Simply Junior

A 403b retirement plan is a good option to help you save for retirement years. It is primarily designed for employees of tax-exempt organizations, public schools and for ministers. The 403b plan has a range of options for these types of people and has various benefits to both employer and employee.

Firstly, the employer can take advantage of sharing the cost of the contributions with the employee. In some cases the employee is the only one who can make contributions into the retirement account. Happy workers who benefit greatly from a 403b retirement plan also means that the company is going to be able to keep them from moving to another job.

Employees that have this plan will also benefit from a range of advantages. The main benefit is that they can enjoy a reduction in taxable income as pre-tax contributions are made. They can also benefit from tax deferred earnings on plan contributions. There is also the option of being able to take out a loan or a “hardship withdrawal” on the 403b retirement plan. If withdrawals are made when employees have reached the specified adult retirement age, then they are less likely to pay so much tax on any assets.

The list of vendors should be obtained from the employer who can stipulate which financial institutions an employee may use. If an employee wants to use a certain investment company they can ask their employer to add it to the list of vendors.

Contributions to the 403b retirement plan can be stopped at any time and the amount being paid in can be changed too. Employers may limit the amount of times you can change the contribution value and it is best to check any restrictions before you start the plan.

When you take out a 403b plan, as well as your contributions you will have to pay investment company fees and administration fees. Investment fees can vary and will be specified by the investment company. The amount you pay is calculated on the whole amount you have in the account. For example if you have $100 in your account and the investment fee is 3%, you will be charged $3.

The 403b plan was introduced to ensure that workers in the occupations mentioned above were catered for after the adult retirement age. Employees of educational institutions and non-profit companies are provided with a pension plan, but the amount does not generally equal their salary. The 403b retirement plan therefore gives a supplemental income upon retirement.

If you want to find out more about the 403b retirement plan or its options you will find a myriad of information available on the internet. Alternatively you can speak to a financial advisor who will be able to help you further.

President Obama signed into law the Small Business Jobs Act of 2010 (H.R. 5297, the “Act”) on September 27, 2010. The Act includes a $12 billion tax incentive package aimed at small businesses to help them grow and to expand lending. These tax incentives are offset by several revenue-raising provisions, as discussed in more detail below.

Provisions Providing Small Business Access to Capital

Temporary 100 Percent Gain Exclusion on the Sale of Certain Small Business Stock

In general, non-corporate taxpayers may exclude 50 percent of any gain from the sale or exchange of qualified small business stock

(“QSBS”) held for more than 5 years (75 percent of any gain may be excluded if the QSBS is acquired after February 17, 2009, and before January 1, 2011). The amount of gain exclusion permitted is the greater of (i) 10 times the taxpayer’s basis in the QSBS or (ii) $10 million. In general, QSBS is stock in a C corporation that conducts an active trade or business and has gross assets not exceeding $50 million at the time the stock is issued.

Under the Act, 100 percent of the gain from a non-corporate taxpayer’s sale of QSBS acquired after September 27, 2010, and before January 1, 2011, that is held for 5 years is excluded from taxable income and no regular or alternative minimum tax will be imposed on the gain.

Temporary Reduction in Recognition Period for S Corporation Built-in Gain Tax

When a C corporation converts to an S corporation the S corporation must generally pay a tax on gain that arose before the conversion to an S corporation, known as built-in gain, and that is recognized in the first ten years that the S corporation election is in effect. A C corporation is one that is taxed at both the corporate and shareholder level while an S corporation receives pass-through tax treatment and is taxed at the shareholder level only. An S corporation is formed by election and is only permitted if a number of specific requirements are met.

Under the Act, the recognition period for an S corporation to recognize built-in gain is reduced to seven years for taxable years beginning in 2009 or 2010 and to five years for taxable years beginning in 2011.

Eligible Small Business’s General Business Credit

A taxpayer’s general business credit is generally limited to the excess of the taxpayer’s net income tax over the greater of (i) the taxpayer’s tentative minimum tax or (ii) 25 percent of the excess of the taxpayer’s net regular tax liability over $25,000. General business tax credits that are greater than this limitation may be carried back one year and carried forward up to twenty years.

Under the Act, the general business tax credit of an eligible small business for 2010 may be carried back five years, instead of one year. These general small-business credits are not subject to the alternative minimum tax for 2010. For this purpose, an eligible small business is a non-publicly traded corporation or partnership that has average annual gross receipts for the three taxable years prior to the current taxable year of no more than $50 million.

Provisions Encouraging Small Business Investment and Growth

Expansion of Internal Revenue Code Section 179 Deduction Limits

Under Internal Revenue Code Section 179, a taxpayer may elect to deduct the cost of “qualifying property.” “Qualifying property” is depreciable tangible personal property that is purchased or used in the active conduct of a trade or business such as equipment purchased for business use, office furniture, or office equipment. For taxable years after 2007 and before 2011, the maximum amount a taxpayer may elect to deduct under section 179 is $250,000 of the cost of the qualifying property placed in service for the taxable year ($25,000 for all other taxable years). For taxable years beginning after 2007 and before 2011, this $250,000 maximum amount is reduced by the amount by which the cost of the qualifying property placed in service during the taxable year exceeds $800,000 ($200,000 for all other taxable years).

