Free File

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Free File now available, get a jump on your taxes

The IRS has worked with major tax return providers to offer Free File.  If your income is below $60,000, you can use free tax preparation software. 

Warning...while the Federal tax return is free, not all State returns are free.  

You can begin preparing your tax returns now.  The companies will securely hold your completed tax return until January 20, 2015, when the IRS begins accepting returns. 

For more information or begin using the IRS Free File, please click on the link:

IRS Free File.


*Google Images:  http://www.davidhill.co/2014/06/get-first-month-free-vcloud-hybrid-service/

This blog is not meant to offer legal or comprehensive advice.  You should consult a tax professional for questions regarding your unique situation.

Accounting: Year End Wrap Up

It is that time of year to wrap-up your accounting and prepare for 2015.  Is your accounting ready for Uncle Sam?  Do your ending balances in the temporary accounts begin 2015 with zero balances?  The checklist below contains some of the important items that need your attention to ensure you are ready to submit your tax return with no surprises.  

Reconcile all bank, credit card and petty cash accounts	Reconciling is a matching process that ensures the accuracy of your accounts.  The petty cash account should be replenished so the amount on hand is equal to the balance in the account and all disbursements are recorded.
Make year-end adjusting entries	Accrued Revenues	Revenues/Receivables have been earned, but the invoices have not yet been processed
	Accrued Expenses	Expenses/Payables have been incurred, but the invoices have not been processed.
	Deferred Revenues	Currency received in advance of being earned
	Deferred Expenses	Currency paid for future expense
	Depreciation Expense	An asset purchased and cost allocated to expense in its useful life periods
Close the books	Set a closing date to limit changes to prior year data
Adjust Retained earnings/Owners capital account	Close out the income into the retained earnings section of the financial statement.
Review fringe benefits that need to be reported on Form W-2	Taxable fringe benefits are considered compensation and must be reported on the W-2 such as bonuses, vacation, personal use of an employer-provided vehicle, excess moving expenses paid, group term life insurance in excess of $50,000, clergy housing cash.
Take a physical inventory and reconcile with book inventory	Count all inventory and compare it to what should be on hand according to the accounting records.
Print financial reports	Print the Balance Sheet, Income Statement, Statement of Cash Flows, and Statement of Retained Earnings/Owner’s Equity
Print and file information returns	See General Instructions for Certain Information Returns on the IRS.gov website. Due dates.   File Forms 1097, 1098, 1099, 3921, 3922, or W-2G electronically through the FIRE System by March 31, 2015. File Forms 5498, 5498-ESA, or 5498-SA by May 31, 2015. In general, the recipients must receive their statements posted by January 31 or February 15 or on a website accessible to the recipient through October 15
Archive and backup data

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This blog is not meant to offer legal or comprehensive advice.  You should consult a tax professional for questions regarding your unique situation.  

Avoid Common Tax Return Errors

“The hardest thing in the world to understand is the income tax.” — Albert Einstein, physicist

At the close of each tax filing season, the Internal Revenue Service (IRS) compiles a list of the most common errors taxpayers make when filing their tax returns. Believe it or not, incorrect mathematical calculations are not the number one error. The most frequent offense for the past several years is incorrect Social Security numbers being submitted on individual income tax returns.

According to the IRS, the eight common tax-filing errors to avoid are:

1. Wrong or missing Social Security numbers.
2. Wrong names.
3. Filing status errors (single, head of household, married filing joint/seperate, qualifying widow)
4. Math mistakes.
5. Errors in figuring credits or deductions.
6. Wrong bank account numbers.
   
7. Forms not signed or dated.
8. Electronic filing PIN errors.

                                                                                                                                     

Many of these errors can be avoided by e-filing the tax return.  If there is an issue with the return, the IRS e-file system will reject the return.  This may delay processing the tax return and receiving the refund ultimately. 

For more information, please visit:  IRS.GOV

Contacting Camala Templeton, EA is the easiest way to e-file.  Camala keeps current on tax law changes.

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This blog is not meant to offer legal or comprehensive advice.  You should consult a tax professional for questions regarding your unique situation.  

Who is Your Dependent?

Does Your Child Qualify?

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Taxpayers are allowed one exemption for each person claimed as a dependent on their tax return. An exemption in 2014 is a deduction of $3,950 barring any income phaseouts. This can equal substansive savings on taxes.  

There are two types of dependents - Qualifying Child and Qualifying Relative.  In both cases, 

• the person must be a U.S. citizen, a U.S. national, a U.S. resident, or a resident of Canada or Mexico.  
• They may not be a dependent of another person...including themselves or claim a dependent on their tax return.  
• They may not file a married tax return unless the reason they filed was to claim a refund and no tax liability existed.

