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It happens to butchers, bakers, and candlestick makers. It probably happens in your business, too: A customer doesn?t pay what they owe and you end up with a bad debt. Can you take a tax deduction?
The answer depends on how you account for income on your tax return. If you included the amount due from the customer in income this year or in previous years, it?s likely you have a bad debt deduction. You can claim all or part of the worthless receivable.
What if you record income as you collect the cash? In this case, since you don't receive the amount your customer owes you, and since you never reported it as income, there?s no deduction.
Suppose you lend money to a customer for a business reason and the loan becomes uncollectible. Is the loan considered a deductible bad debt?
Last Updated by Dalmacio Accountancy Corp on 2013-01-23 01:01:10 PM
Posted in tax
On June 28, the Supreme Court ruled that the "Patient Protection and Affordable Care Act of 2010" was constitutional, including the provision in the law requiring individuals to have health insurance coverage starting in 2014.
Several provisions in the health care law had already gone into effect, and many new tax provisions are scheduled to take effect in 2013. These are the provisions you should factor into your tax planning for the rest of this year. A quick review of these tax provisions:
* Annual contributions to health flexible spending accounts (FSAs) will be limited to $2,500.
* The 7.5% income threshold for deducting unreimbursed medical expenses increases to 10% for those under age 65. Those 65 and older may continue to take an itemized deduction for medical expenses exceeding 7.5% of adjusted gross income through the year 2016.
* The payroll Medicare tax will increase from 1.45% of wages to 2.35% on amounts above $200,000 earned by individuals and above $250,000 earned by married couples filing joint returns.
* A new 3.8% Medicare tax will be imposed on unearned income for single taxpayers with income over $200,000 and married couples with income over $250,000.
Contact our office for tax planning guidance following this landmark Supreme Court decision.
Last Updated by Dalmacio Accountancy Corp on 2012-07-12 04:05:52 PM
Posted in tax
Some tax-cutting strategies make good financial sense. Other tax strategies are simply bad ideas, often because tax considerations are allowed to override basic economics.
Here?s one example of the tax tail wagging the economic dog. Let?s say that you run an unincorporated consulting business. You want some additional tax write-offs, so you decide to buy $10,000 of office furniture that you don?t really need. If you?re in the 28% tax bracket and you deduct the entire cost, this purchase will trim your tax bill by $2,800 (28% of $10,000). But even after the tax break, you?ll still be out of pocket $7,200 ($10,000 minus $2,800) -- and stuck with furniture that you don?t really need.
There are other situations in which people often focus on tax considerations and ignore the bigger financial picture. For example:
* Someone increases the size of a home mortgage, solely to get a larger tax deduction for mortgage interest.
* A homeowner hesitates to pay off a mortgage, just to keep the interest deduction.
* Someone turns down extra income, because it might ?push them into a higher tax bracket.?
* An investor holds an appreciated asset indefinitely, solely to avoid paying the capital gains tax.
Tax-cutting strategies are usually part of a bigger financial picture. If you are planning any tax-related moves, we can help make sure that everything stays in focus. For assistance, give us a call.
Last Updated by Dalmacio Accountancy Corp on 2012-07-12 04:06:33 PM
Posted in tax
The e-mail from your bank gets your attention right away. It says you need to log into your account in the next 48 hours to continue your online privileges. Something about a system upgrade. You wonder, is it legitimate? How can you know for sure?
Bogus e-mails designed to steal your identity, also known as phishing, are becoming a bigger problem these days. While they can take many different forms, most scams are designed to trick you into revealing personal information such as your social security number or online account password. Through clever use of logos and familiar-looking web addresses, these e-mails often appear to be an urgent message from your bank, mortgage lender, or e-mail provider.
You may not realize it, but thieves are especially eager to gain access to your web e-mail account. Why? Once a scammer has access to your e-mails, he or she can often figure out where you bank and detect clues to passwords you might use.
So what can you do to protect yourself? Take a moment and think before you click. Never respond to an e-mail asking for your social security number or birth date. You can almost bet that it is a scam. If an e-mail contains a website link that you are not familiar with, do not click on it. Instead, either go directly to the company?s trusted website, or contact them by phone.
Also remember that e-mail scams become more prevalent following a significant public event, such as a natural disaster or sudden stock market drop. Thieves will prey on your sympathies or fears during these times, so be extra careful when responding to appeals for charity or notices to update your financial records. Also, be leery of e-mails with demanding language or incorrect grammar -- both are potential signs of a counterfeit e-mail.
For preventive measures, try to use a different password for every online account, and change your passwords regularly. Make your passwords stronger by using combinations of letters, symbols, and numbers. Also, keep your computer anti-virus software up to date.
Finally, do your part to thwart these crimes by reporting any suspected scam e-mails to email@example.com. If you receive a bogus tax-related e-mail, forward it to the IRS at firstname.lastname@example.org. And of course, feel free to contact our firm if you need a second set of eyes on any suspicious-looking e-mail.
Last Updated by Dalmacio Accountancy Corp on 2012-07-12 04:07:54 PM