Tax information for statutory and non-statutory Employee stock purchase plans

Tax information for statutory and non-statutory Employee stock purchase plans

by | Nov 13, 2018 | Investment & Income

Tax information for statutory and non-statutory Employee stock purchase plans

Tax information Restricted Stock Units are taxed differently than other kinds of stock options, such as statutory and non-statutory Employee stock purchase plans. Those plans generally have tax consequences at the date of exercise or sale, whereas restricted stock usually becomes taxable upon the completion of the vesting schedule. The entire amount of the vested stock must be counted as ordinary income in the year of vesting.

Goods and Services

Though the number of vendors supporting Bitcoin is not something to brag about, you will still find plenty of them. If you purchase any goods or services with the help of Bitcoin or any other virtual currency for that matter it must reflect in your W2 Form. Here is what you need to do.

  • Convert the equivalent of virtual currency on the day of purchase and keep a note of the same.
  • If your employer pays you in virtual currency, they are subject to same taxes as wages in dollars.

It is important to declare the income in dollars in your W2 Form, irrespective of which virtual currency you dealt with. Self-employed individuals must include the same in their tax returns.

Investment

Though most virtual currencies are still in their nascent forms, quite a few of the investors are taking them are serious investments. They believe that the money invested in virtual currency will yield them great returns in the future; which have proven to be correct in the case of Bitcoin as of now. Should you plan to do the same, they would fall under the same category as your normal stocks, capital assets and bonds do. You are liable to pay capital gain or loss tax on your virtual currency in such a scenario.

Mining

As of now, there are two ways by which you can get your hands on the virtual currencies. First is the good old method where you buy the virtual currency using real currency. The second method is called mining. The later uses computing power to validate the transactions and keep a track of all transactions. Essentially becoming a part of the block chain.

Tax tip for Employee Stock Purchase Plan (ESSP)

Tax tip for Employee Stock Purchase Plan (ESSP)

by | Nov 13, 2018 | Investment & Income

Tax tip for Employee Stock Purchase Plan (ESSP)

Tax tip for Employee Stock Purchase Plan (ESPP) allows employees to use after-tax wages to purchase stock in the company they work for at a discounted price. Thus employees pay to participate in ESPP. However, in an ESPP, employees purchase stock with their own after-tax wages and pay capital gains taxes when they sell their shares.It provides discount between 0% – 15%. There is no AMT at the time of purchase. You need to purchase these shares within the company offering period (normally 5 years). Under ESPP, even if you hold your shares for more than a year, still part of your profit can be ordinary income.

Mortgage Insurance Premiums

Mortgage Insurance Premiums

by | Mar 16, 2018 | Investment & Income

Mortgage Insurance Premiums

Mortgage insurance in the simplest of terms is the backup plan for a lender. In the unfortunate event that the borrower is unable to repay the loan, the lender can cash in the mortgage premium and recover the losses. However, there is more to it than what meets the eye. Here are some more details of this rather intriguing insurance and why you should opt for it.

What is it?

Statistics reveal that most home buyers pay less than 20% of the entire property cost as up front or commonly known as down payment. This leaves the lender at a bit of a disadvantage, should the borrower default due to some reason or the other. To overcome such situations, the Mortgage insurance is in place. One can usually find this insurance type on USDA and FHA type of loans. The insurance primarily reduces the risk that a lender takes by providing you with a loan.

This even takes care of certain situations where a borrower might not necessarily be eligible to get a loan of that magnitude. However, this does come at a cost and you must bear that cost. This is like an insurance policy for your mortgage. Since insurance has premiums, you need to pay for the same. These premiums also increase the cost of the overall loan. Most of the times, this insurance premium becomes a part of your monthly installments, thereby reducing its impact.

Does it qualify for Deductions?

As per the PATH or Protecting Americans from Tax Hikes act, you can seek for deductions for mortgage insurance premiums. The Congress put an end to the clause in the year 2015, but the same was extended for a year and was valid through 2016. This deduction is one of those ones that the Congress takes a close look at annually and takes a call whether or not to extend the benefits. The deduction is applicable to families with medium income and eventually nullifies as the earning bracket increases.

Which all loans do qualify for the deduction?

Assuming, that the Congress would extend the benefits of the PATH act, any mortgage loans taken on or after 1st January 2007 qualify for the deduction. The deductions are applicable to first or second home or even home acquisition debt. One must not ideally use the second home for rent purposes. To qualify for the deduction, one must not earn any profits out of the second home. Any sort of refinance loans for the houses also qualifies for the mortgage insurance and its deductions.

