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FAQ

For 2016, the FICA rate is 6.2% and the wage base is $118,000. The Medicare rate is 1.45% and there is no wage base limit

If you are under age 65, the limit for 2016 is $15,720. If you are over age 65 there is no earnings limit.

The maximum section 179 expense you can take in 2016 is $500,000.

Tax Rate Taxable Income
10% $1 - 9,275
15% 9,275 - 37,650
25% 37,650 - 91,150
28% 91,150 - 190,150
33% 190,150 - 413,350
35% 413,350 - 415,050
39.6% Over $415,050
Tax Rate Taxable Income
10% $1 - 9,275
15% 18,550 - 75,300
25% 75,300 - 151,900
28% 151,900 - 231,450
33% 231,450 - 413,350
35% 413,350 - 466,950
39.6% Over $466,950
Tax Rate Taxable Income
10% $ 1 - 9,275
15% 9,275 - 37,650
25% 37,650 - 91,150
28% 91,150 - 190,150
33% 190,150 - 413,350
35% 413,350 - 415,050
39.6% Over $415,050
Head of Household Standard Deduction - $9,100
Tax Rate Taxable Income
10% $ 1 - 13,250
15% 13,250 - 50,400
25% 50,400 - 130,150
28% 130,150 - 210,800
33% 210,800 - 413,350
35% 413,350 - 441,000
39.6% Over $441,000

For miles driven in 2016 the standard mileage rate is 54 cents per mile. The medical / moving expense rate is 19 cents per mile and the charitable work rate is still at 14 cents per mile.

If your adjusted gross income was $150,000 or less in the prior year, the applicable percentage is 100% of the prior year tax. If your adjusted gross income exceeded $150,000 in the prior year, the applicable percentage is 110%

For Transfers Made In The Credit is Taxable Estate Equivalent Gift Tax Exemption
1979 $38,000 $147,333 $147,333
1980 $42,500 $161,563 $161,563
1981 $47,000 $175,625 $175,625
2012 - 2016 $1,772,800 $5,120,000 $1,000,000

First consider the records you need to substantiate your annual income tax return. The IRS says that you must maintain adequate records to support almost every item of income and expense that you claim. That means you must be able to produce receipts, invoices, canceled checks or banking records supporting all expense items. Similarly, you should keep sales slip, invoices, or bank records to support items.

Most businesses have adequate accounting to capture routine transactions, but not for non-routine transactions such as the purcha se of depreciable assets. When you buy a car, computer, or piece of office equipment, be sure to file all purchase documents, assign an inventory number, and immediately set up a depreciation schedule.

Good record keeping for travel and entertainment expenses is essential. Although the rules can be complex, in general you should capture where, when, who, how much, and the business purpose for each expense. A well-designed standard expense report form can help insure that your records contain all the required information. Also, if you have employees who drive on company business, make sure they keep an auto log showing the miles driven for each trip. Generally, the IRS can audit a tax return for three years after the date it was due or the date the tax was paid, whichever is later. However, if there is a major understatement of income, they can audit for six years after the due date (or almost seven years after the tax year). For that reason, you should keep most income tax records for seven years. Keep real estate records indefinitely. The IRS requires records relating to employment taxes to be kept for at least four years after the date of the return or the date the tax was paid, although here again a seven-year rule is safer.

Accounting Records
Accounts Payable 7 Years
Accounts Receivable 7 Years
Audit Reports Indefinitely
Chart of Accounts Indefinitely
Depreciation Schedules Indefinitely
Expense Records 7 Years
Financial Statements (annual) Indefinitely
Fixed Asset Purchases Indefinitely
General Ledger Indefinitely
Inventory Records 7 Years (Indefinitely for LIFO system)
Loan Payment Schedules 7 Years
Purchase Orders (1 Copy) 7 Years
Sales Records 7 Years
Tax Records Indefinitely
Bank Records
Bank Statements 7 Years
Canceled Checks 7 Years (Indefinitely for R.E. Purchases)
Loan Records 7 Years (From the date of last payment)
Electronic Payment Records 7 Years
Real Property Records
Construction Records Indefinitely
Leasehold Improvements Indefinitely
Lease Payment Records Indefinitely
Real Estate Purchases Indefinitely
Corporate Records
Board Minutes Indefinitely
Bylaws Indefinitely
Business Licenses Indefinitely
Contracts - Major Life + 4 Years
Contracts - Minor Life + 3 Years
Insurance Policies Indefinitely
Leases / Mortgages Indefinitely
Patents / Trademarks Indefinitely
Shareholder Records Indefinitely
Stock Registers Indefinitely
Stock Transactions Indefinitely
Employee Records
Benefit Plans Indefinitely
Employee Files (ex-employees) 7 Years / Employee lawsuits statute of limitations
Employment Applications 3 Years
Employment Taxes 7 Years
Payroll Records 7 Years
Pension / Profit Sharing Plans Indefinitely

These days, more and more business records are stored electronically. While this saves time and space, it also increases the risk of accidental loss or damage. A hard disk in a personal computer can crash at any time, perhaps erasing months of data. Make sure your computer system is backed up regularly, and keep the backup copy in a fireproof location, preferably offsite.

