per year, and a 10% penalty for withdrawing early for as long as that rollover shows up in your IRA. This limits how you distribute all or part of your account to move it into a new IRA. There haven’t been any limitation changes made to trustee-to-trustee transfers between IRAs. There are also no limits on how many conversions you may make from traditional IRAs to Roth IRAs.

  9. Health Expense Accounts
  10. In 2015, changes are planned for how and when you can use your health flexible spending account, or FSA. Before, if you hadn’t used $500 of your FSA, you were able to roll that amount over to be used in the next plan year without restrictions. Now, if you contribute to your FSA in the year 2015, and at the end of 2014 you have a balance in your account and wish to carry over $500 of that balance into 2015, you’ll be considered ineligible to participate in a health expense account. This is a restriction that will be imposed in 2015, but that does not include FSAs that are used specifically for dental or dependent care.

Make sure you understand the restrictions and regulations regarding all of these changes to the tax laws for 2015, before making any financial moves.

Posted in Tax Law |

The If and the When of a Federal Reserve Interest Rate Hike

A great deal of speculation in both the media and the financial industry generally has centered on if and when the Federal Reserve Bank will raise interest rates. Speculation about this issue intensified after a meeting of the Federal Open Market Committee in mid-December 2014. The Federal Open Market Committee is involved in the process of determining Federal Reserve Bank interest rates.

Statement of Fed Chair Janet Yellen on Interest Rate Hike

Following the Federal Open Market Committee meeting, Fed Chair Janet Yellen was compelled to issue a statement addressing speculation regarding when (or even if) interest rates would rise. In her statement, the Fed Chair refused to provide a date certain when interest rates would rise.

The closest the Fed Chair came to making a prediction about when interest rates would climb over the nearly zero percent mark was to note that the issue would be revisited after “a couple” Federal Reserve Board meetings in 2015. When pressed for a more definitive estimate of when interest rates might increase, Yellen clarified only that the issue would be revisited after a couple Board meetings in 2015 and that “couple” means “two.”

When Interest Rates Might Increase

On news of the delay in any potential increase in Fed interest rates, the stock market rallied. Indeed, the New York Stock Exchange rallied to record levels. Thus, in the final analysis, the decision to notch up Fed interest rates will be guided by the overall health of the U.S. economy. The state of the stock market as well as the real estate market represent two of the indicators that are used by the Fed in evaluating the needs for maintaining a virtually zeroed out interest rate.

If the current economic trajectory continues through the first quarter of 2015, at least a minimal increase in Federal Reserve interest rates might be expected in the second quarter of the year. With that said, the economy remains at least somewhat unsteady and no one, including the Fed Chair, is making any hard and fast prediction regarding when (or even if) Fed interest rates will increase during 2015.

Changes Associated with Interest Rates to Date

The Federal Reserve slashed interest rates to virtually zero percent at the peak of the “Great Recession,” in December 2008. Despite some discussion to increase interest rates since that point in time, the Fed has not raised them in an effort to stimulate the economy and aid in recovery from the Great Recession that commenced in 2008.

In addition to chopping interest rates to virtually nothing, the Fed also started what is called the quantitative easing program, or QE. In fact, the Fed ultimately embarked on three quantitative easing programs, aptly named QE I, QE II and QE III. The Fed brought quantitative easing to an end in October, 2008. The Federal Reserve Board concluded that the economy has stabilized to the point that this added infusion of money was no longer necessary. However, the decision was also made to keep interest rates essentially zeroed out into the foreseeable future.

Quantitative easing involves the Federal Reserve purchasing bonds as a means of pumping more money into the economy. Through all three quantitative easing programs, the Fed pumped approximately $4.5 trillion into the U.S. economy. Economists generally credit the slashing of Federal Reserve interest rates and the central bank’s QE programs as the primary reasons why the U.S. economy has rebounded to the extent that it has thus far.

Posted in Economy |

Spain’s Google Tax

Google shut down its Google News page in Spain on December 16 in response to a Spanish law that requires news aggregation sites to pay publishers for posted links to content. Instead of its usual news compilation, the Google News page in Spain displayed a message on Tuesday morning stating, “We’re incredibly sad to announce that, due to recent changes in Spanish law, we have removed Spanish publishers from Google News and closed Google News in Spain.” Google also indicated that it will remove Spanish publishers from all of its international news editions. The company runs over 70 international news sites in 35 languages.

What Spain’s “Google Tax” law requires

Earlier this year, the Spanish government passed an intellectual property law that requires Internet news compilers that post links and excerpts of news articles to pay a fee to the Association of Editors of Spanish Dailies, an organization that represents Spanish newspapers. Set to take effect in January 2015, the law is popularly known as the “Google tax.” The terms of the law provide that news aggregation services that fail to pay the fees as required can incur a fine of up to 600,000 euros, which is approximately $750,000 US. The law does not allow publishers to opt out of its terms nor offer their news content for free. Beyond the “Google tax,” Spain’s new law will also require websites to delete links to material that infringes upon copyright, whether or not the posting sites make monetary profits from the infringing links. Associated sites that provide hosting or payment processing services to copyright-infringing sites will also be subject to the law.

Uncertain legal details

The new Spanish law does not specify how much news aggregation sites must pay for content that they post. This will be decided in additional proceedings during the coming year in which the government and affected parties will take part. The law’s terms also do not definitively prescribe which types of article-linking sites would be subject to the fee requirements, leaving operators of social media sites questioning whether and to what extent the law applies to them. While Spain’s ministry of culture has stated that social media and their users would be exempt from paying the fee required by the new legislation, the law’s impact on social media sites with user-driven aggregation is currently uncertain.

Viewpoints for and against the law

As the Google shutdown loomed last week, the media publishers in Spain who lobbied for the passage of the law maintained their position that news content providers must be given fair compensation for their material when it is used by other parties. On the other side of the viewpoint divide, Google expressed the reasoning behind its Google News closure in Spain. Richard Gringras, the head of Google News, wrote in a recent blog post that because “Google News itself makes no money (we do not show any advertising on the site) this new approach is simply not sustainable.” Google and other critics of the law have also noted that news aggregation services provide a benefit by sending traffic to websites with linked content. The Google News shutdown in Spain seems to foreshadow further developments in this new zone of legal debate sparked by this new law.

Posted in Tax Law |