Are you upgrading the offices or workspace of your small business? This may be an opportunity to make improvements to accommodate individuals with disabilities (including your own employees and visitors to the business premises) if you haven’t done so already.
These accommodations are legally required for larger businesses. The improvements may be pricey, but there’s a potential tax payoff.
Benefits of the Disabled Access Credit
If your small business qualifies under a special tax law provision, it can claim the Disabled Access Credit for half the cost.
Specifically, the credit is available for making the business premises more accessible to disabled individuals. A “qualified small business” is one that had gross receipts of $1 million or less or didn’t employ more than 30 full-time employees in the preceding tax year. The credit is essentially equal to 50 percent of the first $10,000 of qualified expenses. (Technically, the first $250 of expenses is excluded from the calculation, but then the credit applies to the first $10,250 of expenses.)
That means the maximum credit a qualified small business can claim in a given year is $5,000. Any excess may be carried back for one year and forward for up to 20 years.
The expenses need to be incurred to meet requirements established by the federal law protecting individuals who are disabled. Typically, the credit is claimed for costs related to:
- Installing ramps
- Adding guardrails
- Removing barriers
The credit also applies to material expenses needed for individuals with hearing or visual impairments, and for modifying equipment for their use.
Finally, the disabled access credit is claimed as part of the general business credit on the tax return of your small business. Remember that a credit is more valuable than a deduction because it reduces tax liability on a dollar-for-dollar basis.
Most investors face a 15 percent tax rate on long-term capital gains. This increases to 20 percent for people at the top of the ordinary income bracket (39.6 percent). That’s not too bad, considering the higher tax rates on regular income.
But did you know that long-term capital rates are reduced to 0 percent in certain situations? This means you might be able to benefit from a reduced tax rate on your profits on the sales of assets.
How to qualify for 0% capital gains rate
Capital gains from transactions such as securities sales are taxed at ordinary income rates under a graduated rate structure. This structure ranges from 10 to 39.6 percent.
However, if you’ve owned assets like securities for longer than a year, the maximum tax rate on a gain is 15 to 20 percent if you’re at the top of the ordinary income tax bracket. Capital gains may be offset by capital losses and vice versa, so this rule applies to your net gains.
On the other hand, short-term capital gains from sales of securities held a year or less are still taxed at ordinary income rates.
If your capital gains fall within the parameters of the 10 to 15 percent ordinary income brackets — the two lowest brackets — the maximum tax rate on a long-term gain is 0 percent. This often benefits low-income investors (ex. young investors), but it can also favor adults during a year when their other income is low.
Here’s an example of how it could work: you file jointly and an S corporation loss reduces your taxable income to $65,900 this year. The upper dollar threshold for the 15 percent tax bracket for joint filers is $75,900. So, if you realize a $10,000 long-term capital gain in 2017, the entire gain is taxed at the 0 percent rate.
Keep this helpful tax break in mind when planning year-end securities transactions. The 0 percent tax rate might just help you hold on to more of your profits. Give Carl Heinemann, your Chattanooga CPA, a call if you have questions about your year-end planning.
As the end-of-year holidays approach, you may decide to be extra generous to your loved ones. Specifically, by giving your family members gifts that are usually sheltered by the annual gift tax exclusion. Not only does this reduce the size of your taxable estate, it can minimize the overall income tax bite for your family.
How does the annual gift tax exclusion work?
Under the annual gift tax exclusion, you can give each recipient cash or property valued up to $14,000 free of gift tax without eroding any of your unified estate and gift tax exemption. This exclusion is adjusted every year for inflation in increments of $1,000, but hasn’t budged in recent years. The exclusion is doubled for joint gifts made by married couples.
For example, suppose you have three adult children and seven grandchildren. You and your spouse could each give every child and grandchild a gift of $14,000 in December to celebrate the holidays. Then you both could give each family member another $14,000 in January. In just two months, you and your spouse could reduce your taxable estate by a total of $560,000 ($28,000 x 10 recipients x 2 years)!
Normally, you don’t have to file a gift tax return to benefit from the annual gift tax exclusion, but your spouse must consent to joint gifts on a return.
How does the family save?
Assuming you’re in a high tax bracket and the recipients are in a lower tax bracket, any subsequent earnings from the cash or property you gift will result in reduced tax.
Special rules come into play if you give gifts of property that have appreciated or depreciated in value. Call Carl Heinemann, your Chattanooga CPA, today if you’d like to discuss your situation.
The tax rules are relatively lenient for rollovers to a traditional IRA. For instance, if you transfer funds from your 401(k) plan to an IRA within 60 days, there’s no tax liability on the transfer. Similarly, if you transfer funds from one IRA to another within the 60-day window — say, for investment reasons — you avoid tax for the current year. In effect, this gives you 60 days to use the money as you see fit. It’s like getting an interest-free loan from the IRS, albeit for just two months.
