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Make an IRA Contribution Before Filing Taxes

March 1, 2015 Leave a comment

If you haven’t contributed funds to an Individual Retirement Arrangement (IRA) for tax year 2014, or if you’ve put in less than the maximum allowed, you still have time to do so. You can contribute to either a traditional or Roth IRA until the April 15 due date, not including extensions.

Be sure to tell the IRA trustee that the contribution is for 2014. Otherwise, the trustee may report the contribution as being for 2015 when they get your funds.

Generally, you can contribute up to $5,500 of your earnings for tax year 2014 (up to $6,500 if you are age 50 or older in 2014). You can fund a traditional IRA, a Roth IRA (if you qualify), or both, but your total contributions cannot be more than these amounts.

Traditional IRA: You may be able to take a tax deduction for the contributions to a traditional IRA, depending on your income and whether you or your spouse, if filing jointly, are covered by an employer’s pension plan.

Roth IRA: You cannot deduct Roth IRA contributions, but the earnings on a Roth IRA may be tax-free if you meet the conditions for a qualified distribution.

Each year, the IRS announces the cost of living adjustments and limitation for retirement savings plans.

Saving for retirement should be part of everyone’s financial plan and it’s important to review your retirement goals every year in order to maximize savings. If you need help with your retirement plans, give the office a call.

April 15 Approaches – Some Tax Tips For You

April 11, 2014 Leave a comment

Are you one of the millions of Americans who haven’t filed (or even started) your taxes yet? With the April 15 tax filing deadline less than a week away, here’s some last minute tax advice for you.

1. Stop Procrastinating. Resist the temptation to put off your taxes until the very last minute. Our office needs time to prepare your return, and we may need to request certain documents from you, which will take additional time.

2. Include All Income. If you had a side job in addition to a regular job, you might have received a Form 1099-MISC. Make sure you include that income when you file your tax return because you may owe additional taxes on it. If you forget to include it you may be liable for penalties and interest on the unreported income.

3. File on Time or Request an Extension. This year’s tax deadline is April 15. If the clock runs out, you can get an automatic six-month extension, bringing the filing date to October 15, 2014. You should keep in mind however, that filing the extension itself does not give you more time to pay any taxes due. You will still owe interest on any amount not paid by the April deadline, plus a late-payment penalty if you have not paid at least 90 percent of your total tax by that date.

Call us if you need to file an extension and we’ll take care of it for you. If you need to file for late-penalty relief, we can help with that too.

4. Don’t Panic If You Can’t Pay. If you can’t immediately pay the taxes you owe, there are several alternatives. You can apply for an IRS installment agreement, suggesting your own monthly payment amount and due date, and getting a reduced late-payment penalty rate. You also have various options for charging your balance on a credit card. There is no IRS fee for credit card payments, but processing companies generally charge a convenience fee. Electronic filers with a balance due can file early and authorize the government’s financial agent to take the money directly from their checking or savings account on the April due date, with no fee.

5. Sign and Double Check Your Return. The IRS will not process tax returns that aren’t signed, so make sure that you sign and date your return. You should also double check your social security number, as well as any electronic payment or direct deposit numbers, and finally, make sure that your filing status is correct.

Make Your 2013 IRA Contribution Now

March 27, 2014 Leave a comment

If you haven’t contributed funds to an Individual Retirement Arrangement (IRA) for tax year 2013, or if you’ve put in less than the maximum allowed, you still have time to do so. You can contribute to either a traditional or Roth IRA until the April 15 due date for filing your tax return for 2013, not including extensions.

Be sure to tell the IRA trustee that the contribution is for 2013. Otherwise, the trustee may report the contribution as being for 2014 when they get your funds.

Generally, you can contribute up to $5,500 of your earnings for 2013 (up to $6,500 if you are age 50 or older in 2013). You can fund a traditional IRA, a Roth IRA (if you qualify), or both, but your total contributions cannot be more than these amounts.

Note: IRA contribution limits remain at $5,500 ($6,500 if age 50 or older) in 2013.

Traditional IRA: You may be able to take a tax deduction for the contributions to a traditional IRA, depending on your income and whether you or your spouse, if filing jointly, are covered by an employer’s pension plan.

Roth IRA: You cannot deduct Roth IRA contributions, but the earnings on a Roth IRA may be tax-free if you meet the conditions for a qualified distribution.

Each year, the IRS announces the cost of living adjustments and limitation for retirement savings plans.

