Boost Your Retirement Savings with a Tax Credit

March 6th 2014: f you contribute to a retirement plan, like a 401(k) or an IRA, you may be eligible for the Saver’s Credit. The Saver’s Credit can help you save for retirement and reduce the tax you owe. Here are five facts from the IRS that you should know about this credit:

1. The Saver’s Credit is the short name for the Retirement Savings Contribution Credit. It can be worth up to $2,000 for married couples filing a joint return. The credit is worth up to $1,000 for single taxpayers.

2. Eligibility depends on your filing status and the amount of your yearly income. You may be eligible for the credit on your 2013 tax return if you’re:

• Married filing separately or a single taxpayer with income up to $29,500

• Head of household with income up to $44,250

• Married filing jointly with income up to $59,000

3. Other special rules that apply to the credit include:

• You must be at least 18 years of age.

• You can’t have been a full-time student in 2013.

• You can’t be claimed as a dependent on another person’s tax return.

4. You must have contributed to a 401(k) plan or similar workplace plan by the end of the year to claim this credit. However, you can contribute to an IRA by the due date of your tax return and still have it count for 2013. The due date for most people is April 15, 2014.

5. File Form 8880, Credit for Qualified Retirement Savings Contributions, to claim the credit. Tax software will do this for you if you e-file.

The Saver’s Credit is in addition to other tax savings you can get if you set aside money for retirement. For example, you may also be able to deduct your contributions to a traditional IRA.

Three Timely Tips about Taxes and the Health Care Law

March 6th 2014 : The health care law has provisions that may affect your personal income taxes. How the law may affect you may depend on your employment status, whether you participate in a tax favored health plan and your age.

Here are three tips about how the law may affect you:

1. Employment Status

  • If you are employed your employer may report the value of the health insurance provided to you on your W-2 in Box 12 with Code DD.  However, it is not taxable.
  • If you are self-employed, you can deduct the cost of health insurance premiums, within limits, on your income tax return.

2. Tax Favored Health Plans

  • If you have a health flexible spending arrangement (FSA) at work, money you put into it normally reduces your taxable income.
  • If you have a health savings account (HSA) at work, money your employer puts into it for you, within limits, is not taxable.
  • Money you put into an HSA usually counts as a deduction and can lower your taxes.
  • Money you take from an HSA to use for qualified medical expenses is not taxable income; however, withdrawals for other purposes are taxable and can even be subject to an additional tax.
  • If you have a health reimbursement arrangement (HRA) at work, money you receive from it is generally not taxable.

3. Age

If you are age 65 or older, the threshold for itemized medical deductions remains at 7.5 percent of your Adjusted Gross Income (AGI) until 2017; for others the threshold increased to 10 percent of AGI in 2013. Your AGI is shown on your Form 1040 tax form.

Ten Facts about Capital Gains and Losses

March 6th 2014 : When you sell a ’capital asset,’ the sale usually results in a capital gain or loss. A ‘capital asset’ includes most property you own and use for personal or investment purposes. Here are few facts on capital gains and losses:

1. Capital assets include property such as your home or car. They also include investment property such as stocks and bonds.

2. A capital gain or loss is the difference between your basis and the amount you get when you sell an asset. Your basis is usually what you paid for the asset.

3. You must include all capital gains in your income. Beginning in 2013, you may be subject to the Net Investment Income Tax. The NIIT applies at a rate of 3.8% to certain net investment income of individuals, estates, and trusts that have income above statutory threshold amounts.

4. You can deduct capital losses on the sale of investment property. You can’t deduct losses on the sale of personal-use property.

5. Capital gains and losses are either long-term or short-term, depending on how long you held the property. If you held the property for more than one year, your gain or loss is long-term. If you held it one year or less, the gain or loss is short-term.

6. If your long-term gains are more than your long-term losses, the difference between the two is a net long-term capital gain. If your net long-term capital gain is more than your net short-term capital loss, you have a 'net capital gain.’ 