If your dependent passed these tests...hurray!  You are one step closer claiming your dependent.

In addition to the qualifiers above, to claim a dependency exemption, the following must be true:

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Qualifying Child:

• Relationship:  The child must be your son, daughter, stepchild, placed foster child, brother, sister, half brother, half sister, stepbrother, stepsister, adopted child or an offspring of any of them.
• Age: The child must be age 19 or younger.  If the child is a full-time student, age 24 or younger.  The age test does not apply to a child who is permanently and totally disabled.
• Residence:  The child must have the same principle residence as you for more than half the year (183 days to be exact!). There are exceptions for children of divorced/separated parents, kidnapped children, temporary absences and for children who were born or pass away during the year.
• Support: The child may not provide more than half of his/her support.

If the child is the qualifying child of two or more taxpayers, the child will be the qualifying child of:

1. The child's parents.
2. If more than one parent, the one in which the child lived the longest during the year.
3. If the time was equal, then the parent with the highest adjusted gross income.
4. If no parent, the taxpayer with the highest adjusted gross income.

Children of divorced/separated parents have another set of qualifiers.  The noncustodial parent can claim the child if:

• The parents are divorced, separated legally, separated under written agreement or lived apart for the last six months of the year.
• The child received over half of his/her support for the year from the parents.
• The child is in the custody of the parents for more than half of the year. 
• The custodial parent signs Form 8332.

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If these qualifiers are met, you have determined that you are eligible to claim the child as a dependent on your tax return.  In addition to the $3,950 in exemption, you may also be able to take advantage of the child tax credit, earned income credit, head of household filing status, and the credit for child and dependent expenses. 

Qualifying Relative:

• The person must not be your qualifying child.
• The person must live at your residence for the entire year. There are exceptions.  Please see Publication 501 under the section "Relatives who do not have to live with you."
• The person’s gross income must be less than the personal exemption amount for the year ($3950). 
• You must provide over half of the person’s support for the year. 

That is it!  Easy peasy!! Don't forget, each person on your tax return must have a valid TIN (taxpayer identification number).  This can be an ITIN (individual taxpayer identification number) or and SSN (social security number).  

For more information, please review IRS Publication 17 and Publication 501.

Google Images:  1.  www.apps.irs.gov.com, 2. www.onesmedia.com, 3. www.senatorandrewlanza.com

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This blog is not meant to offer legal or comprehensive advice.  You should consult a tax professional for questions regarding your unique situation.  

Tax Season is Around the Corner!

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Will you be prepared?

The IRS will begin accepting tax returns electronically on January 20, 2015.  Paper tax returns will begin processing at the same time.  Will you be ready?

“Nothing in life is to be feared, it is only to be understood. Now is the time to understand more, so that we may fear less.” -Marie Curie* 

Plan now for the approaching tax season.  It is upon us!  

• Review the prior year tax return to glean details on the statements you should expect to receive and any information you need to gather.  
• Create a file, basket or corner...whatever works best...for your tax documents that arrive in the mail and any tax information that you gather.  It is best to have these items in a central location.  
• Organize, organize, organize...this is the key to success.  This will reduce your time if you prepare your own tax return.  If you have a tax accountant, this will help your tax return to be prepared in a shorter amount of time and more accurately.  
• Schedule the appointment with your tax accountant early in the season for a time when you expect to have all documentation ready to go.

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Key Items to Gather for Tax Prep:

Form W-2:  Wage and Earnings Statements - Each employer will issue a statement by January 31st.  If you have moved, you should contact the employer and give them your updated mailing address.  If you misplace or do not receive the form, contact the employer.

Forms 1099:**

• 1099-B: Proceeds From Broker and Barter Exchange Transactions -Brokers or mutual fund companies must file this form when you sell stock. It shows the amount and date of the sale, and provides cost basis information.

• 1099-DIV: Dividends and Distributions - This form must be filed if you own stock or other securities and receive over $10 in distributions, such as dividends, capital gain distributions, or nontaxable distributions, that were paid on stock and liquidation distributions.

• 1099-G:  Certain Government Payments - This form is used to report unemployment compensation, state and local income tax refunds, agricultural payments, and taxable grants.

• 1099-INT:  Interest Income - Financial institutions are required to file this form if they pay you more than $10 in interest during the year

• 1099-K:  Merchant Card and Third Party Network Payments - This form must be filed if you have a business and have at least 200 transactions and at least $20,000 in sales during the year that are processed by third-party payment processors such as PayPal and Google Checkout. This form is also issued as by credit card payment processors.

