Grandparents Paying for Grandchildren's Schooling
Are you a grandparent who wants to help pay for a grandchild's college education? You'll find several ways to do this, each with its own limitations and tax consequences.
The simplest way is to make an outright cash gift to your grandchild each year. In 2014, you can give up to $14,000 without any gift tax liability. If your spouse joins in the gift, you can jointly give each grandchild up to $28,000 each year.
You can give unlimited amounts without gift tax consequences if you make the payments directly to a qualified education institution on behalf of your grandchild. Payments can only be for tuition, not for dorm fees, meals, books, etc.
You could set up a Coverdell education savings account or a Section 529 plan for your grandchild. These plans offer tax-free growth of amounts you contribute to them. Age, income, and contribution limits apply, however.
To discuss the options best suited to your circumstances, please contact our office.
Quality of Customer Service Effects Net Profit
The quality of the customer service your company provides will have an effect on the net profit of your business.
Even with the best of intentions, many companies only give lip service to this very critical area. It is necessary that every employee be tuned in to how he or she can contribute to outstanding customer service – the kind of customer service that keeps customers coming back again and again.
"Customer service" includes every element of the sales transaction between your business and a customer. Though you may consider customer service just a matter of being polite to customers, it actually involves many areas, including the following:
* Being truthful in advertising your product or service.
* Providing a product or service that meets or exceeds customer expectations.
* Being prompt in delivering your product or service.
* Letting customers know you appreciate their business.
* Handling customer complaints or other concerns promptly and politely.
* Being polite and cheerful in dealing with customers – even when they are "just looking" instead of buying.
Every one of your employees should be able to compile a list of the behaviors that contribute to good customer service in your specific line of business. Have your employees bring their lists to a staff meeting and compare notes. Discuss the areas where your company could improve customer service. Then decide on specific actions to take and decide who will take them and when. It's important to follow through to be sure that the changes you decide to make are actually made.
Get your employees involved. Be persistent and consistent in improving customer service. Your net profit will show the positive results of your efforts
Selling Vacant Land Could Bring a Tax Break
You probably know that you can exclude up to $250,000 of gain ($500,000 for most joint filers) when you sell your principal residence. IRS regulations may now allow you to apply this gain exclusion when you sell vacant land that is adjacent to your home.
To qualify, the land you sell must be adjacent to the parcel on which your house sits. Also, the land sale must occur within two years before or after the residence is sold. You must meet the other usual requirements for claiming the exclusion. If you qualify, you can apply your $250,000 or $500,000 exclusion to both sales combined.
Example: You own and live in a house which sits on four acres. You decide to sell the house on a one-acre lot and sell the other three acres of empty land to a developer. Provided the land sale occurs within two years before or after you sell the house, you can exclude up to $250,000 ($500,000 if you file jointly) of the combined gain from both sales.
Retirement Study of 1,000 Middle Class Citizens
A recent study conducted by Harris Interactive of 1,000 middle class individuals aged 25 to 75 revealed some interesting statistics about retirement attitudes. Among the survey's findings:
* 37% of respondents say they don't expect to retire; instead they expect to work until they are too sick or die.
* 59% said retirement is not their top priority; their priority is paying day-to-day bills.
* 34% felt they would have to continue working until age 80 or beyond because they won't have saved enough to retire.
* 31% in the 40 to 59 age category say they have a retirement plan; 69% say they have no plan.
* Those who say they have a written plan say they have saved a median of $63,000 for retirement, which represents 32% of their retirement savings goal of $200,000. Those without a written plan say they have saved $20,000 or 10% of their goal.
* A third of those surveyed said that social security would be their primary source of income in retirement.
* 40% said a large unexpected health care expense was their greatest retirement fear; 37% said lower or no social security benefits was their biggest fear.