However, be aware of a special wrinkle. The tax law also says that you’re limited to just one IRA-to-IRA rollover for the year. In a 2014 tax court case involving this once-a-year rule (Bobrow, TC Memo 2014-21), the limit was applied to all the IRAs owned by the taxpayer, not each one separately. This is different from the previous interpretation by many tax commentators and even the IRS itself.
The facts in this case can be confusing, but here’s all you need to know. The taxpayer argued that the one-year limit didn’t apply to another IRA he owned after he completed an IRA-to-IRA rollover. The tax court disallowed his rollovers within the next 12 months. Subsequently, the IRS decreed that it would follow the court’s ruling. If you’re in a similar position, be aware that you can’t use multiple rollovers within the same year.
What happens if you violate the once-a-year rule? The transfer is treated as a taxable distribution, so you’ll be taxed at your regular tax rate on the portion representing deductible contributions and earnings. What’s more, you might face additional tax complications. For example, a 10 percent penalty generally applies to taxable IRA distributions made before age 59½.
The best approach is to avoid potential problems by strictly observing the IRA rollover rules. Give Carl Heinemann, your Chattanooga CPA, a call if you have questions specific to your situation.
Consider this scenario: your teenage son graduates high school and heads off to college. He studies hard and finishes with a bachelor’s degree in four years flat. He accumulates $40,000 in student loan debt, struggles to find a well-paying job and decides to move back home while looking for work. He needs help with student loan payments.
At the same time, your 80-year-old mother is struggling with medical bills and a mortgage. Before long she may require long-term care. You’re on the cusp of retirement, but now you’re wondering if working another five years makes sense.
Welcome to the “Sandwich Generation.” Many baby boomers — Americans born in the two decades following World War II — are facing similar financial pressures. If this state of affairs sounds familiar, here are three suggestions for coping:
- Set priorities. Focus on your own financial affairs first. If you’re struggling to make ends meet, it’s harder to be generous. Also, your kids have a lifetime of earning potential ahead of them. As you approach age 60 and beyond, options tend to be more limited. With that in mind, it’s often prudent to fully fund 401(k) and individual retirement accounts before helping kids with college costs and student loans. Pay down personal debt, especially high-interest loans and credit cards. Hone your budget with retirement in mind.
- Enlist the help of relatives. If possible, talk to siblings and other family members about the needs of aging parents. Relatives may be willing to help with caregiving or chip in to cover a portion of long-term care premiums, health care costs or mortgage payments. Elderly parents may be reluctant to divulge their financial affairs — including the availability of savings accounts, pensions and health insurance — but it’s a discussion that needs to happen. Set up a planning meeting to explore options.
- Do your homework. Did your parent serve in the military? Under the Veterans Administration Aid and Attendance program, qualifying veterans and their spouses may be eligible for a VA pension of more than $2,800 per month to help cover the costs of elder care. Also, costs vary widely among assisted care facilities. When relocating an aging parent, consider the possibility of higher travel costs and the need to find knowledgeable health care professionals.
Want help with these long-term planning decisions? Give Carl Heinemann, your Chattanooga CPA, a call.
As any entrepreneur will tell you, financing a business is no small undertaking. Pulling funds from personal bank accounts, liquidating assets, talking to friends and relatives about your venture — these are all actions you might take to get your business up and running. Banks and other financial institutions could also play a role.
In fact, for many small businesses, some form of debt is essential. According to a recent study by the Harvard Business School, about 48 percent of business owners reported a major bank as their primary financing relationship. Another 34 percent identified a regional or community bank as their main capital financing partner.
Understanding the following factors — fundamentals that loan officers scrutinize — could increase your chances of getting a small business loan:
- Cash flow. Lenders want assurance that your business will pay back the loan without fail. Your job? Convincing them that your company won’t default. Calculate cash flow at least quarterly and try to optimize those numbers before applying for the loan. Understand the support for your financial statements and be able to defend any projections.
- Collateral. This is the asset or group of assets a lender can recover to offset loan losses. In the case of a mortgage, it’s the market value of the property underlying a home loan. To bolster your case to a loan officer, consider getting independent appraisals of major assets to be used as collateral. Those assets might include inventory or company-owned real estate.
- Credit history. Any competent loan officer will examine your credit history before approving a loan. Sometimes otherwise strong businesses face financial troubles due to problems beyond the owner’s control. But know that if your credit is less than stellar, banks may be reluctant to lend. So plan early and make every effort to fortify your credit report. Paying off old loans or renegotiating supplier contracts may lift your credit score and increase the likelihood of loan approval.
- Expert advice. Lenders want assurance that you’re serious about the future of your business. Let the bank know that you’re seeking financial guidance from your accountant and other knowledgeable advisors.