• 1099-MISC:  Miscellaneous Income - This form must be filed by a client who pays an independent contractor at least $600 for professional services during the year.

• 1099-R:  Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts -  This is the form filed when you get a distribution from a retirement plan, such as an IRS, Roth IRA, 401(k) plan.

Schedule K-1:  These forms arrive in March, typically.  They are derived from S-Corporation to stockholders, Partnership members, Trust/Estate beneficiaries. 

Childcare Information: Name, address, EIN or SSN of the provider and the expense amount.

Medical expenses:  10% (7.5% if age 65 and older) of the adjusted gross income.  Don't forget the medical mileage - it counts @24.0 cents per mile!

Charitable contributions: Receipts are required for all charitable contributions. Charitable mileage rate is 14.0 cents per mile.
Employee business expenses: Union dues, uniforms...etc.

Mortgage interest, PMI and Property tax

Form 1095-A: Health Insurance Marketplace Statement or the Certificate of exemption: These are new requirements for the Affordable Care Act.

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Other common items needed are stock sales, real estate sales, business expense/income records and rental property expense/income records.

You can never be too prepared.  Take some time over the next few weeks to get organized and remove some of the stress and worry out of tax season. 

*Marie Curie quotes (French Physicist, twice winner of the Nobel Prize, 1867-1934) www.thinkexist.com

**How Many 1099 Forms Are There? by Stephen Fishman, J.D. NOLO Law for All http://www.nolo.com/legal-encyclopedia/how-many-1099-forms-are-there.html

If you have questions, please seek the advice of a trained tax professional.

Google Images:  1.  www.smallbiztrends.com, 2. www.anglerz.com, 3. www.transitionbeginswithyou.com

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This blog is not meant to offer legal or comprehensive advice.  You should consult a tax professional for questions regarding your unique situation.  

Affordable Care Act & The Premium Tax Credit

Will you have to pay?

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The Affordable Care Act requires most Americans to have health insurance.  If you need help paying for coverage, the Premium Tax Credit is a credit that allows you to lower your monthly premium based on household information provided to the Health Insurance Marketplace when purchasing the Bronze, Silver, Gold or Platinum level insurance.  

If you are:

• lawfully present in the United States, 
• unable to obtain health insurance through your employer or the government (Medicare, etc), 
• not claimed as a dependent, 
• not filing a married filing separate tax return
• and fall within the income threshold guidelines: $45,900 for an individual and $94,200 for a family

the PTC will be estimated for you by the Marketplace.  The PTC can be received in advance monthly to lower the health insurance premiums or claimed on the tax return.  Those who take the advanced credit will have to reconcile the credit received against the estimates reported when they applied.  It is important that enrollees report changes in household income, marital status and family size to the Marketplace.  Doing so will allow the Marketplace to update the information used to determine eligibility for a healthcare plan which may affect the amount of advanced payments/subsidies that are sent to the health insurer. 

If the household income is underestimated, the enrollee may receive a smaller tax refund or owe the Internal Revenue Service (IRS).  If the household income is overstated, the enrollee could have benefitted from reduced monthly health premiums.  

There is a large chance that a number of enrollees under or over estimated their household income because they applied in October 2013 prior to knowing what they would make in 2014.  In addition, the requirement to report changes such as:

• New job or raise in pay (increase in household income)
• Loss of job or reduction in pay (decrease in household income)
• Marriage or divorce
• Loss of a dependent
• Acquiring employment that offers health insurance (ineligible to receive marketplace health insurance)

may not be on the forefront of individuals' minds as they are going through these issues. Life changing events can create stress, excitement and other emotions which push the requirement to report lower on the list of to-dos. It is essential to keep the Marketplace abreast of these changes to avoid a shock at tax time.

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The marketplace should mail enrollees Form 1095-A (Health Insurance Marketplace Statement) by January 31st.  This form will list who had health insurance policies and how much of the advanced Premium Tax Credit was received.    

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The information on Form 1095-A will be used to fill out Form 8962 Premium Tax Credit (PTC). The PTC form will ask for information on insurance, advanced payments received and income. 

   

Form 8962 can be complicated to complete if the household members did not all have coverage the entire year.  

If you have questions, please seek the advice of a trained tax professional.

Google Images:  1.  www.foxnews.com, 2. www.savingadvice.com, 3. www.finance.yahoo.com

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This blog is not meant to offer legal or comprehensive advice.  You should consult a tax professional for questions regarding your unique situation.  