7. The tax rates that apply to net capital gains will usually depend on your income. For lower-income individuals, the rate may be zero percent on some or all of their net capital gains. In 2013, the maximum net capital gain tax rate increased from 15 to 20 percent. A 25 or 28 percent tax rate can also apply to special types of net capital gains.  

8. If your capital losses are more than your capital gains, you can deduct the difference as a loss on your tax return. This loss is limited to $3,000 per year, or $1,500 if you are married and file a separate return.

9. If your total net capital loss is more than the limit you can deduct, you can carry over the losses you are not able to deduct to next year’s tax return. You will treat those losses as if they happened that year.

10. You must file Form 8949, Sales and Other Dispositions of Capital Assets, with your federal tax return to report your gains and losses. You also need to file Schedule D, Capital Gains and Losses with your return.

Four Things You Should Know if You Barter

March 5th 2014 : Bartering is the trading of one product or service for another. Often there is no exchange of cash. Small businesses sometimes barter to get products or services they need. For example, a plumber might trade plumbing work with a dentist for dental services.

If you barter, you should know that the value of products or services from bartering is taxable income.

Here are four facts about bartering:

1. Barter exchanges.  A barter exchange is an organized marketplace where members barter products or services. Some exchanges operate out of an office and others over the Internet. All barter exchanges are required to issue Form 1099-B, Proceeds from Broker and Barter Exchange Transactions. The exchange must give a copy of the form to its members who barter and file a copy with the IRS.

2. Bartering income.  Barter and trade dollars are the same as real dollars for tax purposes and must be reported on a tax return. Both parties must report as income the fair market value of the product or service they get.

3. Tax implications.  Bartering is taxable in the year it occurs. The tax rules may vary based on the type of bartering that takes place. Barterers may owe income taxes, self-employment taxes, employment taxes or excise taxes on their bartering income.

4. Reporting rules.  How you report bartering on a tax return varies. If you are in a trade or business, you normally report it on Form 1040,Schedule C, Profit or Loss from Business.

Five Facts about Unemployment Benefits

Mar 5, 2014 : If you lose your job or your employer lays you off, you may be able to get unemployment benefits. The payments may be a welcomed relief. But you should know that they’re taxable.

Here are five important facts about unemployment compensation:

1. You must include all unemployment compensation in your income for the year. You should receive a Form 1099-G, Certain Government Payments. It will show the amount paid to you and the amount of any federal income taxes withheld.

2. There are several types of unemployment compensation. They generally include any amount received under an unemployment compensation law of the U.S. or a state. 

3. You must include benefits paid to you from regular union dues in your income. Different rules may apply if you contribute to a special union fund and those contributions are not deductible. In that case, only include as income any amount you get that is more than the contributions you made.

4. You can choose to have federal income tax withheld from your unemployment. You make this choice using Form W-4V, Voluntary Withholding Request. If you do not choose to have tax withheld, you may have to make estimated tax payments during the year.

5. If you are facing financial difficulties, contact us to to assist you. For example, if your income decreased, you may be eligible for some tax credits, such as the Earned Income Tax Credit. If you owe federal taxes and can’t pay your bill, contact the IRS as soon as possible. In many cases, the IRS can take steps to help ease your financial burden.

Are Your Social Security Benefits Taxable?

Feb 28, 2014 : Some people must pay taxes on part of their Social Security benefits. Others find that their benefits aren’t taxable. If you get Social Security, the IRS can help you determine if some of your benefits are taxable.

Here are  tips about how Social Security affects your taxes:

1. If you received these benefits in 2013, you should have received a Form SSA-1099, Social Security Benefit Statement, showing the amount.

2. If Social Security was your only source of income in 2013, your benefits may not be taxable. You also may not need to file a federal income tax return.

