BBB accredited

how taxes influence nfl signingsIf you could choose where you wanted to live and it would not affect your job, how would you go about making your choice? What kinds of things would you consider in making your decision? Would you base it on the climate? Would you consider political tendencies in the area or perhaps the entertainment and recreation opportunities that were close by; or maybe even the local sports teams? Of course, there would be so many possible things that could play a role in the decision you make; but what about your taxes?

It’s All About the State You Choose

Your federal income would be the same wherever you ended up, but the same can’t be said for your state and local taxes. Most states have sales tax, but the real question is whether or not the state you choose to live in has a personal income tax; and if it does then how much will it cost you? Most states do have a personal income tax, and there are even several cities that charge an income tax as well. So if you had the option to do the same job and make the same salary no matter where you chose to live, how much would the state income tax rate affect your decision?

It’s Adds Up

If you make a modest salary, then the state income tax might not matter that much to you, especially if it’s a lower percentage. However, if you chose to live in California, for example, which has a state income tax rate that can reach as high as 13.3 percent for the highest earners, then your state income tax bill could be more than you bargained for. So, knowing what you know now about state income taxes, would that affect your decision?

Multi-Million Dollar Decision

Apparently, it does play a role in the decision-making process for many NFL free agents. That’s because with the multi-million dollar salaries that these players make the state they choose to play in could end up costing them literally millions of dollars. Take the top free agent from this year’s crop, former Detroit Lion defensive tackle, Ndamukong Suh, for example. Suh could have signed anywhere he wanted and he was reportedly interested in playing for a big market team. He chose the Miami Dolphins. Why is that significant? While we may never know if state income taxes played a role in his decision, it’s interesting to note that Florida is one of seven states with no personal state income tax.

Significant Savings

So how much did Suh save by choosing Florida, instead of California, for example? The difference is significant. It was estimated that if Suh had signed a deal worth $102 million over six years then he would net roughly 59,000,000 over the life of the contract. In comparison, had Suh signed a deal for the exact same terms in California he would have ended up netting just over $51 million. That is roughly an $8 million savings by choosing Florida over California. That’s not pocket change by any means.

So Now You Know – Choose Wisely

As with anyone else from any other profession, NFL players most likely weigh several factors in their decision regarding where they will play. However, the amount of their state income tax bill no doubt plays a role for many of them. So, if you ever have the chance to do your dream job in the location of your choice, be sure you consider all the factors; including how big your state income tax bill will be. Should you forget this important detail, you might be in for a surprise when you’re paychecks start showing up.

The Internal Revenue Service (IRS) recently put out data that shows the total amount of Offers In Compromise received and accepted by the IRS for 2014 fell in comparison to 2013.

An Offer In Compromise (OIC), is a program under 26 U.S.C. § 7122, that allows qualified businesses or individuals with unpaid tax liabilities to settle for an amount less than is owed. The Offer In compromise program is heavily advertised by many tax companies. However, only a small percentage of those that file an OIC actually get it accepted. This is largely due to the fact that the process generally requires the help of a  tax professional.

OIC Acceptance Rates Falls 2.2% to 39.7% for 2014

Even though the Offer in Compromise acceptance rate fell to 39.7% in 2014 from 41.9%, the acceptance rate is still relatively high when compared to previous years.

irs offer in compromise acceptance rate 2005-2014
Many believe the acceptance rate is better because more low-income taxpayers are filing for them. Others, point to the fact that the IRS made it easier to qualify with the advent of the IRS’s Fresh Start Initiative that lead to more flexible offer in compromise terms. Sean Chi, lead tax attorney at Clean Slate Tax states, “There are a number of reasons why OIC success rates have increased. One, is that tax professionals have become more adapt at identifying and filing OIC’s with the highest rates of success. Another explanation is that people are still struggling financially even if the recession is ‘over.’ Many people still do not have equity in their homes and their income has not grown as fast as the cost of living.”

OICs Received Fell; Dollar Amount Average Per Offer Slightly Up

The amount of OICs filed also dropped by about 8.8% to roughly 68,000 from roughly 74,000 in 2013. Interestingly, the average offer amount per OICs accepted jumped 5.39% to $6,643 compared with $6,303 in 2013.

irs-2014-offers-accepted-average-oic-amount

hobby or business irs considerationsTax responsibilities and the timelines for when they are to be paid to the Internal Revenue Service (IRS), state and local municipalities differ for business owners and taxpayers who work in a full-time capacity for an employer. But when you generate supplemental income from a side project or hobby—even one you consider a “real” business —the rules around your tax liability, and whether you’re an entrepreneur earning taxable business income in the eyes of the IRS, begins to blur.

