The tax code provides a variety of tax incentives for families who are saving for, or already paying, higher education costs or are repaying student loans.

You may be able to claim a credit for the qualified tuition and related expenses of the students in your family who are enrolled in eligible educational institutions. The types of credits available are the Lifetime Learning Credit and the American Opportunity Tax Credit.

Different rules apply to each credit. If you claim an American Opportunity Credit for a particular student, none of that student's expenses for that year may be applied toward the Lifetime Learning Credit.

You may be able to claim a tuition deduction of up to $4,000 of qualified education expenses paid during the year for yourself, your spouse, or your dependent. You cannot claim this deduction if your filing status is married filing separately or if another person can claim an exemption for you as a dependent on his or her tax return. The qualified expenses must be for higher education.

You may be able to deduct interest you pay on a qualified student loan. And, if your student loan is canceled, you may not have to include any amount in income. The deduction is claimed as an adjustment to income so you do not need to itemize your deductions on Schedule A Form 1040.

The foregoing is provided by the Bosma Group which specializes in serving small and medium sized businesses.  The Bosma Group was founded with the vision of allowing emerging businesses access to same world-class expertise formerly only available to Fortune 1000 companies.

Review Your Savings Plan

Establish or review your savings plan to begin accumulating assets for your life goals. Professional guidance will be helpful in reviewing investment alternatives.

Review Your Retirement Plan

Establish or review your retirement plan. Explore the availability of deferred compensation programs through your employer, such as 401(k) and 403(b) plans. Begin contributing as soon as you are eligible.

Review January's Budget vs. Actuals

Compare January income and expenditures with your budget. Make adjustments as appropriate to your February expenditures. Make sure you have invested your planned savings amount for January.

Collect Your Tax Information

Verify that you have received all necessary forms W-2 and 1099 and a statement showing the year-end balance of IRA and Keogh plans. Contact the appropriate company for any that have not been received. For those that have been received, make certain that the amounts agree with your records.

Although taxes for personal returns are not due until April 15, it is best to get an early start since additional follow-up may be necessary.

The foregoing is provided by the Bosma Group which specializes in serving small and medium sized businesses.  The Bosma Group was founded with the vision of allowing emerging businesses access to same world-class expertise formerly only available to Fortune 1000 companies.

Out of all the types of retirement plans available to small business owners, the SIMPLE plan is the easiest to setup and least expensive to manage.

These plans are intended to encourage small business employers to offer retirement coverage to their employees. SIMPLE plans work well for small business owners who don't want to spend time and high administration fees associated with more complex retirement plans.

SIMPLE plans really shine for self-employed business owners, here's why...

Self-employed business owners contribute both as employee and employer, with both contributions made from self-employment earnings.

SIMPLEs calculate contributions in two steps:

1. Employee out of salary contribution
The limit on this "elective deferral" is $11,500 in 2009, after which it can rise further with the cost of living.

Catch up. Owner-employees age 50 or over can make a further $2,500 deductible "catch up" contribution as employee in 2009.

2. Employer "matching" contribution
The employer match equals 3% of employee's earnings.

Example: An owner-employee age 50 or over in 2009 with self-employment earnings of $40,000 could contribute and deduct $11,500 as employee plus a further $2,500 employee catch up contribution, plus $1,200 (3% of $40,000) employer match, or a total of $15,200.

The SIMPLE plan is good for the home-based business and can be ideal for the moonlighter - the full-time employee, or the homemaker, with modest income from a sideline self-employment business.

With living expenses covered by your day job (or your spouse's job), you could be free to put all your sideline earnings, up to the ceiling, into SIMPLE retirement investments.

A Truly Simple Plan

The SIMPLE plan really is simpler to set up and operate than most other plans. Contributions go into an IRA you set up. Those familiar with IRA rules - in investment options, spousal rights, creditors' rights - don't have a lot new to learn.

Requirements for reporting to the IRS and other agencies are negligible. Your plan's custodian, typically an investment institution, has the reporting duties. And the process for figuring the deductible contribution is a bit simpler than with other plans.

What's Not So Good About SIMPLEs

Other plans can do better than SIMPLE once self-employment earnings become significant.

