Monthly Archives: March 2013

EITC and Other Tax Credits: Are You Eligible?

Westchester CPA Tax Tips

Earned Income Tax Credit can put extra money in your pocket this tax season if you qualify.

Westchester tax preparers at Herman & Company CPA’s have all the answers to your personal finance questions!

The Earned Income Tax Credit (EITC) is for working individuals who do not earn high incomes. Taxpayers who qualify and claim the credit could pay less or no federal tax, or even get a tax refund. However, the IRS estimates that 25% of those who qualify don’t claim the credit and advises taxpayers to consider claiming tax credits i.e., a dollar-for-dollar reduction of taxes owed for which they might be eligible.

Some of the credits taxpayers could be eligible to claim include:

Earned Income Tax Credit (EITC): A refundable credit for low-income working individuals and families. Income and family size determine the EITC amount. If the EITC exceeds the amount of taxes owed, those who claim and qualify for the credit receive a tax refund. See IRS Publication 596, Earned Income Credit (EIC) or use the EITC Assistant to see if you qualify.

Child Tax Credit: For people who have a qualifying child. The maximum amount of the credit is $1,000 for each qualifying child and it can be claimed in addition to the credit for child and dependent care expenses. See Pub. 972, Child Tax Credit.

Child and Dependent Care Credit: For expenses paid for the care of children under age 13, or for a disabled spouse or dependent, to enable the taxpayer to work. The amount of qualifying expenses is limited and the credit is a percentage of those expenses. See Pub. 503, Child and Dependent Care Expenses.

Adoption Credit: A tax credit of up to $13,170 can be taken for qualifying expenses paid to adopt an eligible child. See Pub. 968, Tax Benefits for Adoption.

Credit for the Elderly and Disabled: Available to individuals who are either age 65+ or under age 65 and retired on permanent and total disability, and who are citizens or residents. Income limitations apply. See Pub. 524, Credit for the Elderly or the Disabled.

Education Credits (Two Available): For those who pay higher education costs.  The American Opportunity Credit (formerly the Hope Credit) is for the payment of the first two years of tuition and related expenses for an eligible student for whom the taxpayer claims an exemption on a tax return.  The Lifetime Learning Credit is available for all post-secondary education for an unlimited number of years. A taxpayer cannot claim both credits for the same student in one year. See Publication 970, Tax Benefits for Education.

Retirement Savings Contribution Credit: A credit for a percentage of qualified retirement savings contributions, such as contributions to a traditional or Roth IRA or salary reduction contributions to a SEP or SIMPLE plan. To be eligible, you must be at least age 18 at the end of the year and not a student or an individual for whom someone else claims a personal exemption. Also, your adjusted gross income (AGI) must be below a certain amount. See chapter four in Publication 590, Individual Retirement Arrangements (IRAs).

In addition to those listed here, other credits are available to eligible taxpayers. Please contact Westchester CPA Paul Herman so we may asses your specific situation, and offer advice on the best way to claim your credits.

Business vs. Hobby Tax Deductions

Westchester Tax Preparers Provide Tax Advice

Depending on if you are pursuing a business or hobby, you may be eligible for certain tax deductions.

Westchester tax preparation experts at Herman & Company CPA’s have all the answers to your personal finance questions! People in general prefer to make a living doing what they love, which is often a hobby. At tax time, however, there is a difference between a business and a hobby. A hobby is an activity for which you do not expect to make a profit. If you carry on a business or investment activity from which you do not expect to make a profit, there is a limit on the deductions that you can take.

Income from a hobby, i.e., an activity from which you do not expect to make a profit such as a farm operated mainly for recreation, must be included on your tax return. You cannot use a loss from the activity to offset other income. All activities you do as a hobby, or mainly for sport or recreation, come under this limit. An investment activity intended only to produce tax losses for investors comes under this limit also. The limit on not-for-profit losses applies to individuals, partnerships, estates trusts, and S corporations; it does not apply to corporations other than S corporations. For more information on these entities, please contact our Westchester CPA firm.