3. If you get income from other sources, then you may have to pay taxes on some of your benefits.

4. Your income and filing status affect whether you must pay taxes on your Social Security.

5. The best, and free, way to find out if your benefits are taxable is to  prepare and e-file your tax return..

6. A quick way to find out if any of your benefits may be taxable is to add one-half of your Social Security benefits to all your other income, including any tax-exempt interest. Next, compare this total to the base amounts below. If your total is more than the base amount for your filing status, then some of your benefits may be taxable. The three base amounts are:

  • $25,000 - for single, head of household, qualifying widow or widower with a dependent child or married individuals filing separately who did not live with their spouse at any time during the year
  • $32,000 -for married couples filing jointly
  • $0 - for married persons filing separately who lived together at any time during the year

Seven Facts about Dependents and Exemptions

Feb 27th 2014 : There are a few tax rules that affect everyone who files a federal income tax return. This includes the rules for dependents and exemptions. The IRS has seven facts on these rules to help you file your taxes.

1. Exemptions cut income.  There are two types of exemptions: personal exemptions and exemptions for dependents. You can usually deduct $3,900 for each exemption you claim on your 2013 tax return.

2. Personal exemptions.  You can usually claim an exemption for yourself. If you’re married and file a joint return you can also claim one for your spouse. If you file a separate return, you can claim an exemption for your spouse only if your spouse had no gross income, is not filing a return, and was not the dependent of another taxpayer.

3. Exemptions for dependents.  You can usually claim an exemption for each of your dependents. A dependent is either your child or a relative that meets certain tests. You can’t claim your spouse as a dependent. You must list the Social Security number of each dependent you claim. See IRS Publication 501, Exemptions, Standard Deduction, and Filing Information, for rules that apply to people who don’t have an SSN.

4. Some people don’t qualify.  You generally may not claim married persons as dependents if they file a joint return with their spouse. There are some exceptions to this rule.

5. Dependents may have to file.  People that you can claim as your dependent may have to file their own federal tax return. This depends on many things, including the amount of their income, their marital status and if they owe certain taxes.

6. No exemption on dependent’s return.  If you can claim a person as a dependent, that person can’t claim a personal exemption on his or her own tax return. This is true even if you don’t actually claim that person as a dependent on your tax return. The rule applies because you have to right to claim that person.

7. Exemption phase-out.  The $3,900 per exemption is subject to income limits. This rule may reduce or eliminate the amount depending on your income. 

Deducting Medical and Dental Expenses

Feb 26th 2014 : If you plan to claim a deduction for your medical expenses, there are some new rules this year that may affect your tax return. Here are eight things you should know about the medical and dental expense deduction:

1. AGI threshold increase.  Starting in 2013, the amount of allowable medical expenses you must exceed before you can claim a deduction is 10 percent of your adjusted gross income. The threshold was 7.5 percent of AGI in prior years.

2. Temporary exception for age 65.  The AGI threshold is still 7.5 percent of your AGI if you or your spouse is age 65 or older. This exception will apply through Dec. 31, 2016.

3. You must itemize.  You can only claim your medical and dental expenses if you itemize deductions on your federal tax return. You can’t claim these expenses if you take the standard deduction.

4. Paid in 2013. You can include only the expenses you paid in 2013. If you paid by check, the day you mailed or delivered the check is usually considered the date of payment.

5. Costs to include.  You can include most medical or dental costs that you paid for yourself, your spouse and your dependents. Some exceptions and special rules apply. Any costs reimbursed by insurance or other sources don’t qualify for a deduction.

6. Expenses that qualify.  You can include the costs of diagnosing, treating, easing or preventing disease. The cost of insurance premiums that you pay for policies that cover medical care qualifies, as does the cost of some long-term care insurance. The cost of prescription drugs and insulin also qualify. 

7. Travel costs count.  You may be able to claim the cost of travel for medical care. This includes costs such as public transportation, ambulance service, tolls and parking fees. If you use your car, you can deduct either the actual costs or the standard mileage rate for medical travel. The rate is 24 cents per mile for 2013.

8. No double benefit.  You can’t claim a tax deduction for medical and dental expenses you paid with funds from your Health Savings Accounts or Flexible Spending Arrangements. Amounts paid with funds from those plans are usually tax-free.

Don’t Fall for the Dirty Dozen Tax Scams

Feb 25th 2014 : Every year, people fall prey to tax scams. That’s why the IRS sends a list of its annual “Dirty Dozen”. We want you to be safe and informed – and not become a victim.