Example: If you are under 50 with $50,000 of self-employment earnings in 2009, you could contribute $11,500 as employee to your SIMPLE plus a further 3% of $50,000 as an employer contribution, for a total of $13,000. A Keogh 401(k) plan would allow a $25,500 contribution.

With $100,000 of earnings, it would be a total of $14,500 with a SIMPLE and $35,500 with a 401(k).

Because investments are through an IRA, you're not in direct control. You must work through a financial or other institution acting as trustee or custodian, and will in practice have fewer investment options than if you were your own trustee, as you could be in a Keogh.

It won't work to set up the SIMPLE plan after a year ends and still get a deduction that year, as is allowed with SEPs. Generally, to make a SIMPLE plan effective for a year it must be set up by October 1st of that year. A later date is allowed where the business is started after October 1; here the SIMPLE must be set up as soon thereafter as administratively feasible.

There's this problem if the SIMPLE is for a sideline business and you're in a 401(k) in another business or as an employee: The total amount you can put into the SIMPLE and the 401(k) combined can't be more than $16,500 (2009 amount)-$21,500 if catch up contributions are made to the 401(k) by one age 50 or over.

So someone under age 50 who puts $8,000 in her 401(k) can't put more than $8,500 in her SIMPLE, in 2009. The same limit applies if you have a SIMPLE while also contributing as an employee to a "403(b) annuity" (typically for government employees and teachers in public and private schools).

How to Get Started in a SIMPLE

You can set up a SIMPLE on your own by using IRS Form 5304-SIMPLE or 5305-SIMPLE, but most people turn to financial institutions.

SIMPLES are offered by the same financial institutions that offer IRAs and Keogh master plans.

You can expect the institution to give you a plan document and an adoption agreement. In the adoption agreement you will choose an "effective date" - the beginning date for payments out of salary or business earnings. That date can't be later than October 1 of the year you adopt the plan, except for a business formed after October 1st.

Another key document is the Salary Reduction Agreement, which briefly describes how money goes into your SIMPLE. You need such an agreement even if you pay yourself business profits rather than salary.

Printed guidance on operating the SIMPLE may also be provided. You will also be establishing a SIMPLE IRA account for yourself as participant.

Keoghs, Seps and SIMPLES Compared

Please contact us if you are interested in exploring retirement plan options, including SIMPLE plans.

The foregoing is provided by the Bosma Group which specializes in serving small and medium sized businesses.  The Bosma Group was founded with the vision of allowing emerging businesses access to same world-class expertise formerly only available to Fortune 1000 companies.

Cash is the lifeblood of any small business. Here are some tips to help ensure that your business maintains a sufficient cash flow to meet its financial goals and keep running efficiently:

Toughen up your credit policies. Review the payment terms you offer to customers and tighten them up if slow payment is a problem area for your business. For instance, how long are customers given to pay? What action will be taken if a payment is missed? Be sure your credit terms are communicated effectively to customers before transactions are entered into.

Come up with a budget - and stick to it. Surprisingly, many small businesses do not engage in the budgeting process. A budget can be extremely effective in helping you keep track of whether cost- and revenue-related goals are being met. Depending on the size and complexity of the business, the budget process might be informal or formal, lengthy or simple. Projected revenues and expenses should be broken down by months.

Tighten up billing. If collecting bills has become a problem for your business, you might want to consider increasing the intervals at which customers are billed--e.g., from three months to one month, or from one month to two weeks.

If you have questions regarding your company's cash flow and credit/collection policies, please contact us.

The foregoing is provided by the Bosma Group which specializes in serving small and medium sized businesses.  The Bosma Group was founded with the vision of allowing emerging businesses access to same world-class expertise formerly only available to Fortune 1000 companies.

The vast majority of Americans get a tax refund from the IRS each spring, but what do you do if you are one of those who received a tax bill? Here are eight tips for taxpayers who owe money to the IRS.

Each year, many taxpayers overlook tax credits, even though they often qualify for one or more of them. Though both tax deductions and credits save you money, they do it in different ways. A deduction lowers the income on which tax is figured. The tax credit is even better because it lowers the tax itself. Take time now to review your records and see if you qualify for one of these tax credits; many are new or expanded for the 2009 tax filing year.