BUSINESS Extenders

The tax extenders bill passed in mid December 2014.  There were a number of tax provisions that were scheduled to expire at the end of 2013. Here is a list of a few of the business tax breaks that were set to expire.

BUSINESS Extenders: 

Credit for Increasing Research Activities: Extends through 2014 the research and development (R&D) tax credit. The R&D credit generally allows taxpayers a 20 percent credit for qualified research expenses or a 14 percent alternative incremental credit (AIRC). 

Work Opportunity Tax Credit:  Extends through 2014 the work opportunity tax credit that allows employers elect to claim a credit for a percentage of qualified first- and/or second-year wages paid to or incurred for targeted group employees during the tax year.  This target group includes veterans.   

15-Year Straight-Line Cost Recovery for Qualified Leasehold Improvements, Qualified

Restaurant Buildings and Improvements, and Qualified Retail Improvements: Extends through 2014 the 15-year straight-line cost recovery for qualified leasehold improvements. 

Bonus Depreciation: Extends through 2014 the 50% special depreciation allowance to recover part of the cost of qualified property placed in service during 2014 (2015 for certain property with a longer production period). The property must be new; used property does not qualify.  The bonus depreciation is available the first year the property is placed in service. 

Section 179: Extends through 2014 the increased expensing limitations and treatment of certain real property as section 179 property. The provision would also extend the small business expensing limitation and phase-out amounts in effect from 2010 to 2013 ($500,000 and $2 million) to property placed in service during 2014. In 2015 these amounts will revert to $25,000 and $200,000, respectively. 

Contributions of Food Inventory: Extends through 2014 the enhanced charitable deduction for contributions of food inventory of wholesome food that is saved properly.  The food inventory must be donated to an approved agency and receipted.  The deduction is equal to 50% of the donated food's appreciated value not to exceed twice the donated food's cost basis.  This extension applies to non-corporations.  The C-corporation mandate is permanent.  

Subchapter S-Corporation Charitable Contribution Basis Adjustment:  Extends through 2014 the provision providing that a shareholder's basis in the stock of an S corporation is reduced by the shareholder's pro rata share of the adjusted basis of property contributed by the S corporation for charitable purposes. A Subchapter S corporation may give appreciated stock or land to charity. Only the basis of the S corporation in the donated asset will be used to reduce the shareholder basis, even though the full fair market value deduction is claimed by the shareholder.

Subchapter S-Corporation Recognition Period for Built-in Gains Tax:  Extends through 2014 the reduction of period for which and S corporation must hold assets following a conversion from a C corporation to an S Corporation. If an S corporation that was taxed as a C corporation has built-in gains attributable to the period during which it was a C corporation, it is subject to a corporate-level tax when it recognizes the built-in gains within a certain period of time after the conversion to S corp status. The holding period is reduced from ten years to five years to avoid the corporate level tax on built-in gains. 

Energy-efficient New Homes:  Extends through 2014 the tax credit for manufacturers of energy-efficient residential homes. An eligible contractor may claim a tax credit of $1,000 or $2,000 for the construction or manufacture of a new energy efficient home that meets qualifying criteria.

*Congress.gov H.R.8 - American Taxpayer Relief Act of 2012 112th congress (2011-2012) https://www.congress.gov/bill/112th-congress/house-bill/8
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This blog is not meant to offer legal or comprehensive advice.  You should consult a tax professional for questions regarding your unique situation.  

INDIVIDUAL Extenders

The tax extenders bill passed in mid December 2014.  There were a number of tax provisions that were scheduled to expire at the end of 2013. Here is a list of the tax breaks that were set to expire for individual taxpayers

INDIVIDUAL Extenders: 

Teacher $250 Above the Line Deduction for Classroom Expenses:  Extends through 2014 the up to $250 above-the-line deduction for certain expenses of elementary and secondary school educators that otherwise would have to be itemized. This provision allows teachers and other eligible educators a deduction on line 23 of form 1040. This includes books, supplies, equipment, and supplementary materials used in the classroom. For purposes of the deduction, eligible educators are defined as teachers, instructors, counselors, principals or aides for kindergarten through 12th grade who put in at least 900 hours during the school year in a school that provides elementary or secondary education, as determined under state law. 

Discharge of Qualified Principal Residence Indebtedness on Principal Residence Excluded from Gross Income:  Extends through 2014 the exclusion from gross income for the discharge of qualified principal residence acquisition indebtedness as the result of foreclosure or short sale of the taxpayer's primary residence during 2014. The Mortgage Forgiveness Debt Relief Act was passed in 2007.  Prior to 2007, forgiven mortgage debt was reported to the IRS and could be includable as taxable income. The Act offered an exception to the rule that the forgiven mortgage debt is excluded from gross income generally.

