What’s New for 2016 Taxes

Dear Clients and Friends,

We hope that 2016 ended as a good year for everyone. We thank all of you for your support this past year and into
2017 and look forward to a continued, successful relationship.

With a new President coming into office early this year we can expect a number of tax changes to occur. This is a good time to get your income tax “house” in order. We are once again making our tax organizers available, for free, to anyone who requires one if you have not used one in the past please call the office to request one for 2016. If you received an organizer last year we will mail this year’s organizer to the same address. The tax organizer may not be enough however, and we wanted to bring some special items to your attention below.

Security and Identity Theft
The IRS has determined that one of the prime targets of data theft is thx preparation companies. This year we attended courses designed to improve the protection of our firm and your confidential data. One of the mandatory changes we are implementing immediately is our new “no-click” policy combined with a new information transfer policy. Because so many electronic intruders get in via email attachments, our firm has instituted our national tax professional security advisor’s recommendations and implemented a “no-click” policy. This means we will not open any documents that you have sent us via email-a mandatory solution, which when combined with our latest security software and other steps makes it extremely difficult for electronic intruders to get through our defenses. This brings the question about how you will transfer data to us, and vice versa. We now will accept data from you in 4 ways: surface mail; drop-off; fax; or uploads to our web portal. We know these changes will cause some hassle on your (and our part) but it is the best way to protect your and our confidentiality.

Health Care Deductions
2013’s tax bill reduced your deductions for medical costs, including health insurance, for 2016. We will see very few deductions available for medical costs now unless you have substantial bills. The amount of your medical expenses in most cases must now be more than 10% of your income before we can deduct anything, so weigh carefully whether to go to the trouble of summarizing these costs. If you are self-employed we still need to know how much you paid for health insurance.

Charity
ALL deductions of any amount must have a receipt. Any individual contribution of over $250 must also have an acknowledgement letter from the charity, and the letter must be dated. Any deduction over $5,000 must be accompanied with a qualified appraisal. The letter should show the date and amount of any individual contribution over $250, and should also state that no goods or services were received in return for the contribution. Remember if you charged a charitable contribution to a credit card by 12/31/16 we are able to deduct it in 2016.

Foreign 
The IRS is looking closely for offshore accounts. If you have an account, retirement account, or business interest with a value of over $10,000 at any point in the year  in a foreign country, or foreign business ownership (not through a mutual fund) please let us know as some special rules apply. There are substantial penalties for failure to disclose these items.

Mortgage Interest
We must obtain Form 1098 from you when you pay mortgage interest. Additionally we must obtain refinancing closing statements, and if you drew money out on a home mortgage or refinancing we must have general information on the use of the money.

Rental Property
If you own rental property, this year the IRS has demanded substantially more information We now need FOR EACH PROPERTY SEPARATELY, the physical location, The type of property (single family, duplex, etc.) and Forms 1099K received, and a record, by property for the number of days rented and the number of days used for personal purposes

Roth IRA Conversions
You will continue to hear from a lot of “experts” that you need to convert your retirement accounts to Roth IRAs. While there are a number of advantages to conversions, there ae an equal number of disadvantages that carry some major tax consequences. Please do not convert your accounts without coming in to see us for an appointment to discuss both the positives and negatives.

Tax planning
The simplest and most effective tax planning too for most Americans of all income levels is full participation in retirement plans. Make sure you maximize your 401-K deferral in available, contribute to tax-deductible IRAs, and if over 70 and ½ pay all charitable contributions through direct transfer from your IRA to the charity.

Audits  
If you receive an IRS Letter 3572 “Your federal income tax return for the year above has been selected for examination” please notify us as soon as possible so we can respond to the IRS for you.

Mileage
The new standard mileage rate for 2016 is .54 cents per each business mile traveled after 2015. However, the medical and moving expense deduction has been reduced to .19 cents per mile.

Earned Income Tax Credit
The Earned Income Tax Credit (EITC) increases in 2016. The credit is refundable and is designed to help lower-income individuals and families by providing additional money to them in the form of a tax refund.

The maximum EITC ranges from $506 for a single individual with no children to $6,269 for individuals with three or more children. The phase-out thresholds for the EITC are also higher in 2016. Single individuals who have one child and earn as much as $39,269 are eligible for at least part of EITC.

