Is Your Holiday Gift-Giving Creating a Tax Liability?

With the holidays and the start of a new year approaching, it’s natural to start thinking about who’s on your gift list this season. Gifts and charitable contributions given in 2015 can help make your tax burden lighter, which could be an especially important consideration if your year has been a prosperous one. If you’ve given gift or inheritance this year, you need to know whether these assets are taxable.

‘Tis the season to talk to your CPA to learn how gifts affect your tax status and what gifting and donations before year’s end could mean for your 2016 tax return.

Like an inheritance, a gift can count as taxable income. In 2015, the annual exclusion for gifts received is $14,000. In other words, if you make a gift below that amount, you do not need to report the amount on your income tax forms for the year. In the case of a cash gift, figuring the value is straightforward, but for gifts of property, assessing fair market value for tax purposes is vital. Working through a local Long Island CPA firm ensures you won’t face any surprises in 2016.

How are gifts that are more volatile in value such as property or stock estimated for tax purposes? Timing is critical here because the IRS evaluates the gift based on its fair market value at the time it was given. In other words, if you received shares of stock valued at $5,000 in January 2015 and sell them for $10,000 in December, you are responsible for taxes on the $5,000 profit even though the total value of the gift in 2015 did not exceed the $14,000 individual gift limit.

Let’s look at a popular gift for the holidays that will almost certainly exceed the exemption limit: a new car.

That $14,000 2015 limit is not without exceptions, but these are limited to special cases. Some medical expenses, tuition, and other education expenses may be exempt from taxation even if they exceed the cap. In the case of tuition, the gift must be paid directly to the educational institution. If, for example, you were to pay for a semester of college for a child or grandchild, you would need to do so directly to ensure it remained a tax-exempt gift; if the money goes to the student first, it then becomes taxable once it exceeds the individual cap. Similarly, medical expenses can qualify as gifts too, but only if the giver pays the care provider or insurance company directly.

The IRS tracks annual gift-giving because every person has a lifetime exemption amount past which gifts become taxable. Currently, this lifetime limit is $5.43 million per person. If you’re married, you and your spouse can combine to exclude up to $10.86 million from taxes. Gifts of property, businesses, and other highly valuable assets count toward this lifetime sum so the IRS can ensure that owners pay the appropriate taxes on them.

While the IRS takes no notice of the usual cashmere sweaters and colognes that get exchanged as gifts for the holidays, it does require larger gifts to be noted on tax returns. If you have given generous gifts this year, talk to your Long Island accountant to learn more about your tax responsibilities.

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Tax Tips for Start-Up Business Owners

Almost everyone is familiar with paying personal income taxes, but taxes for businesses are unfamiliar territory for most people. Understanding your tax responsibilities and learning what you can do to avoid over-payment is a challenge to handle alone, but with advice from a CPA firm that has experience with helping start-up companies succeed, you ensure your business is financially sound and fully compliant from the outset. A local Long Island accountant can help brick and mortar or online businesses meet their tax obligations.

Know Your Business Type

What kind of business are you establishing? Tax laws treat sole proprietorships, corporations, S-corporations, partnerships, and self-employment as different entities. You will fill out different tax forms for each of them, and your choices here have a significant impact on your tax responsibilities. You will always need to pay an income tax, but self-employment taxes, sales taxes, and payroll taxes may also factor into your tax plan. At this stage, a CPA’s financial advice is invaluable. Choosing a local firm is also wise; a Long Island CPA, for example, can advise you not only on federal tax laws but also state and local tax expectations you must meet. Continue reading

When Do You Need Outside Financial Advice?

Think back to your first job. You probably didn’t need to use an itemized tax return and just had a simple 1040-EZ to mail. Owning property, starting a business, having a family, establishing college funds, investing in real estate or stock and preparing for retirement – these milestones come later. With every new phase of your life, your financial needs become more complex. At some point, it makes good sense to call on a financial advisor to protect your wealth and prepare you for what’s to come in life.

CPA services save you more than they cost. With gains from tax savings, wise investments and protection from financial risk, you have more reason than you think to choose a financial advisor. A financial advisor helps you meet your future on sound financial footing at every point in your career. Continue reading

Silver Lining Playbook: Deductions for Net Operating Losses

Even a wildly successful business doesn’t show continuous profits throughout its lifetime. Some amount of loss is almost inevitable, but a business loss can have a silver lining when it comes to the Internal Revenue Service. Deductions for a business loss can provide tax relief and give you a significant refund – possibly as much as your entire previous year’s tax payment.

Sole proprietorships can choose to deduct losses from other income, such as investments, wages and spousal income on joint returns. Your filing status becomes somewhat more complex when you are part of an LLC, partnership or S corporation, but your individual return still carries your share of the total business loss that passes through the company to you. Only C corporations cannot make business loss deductions on individual returns; in these cases, the loss is ascribed to the business and should be handled by a CPA with corporate tax experience. Continue reading

5 Questions to Ask Your CPA When You’re Starting a Business

Your business plan may be in order, your lease agreement in the works and your pitch to potential backers honed to perfection, but if you haven’t spoken to your CPA in depth about your business plans, you’re missing crucial information. For many small and mid-sized business owners, the enthusiasm for creating a new business overshadows more mundane concerns about cash flow, loss prevention and taxes. It’s worth investing the time to meet with your CPA before you take any major step toward opening; when you do, put these questions on your list of things to ask.

“What’s the best way to set up my company?”

You have many avenues available to you for your fledgling business, including incorporation or becoming an LLC. An attorney’s advice is essential here, but so is your accountant’s. Your company’s organizational status has far-reaching implications for everything from taxes to financial liability in the event of a lawsuit, so you should involve your accountant in the decision process too. Continue reading

How to Choose a CPA for Your Business

Aside from any business partners you may have, your accountant probably gets to know more about your company than anyone but you. The organization’s financial health will rest in the capable hands of your CPA, so it’s worth finding a firm that’s a good fit for your needs. Asking the following questions can help you narrow down your selection.

How Available Do You Need Your CPA to Be?

In a volatile economy, companies in industries that experience variable work flow may need an accountant to be readily available for face-to-face meetings and teleconferences throughout their busiest seasons. Others prefer to give their CPA the reins and need little contact beyond the occasional phone call or email exchange. Whether your approach requires frequent communication or feels more hands-off, look for a firm that is flexible enough to meet your need for contact with your CPA. Continue reading