First-time Homebuyer's Credit

A credit limit of $8,000 for qualified first-time homebuyers is available in 2009. Further, long-time residents who owned and used the same principal residence for any 5 consecutive years of the last 8 years prior to purchasing a subsequent new principal residence, may now qualify for a tax credit of up to $6,500. Contact us for further information regarding this credit.

Energy Improvements Qualify for Expanded Tax Credits

People who weatherize their homes or purchase alternative energy equipment may qualify for either of two expanded home energy tax credits: the Residential Energy Property Credit and the Residential Energy Efficient Property Credit.

• Residential Energy Property Credit: The new law increases the energy tax credit for homeowners who make energy efficient improvements to their existing homes. The new law increases the credit rate to 30 percent of the cost of all qualifying improvements and raises the maximum credit limit to $1,500 for improvements placed in service in 2009 and 2010. The credit applies to improvements such as adding insulation, energy efficient exterior windows and energy-efficient heating and air conditioning systems.
• Residential Energy Efficient Property Credit: This nonrefundable energy tax credit will help individual taxpayers pay for qualified residential alternative energy equipment, such as solar hot water heaters, geothermal heat pumps and wind turbines. The new law removes some of the previously imposed maximum amounts and allows for a credit equal to 30 percent of the cost of qualified property.

American Opportunity Credit Helps Pay for First Four Years of College

More parents and students can use a federal education credit to offset part of the cost of college under the new American Opportunity Credit. This credit modifies the existing Hope credit for tax years 2009 and 2010, making it available to a broader range of taxpayers. Income guidelines are expanded and required course materials are added to the list of qualified expenses. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.

New Vehicle Purchase Incentive

New car buyers can deduct the state or local sales or excise taxes paid on the purchase of new cars, light trucks, motor homes and motorcycles. There is no limit on the number of vehicles that may be purchased, and eligible taxpayers may claim the deduction for taxes paid on multiple purchases. However, the deduction is limited to the tax on up to $49,500 of the purchase price of each qualifying new vehicle. Qualifying new vehicles must be purchased, not leased, after Feb. 16, 2009, and before Jan. 1, 2010.

Earned Income Tax Credit (EITC)

The Earned Income Tax Credit (EITC) helps low- and moderate-income workers and working families. Working families with incomes below $48,279 (married filing jointly in 2009) and childless workers with incomes under $18,440 often qualify. Ordinarily, you must have earned income as an employee, independent contractor, farmer or business owner. Some disability retirees are also eligible. There is only a slight increase in these income levels for 2010; for example, working families with incomes below $48,362 (married filing jointly) and childless workers with incomes under $18,470, may quality in 2010.

Child Tax Credit

If you have a dependent child under age 17 at the end of 2009, you probably qualify for the child tax credit. This credit, which can be as much as $1,000 for each qualifying child, is in addition to the regular $3,650 personal exemption for 2009 you can claim for each dependent. A change in the way the credit is figured means that more low- and moderate-income families will qualify for the full credit on their 2009 returns. Don't confuse the child tax credit with the child care credit.

Note: In IRS Publication 972, there is a Child Tax Credit Worksheet to help you determine if you can claim the tax credit.

Credit for Child and Dependent Care Expenses

If you pay someone to care for your child so you can work or look for work, you probably qualify for this credit. Normally, your child must be your dependent and under age 13. Though often referred to as the child care credit, this credit is also available if you pay someone to care for a spouse or dependent, regardless of age, who is unable to care for himself or herself. In most cases, you need to obtain the care provider's social security number or taxpayer identification number and enter it on your return.

Note: Form 1040 filers claim the credit for child and dependent care expenses on Form 2441. Form 1040A filers claim it on Schedule 2.

Saver's Credit

The saver's credit helps low-and moderate-income workers save for retirement. You probably qualify if your income is below certain limits and you contribute to an IRA or workplace retirement plan, such as a 401(k). Income limits for 2009 are $27,750 for singles and married filing separately, $41,625 for heads of household and $55,500 for joint filers. These income limits are adjusted annually for inflation, however, will remain unchanged for 2010.