The Protecting Americans from Tax Hikes Act of 2015 – known as the PATH Act – has made an important change to how people receive the EITC. Starting in 2017, if you claim EITC, you won’t get your refund until Feb 15 or later, even if you’re eligible to receive the EITC and you file a return as early as Jan 2. The law applies to your entire tax refund. The IRS said the changes brought about by the PATH Act give the agency “more time to help detect and prevent fraud.”

Alternative Minimum Tax
The income threshold for the AMT exemption has risen for 2016. For individuals, it starts at $53,900 and begins to phase out at $119,700. For married couples filing jointly, the threshold begins at $83800 and phase out begins at $159,700.

Other Items
There is good news for people who itemize their deductions: the income limit has risen. If you’re single, your AGI can be up to $259,400 while the limit is now $311,300 for married couples filing jointly

If you don’t have health insurance and are exempt from purchasing it, 2016 will be the last year you’ll escape without paying extra fees. Of course this may change with the incoming administration.

If your eligible for Lifetime Learning Credit, your AGI limit was raised from $110,000 for married filing jointly to $111,000.

We are including with this letter our 2016 tax planner. We advise you to look over the checklist and use this as you gather your last year’s tax information. After looking this over, please call if you have questions for 2016 or would like to discuss your specific options into 2017. If we can be of service to friends or associates, please pass along our information; we will be happy to help. We appreciate your business and look forward to a successful New Year.

Link to Tax Planner: http://s397810676.onlinehome.us/wp-content/uploads/2016-Individual-Tax-Organizer.pdf

Best Regards,
Nelson & Pelura, LLC

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IRS Warns of Tax Refund Delays for 2017

The Internal Revenue Service has already sent notice that some filers may experience some refund delays in the 2017 tax filing season. It is due mostly to the Earned Income Credit, the ACA health care credits and increased security to protect filers due to the recent IRS hacks and increase in identity theft.

While the delay can and will affect some, most tax-payers should not see too big a change from the previous years.

IRS Possible Refund Delay 2017

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June 15th: 2nd Quarter Estimated Taxes & Personal Property Taxes Due

Dear Clients, Colleagues and Friends,

Nelson & Pelura wishes everyone a great start to the summer. There are, however, a few things that are important for June. June 15th are when second quarter estimated taxes are due. For those that receive a W2, this may not be an issue. This applies to all those that are self-employed. June 15th is also when all Maryland personal property returns are due for those businesses that are incorporated in Maryland. Please give us a call if you have any questions or we can help with these issues.

June is also a great time for a mid-year financial and tax checkup. If we can help, please call to schedule an appointment.

Thank you and have a Great Summer!

Sincerely,

Cy Nelson & Tony Pelura

Estimated Taxes 2015

What are estimated taxes and how do I know if I owe them?

June 15, 2015 is this year’s date for second quarter estimated tax payments. While there are many who pay their taxes this way, we receive several inquiries as to what this tax is. According the IRS, “Estimated tax is the method used to pay tax on income that is not subject to withholding. This includes income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes and awards. You also may have to pay estimated tax if the amount of income tax being withheld from your salary, pension, or other income is not enough.”
Basically it is your with-holding tax for those of us who do not received a W-2 paycheck. Most small business owners are well aware that they are liable for estimated taxes. The problem can arise from those individuals who may receive a cash windfall in the year and don’t set aside money to cover the tax liability for that extra income. Come tax time, they may not only owe a large tax bill but they may be liable for penalties.

Some of the more frequently asked questions include:

1. What are the filing dates for federal quarterly estimated tax payments?

Payment Period Due Date
January 1 – March 31, 2015  / Due April 15, 2015
April 1 – May 31, 2015 / Due  June 15, 2015
June 1 – August 31, 2015 / Due September 15, 2015
September 1 – December 31, 2015 / Due January 15, 2016
*You do not have to make the payment due on January 15, 2016, if you file your 2015 tax return by February 1, 2016 and pay the entire balance due with your return.

2. How do I make federal quarterly estimated payments?

The IRS provides various methods for making 2015 quarterly estimated tax payments:

You may credit an overpayment on your 2014 tax return to your 2015 estimated tax;
You may mail your payment with a payment voucher form, Form 1040-ES;
You may pay by phone or electronically using the Electronic Federal Tax Payment System (EFTPS); or
You may pay via electronic funds withdrawal with your 2014 e-filed return.
3. What if I do not pay enough federal income tax in a timely manner for the calendar year 2015?