A major tax planning issue for many new and existing businesses to consider involves either the hiring of employees or utilizing independent contractors. When utilizing an independent contractor, the employer can realize significant cost savings in both federal and state employment taxes including FICA, Medicare, and unemployment taxes. This action has forced the IRS to set guidelines to distinguish between an employee and an independent contractor. The IRS has set up a list of 20 points which will help clarify which individuals are classified as employees and which are classified as independent contractors:
1. Working requirements - If a person is required to comply with instructions involving where and when to perform a job, he can be construed to be an employee.
2. Training - If members of the business instruct an individual how to perform certain work or adopt certain methods, this can be construed as grounds for being an employee.
3. Integration of services - If the services provided by an individual are an integral part of the employer's business and are subject to direction and control, this can be grounds for that person to be considered an employee.
4. Hiring, supervising and payment - If a worker is contracted to perform a task for the company and has the ability to hire, supervise, and pay other workers, he is to be considered an independent contractor.
5. Right to terminate service - An independent contractor cannot be dismissed as long as he is performing the desired work.
6. Set hours - If a person is obligated to be at the place of business during a set time frame, he can be considered an employee.
7. Payment by hour, week or month - Independent contractors are normally paid by the job, whereas an employee is paid consistently over time.
8. Continuing relationship - If a person performs similar tasks at regular intervals he can be thought of as an employee.
9. Working tools and equipment - A person who has substantially all of his own tools is more likely to be considered an independent contractor.
10. Place of business - A person consistently performing work from the employer's place of business can be considered an employee.
11. Services available to public - If a worker can hold himself out to the public by advertising, holding a business license among other things, he can be considered an independent contractor.
12. Realization of profit or loss - If a person can profit or take a loss on the work her performs, he can be thought of as an independent contractor.
13. Business and travel expense - If business and travel expenses are paid by the employer, the worker can be considered an employee.
14. Reports - If a worker is required to submit reports on a regular basis, he can be thought of as an employee.
15. Services rendered personally - The employer who is not only looking for the results of a person's work but also the method is considered to be hiring an employee.
16. Right to discontinue a relationship - If an employer can discontinue a working relationship without incurring liability, the worker can be considered an employee.
17. Work pattern - If a worker is required to follow a set of orders or patterns and not have his own work schedule, he is considered to be an employee.
18. Outside services for other businesses - A worker who performs similar or larger jobs for businesses other than the employer is considered to be an independent contractor.
19. Full time - If a person devotes substantially all of his time to one business, he can be considered an employee.
20. Facilities - If a substantial amount of money is spent on a worker's own facilities, that person can be thought of as an independent contractor.

Travel

Deductible travel expenses include any ordinary and necessary expenses incurred while commuting from work place to another work place. An ordinary expense includes any cost assumed while engaged in doing business in one's profession. A necessary expense is a cost which is needed to complete business activities. If a vehicle is used for business travel, one is eligible to deduct certain costs for business use. There are two methods to be aware of when reimbursing the employer or employees for travel in a vehicle. The first method involves reimbursement of actual expenses and the other involves the use of per diem mileage rates set up by the federal government. Regardless of the method used, it is imperative for tax purposes to keep accurate and descriptive records showing dates, miles, costs and purpose of travel. Actual Expenses
If using actual expenses for business travel, one is eligible to deduct the following items on the tax return:
Depreciation
Lease fees
Rental fees
Oil and Gas
Tolls
Repairs
Insurance
Licenses
Carport storage
If the vehicle is used for both business and personal use, the expenses incurred must be allocated proportionately between business and personal miles driven.

Standard Mileage Rate (Per Diem)
This method is used in lieu of taking the actual expenses incurred. The standard mileage rate set forth each year by the federal government is based on depreciation amounts, oil and gas usage, licenses, insurance and other factors. This rate gives an amount to deduct from the tax return without figuring all of the specifics of auto expenses. This method does not mean that a mileage log can be ignored. It is a requirement to have documentation explaining all business miles driven. In addition to taking this per diem rate deduction for expenses, one may also separately include the costs of tolls, car storage and parking fees. Again, it is important to keep track of these expenses in a log with the relevant receipts. The rules and methods for deducting automobile expense and various other travel expenses can be confusing. It would be beneficial to sit down with an accountant to discuss whether appropriate records are being kept and how to properly deduct this expense.