The credit, up to $1,000, is based on a percentage (10-50%) of each dollar placed into a retirement plan, up to the first $2,000. The lower the adjusted gross income, the higher the credit percentage; resulting in the maximum credit of $1,000 (50% of $2,000).

Tip: Also known as the retirement savings contributions credit, the saver's credit is available in addition to any other tax savings that apply. You still have time to put money in an IRA and get the saver's credit on your 2009 return. 2009 IRA contributions can be made until April 15, 2010. Use Form 8880 to claim the saver's credit.

Caution: Like other tax credits, the saver's credit can increase a taxpayer's refund or reduce the tax owed. Though the maximum saver's credit is $1,000 ($2,000 for married couples), the IRS cautioned that it is often much less and, due in part to the impact of other deductions and credits, may, in fact, be zero for some taxpayers.

A taxpayer's credit amount is based on his or her filing status, adjusted gross income, tax liability and amount contributed to qualifying retirement programs. Form 8880 is used to claim the saver's credit, and its instructions have details on figuring the credit correctly.

Other Credits Available

IRS.gov has information on these additional credits:

• Foreign tax credit, claimed on Form 1040 Line 47
• Credit for the elderly or the disabled, claimed on Form 1040 Schedule R
• Adoption credit, claimed on Form 8839
• Alternative motor vehicle (including hybrids) credit, claimed on Form 8910
• Credit for prior year minimum tax, claimed on Form 8801

Tax Credits Can Save You Money

These credits can increase your refund or reduce the tax you owe. Usually, credits can only lower your tax to zero. But some credits, such as the EITC and the child tax credit, can actually exceed your tax. Though some credits are available to people at all income levels, others have income restrictions. These include the EITC, saver's credit, education credits and child tax credit.

Tip: If you qualify, you can claim any credit, regardless of whether you itemize your deductions. Any credit can be claimed on Form 1040.

Tax credits help you pay part of the cost of raising a family, going to college, savings for retirement, or getting daycare so you can work or go to school.

Almost everything you own and use for personal purposes, pleasure or investment is a capital asset. When you sell a capital asset, the difference between the amounts you sell it for and your basis, which is usually what you paid for it, is a capital gain or a capital loss.

While you must report all capital gains, you may deduct only capital losses on investment property, not personal property.

Here are a few tax facts about capital gains and losses:

• Capital gains and losses are reported on Schedule D, Capital Gains and Losses, and then transferred to line 13 of Form 1040.
• Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.
• Net capital gain is the amount by which your net long-term capital gain is more than your net short-term capital loss.
• The tax rates that apply to net capital gains are generally lower than the tax rates that apply to other income and are called the maximum capital gains rates. For 2009, the maximum capital gains rates are 5, 15, 25 or 28 percent.
• As noted earlier, the long term capital gains rate is expected to increase to 20% in 2011.
• If your capital losses exceed your capital gains, the excess is subtracted from other income on your tax return, up to an annual limit of $3,000 ($1,500 if you are married filing separately).

Call us for more information about reporting capital gains and losses, or get IRS Publication 550, Investment Income and Expenses.

The foregoing is provided by the Bosma Group which specializes in serving small and medium sized businesses.  The Bosma Group was founded with the vision of allowing emerging businesses access to same world-class expertise formerly only available to Fortune 1000 companies.

Some common examples of items that are not included in your income are:

• Adoption Expense Reimbursements for qualifying expenses
• Funding of your Health Savings Account with a one-time direct transfer from your individual retirement plan, health reimbursement account or health flexible spending account.
• Child support payments
• Gifts, bequests and inheritances
• Workers' compensation benefits
• Meals and Lodging for the convenience of your employer
• Compensatory Damages awarded for physical injury or physical sickness
• Welfare Benefits
• Cash Rebates from a dealer or manufacturer

Examples of items that may or may not be included in your income are:

• Life Insurance.
  • If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price.
• Scholarship or Fellowship Grant.
  • If you are a candidate for a degree, you can exclude amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify.

These examples are not all-inclusive.

Please call us for more information about what income is taxable.

The foregoing is provided by the Bosma Group which specializes in serving small and medium sized businesses.  The Bosma Group was founded with the vision of allowing emerging businesses access to same world-class expertise formerly only available to Fortune 1000 companies.