Generally, if you do not pay enough tax in a timely manner either through withholding or making estimated tax payments, you may be required to pay a penalty.

Please refer to IRS Publication 505, Tax Withholding and Estimated Tax, for a detailed discussion of the underpayment penalty, including exceptions to this penalty.

2015 Federal Tax Voucher

Update to the Affordable Care Act (ACA)

Affordable Care Act (ACA)

For most tax payers this year will be the first time the ACA may have an impact on your personal tax returns. The ACA includes the individual shared responsibility provision, which requires individuals to have qualifying health care coverage for each month of the year, qualified for a coverage exemption, or make a shared responsibility payment when filing their federal income tax returns. For purposes of the ACA, qualifying health care coverage is also called minimum essential coverage. Most taxpayers already had minimum essential coverage prior to the start of the year and only had to maintain that coverage during the entire year. If taxpayers and their dependents had minimum essential coverage for each month of the year, the taxpayer will simply check a box indication that coverage when filing the federal income tax return. No further action is required. Taxpayers or any dependents that did not maintain minimum essential coverage for each month of their tax year and do not qualify for a coverage exemption must make an individual shared responsibility payment with their federal tax return.

For the tax year ending on December 31, 2014 a series of new forms have been introduced to verify coverage, calculate the premium assistance credit and determine applicable of the shared responsibility penalty. Forms that will be needed by taxpayers this year to complete their individual tax returns include:

1. Form 1095A this form is used to report certain information to the IRS about individuals who enroll in a qualified health plan through the Marketplace. Form 1095A also is furnished to individuals to allow them to claim the premium tax credit, to reconcile the credit on their returns with advance payments of the premium tax credit and to file an accurate tax return. This form will list individuals covered, and dates of coverage

2. Form 1095B this form will be issued by insurance companies and discloses the individuals covered along with the dates of coverage. This Form 1095-B provides information needed to report on your income tax return that you, your spouse, and individuals you claim as dependents had qualifying health coverage (referred to as “minimum essential coverage”) for some or all months during the year. Individuals who do not have minimum essential coverage and do not qualify for an exemption may be liable for the individual shared responsibility payment.

Minimum essential coverage is a health care plan or arrangement specifically identified in the law and includes government-sponsored programs (Medicare Part A; Medicaid: Children‘s Health Insurance Program; TRICARE; etc.) eligible employer-sponsored plans, individual market coverage, grandfathered health plans, and miscellaneous coverage designated by the Department of Health and Human Services.

3. Form 1095C this Form 1095-C includes information about the health coverage offered to you by your employer. Form 1095-C, Part II, includes information about the coverage, if any, your employer offered to you and your spouse and dependent(s). If you purchased health insurance coverage through the Health Insurance Marketplace and wish to claim the premium tax credit, this information will assist you in determining whether you are eligible. For more information about the premium tax credit, see Pub. 974, Premium Tax Credit (PTC).

In addition, if you, or any other individual who is offered health coverage because of their relationship to you (referred to here as family members), enrolled in your employer’s health plan and that plan is a type of plan referred to as a “self-insured” plan, Form 1095-C, Part III provides information needed to report on your income tax return that you or those family members had qualifying health coverage (referred to as “minimum essential coverage”) for some or all months during the year.

Employers are required to furnish Form 1095-C only to the employee. As the recipient of this Form 1095-C, you should provide a copy to any family members covered under a self-insured employer-sponsored plan listed in Part III if they request it for their records.

4 Form 8965 Health Coverage Exemptions use form 8965 to report a coverage exemption granted by the Marketplace or to claim a coverage exemption on your tax return.

For a limited group of taxpayers – those who qualify for, or received advanced payments of the premium tax credit the health care law could affect the amount of tax refund or the amount of money they may owe when they file their 2015 returns.

If you do not have qualifying coverage or an exemption for each month of the year, you will need to make an individual shared responsibility payment when you file your return for choosing not to purchase coverage.