Saving for retirement should be part of everyone’s financial plan and it’s important to review your retirement goals every year in order to maximize savings. If you need help with your retirement plans, give us a call. We’re happy to help.

Check Out These Tax Breaks

March 13, 2014 Leave a comment

Confused about which credits and deductions you can claim on your 2013 tax return? You’re not alone. Here are six tax breaks that you won’t want to overlook.

1. State Sales and Income Taxes

Thanks to the fiscal cliff deal last January, the sales tax deduction, which originally expired at the end of 2011, was reinstated in 2013 (retroactive to 2012). As such, taxpayers filing their 2013 returns can still deduct either state income tax paid or state sales tax paid, whichever is greater.

If you bought a big ticket item like a car or boat in 2013, it might be more advantageous to deduct the sales tax, but don’t forget to figure any state income taxes withheld from your paycheck just in case. If you’re self-employed you can include the state income paid from your estimated payments. In addition, if you owed taxes when filing your 2012 tax return in 2013, you can include the amount when you itemize your state taxes this year on your 2013 return.

2. Child and Dependent Care Tax Credit

Most parents realize that there is a tax credit for daycare when their child is young, but they might not realize that once a child starts school, the same credit can be used for before and after school care, as well as day camps during school vacations. This child and dependent care tax credit can also be taken by anyone who pays a home health aide to care for a spouse or other dependent–such as an elderly parent–who is physically or mentally unable to care for him or herself. The credit is worth a maximum of $1,050 or 35percent of $3,000 of eligible expenses per dependent.

3. Job Search Expenses

Job search expenses are 100percent deductible, whether you are gainfully employed or not currently working–as long as you are looking for a position in your current profession. Expenses include fees paid to join professional organizations, as well as employment placement agencies that you used during your job search. Travel to interviews is also deductible (as long as it was not paid by your prospective employer) as is paper, envelopes, and costs associated with resumes or portfolios. The catch is that you can only deduct expenses greater than 2percent of your adjusted gross income (AGI).

4. Student Loan Interest Paid by Parents

Typically, a taxpayer is only able to deduct interest on mortgages and student loans if he or she is liable for the debt; however, if a parent pays back their child’s student loans the money is treated by the IRS as if the child paid it. As long as the child is not claimed as a dependent, he or she can deduct up to $2,500 in student loan interest paid by the parent. The deduction can be claimed even if the child does not itemize.

5. Medical Expenses

Most people know that medical expenses are deductible as long as they are more than 10 percent of AGI for tax year 2013. What they often don’t realize is what medical expenses can be deducted, such as medical miles (24 cents per mile) driven to and from appointments and travel (airline fares or hotel rooms) for out of town medical treatment.

Other deductible medical expenses that taxpayers might not be aware of include: health insurance premiums, prescription drugs, co-pays, and dental premiums and treatment. Long-term care insurance (deductible dollar amounts vary depending on age) is also deductible, as are prescription glasses and contacts, counseling, therapy, hearing aids and batteries, dentures, oxygen, walkers, and wheelchairs.

If you’re self-employed, you may be able to deduct medical, dental, or long term care insurance. Even better, you can deduct 100 percent of the premium. In addition, if you pay health insurance premiums for an adult child under age 27, you may be able to deduct them as well.

6. Bad Debt

If you’ve ever loaned money to a friend, but were never repaid, you may qualify for a non-business bad debt tax deduction of up to $3,000 per year. To qualify however, the debt must be totally worthless, in that there is no reasonable expectation of payment.

Non-business bad debt is deducted as a short-term capital loss, subject to the capital loss limitations. You may take the deduction only in the year the debt becomes worthless. You do not have to wait until a debt is due to determine whether it is worthless. Any amount you are not able to deduct can be carried forward to reduce future tax liability.

Are you getting all of the tax credits and deductions that you are entitled to? Maybe you are…but maybe you’re not. Why take a chance? Make an appointment with us today and we’ll make sure you get all of the tax breaks you deserve.

Saver’s Tax Credit Explained

January 18, 2014 Leave a comment

Low and moderate-income workers still have time to make qualifying retirement contributions and get the saver’s credit on their 2013 tax return.

Also known as the retirement savings contributions credit, the saver’s credit is available in addition to any other tax savings that apply and helps offset part of the first $2,000 workers voluntarily contribute to IRAs and to 401(k) plans and similar workplace retirement programs.

The saver’s credit supplements other tax benefits available to people who set money aside for retirement. Taxpayers have until April 15, 2014, to set up a new individual retirement arrangement or add money to an existing IRA for 2013.