I often get asked by my clients in Westchester County – from Scarsdale, Larchmont, Rye and beyond for advice on this.  Determining if you are carrying on an activity for profit is based on many factors including whether:

  • You carry on the activity in a business-like manner.
  • The time and effort you put into the activity indicate you intend to make it profitable.
  • You depend on income from the activity for your livelihood.
  • Your losses are due to circumstances beyond your control (or are normal in the start-up phase of your type of business).
  • You change your methods of operation in an attempt to improve profitability.
  • You, or your advisors, have the knowledge needed to carry on the activity as a successful business.
  • You were successful in making a profit in similar activities in the past.
  • The activity makes a profit in some years and the amount of profit it makes.
  • You can expect to make a future profit from the appreciation of the assets used in the activity.

Business Provisions of the American Taxpayer Relief Act of 2012

business tax tips from specialists in westchester taxes

The American Taxpayer Relief Act of 2012 also brought upon many changes for businesses.

In our second discussion of the American Taxpayer Relief Act of 2012, Westchester financial planners at Herman & Company CPA’s break down what this new tax bill means for businesses.

The recently enacted 2012 American Taxpayer Relief Act includes a wide-ranging assortment of tax changes affecting both individuals and businesses. On the business side, two of the most significant changes provide incentives to invest in machinery and equipment by allowing for faster cost recovery of business property. Here are the details.

Enhanced small business expensing (Section 179 expensing). Generally, the cost of property placed in service in a trade or business can’t be deducted in the year it’s placed in service if the property will be useful beyond the year. Instead, the cost is “capitalized” and depreciation deductions are allowed for most property (other than land), but are spread out over a period of years. However, to help small businesses quickly recover the cost of capital outlays, small business taxpayers can elect to write off these expenditures in the year they are made instead of recovering them through depreciation. The expense election is made available, on a tax-year-by-tax-year basis, under Section 179 of the Internal Revenue Code, and is often referred to as the “Section 179 election” or the “Code Section 179 election.” The new law makes three important changes to this expense election.

First, the new law provides that for tax years beginning in 2012 or 2013, a taxpayer will be allowed to write off up to $500,000 of capital expenditures subject to a phase-out (i.e., gradual reduction) once capital expenditures exceed $2 million. For tax years beginning after 2013, the maximum expensing amount will drop to $25,000 and the phase-out level will drop to $200,000.

Second, the new law extends the rule that treats off-the-shelf computer software as qualifying property through 2013.

Finally, the new law extends through 2013 the provision permitting a taxpayer to amend or irrevocably revoke an election for a tax year under IRC Sec. 179 without IRS consent.

Extension of additional first-year depreciation. Businesses are allowed to deduct the cost of capital expenditures over time according to depreciation schedules. In previous legislation, Congress allowed businesses to more rapidly deduct capital expenditures of most new tangible personal property, and certain other new property, by permitting an additional first-year write-off of the cost. For qualified property acquired and placed in service after December 31, 2011, and before January 1, 2013 (before January 1, 2014, for certain longer-lived and transportation property), the additional first-year depreciation was 50% of the cost. The new law extends this additional first-year depreciation for investments placed in service before January 1, 2014 (before January 1, 2015, for certain longer-lived and transportation property).

The new law also extends for one year the election to accelerate the AMT credit instead of claiming additional first-year depreciation for certain corporate taxpayers.

The new law leaves in place the existing rules as to what kinds of property qualify for additional first-year depreciation. Generally, the property must be (1) depreciable property with a recovery period of 20 years or less, (2) water utility property, (3) computer software, or (4) qualified leasehold improvements. Also the original use of the property must commence with the taxpayer-used machinery doesn’t qualify.

Please contact our Westchester CPA firm if you would like more information about the new cost recovery provisions or any other aspect of the new legislation.

Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.