Health Care Mandate Extended
Rules just issued by the Treasury Department give a one-year extension to the health insurance mandate for mid-sized businesses. Companies with 50 to 99 employees will now have until January 1, 2016, to provide health insurance for employees or face penalties. Employers must certify that they have not cut workers in order to come under the 100 employee threshold. Companies with 100 or more employees must still meet the January 1, 2015, deadline for providing health insurance coverage.
Business Tax Credit Increases
Small businesses may be missing out on an important new tax perk related to health insurance. And the stakes are even higher in 2014.
The Affordable Care Act provides a tax incentive for small business owners who pay at least a portion of their employees' health insurance. This year as much as 50% (up from 35% in 2013) of the employer's cost for worker health care premiums can be deducted as a tax credit. That's a dollar-for-dollar reduction in your 2014 tax bill. But as with most tax deals, you must meet certain requirements to qualify. First, you must employ fewer than 25 full-time equivalent (FTE) employees. A half-time employee would count as a .5 FTE, so you must consider all workers in your calculation. The fewer FTE employees you have, the higher the tax credit percentage. Second, the average annual wages of your employees must be less than $50,000. To make the calculation, you would take your total wages and divide by the FTE number you figured above. In most cases the owner's salary is not included in the formula. Finally, the business owner must contribute at least 50% of the total cost for single coverage. Family coverage is not factored in. The policy must also be purchased through the Small Business Health Options Program, or SHOP to be eligible for the credit. A few more wrinkles: if a business doesn't owe tax for the current year, they can apply the credit to past or future years. In addition, the excess of the employer's actual cost of health insurance over and above the credit received can still be deducted as a business expense. And the new rules also mean that small nonprofit organizations can receive a tax credit of up to 35% of their health insurance costs if they meet the above requirements.
Lending Money to Relatives
There are many worthwhile reasons to lend money to a relative. For example, you may want to help a child or sibling continue their education or start their own business.
But lending money to relatives can have tax consequences. The IRS requires that a minimum rate of interest be charged on loans. If you do not charge at least the minimum rate, the IRS will still require you to pay tax on the difference between the interest you should have charged and what you actually charged. If these excess amounts become large, or if the loan is forgiven, there may also be gift tax implications.
There are some exceptions, though. Loans of up to $10,000 generally can be made at a lower (or zero) rate of interest, as long as the proceeds aren't invested. Loans between $10,001 and $100,000 are exempt from the minimum interest requirement as well, as long as the borrower's investment income is $1,000 or less. If the investment income exceeds $1,000, you'll be taxed on the lesser of this income or the minimum IRS interest.
For the IRS to treat the transaction as a loan and not a gift subject to the gift tax rules, the transaction must look like a loan. The borrower should have the ability to repay the principal and interest. A contract should be prepared which specifies the loan amount, interest rate, the payment dates and amounts, any security or collateral, as well as late fees and steps to be taken if the borrower doesn't pay. Have the document signed and dated by all the parties. For assistance, give us a call.
Parents Can Cut Taxes with Child-related Credits
Are you a parent? Give yourself some credit – a child-related tax credit, that is. Here are two that can reduce your 2013 federal income tax liability. Child tax credit. The child tax credit applies if your dependent children were age 16 or younger at the end of 2013. The basic credit is $1,000 per child, though the amount you can claim may be less when you file a joint return and your income is more than $110,000 ($75,000 for other parents). You may also qualify for the "additional child tax credit," which can generate a refund even if you owe no tax, and comes into play when your tax bill is less than the basic credit. Child and dependent care credit. Did you pay a daycare or babysitter to take care of your child so you could work? You can claim a credit of as much as 35% of your expenses, up to a maximum of $1,050 for one child ($2,100 for two or more children). To qualify, your child must generally be under age 13. In addition, both you and your spouse must have earned income, unless one of you was attending school full-time. You can claim both of these credits on your 2013 federal income tax return in addition to the $3,900 dependency exemption for each child. Contact us if you need more details.
Call us for your Accounting, Tax, and Consulting needs.