Most workers may deduct their contributions to a traditional IRA. Though Roth IRA contributions are not deductible, qualifying withdrawals, usually after retirement, are tax-free. Normally, contributions to 401(k) and similar workplace plans are not taxed until withdrawn.

Note: Elective deferrals (contributions) must have been made by the end of the year to a 401(k) plan or similar workplace program, such as a 403(b) plan for employees of public schools and certain tax-exempt organizations, a governmental 457 plan for state or local government employees, and the Thrift Savings Plan for federal employees.

The saver’s credit can be claimed by:

  • Married couples filing jointly with incomes up to $60,000 in 2014;
  • Heads of Household with incomes up to $45,000 in 2014; and
  • Married individuals filing separately and singles with incomes up to $30,000 in 2014.

The saver’s credit can increase a taxpayer’s refund or reduce the tax owed. The maximum saver’s credit is $1,000 for single filers and $2,000 for married couples and is based on filing status, adjusted gross income, tax liability and amount contributed to qualifying retirement programs.

Other special rules that apply to the saver’s credit include the following:

  • Eligible taxpayers must be at least 18 years of age.
  • Anyone claimed as a dependent on someone else’s return cannot take the credit.
  • A student cannot take the credit. A person enrolled as a full-time student during any part of 5 calendar months during the year is considered a student.

In tax-year 2011, the most recent year for which complete figures are available, saver’s credits totaling just over $1.1 billion were claimed on nearly 6.4 million individual income tax returns. Saver’s credits claimed on these returns averaged $215 for joint filers, $166 for heads of household and $128 for single filers.

Education Savings Plans 529

September 20, 2013 Leave a comment

From our colleagues at Presti & Naegele CPAs:

September is here and school is back in session. Your kids are one year older and hopefully one year closer to heading off to college. Whether that prospect excites you or terrifies you probably depends on the day, but the specter of college tuition is a constant. Regardless of whether your children are starting kindergarten or high school, college costs just got closer. Did you know there are tax advantaged savings plans that can help you build a larger education nest egg for your children?

The 529 College Savings Plan is designed to make it easier for families to save for college. The plan provides a tax incentive that makes earnings on these savings tax free when they are used to pay for qualified education expenses.  Contributions are made after tax, so they don’t provide immediate federal tax benefit like a traditional IRA, but work more like a Roth IRA, where income on the investments can be exempt from tax if used for qualifying education expenses. In addition to the federal benefits, many states, including New York, provide a deduction for contributions into qualified 529 plans. New York provides up to a $5,000 per year deduction ($10,000 for married filing jointly) into New York’s 529 Direct Plan.

The earlier you start contributing to a 529 plan, the more benefit you are likely to receive. When the time comes to pay those costly college bills including tuition, fees, books, and supplies, you can use the earmarked funds that have been growing tax-free in your 529 plan. 529 plans aren’t just for parents either. They are a great way for grandparents to contribute to their grandchildren’s future in a tax advantage way.

529 college savings plans can also be used in combination with available education credits such as the Hope credit or the Lifetime Learning credit, though some limitations and requirements exist to retain the tax free treatment of 529-related income.

Regardless of the age of your children, it’s never a bad time to open a 529 plan. Think of it like your retirement. The sooner you get started, the better off you’ll be. Presti & Naegele can work with you to determine which plan is right for you, and to ensure that all requirements are met to establish and fund your plan. And when the time comes to send your kids off into the world to study, we will be there to help you utilize your 529 plan and other credits and incentives.

10 Key Facts About Mortgage Debt Forgiveness

September 16, 2013 Leave a comment

Here are 10 key facts from the IRS about mortgage debt forgiveness:

1. Cancelled debt normally results in taxable income. However, you may be able to exclude the cancelled debt from your income if the debt was a mortgage on your main home.

2. To qualify, you must have used the debt to buy, build or substantially improve your principal residence. The residence must also secure the mortgage.

3. The maximum qualified debt that you can exclude under this exception is $2 million. The limit is $1 million for a married person who files a separate tax return.

4. You may be able to exclude from income the amount of mortgage debt reduced through mortgage restructuring. You may also be able to exclude mortgage debt cancelled in a foreclosure.

5. You may also qualify for the exclusion on a refinanced mortgage. This applies only if you used proceeds from the refinancing to buy, build or substantially improve your main home. The exclusion is limited to the amount of the old mortgage principal just before the refinancing.

