The First State is often the first that comes to mind when entrepreneurs are thinking about where to domicile their company.

While Delaware is a popular state for incorporation, due to its very friendly business laws, it's not entirely a cakewalk when it comes to paying state taxes.

First off, Delaware offers appealing tax rates, but it is not tax-free. Either a domestic stock or a non-stock, for-profit corporation that is incorporated in Delaware must pay an annual franchise tax. It's required even if you have no physical presence in Delaware, and even if you do no business in Delaware (but no filing requirements with the Dept. of Revenue).

The minimum tax for corporations that use the Authorized Shares method is $175. For corporations using the Assumed Par Value Capital Method, the minimum is $350. A yearly tax cap of $180,000 applies to all corporations, regardless of the method used.

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Accounting and taxes get more complicated when you are self-employed, especially when S-Corp business expenses get intermingled with personal expenses. If you do not declare these expenses properly, which are typically mixed-use expenses, you might lose these deductions and your tax liability will increase. If done in the right way, it is possible to reduce your total tax bill. S-Corporations need to use an “Accountable Plan” to ensure that the shareholder's tax consequences are minimized.

The Accountable Plan

It is essential for an S-Corp to create and follow an Accountable Plan. An Accountable Plan allows tracking of all the business expenses linked to personal expenses (such as home office, cell phone usage, internet use etc.), which are to be reimbursed by the business. The expenses are typically mixed-used in nature.  Expenses that are 100% business use can also be reimbursed but ideally these should be paid directly by the business.

With an accountable plan, it is possible to bring down the company profits, by providing for reimbursements to be paid out for expenses by shareholders. Doing this can also bring down the total amount to be paid for Social Security as well as for Medicare taxes (depending on how the company is allocating between w-2 wages and shareholder distributions).

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Planning for your retirement is essential, and it is entirely possible that you have amassed savings in your bank account and investments, in addition to your retirement funds. Your retirement funds include the traditional IRAs, SEP IRAs, SIMPLE IRAs, 401 (k), 403 (b) and 457 (b) plans, as well as plans for profit sharing and other defined contributions. Often, people do not want to touch their retirement funds until it is absolutely necessary. However, your retirement funds cannot be left dormant within your account. By the time you have reached 70 ½ years of age, you are obligated to begin taking withdrawals.

Every year, there is an amount that you need to withdraw from your account, and that is referred to as your required minimum distribution. This is a mandatory requirement from the IRS, and is an essential part of planning for your retirement.

Your First Withdrawal

As you plan to take your first withdrawal, you should understand how to calculate your age and determine when you turn 70 ½. This will affect the year in which you take your first withdrawal. If your 70th birthday falls before the 30th of June then you will receive your first required minimum distribution (RMD) by the 30th of December in the same year. However, if you are born from the 1st of July onwards, your RMD will be available the following year by the first of April. The distribution is calculated based on your age as at the 31st day of December.

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Every year, you likely pay hundreds, if not thousands of dollars in taxes. Armed with the right information, you can reduce the amount that you pay out and make some considerable savings. Determine who your dependents may be, as you will find that you can claim them on your tax return and lower your tax bill.

Dependent Exemptions

For every single one of your dependents, you are able to take an exemption on your taxes. There are two categories of dependents that can qualify, these being your 1. children and 2. your “qualifying” relatives (which might not have to be a blood relative at all). By 2015, each dependent that qualifies allows you to cut down your taxable income by $4000.

In addition, your dependents can earn you some tax credits, and also enable you to write off a number of your expenses. In order to qualify for the exemptions, each dependent has to pass through several tests.

Qualifying Tests for a Child

For a child to qualify as a dependent, there are five tests that must be receive positive results. There are as follows: –

Your Relationship – The child may be your son, daughter, step or foster child or direct descendant. Other children would include your brother, sister, half siblings, step siblings or their descendants. Adopted children and foster children can also count as dependents.

Correct Age – The child should be below the age of 19 by years end, and also younger than you. If the child is a student, they should be below the age of 24 and younger than you. If they have a permanent disability, they qualify at any age.

Living Arrangements – The child needs to have lived with you for 50% or more of the year.

Financial Support – The child should not have availed in excess of half their own support during the year.

Joint Return – The child should not file a joint return for that year.

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Tax Treatment for Resident Alien

If you are a U.S. resident alien, you use the same filing status a U.S. citizens. If you are a resident alien for the entire tax year you can claim the same deductions as U.S. citizens as well. You get to take a personal exemptions and exemptions for dependents according the dependency rules for U.S. citizens. You have the option of itemized your deductions or using the standard deduction (based on filing status). Resident alien get the same tax credits, use the same forms and use the same mailing addresses as U.S. citizens.

Tax Treatment for Non-Resident Returns

As a foreigner in the United States, you need to know what your tax obligations are, especially if you are pursuing residency. You should not make the mistake of assuming you are exempt from taxes by virtue of not being a citizen yet.

Foreign filers are referred to as non-resident aliens by the Internal Revenue Service (IRS). Any non-resident alien who is waiting to pass the green card test, or the substantial presence test is required to file taxes. They are taxed on all the income that they earn in the U.S, though are not liable to pay taxes on income that they earn outside of the U.S.

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Tax returns are becoming more and more complex on an annual basis. There are more forms to fill, more information to give and it always seems that there is not enough time to get it all done. It is therefore not surprising that you may make a mistake on your tax returns, particurly when there is a change in your financial status.

As this is such a common occurrence, the IRS has come up with a way to amend your tax returns. You can choose to either pay any extra money you owe as tax or get a refund for the extra money that you paid as tax. The IRS, however, does not allow you to file your amended tax return online; you have to do so through email.

To change your tax return, fill form 1040X and send it to IRS. This is the form that reveals the changes that you are making, which amend the tax return that you filed. You are also required to attach any forms, schedules and documents that are being changed as per the amendment.

 

How far back can you amend tax returns?

The IRS is strict on how far back one can amend their tax returns, whether you are seeking a refund, or you owe tax. The timeframe is usually 3 years after the due date of the original return or 2 years since you paid tax.

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2014 was a big year for health insurance, as it was the first year that Obamacare came into practice. These new health insurance requirement affected a majority of individuals, the health care industry, and federal personal income taxes. This requirment will be part of our annual tax disclosers for the foreseeable future.

Here are some essential things that have changed.

– The first is that you have to provide health insurance information when you are filing your personal income tax returns. This assits the government in confirm whether you needed to purchase heath insurance. If you where required to purchase it and didn’t you may face penalties if you don’t qualify for one of the available exemptions.

– The penalty is imposed on those who can afford health insurance but choose not to purchase it. In 2015, the penalty starts from $325 for each person in your household and $162.50 for each child under the age of 18. The maximum penalty for each family is $975. The other option is 2% of your annual household income, charged only on the amount of income that is above the tax filing threshold. The higher of the two options is chosen so you could potentially owe much more than $975 for not having coverage. The whole point of the penalty is to incentivise individuals to buy health insurance. At some point the penalty will be more than buying insurance. The penalty is paid as a part of your personal income tax.

– You must indicate whether you have had our health insurance coverage for a full year. Your penalty will be applied pro-rata for the number of months you didn’t have insurance (if greater than 2 consecutive months).

– For individuals that purchase health insurance through the State run exchange (i.e. Covered California), form 1095-A information needs to be filed annually as part of the health insurance disclosure. This form contains taxpayer infomation including: insurance provider, detailed monthly premiums paid and any subsidy recived (if any). Form 1095-A is mailed to taxpayers at the end of the calendar year.

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