The IRS started their e-filing season on the 20th as promised. Many people have already received W-2's and other information, but there are still a couple of days left in January, so there will no doubt be some more forms arriving in the mail for many people.
People with investment funds often receive a preliminary set of 1099's along with a note saying that they will probably be revised. Some people wait till March for the final revision.
We hope that everyone made it through the blizzard OK. We were unable to get out of the house yesterday, but I am in the Centerville office today. Will be in Provincetown tomorrow. (If all goes well.)
Wednesday, January 28, 2015
Friday, January 16, 2015
Tax season news
Tax Season Opens
The IRS will begin accepting e-filed returns on January 20th.
Obama-Care
If you have health insurance, we will just need to check off a box on the return to say so. That’s all, no problems! Since most people in Massachusetts have some kind of health insurance these days, this should be easy.
If you do not have health insurance, we will have to fill out a form or two, and it could get a little complicated. You might have to pay a penalty, but since this is the first year, the penalties are not much.
An interesting thing about the penalties is that, according to the law, the IRS cannot go after you to collect the health insurance penalty the way they can for a regular tax liability. They can send you bills, but they can’t levy bank accounts or seize property. However, if you have a refund in a subsequent year, they can keep the refund (or part of it) and apply it to the uncollected penalty.
“Tax Extenders”
At the end of 2014, Congress passed and the President signed a law to extend a large number of tax deductions and credits. (We went through the same thing for 2013.)
Some of the more popular items are:
Out of pocket expenses for school teachers
Mortgage insurance premiums
Option to deduct sales tax instead of state income tax
Exclusion of debt forgiveness income on a personal residence
Direct distributions from IRA’s to charities
Various energy credits and deductions
Various business credits and deductions, including:
Research credit
Hiring credits
Accelerated depreciation for various business property improvements
Expanded limits on expensing equipment rather than depreciating it
Film and television production deductions
All these extenders are good only for 2014, which means that for 2015 we will be in limbo about them again until and unless Congress and the President agree on what to do about them. Who knows how long that will take this year? If the past is any guide, probably they will wait till next December.
In the meantime, tax season is upon us. Please feel free to call us when you are ready to do yours.
Thank you!
The IRS will begin accepting e-filed returns on January 20th.
Obama-Care
If you have health insurance, we will just need to check off a box on the return to say so. That’s all, no problems! Since most people in Massachusetts have some kind of health insurance these days, this should be easy.
If you do not have health insurance, we will have to fill out a form or two, and it could get a little complicated. You might have to pay a penalty, but since this is the first year, the penalties are not much.
An interesting thing about the penalties is that, according to the law, the IRS cannot go after you to collect the health insurance penalty the way they can for a regular tax liability. They can send you bills, but they can’t levy bank accounts or seize property. However, if you have a refund in a subsequent year, they can keep the refund (or part of it) and apply it to the uncollected penalty.
“Tax Extenders”
At the end of 2014, Congress passed and the President signed a law to extend a large number of tax deductions and credits. (We went through the same thing for 2013.)
Some of the more popular items are:
Out of pocket expenses for school teachers
Mortgage insurance premiums
Option to deduct sales tax instead of state income tax
Exclusion of debt forgiveness income on a personal residence
Direct distributions from IRA’s to charities
Various energy credits and deductions
Various business credits and deductions, including:
Research credit
Hiring credits
Accelerated depreciation for various business property improvements
Expanded limits on expensing equipment rather than depreciating it
Film and television production deductions
All these extenders are good only for 2014, which means that for 2015 we will be in limbo about them again until and unless Congress and the President agree on what to do about them. Who knows how long that will take this year? If the past is any guide, probably they will wait till next December.
In the meantime, tax season is upon us. Please feel free to call us when you are ready to do yours.
Thank you!
Wednesday, December 24, 2014
Closing out 2014
The usual tax deductions and credits that have been renewed at the last minute for the past several years have survived again. These include measures both large and small, from a $250 deduction for teachers' supplies to $500,000 for business machinery and equipment.
As usual, they will all expire again on 12/31/2014, leaving Congress to fight over them again next year.
Here is a link to an article that discusses the details. Link
As usual, they will all expire again on 12/31/2014, leaving Congress to fight over them again next year.
Here is a link to an article that discusses the details. Link
Wednesday, January 22, 2014
Expiring deductions
At the end of 2013 a number of tax deductions that Congress has habitually renewed each year were allowed to expire. The word is that many of them will not be renewed this time.
One of the expiring provisions formerly allowed people over 70 and 1/2 years old to make charitable donations of up to $100,000 directly from an IRA. This saved tax money because the distributions were not counted as income to the IRA-owner and was therefore not subject to any limitations involved in claiming it as an itemized deduction. It was just a direct payout from the IRA, bypassing the person's tax return.
Another provision was a temporary measure established during the housing crash of a few years a go. It allowed people who lost their homes and had their mortgages written off by the lender to avoid declaring the forgiveness of the mortgage as income. This will no longer be automatic, starting in 2014. However, there are still circumstances in which such debt forgiveness will not be taxed.
If you have questions about the fate of a particular tax deduction, consult your favorite tax professional!
One of the expiring provisions formerly allowed people over 70 and 1/2 years old to make charitable donations of up to $100,000 directly from an IRA. This saved tax money because the distributions were not counted as income to the IRA-owner and was therefore not subject to any limitations involved in claiming it as an itemized deduction. It was just a direct payout from the IRA, bypassing the person's tax return.
Another provision was a temporary measure established during the housing crash of a few years a go. It allowed people who lost their homes and had their mortgages written off by the lender to avoid declaring the forgiveness of the mortgage as income. This will no longer be automatic, starting in 2014. However, there are still circumstances in which such debt forgiveness will not be taxed.