Here’s a look at some of the factors that determine hobbies from businesses, and why it makes a difference when you file your taxes.

Regardless of how you earn money, the IRS is clear in the fact that must report any income of $400 or more on a Form 1099-MISC. Assuming that tax was not withheld from that income and you’re not entitled to exemptions, you’re also expected to pay tax on the income you earn.  But what if you incurred expenses in order to provide or produce the service or product, and that cost ultimately reduced (or negated) the profit you actually realized from the money you earned? The answer depends on whether income is generated by a hobby, or a business activity. Here are a few guidelines to determine which you have, according to tax law.

How long have you been doing your side gig?  Opening a business often involves putting forth an investment to secure physical space, establish a website, source materials and product, and market your services and goods. But hobbies require expenses, too.  Because of that fine line, the IRS uses the amount of time you have been making money pursuing your particular hobby (or business) as one factor to distinguish one from the other. By tax standards, a business will have realized some kind of profit in three of the past five years, including the current year.  A hobby might generate a profit periodically, but by tax definition, it is not something you do for the sole purpose of making money, and does not produce consistent profit. If it does? Congratulations. You own a (profitable) business!

What is your intent? If your ultimate goal in your hobby is to turn it into a business, you’ll likely take steps to establish it as its own recognizable entity. The IRS subscribes to the same theory. It considers factors that indicate you’re conducting your side gig in a “businesslike manner.” This might include giving your hobby an official name, creating a business structure for it, applying for a business tax EIN, and/or establishing a business bank account. The IRS will also look for operational changes you have made to enhance profitability, too, like advertising, or accepting credit cards. These actions essentially signal that your intent is to make money; you must adhere to the tax laws pertaining to small businesses.

The differences in deductions. Both hobbyists and business owners can deduct “ordinary” and “necessary” expenses in regards to hobby/business activities. But hobbyists can deduct only up to the amount they have made in income—even if that ultimately means personal loss results for the difference. Businesses, on the other hand, can deduct business-related expenses less income, along with losses from total income. In other words, a business may be eligible to take a bigger (legal) deduction, and potentially, to carryover losses from previous years over, too.

Both hobbyists and businesses must itemize in order to claim their expenses. Regardless of if you determine that you own a business or a hobby, it’s important to keep copious records of the legitimate expenses and losses you claim.

business-energy-tax-creditHave you been considering an investment in alternative energy for your small business? If so, act quickly. The generous 30 percent business Investment Tax Credit is scheduled to reduce to 10 percent after 2016 barring any extensions.

The 30 percent Investment Tax Credit was extended as part of the Emergency Economic Stabilization Act of 2008 and again in 2009. But, with the economy improving and fiscal conservatives in Washington, there’s not much political will to extend the credit again. Alternative-energy activists, concerned about the effect the expiration will have on the solar industry, are concerned about the lack of credit extension. But comparatively, there hasn’t been much noise yet about the credit reduction. It’s quite possible that the 30 percent credit will rather quietly disappear and convert back to 10 percent on December 31, 2016.

Tax years 2015 and 2016 are the perfect opportunity to purchase or break ground on an alternative energy system. According to this information furnished by the Solar Energy Industries Association in 2014, the average price of a commercial solar project has decreased 45 percent since 2012 and prices continue to drop.

Here’s a breakdown of the Investment Tax Credit rates, cutoffs and requirements:

What Systems Are Eligible for the 30% Investment Tax Credit:

  • Solar: Systems that heat, cool, or generate electricity, including hybrid solar lighting systems.
  • Wind Turbines: Turbines with a capacity of up to 100kW.
  • Fuel Cells: Fuel cells with a minimum capacity of 0.5kW. Must have at least a 30 percent electricity-only generation efficiency.
  • What Systems Are Not Eligible for the 30% Tax Credit:
  • Geothermal systems, Microturbines, and Combined Heat and Power Systems: these systems are not eligible for the 30% tax credit. However, they are eligible for a 10% tax credit.
  • Solar: Passive solar and pool-heating systems are ineligible for the tax credit.