The Act increases the section 179 expensing limitation for 2010 and 2011 to $500,000 with a phase-out threshold of $2 million and allows taxpayers to expense up to $250,000 of the cost of qualifying leasehold improvement, restaurant, and retail property.

Bonus Depreciation

The Act extends for one additional year the temporary 50 percent depreciation bonus first enacted in the Economic Stimulus Act of 2008 and then renewed in the American Recovery Reinvestment Act of 2009.

Under this bonus depreciation provision, 50 percent of the basis of qualified property may be deducted in the year the property is placed in service and the remaining 50 percent is recovered under normal depreciation rules. Generally, qualified property includes (i) property with a MACRS recovery period of 20 years or less, (ii) water utility property, (iii) certain computer software, and (iv) qualified leasehold improvement property.

The result of the bonus depreciation extension is that it is generally available for qualified property the original use of which begins with the taxpayer and that is placed in service during 2008, 2009, 2010, or 2011 in case of certain property with longer production periods.

Provisions Promoting Entrepreneurship

A taxpayer may elect to deduct up to $5,000 of start-up expenditures in the taxable year in which the taxpayer’s business begins. The $5,000 amount is reduced by the amount which the total amount of start-up costs exceeds $50,000.

The Act increases the amount of start-up expenditures a taxpayer may elect to deduct from $5,000 to $10,000 and increases the deduction phase-out threshold so that this $10,000 amount is reduced by the amount which the total amount of start-up costs exceeds $60,000.

Other Provisions

The Act provides a deduction for health insurance costs in computing self-employment taxes in 2010.

The Act removes employer-provided cell phones and similar telecommunications equipment from “listed property” effective for taxable years beginning after December 31, 2009. By de-listing employer-provided cell phones, the Act removes the strict substantiation-of-use requirements and the limitation on depreciation deductions, and eases administrative burdens on employers, employees, and the Internal Revenue Service.

The Revenue-Raising Offset Provisions

The Act raises revenue through several information reporting and penalty provisions, some of which are listed below:

1. Recipients of real estate rental income that make payments of $600 or more to a service provider (such as a plumber or accountant) in the course of earning rental income must send an information return to the Internal Revenue Service and to the service provider.

2. The Internal Revenue Service may issue levies before a collection due process hearing occurs for federal contractors who owe federal taxes.

3. An increase on the penalties for failure to file correct information returns is imposed.

A last-ditch effort on the part of liberal Democrats in the House to send the big tax cut extension bill back to the Senate has failed. With last night’s favorable vote, an AMT Patch for 2010 and 2011 has now been passed by Congress, included as a part of “The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.” The bill now goes to President Obama, who is expected to sign it into law as soon as he receives it.

What the Patch actually does

As has been mentioned in previous articles, “the Patch” simply is an adjustment to the AMT exemption amount that individuals are allowed as a deduction in computing their Alternative Minimum Taxable Income. The new law sets the 2010 exemption levels at $72,450 for married couples filing jointly and $47,450 for single individuals. Without this adjustment, the exemption amounts would have reverted to their much smaller equivalents from ten years ago, with the unfortunate result that 28 million new taxpayers would have been pulled into the AMT for the first time.

Effect on those already in the AMT

While the Patch primarily is designed to keep the 28 million new taxpayers from getting caught in the amt, there also is a significant benefit to the four million individuals already there. This benefit is the avoidance of as much as additional AMT of nearly $8,000 for married folks and nearly $4,000 for singles, had the exemption levels fallen back to their levels a decade ago.

Taxpayers by level of income who benefit from the Patch

The IRS Statistics of Income report for 2008, just recently released, shows that the majority of AMT payers – 62% – fall within the $200-500,000 income range. Taxpayers making between $100-200,000 comprise 22% of AMT payers while those in the $50-100,000 range make up another 5%. Without the Patch, the number of folks at these levels and below filing the Form 6251, Alternative Minimum Tax – Individuals, would have grown dramatically.

Different types of taxpayers who benefit from the Patch

With respect to what types of taxpayers are affected by the Patch, the entire spectrum is included. This includes employees receiving regular paychecks, self-employed individuals running their own businesses, and investors as well as retirees. There are so many different ways of becoming ensnared in the AMT that its tentacles reach out and pull in every single category of individual taxpayer.

AMT planning between now and year-end

With only two weeks left in the year, much still can be done to lower an individual’s 2010 Alternative Minimum Tax liability. The key to doing this is the fact that individuals are cash method taxpayers, and, therefore, income that can be pushed to 2011 will not be taxed this year (and vice-versa), and checks that can be written by December 31 become eligible deductions in 2010 (and, again, vice versa). These types of changes will directly affect the calculation of an individual’s AMT liability.

As an example, the biggest single item pushing people into the AMT is the itemized deduction for state and local taxes. This includes income taxes as well as real estate taxes, and it represents an AMT item that affects nearly 95 percent of all individuals who are stuck in the AMT. The simple act of whether and to what extent an individual pays these state and local taxes by December 31, or waits until January 1, can represent a significant savings opportunity.

