Accounting & Tax News

 

Publication 17
Tax-filing information and tips on what income to report and how to report it, figuring capital gains and losses, claiming dependents, choosing the standard deduction versus itemizing deductions and using IRAs to save for retirement


Tax legislation – better late than never!

The senate passed the much anticipated “extender” tax bill yesterday, which will allow taxpayers to benefit in 2014 from deductions and credits that had expired after the 2013 tax year. With the passage of the legislation by the house and the senate, which the President is expected to sign into law, individual taxpayers will continue to be allowed to deduct such items as the educator deduction, the sales tax deduction, a deduction for mortgage insurance premiums, among other expenses. Additionally, the income exclusion for forgiven mortgage debt was extended, which allows taxpayers to exclude from income the forgiveness of debt relative to their home mortgage. For business taxpayers several deductions and credits were also extended, however the deduction most business owners were hoping would be extended has to do with the one-time expensing and bonus deprecation, allowed for accelerating the write off fixed assets acquired in the 2014 calendar year. With the late passage of this tax legislation, the IRS will be required to generate tax forms that allow for these newly extended deductions and credits, on top of dealing with the changes relative to the Affordable Care Act, which could further delay the start of the upcoming tax filing season. Please contact us if you’d like to discuss what this new tax legislation means to you and/or your business!

Posted Nov 21, 2014/wittenbergcpa.com

Top Four Year-End IRA Reminders

Individual Retirement Accounts are an important way to save for retirement. If you have an IRA or may open one soon, there are some key year-end rules that you should know. Here are the top four reminders on IRAs from the IRS:

1. Know the limits.  You can contribute up to a maximum of $5,500 ($6,500 if you are age 50 or older) to a traditional or Roth IRA. If you file a joint return, you and your spouse can each contribute to an IRA even if only one of you has taxable compensation. In some cases, you may need to reduce your deduction for traditional IRA contributions. This rule applies if you or your spouse has a retirement plan at work and your income is above a certain level. You have until April 15, 2015, to make an IRA contribution for 2014.

2. Avoid excess contributions.  If you contribute more than the IRA limits for 2014, you are subject to a six percent tax on the excess amount. The tax applies each year that the excess amounts remain in your account. You can avoid the tax if you withdraw the excess amounts from your account by the due date of your 2014 tax return (including extensions).

3. Take required distributions.  If you’re at least age 70½, you must take a required minimum distribution, or RMD, from your traditional IRA. You are not required to take a RMD from your Roth IRA. You normally must take your RMD by Dec. 31, 2014. That deadline is April 1, 2015, if you turned 70½ in 2014. If you have more than one traditional IRA, you figure the RMD separately for each IRA. However, you can withdraw the total amount from one or more of them. If you don’t take your RMD on time you face a 50 percent excise tax on the RMD amount you failed to take out.

4. Claim the saver’s credit.  The formal name of the saver’s credit is the retirement savings contributions credit. You may qualify for this credit if you contribute to an IRA or retirement plan. The saver’s credit can increase your refund or reduce the tax you owe. The maximum credit is $1,000, or $2,000 for married couples. The credit you receive is often much less, due in part because of the deductions and other credits you may claim.

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More About The Affordable Care Act And Your Taxes

In addition to the penalties required by the Affordable Care Act, the law made other tax changes that could affect you:

  • Annual contributions to flexible spending accounts are limited to $2,500 (indexed for inflation).
  • The 7.5% adjusted gross income threshold for deducting unreimbursed medical expenses is now 10% for those under age 65. Those 65 and older can use the 7.5% threshold through 2016.
  • The additional tax on nonqualified distributions from health savings accounts (HSAs) is 20%, an increase from the previous 10% penalty.
  • The payroll Medicare tax increases from 1.45% of compensation and self-employment income to 2.35% on amounts above $200,000 earned by individuals and above $250,000 earned by married couples filing joint returns. This rate increase applies only to the employee portion, not to the employer portion of compensation or self employment income.
  • A 3.8% Medicare surtax is imposed on unearned income (examples: interest, dividends, most capital gains) for single taxpayers with income over $200,000 and married couples with income over $250,000
  • Pre Tax Reimbursement: One unintended consequence of the Affordable Care Act is explained in an IRS Notice issued in September 2013. Effective January 1, 2014, employers may no longer reimburse employees for their individual health insurance policies or pay the premiums directly to the insurance company on a pre-tax basis. Employers that continue to pay employee’s premiums or reimburse their payment must include these amounts in the employee’s taxable wages. Only if the employer offers a group medical insurance plan can pre-tax dollars be used for health insurance premiums.

Posted Nov 21, 2014/wittenbergcpa.com

For Individuals, Health Care is All about Coverage For Individuals, Health Care Is All about Coverage

A great deal of attention has been focused on the health insurance exchanges or “Marketplace” that opened for business on October 1, 2013.

Each state has developed an insurance exchange (Marketplace) or used one provided by the federal government. The Marketplace allows those seeking coverage to comparison shop for health plans from private insurance companies.

There are four types of insurance plans to choose from: Bronze, Silver, Gold, and Platinum. The more expensive the plan, the greater the portion of medical costs that will be covered. The price of each plan will depend on several factors including your age, whether you smoke, and where you live.

Confusion about the Affordable Care Act left many people thinking everyone has to deal with the exchanges.

The fact is that if you are covered by Medicare, Medicaid, or an employer-provided plan, you don’t need to do anything. For those not covered by one of these plans, purchasing insurance through the marketplace is the only way to get any premium-lowering tax credits based upon your income.

If you buy your health insurance on your own, you can keep your coverage if your plan is still offered by the insurance company. You can even keep insurance that doesn’t meet the law’s minimum coverage requirements through October 2017, if your state permits it.

Also, many individuals will qualify for federal tax credits which will reduce the premiums they actually pay. Each state’s Marketplace has a calculator to assist individuals in determining the amount, if any, of their federal tax credit.

Posted Nov 21, 2014/wittenbergcpa.com