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Parity for exclusion from income for employer-provided commuter transit and parking benefits: This provision brings the monthly exclusion of employer-provided commuter transit fringe benefits into parity with parking benefits for 2014. Under section 132(f) of the Tax Code, certain fringe benefits provided by employers for commuting and transportation are tax-free to employees. Transit passes were $130 while the fringe benefit exclusion for qualified parking is $250.  As a result of the bill, the monthly exclusion amount for transit passes and van-pooling increased from $130 to $250 for 2014. This matches the exclusion for qualified parking benefits.  

Mortgage insurance premiums treated as qualified  residence interest: Extends through 2014 the treatment of qualified mortgage insurance premiums as qualified residence interest. Lenders may require a taxpayer to purchase private mortgage insurance (PMI).  The homeowner pays the premiums and in the case of a default, the lender receives the benefit.  This law allowed taxpayers to include the premiums paid for mortgage insurance on line 13 of the Schedule A. This deduction is subject to ratable income phaseouts for taxpayers with adjusted gross income of $100,000 to $110,000 married filing joint and $50,000 to $55,000 for married filing separate. 

Tax Deduction for State and Local general sales taxes:  Extends through 2014 the option to take an itemized deduction for state and local general sales taxes in lieu of an itemized deduction for state and local income taxes. This provision allows states like Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming (where there is no or low state income tax) to participate by claiming state and local general sales tax in lieu of state and local income tax.  The provision is available to all taxpayers who itemize.  The taxpayer may either deduct the actual amount of sales tax paid in the tax year or an amount prescribed by the Internal Revenue Service. 

Contributions of Capital Gain Real Property Made for Conservation Purposes:  Extends through 2014 the special rule for contributions of capital gain real property made for conservation purposes. Generally, a charitable income tax deduction is allowed for qualified conservation contributions. Qualifying conservation purposes include (but are not limited to) the preservation of land or open spaces for scenic enjoyment, for recreational or educational purposes, or to protect national habitats.  Gifts of appreciated property are generally deductible at the fair market value, but, for individuals, are subject to the lower limits (30% of income) than ordinary gifts such as cash (50% of income).  The limit for appreciated property contributed for conservation purposes increased to 50% for individuals.  For farmers and ranchers, including individuals and for corporations that are not publicly traded, the limit is increased to 100% of income.*

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Above-the-line Deduction for Qualified Tuition and Related Expenses:  Extends through 2014 the provision that permits an above-the-line deduction for qualified tuition and related expenses for higher education. There are some income limitations - the taxpayer may claim up to $4,000 in education expenses for an individual, adjusted gross income (AGI) does not exceed $65,000 ($130,000 for joint filers) or $2,000 for an individual whose AGI does not exceed $80,000 ($160,000 for joint filers). The deduction is available for the taxpayer, spouse and dependants.

Tax-free Distributions from IRAs to Certain Public Charities for Individuals age 70.5 or Older, Not to Exceed $100,000 Per Taxpayer Per Year:  Extends through 2014 the provision that permits tax-free direct transfers of up to $100,000 from individual retirement plans to a qualified charity for taxpayer's age 70.5 and older while counting towards the taxpayer's Required Minimum Distribution (RMD) requirement. Prior to this provision, and IRA owner must pay tax on the IRA funds when withdrawn even if the funds were donated to a charity.  To get the benefit of the donation, the taxpayer must itemize; however, the distribution is included in gross income.

Credit for Nonbusiness Energy Property:  Extends through 2014 the provision allowing a credit of 10% of the amount paid or incurred by the taxpayer for qualified energy improvements, up to $500. The provision is available for existing homes and applies to heating, air conditioning, stoves, water heaters, doors, windows ($200 limit).

For a list of key provisions impacted by P.L. 113-295 (H.R. 5771, Tax Increase Prevention Act of 2014 please visit http://www.irs.gov/uac/Tax-Increase-Prevention-Act-of-2014:-Extenders

*Congressional Research Service Recently Expired Charitable Tax Provisions ("Tax Extenders"):  In Brief by Jane G. Gravelle & Molly Sherlock http://www.fas.org/sgp/crs/misc/R43517.pdf

Google Images: 1. www.bentley.edu  2. www.huffingtonpost.com
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This blog is not meant to offer legal or comprehensive advice.  You should consult a tax professional for questions regarding your unique situation.