6. Proceeds of refinanced mortgage debt used for other purposes do not qualify for the exclusion. For example, debt used to pay off credit card debt does not qualify.

7. If you qualify, report the excluded debt on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. Submit the completed form with your federal income tax return.

8. Other types of cancelled debt do not qualify for this special exclusion. This includes debt cancelled on second homes, rental and business property, credit cards or car loans. In some cases, other tax relief provisions may apply, such as debts discharged in certain bankruptcy proceedings. Form 982 provides more details about these provisions.

9. If your lender reduced or cancelled at least $600 of your mortgage debt, they normally send you a statement in January of the following year. Form 1099-C, Cancellation of Debt, shows the amount of cancelled debt and the fair market value of any foreclosed property.

10. Check your Form 1099-C for the cancelled debt amount shown in Box 2, and the value of your home shown in Box 7. Notify the lender immediately of any incorrect information so they can correct the form.

Business Knowledge for Friday Reading (and Some New Music)

September 13, 2013 Leave a comment

Here are 5 useful articles in the public domain today:

Time to Hire?  Where Small Businesses Are Adding Jobs by Kathleen Davis in Entrepreneur

Why Better Mac Battery Life is a Big Deal for Apple by Marco Tabini on MacWorld

How to Get Your Groove Back by Pamela Slim

How Contests Provide a Creative Way to Crowdsource Projects by Stephanie Faris on SmallBiz Technology

How to Encrypt Your Email by Bridget Ayers on The Get Smart Blog

 

And here is a new song you have got to add to your playlist:

Belle Glade Missionaries by Of Montreal

 

Have a great weekend!

http://www.cashaccountingcpa.com

 

 

 

Household Employee and the Nanny Tax

September 12, 2013 Leave a comment
Household staff of the Hughes family, c.1890s

Household staff of the Hughes family, c.1890s (Photo credit: Wikipedia)

If you employ someone to work for you around your house, it is
important to consider the tax implications of this arrangement. While
many people disregard the need to pay taxes on household employees, they
do so at the risk of paying stiff tax penalties down the road.

As you will see, the rules for hiring household help are quite
complex, even for a relatively minor employee, and a mistake can bring
on a tax headache that most of us would prefer to avoid.

Who Is a Household Employee?

Commonly referred to as the “nanny tax”, these rules apply to you
only if (1) you pay someone for household work and (2) that worker is
your employee.

  1. Household work is work that is performed in or around your
    home by baby-sitters, nannies, health aides, private nurses, maids,
    caretakers, yard workers, and similar domestic workers.
  2. A household worker is your employee if you control not only what work is done, but how it is done.

    If the worker is your employee, it does not matter whether the work
    is full-time or part-time, or that you hired the worker through an
    agency or from a list provided by an agency or association. It also does
    not matter whether you pay the worker on an hourly, daily, or weekly
    basis, or by the job.

    If the worker controls how the work is done, the worker is not your
    employee, but is self-employed. A self-employed worker usually provides
    his or her own tools and offers services to the general public in an
    independent business.

    Also, if an agency provides the worker and controls what work is done and how it is done, the worker is not your employee.

Example: You pay Betty to baby-sit
your child and do light housework four days a week in your home. Betty
follows your specific instructions about household and child care
duties. You provide the household equipment and supplies that Betty
needs to do her work. Betty is your household employee.

Example: You pay John to care for
your lawn. John also offers lawn care services to other homeowners in
your neighborhood. He provides his own tools and supplies, and he hires
and pays any helpers he needs. Neither John nor his helpers are your
household employees.

Important Business Articles From Around the Web Today

September 11, 2013 Leave a comment
save your money and one day it'll return the favor

save your money and one day it’ll return the favor (Photo credit: • Brusselssprout_in_Manhattan • Eliane •)

If you are looking for some relevant business reading today, take a look at these articles:

How To Improve Your CashFlow – One Accounting Blog

New GMail Tabs Could Hinder Efforts to Reach Your Customers – AICPA Insights

 

The IRS and Big Data Gone Bad – CPA Trendlines

 

Ten Tips for Construction Business Owners – Reckenen Accountants and Consultants

 

Tracking Everything – Cloud Apps for Small Business – Common Cents

 

The Most Overlooked Leadership Skill – Peter Bregman, Harvard Business Review

 

Its More Important to be Kind Than Clever – Bill Taylor, Harvard Business Review

 

Sign up for important business news that affects you at http://www.cashaccountingcpa.com

 

 

 

 

 

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