Income Bracket

As mentioned earlier, the deduction is not applicable to anyone and everyone. Single tax payers with adjusted gross income of $109,000 and married filing separately tax payers with AGI of $54,500 cannot apply for this deduction. It is applicable for single tax payers with AGI less than $100,000 and $50,000 for tax payers who are married but file taxes separately. If you are not sure about your AGI, take a look at line 37 on your Form 1040.

How to claim the amount?

The amount paid towards mortgage insurance premium is present in Form 1098. As of now, there are no restrictions on the premium amount that you can claim for deduction. This essentially means, you can deduct the entire mortgage insurance premium. The insurance amount paid is itemized and must be mentioned in line 13 of Schedule A. As is the case with everything else, if you have opted for standard deductions, you cannot claim mortgage insurance premiums. But if the Congress doesn’t renew this clause, it might be worthwhile to relook into your mortgage insurance premiums.

Tax on Cash Donations, Non-cash Donations, Charity Expenses

Tax on Cash Donations, Non-cash Donations, Charity Expenses

by | Feb 9, 2018 | Deduction & Credits, Investment & Income

Tax on Cash Donations,

Non-cash Donations, Charity Expenses

 

Tax On Cash Donations,Non cash Donations, Charity Expenses. A donation in any form can give you immense pleasure and harmony of sharing stuff with others who do not have access to such things. More people are interested in such noble causes than ever before. Apart from helping some people in need, you can help yourself as well. A Donation is one of the known ways of reducing your tax liability. Unfortunately, a lot of people started to misuse the same and in turn forced the government to push for stricter regulations. The following are some important points that you need to consider when it comes to tax on donations or charity.

  • If you have done some non-cash donations to any organization and the same accounts to less than $250, you need to get a receipt from the organization. Think of it as the donations made to the Salvation Army and the receipt that you get in return. You need to keep the receipt with you carefully for your tax returns. But do not file the same in your returns.
  • For any charity that you have done that ranges from $250-$5000, you need to get a comprehensive acknowledgment in written from the organization or charity. IRS has a format that must be followed for the written acknowledgment.
    • It usually includes the description of your donation, not necessarily the value of your donations.
    • If the charity provided any services in return of your donation.
    • If they did provide any services, a description of the same along with a fair value of the services.
    • Date of the donation, which will be helpful during the filing of tax returns.

You also need to produce a written valuation of the donations so that it can be attached with tax records. The evidence is essential for the IRS to decide the deductions that you must receive as part of the donation.

  • In the event that your total non-cash donations are more than $500, you would need to fill up the Form 8283 and make it a part of your tax return. The form is specifically designed for noncash charitable contributions.
  • Should you want to donate items that include furniture or clothing it must be in good condition for you to claim the same in your returns. This can be a bit tricky but getting a valuation and attaching the same can bring down any confusion that persists. For an instance, you might want to donate any relic but their usual condition might not come under good condition criteria. The valuation criteria come into the picture if the donation is more than $500.
  • If you are planning to donate noncash items whose value is more than $5000, the above points hold good. In addition, you would need to furnish an appraisal of the item by someone qualified to do so. However, if you want to wish to donate anything that is traded publicly, then no such appraisals are needed. The appraisal is usually valid on property donation or donation that is beyond a specific value.
  • Tax payers who wish to donate tangibles such as cars, boats, or places have to deal with additional scrutiny. It is important to understand that the tax write-off will only come into the picture once the charity or organization sells such an item. So, the IRS doesn’t really care about any valuations as long as the item stays with the charity.
  • Tax on cash donations largely depends on the tax bracket you qualify for. For example, a $100 donation for someone in 35% bracket would cost them $65 on paper. These values change every year, so it is worth checking the rates before you donate.
Tips to Reduce Self-Employment Taxes

Tips to Reduce Self-Employment Taxes

by | Jan 30, 2018 | Investment & Income, self employment tax

Tips to Reduce Self-Employment Taxes

Tips to Reduce Self employment Taxes.Self-employed individuals need to pay self-employment taxes on the top of income tax. It might seem a bit harsh on some individuals. The self-employment taxes help federal programs such as social security and Medicare. So here are some ways by which you can cut down your tax liability if you are self-employed.

Corporation

In the event that you have created a corporation or limited liability company, you can benefit as a self-employed individual. If you proceed with an S Corp election, you might be able to reduce your tax liabilities under self-employment taxes. S Corp allows you to pay yourself from the profits and distribute the rest among shareholders or other employees. It also allows you to draw a reasonable amount from the total earning as salary. If the amount exceeds certain limits, it would come under income tax and not employment taxes.