Don’t wait any longer – with the Patch now enacted, there’s no excuse for anyone not to be doing year-end AMT planning right now!

2011 Tax Deduction for Homeowners is a great way to save money in year 2011. If a taxpayer understands the benefits of home ownership they might decide to own a home instead of continuously paying down payment to a rental apartment.

If you own a house, here’s the steps on how to claim maximum Tax deduction for homeowners in 2011.

The deductions can be made by reducing the real estate taxes you paid in accordance to the assessment value of your property and if the local government has similar rating to its value.The public must have gained benefits from taxes they paid and not only for individuals or community. Whenever you have first or second homeowner mortgage, home equity loan, and home improvement loan in 2011 you can deduct from taxes all the interest you paid for this loan as long you are using this home as your main or secondary residence. Never deduct payments you have made from your real estate escrow account because your lender can present annual information of your payments that can show the actual amount you paid for it and can deduct to your federal income taxes. This is important point you must remember when doing Homeowner Deductions from your 2011 Tax return. A lot of people make this mistake. In the event you bought a house you can transfer all taxes you have paid and add it to its cost basis. This is the item that cannot be deducted to your taxable income.

To claim your Tax Deductions as a Homeowner in 2011, be diligent when filing.

Tax deductions are not the top priority for most individual real estate investors. They often work out of their home with no employees, other than those on-site at the property. Challenges (aside from tax deductions) include selecting what property to purchase, screening tenants, repairs, managing expenses, obtaining financing, and deciding when to sell. This article addresses tax deductions sometimes over-looked by real estate owners.

Tax deductions reduce taxable income but do not directly reduce taxes. For example, $10,000 in additional tax deductions will generate $3,500 in federal income tax savings ($10,000 X 35%), assuming a 35% federal income tax rate. Since most require a cash expenditure, increasing actual expenses to increase tax deductions is not desirable. Let’s review fine-tuning the depreciation schedule and reclassifying existing expenditures to increase deductions.

Real estate depreciation is a potent but underutilized source of tax deductions Real estate depreciation schedules are commonly established by just separating land from the improvements. This is analogous to asking a world-class pianist to play a piano which is not tuned and has several keys which are not functioning. The results are just not as good as they should be.

Congress has provided depreciation as a tax deduction to encourage real estate ownership and investment. Numerous court decisions have provided clear guidance for accurately and precisely depreciating real estate. Cost segregation can typically increase real estate depreciation by 50-100% in the first 5-7 years of ownership.

Owners can claim a tax deduction windfall for properties owned more than one year by “catching-up” previously under-reported depreciation. After obtaining a cost segregation report, you can “catch-up” depreciation without filing any amended tax returns.

Another meaningful source of tax deductions is to scrutinize any cash expenditures which are being capitalized. Have minor repairs been capitalized in error? Are there more significant repairs which do not clearly extend the life of a component? Discussing these items with your accountant can yield additional tax deductions Also review items which were capitalized in prior years; can you claim any of them as current year tax deductions?

Child labor can be good when they are your children and you claim a tax deduction. Consult your accountant or CPA but this can generate additional tax deductions of $5,000 per child, upon which they pay no taxes. (If they are feeling generous, they may return the money as a tax-free gift.)

A tax-deductible vacation is an attractive option to make an expenditure deductible. Simply plan a vacation around a business trip for a meeting or seminar. Your airfare and hotel for the business period are deductible. Hotel before or after the business activity and your spouse’s airfare (assuming that your spouse is not involved in business) are not deductible. Half of meals during period with business activity are deductible.

Reviewing personal expenditures can generate additional tax deductions Items used for business such as computer, printer, office supplies, seminars, association dues, and business publications can be deducted. Long distance business phone calls can also be deducted. Self-employed persons can deduct the entire cost of health insurance premiums.

Record keeping for tax deductions does take a modest effort. However, the federal income tax savings make it worth the effort.

Cost segregation produces tax deductions and reduces federal income taxes across the country and in every size market. Below are just a few examples of cities where cost segregation generates meaningful tax deductions.

City:
Las Vegas, NV Boston, MA Tampa, FL Hartford, CT San Francisco, CA Memphis, TN Miami, FL Denver, CO Phoenix, AZ Orlando, FL Boise, ID Chicago, IL El Paso, TX Oxnard, CA Rochester, NY Cincinnati, OH Jackson, MS San Jose, CA Fresno, CA Charleston, SC Omaha, NE Oklahoma City, OK Buffalo, NY Albuquerque, NM San Antonio, TX Charlotte, NC Allentown, PA Austin, TX Baton Rouge, LA Jacksonville, TN

Cost segregation produces tax deductions for virtually all property types, including the following:

Property Type:
Used car lot Research and development Nursing home Lumber storage Truck stop Tennis club Hospital School Movie theatre Lodging

Almost every industry, including the following, can generate cost-efficient tax deductions by using cost segregation.

Industry:
Golf courses and country clubs Textile product mills Nondurable good wholesalers Durable good wholesalers Real estate lesser Electrical component manufacturing Textile mills Laundry facilities Automotive parts distributors Plastic and rubber products manufacturing