What Counts Towards the Investment Tax Credit:

  • The cost of new systems put into place before December 31, 2016 or progress expenditures on self-constructed systems incurred before December 31, 2016.
  • Previously-owned property is not eligible for the credit.
  • Leased property may be eligible, but only if the lessor has not (and will not in the future) claim the tax credit for the same property.

Other Credit Restrictions:

  • The property must be used for commercial purposes (as opposed to lodging).
  • The property must be used primarily in the United States.
  • Companies that dispose of property within five years of putting it into service may have to repay some or all of the credit.

How to Calculate the Tax Savings:

30 percent multiplied by all eligible costs incurred during the tax year. For example, a business that expends $10,000 on eligible solar systems has a $3,000. This $3,000 directly reduces tax liability. If the business owed $5,000 in taxes before the credit, now it only owes $2,000.

Dollar-Value Credit Limitations:

There is an unlimited credit with no maximum dollar amount. There’s no cap on credit for the fuel cells, but the taxpayer can only claim $1,500 of expense per 0.5 kW of capacity. No caps exist on solar or small wind turbines. The credit is not a refundable credit. In other words, you can only use it to offset your tax liability. However, any unused credit balance can be carried forward for future tax years.

tax benefits single mom and caregiversThere are a lot of tough jobs people can have in life, but some of the toughest jobs are the ones that often go unpaid. For example, being a single mom is a 24-hour, seven-days-a-week job with no monetary compensation. There’s no question that most single moms have their hands full. Likewise, people who act as caregivers for the elderly or incapacitated adults or children also deal with their own set of difficult circumstances. That’s why any additional help single moms and caregivers can get is well deserved, including during the tax season.

Single Moms by the Numbers

However, first lets take a look at some telling numbers regarding single moms. According to the U.S. Census Bureau, there were roughly 12 million families that identified themselves as single parent in 2013. Of those 12 million families, 83 percent were lead by women. Single moms often have a difficult time obtaining and keeping steady employment, which also puts more stress on their family life. About half of all single mothers have full-time employment for the entire year, while nearly a quarter of single moms are without work for the entire year. One other telling statistic is the median income level of single mothers, which is $26,000. Meanwhile, the median income for married couples is $84,000.

Caregivers Carry Heavy Burden

Just like single mothers, those who take care of adults or children who are unable to care for themselves also have a lot on their plates. This too can be a tireless and thankless job, with no compensation. According to numbers from Cargiver.org, there are more than 65 million caregivers in the U.S. who are taking care of someone who is sick, elderly or disabled. Most caregivers are women and about one third of all caregivers actually watch over two or more people.

Give Them a Break

It’s clear that single moms and caregivers deserve some perks at tax time. So with that in mind, let’s look at some of those breaks that they should be taking advantage of. First off, single moms can use the head of household filing status, which means a lower tax rate schedule than filing as single. The lower the tax rate, the lower your tax bill, which means the greater your refund. Daycare is another area that single moms need to take full advantage of. Single mothers should start by using their employer’s daycare flex spending account. This allows them to use as much as $5,000 a year on daycare expenses before taxes. After the first $5,000 any additional money they spend on daycare expenses, up to $6,000 total, can count as a tax credit if they have at least two kids in daycare.

Additional Tax Help

Another tax benefit for single moms comes in the form of the Child Tax Credit and the Additional Child Tax Credit. These can help reduce your tax bill and in many cases actually increase your refund even if you don’t owe any tax. You can click here to learn more about these credits. Lastly, don’t forget about the earned income credit, which can also give your tax refund a nice boost if you qualify.

Help for Caregivers

There are also several tax breaks for caregivers that are often overlooked, which can be costly. For example, you can actually get a tax credit if you send your children to summer camp, as long as you are working and they don’t stay overnight. Caregivers can also claim credit for their daycare costs while they working for their dependent parent or another relative. Their dependent has to be unable to take care of his or herself in order for this to expense to qualify.

Around the House

If you’re a caregiver you can also qualify for several possible credits around your home. If you make any upgrades to your home to accommodate the person you give care to, those expenses can be deducted as medical expenses. Also, be sure to keep detailed records and receipts of all medical supplies, including medication that you purchase as part of the care you give. You can deduct those as well.

Don’t Overlook Any Benefit

Every taxpayer wants to get the most out of his or her return, but some need those credits and deductions a lot more than others, including single mothers and caregivers. So if you fall into one of these categories, be sure you take full advantage of every tax benefit the IRS makes available. You can learn more about these credits and deductions, as well as any others you might be eligible for, by clicking here.