SE Declaration

As per the guidelines set by the IRS, anyone making more than $400 out of self-employment is liable to pay taxes and has to file tax returns. You must include a Schedule SE with your tax returns which help you calculate how much self-employment tax you owe to the government. There is a small catch over here. When you fill out the Form 1040, as per IRS guidelines you can adjust your income by deducting a portion of your self-employment earnings. This clause lets you reduce your self-employment tax liability between 50-57% depending on your earnings.

Business Expenses

IRS has a few clauses that can help self-employed individuals to reduce their tax liabilities. One of them is declaring expenses. You can declare various business expenses if they helped you in any form to continue with your work. Of course, you cannot include leisurely trips as part of the expenses. Money spent on items such as advertising, office space, supplies and business related travel qualify for this. Let’s assume your taxable income is $40000 and you went on a business trip which accounted to $5000, your net taxable income would be $35000.

Health Insurance

This is one of the most visible advantages of self-employed over normal employees. Self-employed individuals can claim their entire health insurance costs. As long as you had some profits for the year, you can go ahead and claim your health insurance in full. When you deduct the health insurance amount, your taxable income for the specific year reduces, thereby reducing your total tax liability.

Deferred Income

Deferring your income to a later date is another smart way of reducing your tax liabilities for a specific year. Don’t worry, we are not asking you not to get paid at all, rather defer the payment depending on the timings. Since you are responsible, you can decide when you want the payment. Deferring the payment by a few days or weeks might enable you to pay lower self-employment taxes. For an example, if due to $3000 you are getting into the next bracket of tax, you can defer the same for the next month, provided the payment is really close to financial year end. Of course, you need to access if you need the money or it can wait for some time or not.

Home Office

If you use your home for your business purpose, you can deduct some amount from your taxable income on the front of expenses such as utilities, any rent paid or insurance of home. In fact, IRS has a simplified process that you can benefit from.

Measures mentioned above should help you as a self-employed individual to understand and brings down your self-employment tax liability. bulgari copy
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Details about Capital Gains

Details about Capital Gains

by | Jan 20, 2018 | Investment & Income, Tax Planning

Details

about Capital Gains

Details about Capital Gains.Who wouldn’t like to see their assets growing on a regular basis? As much as we enjoy seeing our assets swell up, there is a different side to it that we must deal with, capital gains. A capital gain is a type of tax than an investor has to pay if he/she sells his/her assets at a higher value than what they had purchased the same for. It must be noted, that if you as an investor are holding on to assets and their net value increases, you are not liable to pay any capital gains.

It only comes into picture when you sell the same. For an example, you could hold on to stocks of your favorite company. The value of the stocks would appreciate year over year, but you do now owe any capital gains tax unless you sell those stocks. Anyone who sells their assets for a profit would come under the purview of the capital gains tax unless an individual does it for a living. The simplest example would be that of a day trader. They indulge in the selling of stocks on a daily basis when then gain a certain amount. For them, the gains are calculated under the head of business income.

Tax Rates

The tax rates when it comes to capital gains are primarily split as short-term or long-term. As the names suggest, these primarily depend on how long you are holding the assets along with you.

Any profits that you accumulate within a short span of time will be calculated under the normal income tax rates.

However, if you hold on to assets for more than a year, the tax rates come down significantly. In fact, some individuals might even qualify for 0% tax rates for holding assets for more than a year. We will take a couple of examples and see how the tax rates come into the picture.

When it comes to single filers, taxpayers who qualify for the 10% and 15% tax bracket are not liable to pay any capital gains tax when it comes to long-term gains. Short-term gains are taxed at the same rates as income tax for people in the 10-15% brackets.

When the tax bracket for income increases, so do the short-term and long-term capital gains. For people in the 25-35% bracket of income tax, the short-term capital gain remains the same.

However, the long-term capital gain is set at 15%. Similarly, individuals taking home in excess of $418,401 a year are taxed at 39.6% for short-term gains, while the long term-gains remain at 20%.

The capital gains tax on short-term gains remains the same as income tax, irrespective of your status while tax filing. Similarly, irrespective of whether you are married filing jointly, married filing separately or are head of household, the long-term capital gains remain the at 15% for people coming in the 25-35% tax bracket and 20% for people who come under the 39.6% income tax rate slab.

Qualification

The capital gains tax system comes into the picture primarily for assets such as real estate, bonds, and stocks. It is usually not applicable to cars, boats and other similar stuff. When you sell these eligible assets and make money off it, is labeled as capital gains. Any loss you make also qualifies as a capital loss and can be used to check the profits.

For an instance, if you sold stocks of a company with a profit of $2000 and sold another stock at a loss of $400, your net capital gains will be valid on $1600.

If you someone who regularly buys and sells the above assets, it is worth spending some time on understanding your capital gains liability.