Entertainment
One may be able to deduct business related expenses for entertaining a client, customer or employee. Again, to be a deductible expense, that expense must be both ordinary and necessary for doing business. In general, no deduction is allowed for the travel, meal and entertainment expenditures unless it can be established that the expense is directly related to or associated with the active conduct of a business. As with all deductible items, it is also a requirement to keep records of entertainment expenses incurred. These records should include the following detail: To whom was the expense provided? Why was this expense provided (business purpose)? Where did the expense occur? Receipts pertaining to amounts spent Even if all the requirements for entertainment expenses have been met, the amount which can be deducted is limited to 50% of the reimbursed amount to the employees.

Reimbursement of Employee Expenses
Employers generally can deduct amounts reimbursed to employees for business expenses which they have incurred on behalf of the business. The amount and manner in which one can deduct employee expenses depends on whether reimbursements are recorded under an "accountable" or "non-accountable" plan.

Accountable Plans
For reimbursement of employee expenses to be an accountable plan, it must meet all three of the following rules: The expenses incurred by the employee must be business related The expenses incurred must be turned in to the employer within a reasonable period of time An employee must return an excess reimbursement within a reasonable period of time Again, an employee must provide the records detailing to whom, why, and where the expenses occurred to receive the reimbursement.

Non-Accountable Plans
A non-accountable plan is a reimbursement arrangement that does not meet the three basis rules for accountable plans. Any amount which is an excess reimbursement that an employee fails to return or reimbursements to employees for nondeductible expenses are part of the non-accountable plan. If either of these two situations arise, the employer will need to combine the amounts of over-reimbursements and other nondeductible expense allowance amounts and include them as wages to the employee.

Monitor your estimated payments and withholding to avoid underpayment penalties.
Be certain that you have social security numbers for all of your dependents and that they are reported properly on the tax return.
Contribute to a non-working spouses IRA.
Consider a $2,000 Education IRA for each child under age 18.
Analyze your borrowings and restructure debt where possible to gain a tax deduction.
Don't overlook minimum distributions at 70 1/2 and rack up a 50% penalty.
Don't forget the filing requirements for household employees.
Consider funding a nondeductible regular or Roth IRA..
Contribute directors' fees to retirement accounts.
Make contributions to your working children's IRA's.
Shift pretax income to low-income parents and grandparents rather than giving them gifts.
Review your estate plan to determine if you should consider using part or all of the unified credit.
Even though the estate and gift tax rates are the same the computation of the tax liability is very different. Making a taxable gift can result in paying less taxes.
If you are self-employed consider employing your under 18 child.
To calculate exact gains or losses on mutual fund investments, save every statement you receive. Remember that reinvested dividends increase your tax basis.
When selling shares of stock that you purchased at different prices at different times, inform your broker beforehand that you are selling the shares with the highest basis. This will minimize taxable gain or maximize deductible loss.
Donate appreciated property to charities to avoid capital gains tax. The amount of your deduction is the value of the property rather than its cost. Special rules can apply.
Consider paying off your home mortgage if you're subject to the itemized deduction phase-out.
Use your employer's flexible spending account or cafeteria plan.
Gift appreciated stock that you have held over 12 months to your child age 14 or older to pay capital gains tax at a lower rate upon sale.


Consider whether your current form of business if still best for you.
Avoid payroll taxes by shifting a portion of compensation from salary to fringe benefits. Unreimbursed medical expenses and payroll-deducted group insurance are ideal benefits to include in a Section 125 cafeteria plan.
Set up a cafeteria plan to allow employees to pay for their dependent care expenses. This will likely save them more than they would with the child care credit.
Self-employed taxpayers who employ their spouses in the business may deduct 100% of the health insurance premiums for the spouse and dependents.
Establish a 401(k) or SIMPLE program to help attract and retain quality employees.
Time purchases of personal property to maximize depreciation deduction and avoid the mid-quarter convention.
Switch to an "accountable" plan if you're currently reimbursing employee business expenses under a "nonaccountable" plan.
Buy business supplies at the end of a profitable year and accelerate other expenditures like repairs and maintenance.
Review entertainment, club dues, and meal expense accounts to make sure they are correctly classified.
Review the status of workers as employees or independent contractors.
Donate excess inventory to qualified charities to receive larger deductions.
Employ your children if you own your own business to take advantage of several tax benefits.
Buy equipment before the end of the year to take advantage of the Section 179 expense deduction.
Review the amount of your estimated tax payments.
Determine whether you'll be subject to the AMT this year or in the future.
Shift income into next year by delaying billing and collection activities if a cash method business, or delay shipments of an accrual basis business.
Consider the corporate accumulated earnings penalty tax before paying dividends.
Set up a non-qualified deferred compensation plan for your highest paid employees.
Declare bonuses to qualified corporate employees before year-end, then pay them within the first 2 1/2 months of the next tax year.
Determine how state and local taxes and year-end strategies will affect your overall plan.

Taxable Income Rate
Up to $50,000 15%
Up to $50,000 25%
$75,001 - 100,000 34%
$100,001 - 335,000 39%
$335,001 - 10,000,000 34%
$10,000,000 - 15,000,000 35%
$15,000,000 - 18,333,333 38%
Over $18,333,333 35%