If you benefited from advance payments of the premium tax credit, you must file a federal income tax return. You will need to reconcile those advanced payments with the amount of premium tax credit you’re entitled to based on your actual income. As a result, some people may see a smaller or larger tax refund or tax liability than they were expecting.
For further information see IRS Publication 5187

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ACA Healthcare Tax for 2014

The goal of the ACA health care law was to ensure that millions of US citizens would be covered under insurance. Many who signed up did so using federal and state credits and subsidies offered to lower their premiums. However, this may prove to be an issue in the 2014 tax year as Americans are expected to pay back any subsidies they weren’t eligible for. According the Wall Street Journal, “The Obama administration has told more than 300,000 individuals who obtained coverage through the federal HealthCare.gov site that they may lose some or all of the subsidies if they don’t provide additional income information that jibes with Internal Revenue Service data. That information includes tax returns, wages and tax statements, pay stubs and letters from employers. Hundreds of thousands of people who obtained health coverage through state exchanges also have documentation issues and could potentially be getting subsidies they aren’t eligible for.”

One of the main problems is that individuals who signed up on the federal and state websites were asked to estimate their 2014 income and provide citizenship information. That was then checked against 2012 tax information. Enrollees who had changes in income or didn’t complete the verification process may have to pay back those subsidies when they file their taxes. According to HHS, about 85% of the people who signed up did receive premium subsidies. States that built their own exchanges may have specific requirements of verification as well. If individuals do end up owing, they will be required to write  a check to the US Treasury at time of filing or have their refund reduced by that amount.

Tax Scam

This is an email scam that has been documented before, but seems to be coming back again. Even our office has received some of these emails. Please know that the IRS will never send an email asking for your tax, social security or financial information.

To read more about this email scam, click here.

Popular Tax Breaks Set to Expire in 2013

Every year brings changes to the already cumbersome tax code. 2014 is no different. Dozens of tax breaks are set to expire on January 1, 2014. While Congress has strong incentive to extend some of these, there is no guarantee. Some of the more popular tax breaks set to expire affects everyone from students, teacher, retirees and homeowners. Here are a few of the more widely used that are set to go away in 2014.

  1. Mortgage Insurance Premiums: Can deduct interest and mortgage insurance premiums for those who itemize.
  2. State and local sales tax: Can deduct state income tax or sales tax for those states with no income tax for those who itemize.
  3. Tuition and Fees: A $4000 deduction is currently available to parents and students paying for college.
  4. Teacher Expenses: Teachers can deduct up $250 for education expenses if they itemize.
  5. Donations through IRA: Those older than 70 ½ are able to make a non-taxable donation of up to $100,000 directly from their IRA. If this expires, they will have to take a taxable distribution first.
  6. Energy Efficient: A $500 credit is available for energy efficient home improvements.
  7. Commuter Cost: All commuters who use mass transit are able to take $2940 per year in tax free payments to offset the cost. The new deduction is reduced to $1560 per year.
  8. Mortgage Debt Forgiveness: Since 2007, homeowners were able to exclude any debt that was written off by the banks (i.e. a short sale or mortgage modification). Before this time that debt was added to taxable income. In 2014, any debt forgiveness would now be added back to taxable income.

Congress can extend these tax breaks even after the start of 2014; however until they do it has the potential to affect tens of millions of taxpayers. If you have questions on these or other tax provisions, please feel free to contact us at 410.975.5565.

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Do I Owe Estimated Taxes?

What are estimated taxes and how do I know if I owe them?

September 16th, 2013 is this year’s date for third quarter estimated tax payments. While there are many who pay their taxes this way, we receive several inquiries as to what this tax is. According the IRS, “Estimated tax is the method used to pay tax on income that is not subject to withholding. This includes income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes and awards. You also may have to pay estimated tax if the amount of income tax being withheld from your salary, pension, or other income is not enough.”
Basically it is your with-holding tax for those of us who do not received a W-2 paycheck. Most small business owners are well aware that they are liable for estimated taxes. The problem can arise from those individuals who may receive a cash windfall in the year and don’t set aside money to cover the tax liability for that extra income. Come tax time, they may not only owe a large tax bill but they may be liable for penalties.

2013 Estimated Tax Voucher

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S-Corporation Compensation

S-Corporations can be a great way to structure your business. One great advantage can be the way owners of the S can structure compensation. The entity has similar organization of a C-corporation, but income is passed through to its owner as would a sole proprietor or partnership.

As with any business, making sure you are in compliance with the laws and code is key. Too many times owners of S-Corps take very low wages, allowing lower taxed profits to pass through to them. Recently the IRS has been taking a much closer look at these businesses and how owners are paying themselves. The AICPA’s article on what can happen in situations like this illustrates the need to make sure owners of S-corps are in compliance with compensation structure.

Another Lesson on Unreasonably Low Compensation

 

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