How Can I use the Kiddie Tax?

The Small Business and Work Opportunity Tax Act of 2007 introduced a number of tax incentives for small business, but included a few pitfalls for individuals. For 2007, a child under the age of 18 is subject to the "kiddie tax" (and thus pays tax at his or her parents' highest marginal tax rate on unearned income in excess of $1,700).

But in 2008, the applicable age rises and the kiddie tax will apply to a child under the age of 19 and full-time students under age 24. In light of this development, parents should consider selling appreciated stock and other assets belonging to their children now, especially if they will be in the 19 to 24 year-old category next year.

Answer Provided by Andrew Taylor, CPA - Haffley,Taylor & Company

How can I reduce my 2007 taxes - Gift-giving

Take advantage of the 2007 annual and lifetime gift-giving limits to reduce your income and estate tax liabilities. For 2007 and then again in 2008, you can transfer $12,000 per person, per year, without paying gift tax on the amounts transferred.

Married couples can gift $24,000 per person, per year without tax liability on the amounts transferred. That strategy not only avoids the possibility of paying a hefty estate tax later, but it removes earnings from those gifts from your taxable income bracket into that of the lower-bracket gift recipient.


Answer Provided By Andrew Taylor, CPA - Haffley, Taylor & Company

How can I reduce my 2007 taxes _ Retirement planning

Year-end planning for 2007 also involves maximizing annual contributions to your retirement plan accounts, since one year's limit cannot be added to the next year's if not taken in time. While contributions to IRAs may be applied retroactively if made before the filing deadline, an individual's elective deferral contribution made as an employee to a qualified plan must be made before the end of the calendar year.

Maximizing contributions to your retirement plan (or plans) before year end also allows you to reduce your adjusted gross income in direct proportion to those contributions. This in turn can give you the benefit of increasing the deductibility of medical and other deductions subject to adjusted gross income floors.

It is also not too early to think about a Roth IRA conversion plan if your present adjusted gross income is too high under the usual conversion rules. Although the adjusted gross income limit is not lifted until 2010 for a one-year only conversion opportunity, certain year-end maneuvers now can better set you up for maximizing conversion benefits in 2010. For example, if leaving employment, you may want to consider rolling over 401(k) balances to an IRA rather than leaving it in the plans.

Answer Provided By Andrew Taylor, CPA - Haffley, Taylor & Company

How can I reduce my 2007 taxes - Portfolio timing

The end of the year is an ideal time to examine your investments (winners and losers over the course of the year) to take the steps necessary to minimize your capital gains income and maximize the benefit of any capital losses. Long-term capital losses can be used to fully offset long-term capital gains. Losses taken in excess of gains can also be used to offset up to $3,000 in ordinary income (or $1,500 for a married couple filing separately). The strategy for short-term gains and losses follows a similar game plan, although coordinating the two sometimes takes special care.

Starting in 2008, traditional strategies in connection with capital gains and losses also need to accommodate a special, nontraditional opportunity -- the zero percent net capital gain rate for tax years 2008 through 2010. While this zero rate is only available for individuals in the 10 or 15 percent income tax brackets, it is well worth families, retirees, and others to manage their income tax brackets starting in 2008. That management starts at year-end 2007, as does the decision over whether to postpone a sale of a capital asset until January 2008 to take advantage of this favorable, zero rate.

Answer Provided By Andrew Taylor, CPA Haffley, Taylor & Company

How can I reduce my 2007 taxes? Deduction management

Essential end of the year tax planning requires determining whether you will take the standard deduction or whether you will itemize your deductions. Consider "bunching" deductible expenses into one or the other year depending upon whether the standard deduction may be taken in one year or whether the adjusted gross income limits for medical (7.5 percent) or miscellaneous itemized deductions (2 percent) may be more easily met.

Even if you know you will itemize deductions, accelerating or deferring them is often a question of determining your probable tax bracket for year end and the next year to maximize their after tax value. Sometimes planning is as simple as paying your state estimated tax or real estate taxes in one year or the other; at other times, it's a question of making certain you gather the right proof and follow the proper steps in time to be entitled to a deduction in one year or the other.

Answer Provided By Andrew Taylor, CPA - Haffley, Taylor & Company

What are the specific qualities of an LLC?

As discussed previously, the LLC is advantageous for small businesses becasue it combines the limited personal liability feature of a corporation with the tax advantages of a partnership and sole proprietorship. Profits and losses can be passed through the company to its members or the LLC can elect to be taxed like a corporation. LLCs do not have stock and are not required to observe corporate formalities, such as the maintenance of annual director or shareholder minutes. Owner are called members, and the LLC is managed by these members or by appointed managers.

Answer provided by Chuck Roach - Roach Law Office

I am Self-Funding, do I sitll need a Business Plan?

Absolutely! A business plan is not just an exercise for a banker. It is a concise roadmap for your business. Even if no one else reads it, the process of answering the tough questions, and putting your ideas on paper is valuable for every business owner.

Not sure how to get started? Consider a class or book to give you the basics.

Answer by Lorraine Ball - Roundpeg

How do I know if I should classify workers as contractors or employees?

The IRS has been really looking closely into this issue in recent years. There are very specific guidelines for classification. The IRS published a classification guide called the 20 Factor Test.

Basically, the issues resolve around control. Who controls the workers behavior? In other words, are there set hours? Who controls how the work is performed? Is there specific instructions and training? Second, who controls the finances? Does the worker provide a bill for services? Who is responsible for related business expenses? Can the worker work for other employers? Is the worker trying to make a profit? How is the worker paid?

Finally, How do the parties perceive their relationship? Is there a contract? Who controls the number of hours? Are any benefits provided to the worker? What is the term of the relationship?

Answer provided by: Len Titone – Next Level Financial Management

Can I pay myself a salary if I own a LLC or a partnership?

No. Partners in a partnership receive their income from the profits of the organization. The profits are taxed to each partner via K-1 form. A partner can received a “Guaranteed Payment”. A Guaranteed Payment is a payment made to a partner for services or for the use of money. The payment is paid regardless of partnership profits, and is not subject to income tax.

Answer provided by: Len Titone – Next Level Financial Management

Should I be an LLC or a Sub-S Corporation?

A rule of thumb has developed among many accountants that if the business will be actively managed by the shareholder[s], and it will be a small business, a sub-S corporation is the choice.
For real estate or other “passive” investment type companies, the LLC is the choice. This decision is vitally important to the financial health of the company and its owners, therefore you are strongly advised to obtain advice from your accountant before proceeding.

Answer provided by Chuck Roach - Roach Law