If you have questions about the fate of a particular tax deduction, consult your favorite tax professional!
Tuesday, January 21, 2014
Obamacare
2014 sees the beginning of the Federal penalties for not having health insurance. People in Massachusetts have been dealing with state penalties for a few years. Now the state penalty will be replaced by the Federal penalty.
People who are deemed not to be able to afford health insurance are exempt from the penalty and may receive a tax credit.
The penalty is not easy to state clearly.
The basic penalty is $95 per household member or $47.50 for children under 18. There is a ceiling of $285 per household for this method of calculating the penalty.
The alternative calculation for the penalty is 1 percent of your income. The "income" for this calculation is reduced by the basic filing requirement for your filing status ($10,150 for single people, $20,300 for married filing jointly, etc.) plus $3,950 per dependent. The ceiling for this calculation is the average cost of a "bronze-level" insurance plan, which is the basic entry-level plan. This amount will vary from state to state.
The penalty will be the higher of these two calculations.
Here is a strange thing: If you owe the penalty and it results in you having a balance due on your 2014 return, the IRS is not allowed to go after you for it. It is not even allowed to charge interest on it. If in the future you have a refund coming to you, the IRS can deduct your 2014 balance due from it. That's the worst it can do.
The penalty (now called a tax by order of the Supreme Court) for not having health insurance will go up quite a bit in 2015 and 2016. In 2015 it will be 2% of income or $325 per person. In 2016, it will be 2.5% of income or $695 per person. After that it will be adjusted for inflation.
People who are deemed not to be able to afford health insurance are exempt from the penalty and may receive a tax credit.
The penalty is not easy to state clearly.
The basic penalty is $95 per household member or $47.50 for children under 18. There is a ceiling of $285 per household for this method of calculating the penalty.
The alternative calculation for the penalty is 1 percent of your income. The "income" for this calculation is reduced by the basic filing requirement for your filing status ($10,150 for single people, $20,300 for married filing jointly, etc.) plus $3,950 per dependent. The ceiling for this calculation is the average cost of a "bronze-level" insurance plan, which is the basic entry-level plan. This amount will vary from state to state.
The penalty will be the higher of these two calculations.
Here is a strange thing: If you owe the penalty and it results in you having a balance due on your 2014 return, the IRS is not allowed to go after you for it. It is not even allowed to charge interest on it. If in the future you have a refund coming to you, the IRS can deduct your 2014 balance due from it. That's the worst it can do.
The penalty (now called a tax by order of the Supreme Court) for not having health insurance will go up quite a bit in 2015 and 2016. In 2015 it will be 2% of income or $325 per person. In 2016, it will be 2.5% of income or $695 per person. After that it will be adjusted for inflation.
Friday, January 3, 2014
What's new in taxes?
I have to admit that commentary on taxes can be pretty dull most of the time, but as a CPA it is my duty to say something about it now and then.
The last tax deal between Democrats and Republicans renewed most of the Bush era tax laws, but raised some taxes for "upper income" people. Also, the Affordable Care Act (AKA Obamacare) has added some taxes for "the rich," most notably the Medicare tax on investment income for people in high income brackets.
People in low to moderate tax brackets continue to have a safe harbor in which capital gains are not taxed at all. This zero percent capital gains rate exists for them until their total taxable income moves above the 15% tax bracket. Above that point, more and more of the gains will be taxed at a rate of 15%.
In the highest tax bracket, a 20% capital gains rate applies, and the 3.8% Medicare tax on investment income kicks in.
People in high tax brackets may see their taxes quite a bit higher this year. For other people, the difference may be slight or non-existent.
Moving forward to 2014, the only thing worthy of comment so far is that a large number of miscellaneous tax breaks expired at the end of 2013. This is something that has happened in each of the past several years, and Congress has subsequently restored them. Thus this is apparently no big deal. However, it is always possible that this could be the year that they decide not to renew them.
The only one that is really "big" is the expanded Section 179 deduction that small businesses can use to write off large purchases of equipment. This deduction is suddenly reduced from a maximum of $500,000 to its original level of $25,000. I.e., it goes from really great to practically nothing. Some businesses that use it a lot could find themselves suddenly paying a lot of taxes unless it is changed.
The last tax deal between Democrats and Republicans renewed most of the Bush era tax laws, but raised some taxes for "upper income" people. Also, the Affordable Care Act (AKA Obamacare) has added some taxes for "the rich," most notably the Medicare tax on investment income for people in high income brackets.
People in low to moderate tax brackets continue to have a safe harbor in which capital gains are not taxed at all. This zero percent capital gains rate exists for them until their total taxable income moves above the 15% tax bracket. Above that point, more and more of the gains will be taxed at a rate of 15%.
In the highest tax bracket, a 20% capital gains rate applies, and the 3.8% Medicare tax on investment income kicks in.
People in high tax brackets may see their taxes quite a bit higher this year. For other people, the difference may be slight or non-existent.
Moving forward to 2014, the only thing worthy of comment so far is that a large number of miscellaneous tax breaks expired at the end of 2013. This is something that has happened in each of the past several years, and Congress has subsequently restored them. Thus this is apparently no big deal. However, it is always possible that this could be the year that they decide not to renew them.
The only one that is really "big" is the expanded Section 179 deduction that small businesses can use to write off large purchases of equipment. This deduction is suddenly reduced from a maximum of $500,000 to its original level of $25,000. I.e., it goes from really great to practically nothing. Some businesses that use it a lot could find themselves suddenly paying a lot of taxes unless it is changed.
Wednesday, January 30, 2013
Education credits delayed
The IRS has added form 8863, education credits, to the list of forms they will not process until February or March. Returns that include form 8863 will not be accepted until the IRS says they are ready.
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