Taxpayers who get involved in illegal tax scams can lose their money, or face stiff penalties, interest and even criminal prosecution. Remember, if it sounds too good to be true, it probably is. Be on the lookout for these scams. 

Identity theft. Tax fraud using identity theft tops this year’s Dirty Dozen list. In many cases, an identity thief uses a taxpayer’s identity to illegally file a tax return and claim a refund. For the 2014 filing season, the IRS has expanded efforts to better protect taxpayers and help victims. 

Pervasive telephone scams.  The IRS has seen an increase in local phone scams across the country. Callers pretend to be from the IRS in hopes of stealing money or identities from victims. If you get a call from someone claiming to be from the IRS – and you know you owe taxes or think you might owe taxes, call the IRS at 1-800-829-1040. If you get a call from someone claiming to be from the IRS and know you don’t owe taxes or have no reason to think that you owe taxes, then call and report the incident to the Treasury Inspector General for Tax Administration at 1-800-366-4484.

Phishing.  Phishing scams typically use unsolicited emails or fake websites that appear legitimate. Scammers lure in victims and prompt them to provide their personal and financial information. The fact is that the IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels.

False promises of “free money” from inflated refunds.  The bottom line is that you are legally responsible for what’s on your tax return, even if someone else prepares it. Scam artists often pose as tax preparers during tax time, luring victims in by promising large tax refunds. Taxpayers who buy into such schemes can end up penalized for filing false claims or receiving fraudulent refunds. Take care when choosing someone to do your taxes.

Return preparer fraud.  About 60 percent of taxpayers will use tax professionals this year to prepare their tax returns. Most return preparers provide honest service to their clients.

Hiding income offshore.  While there are valid reasons for maintaining financial accounts abroad, there are reporting requirements. U.S. taxpayers who maintain such accounts and do not comply with these requirements are breaking the law. They risk large penalties and fines, as well as the possibility of criminal prosecution.      The IRS has collected billions of dollars in back taxes, interest and penalties from people who participated in offshore voluntary disclosure programs since 2009. It is in the best interest of taxpayers to come forward and pay their fair share of taxes.

Impersonation of charitable organizations. Taxpayers need to be sure they donate to recognized charities. Following major disasters, it’s common for scam artists to impersonate charities to get money or personal information from well-intentioned people. They may even directly contact disaster victims and claim to be working with the IRS to help the victims file casualty loss claims and get tax refunds.

False income, expenses or exemptions.  Falsely claiming income you did not earn or expenses you did not pay in order to get larger refundable tax credits is tax fraud. This includes false claims for the Earned Income Tax Credit. These taxpayes often end up repaying the refund, including penalties and interest or faces criminal prosecution.

Frivolous arguments.  Frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. The IRS has a list of frivolous tax arguments that taxpayers should avoid. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or ignore their responsibility to pay taxes.

Falsely claiming zero wages or using false Form 1099.  Filing false information with the IRS is an illegal way to try to lower the amount of taxes owed. Typically, fraudsters use a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 as a way to improperly reduce taxable income to zero. The fraudster may also submit a false statement denying wages and taxes reported by a payer to the IRS.

Abusive tax structures. These abusive tax schemes often involve sham business entities and dishonest financial arrangements for the purpose of evading taxes. The schemes are usually complex and involve multi-layer transactions to conceal the true nature and ownership of the taxable income and assets. The schemes often use Limited Liability Companies, Limited Liability Partnerships, International Business Companies, foreign financial accounts and offshore credit/debit cards.

Misuse of trusts.  There are reasonable uses of trusts in tax and estate planning. However, questionable transactions also exist. They may promise reduced taxable income, inflated deductions for personal expenses, the reduction or elimination of self-employment taxes and reduced estate or gift transfer taxes.  These trusts rarely deliver promised tax benefits. They primarily avoid taxes and hide assets from creditors, including the IRS.

Tax scams can take many forms beyond the “Dirty Dozen”. The best defense is to remain vigilant. 

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