Other Tax Topics

Current Topics of Interest

 

Tax Changes

There have been far more changes than just the Health Care and Extender bills.  Employers and employees may want to look at the HIRE tax and Small Business Jobs Act.  Clearly, not all of these tax changes will affect every return.  Therefore, we should discuss the ones that may apply to you.  Please contact us with any questions you may have.  (859-873-0981)

Individual Tax Payers

  • Make sure to review your beneficiary on life insurance and retirement plans (Do your life insurance and retirement plans have the accurate beneficiaries?)
  • Home foreclosure and cancellation of debt is considered income, but may not necessarily be taxable.
  • Dividends and capital gains tax rates range between 0% and 15%.
  • The rules for charitable giving are stricter.  You must have receipts!!!!!
  • Non-custodial parents must have a current form 8332 signed by custodial parent.  It must be filed with return.
  • A new and better education credit is available.
  • The Earned Income Credit amount and number of qualifying children have increased.
  • There is no financial hardship penalty exception for early withdrawal on retirement.
  • Penalties for failure to file and failure to pay taxes have increased.
  • Personal exemptions and itemized deductions no long phase out
  • Children under aged 27 can be added to parents’ insurance policy even if not a dependant.
  • Unemployment income is 100% taxable
  • Mileage Deductions
    • Business 51 cents, Medical 19 cents, Charity 14 cents
  • Replacement of Chinese drywall is considered disaster loss
  • Adoption credit is available up to $12,970.  This credit is non-refundable.
  • Landlords that pay service providers at least $600 will have to issue 1099-MISC and get them to fill out a W-9
  • Very strict penalties on late or failure to file 1099's up to $500 per 1099
  • Basis in stock sold is computed on the FIFO accounting method, unless you request differently with your broker
  • Starting in 2013 there is a 3.8% Medicare tax on unearned income
  • All foreign bank accounts must be reported if you have an average balance of $10,000. 

SOLE PROPRIETORS AND SINGLE MEMBER LLCs READ THE BUSINESS FILERS SECTION BELOW

Business Tax Filers

  • Sole proprietors who chose to become limited liability corporations must know that the liability limitations do not cover payroll taxes.
  • For business and personal taxes, we cannot supply a tax return to a 3rd party without written consent for each specific instance.
  • Logs are required for laptops and vehicles.
  • S–Corp owners/employees need to make sure compensation is reasonable.  Cannot be $0.
  • Stricter rules now apply for the deduction of self-employed health insurance for S-Corp shareholder/employee.
  • Tanning Salon's have an additional 10% tax to be filed quarterly unless the tanning bed is a portion of a fitness center membership

Hope Credit (American Opportunity Tax Credit)

  • 2009 through 2012 the hope credit will can be claimed for the first four years of post-secondary education. In 2008, it was only for the first two years.
  • The Hope Credit has increased to $2,500 but is phased out in your adjusted between $160,000 and $180,000 if you file a joint return.
  • 40% of this credit is refundable (up to $1,000) if no tax is due.
  • “Qualified Tuition and Related Expenses” now includes “course materials” including books.

Lifetime Learning Credit

  • Begins to phase out if your modified adjusted gross income is $100,000 and $120,000 if you file a joint return.

Health Savings Accounts

  • To qualify for the tax deduction, the insurance must have a deductible of at least $1,250 for self-coverage or $2,500 for family coverage.
  • For 2014, you can contribute up to $3,300 for self-coverage or $6,550 for family coverage.
  • If 55 or older, you can contribute $4,250 for self-coverage or $7,550 for family coverage.
  • If 55 or older, married, and each spouse has an HSA, can contribute $8,450.
  • Qualified medical expenses no longer include over the counter medicines that do not have a prescription.
  • 20% Penalty on early withdrawal of HSA for non-medical expenses

Farm Loss

In a private letter ruling, the IRS allowed a surviving spouse of a farmer to deduct the farm loss even though she had never managed the farm. Since her husband had materially participated in the farm for five out of the past eight years prior to his retirement, she was treated as a material participant in the farm after his death. CASE-MIS No.: TAM-137793-08

Penalty Free Qualified Plans and IRA Distributions

If used for … your early distribution may be penalty free. Financial Distress and Hardships are not valid reasons

  • College Tuition (IRA only)
  • Medical Expenses
  • First Time Home Purchase (IRA only)
  • Health Insurance (if you are unemployed 12 consecutive weeks) (IRA only)
  • Aged 59 1/2
  • Death of account owner
  • Permanent disability of account owner
  • Aged 55 on employer plan and separated from services (does not apply to IRAs)
  • Distribution under a QDRO
  • For IRS levies
  • Qualified Disaster Relief
  • Public Safety employees separated from service and over 50
  • Reservists called to active duty for at least 179 days

General

  • 1099-Misc Reporting – If you paid someone $600 or more, you may be required to send them a 1099-Misc.  The IRS is starting to enfore the rules and asses larger penaltie if you fail to file 1099's and you were met the requirments. 
  • Schedule D reporting requirements – New Form 8949
  • New Form 8938 – Foreign Asset Reporting - See Notice 2011-55 for more information
  • Small Business Health Care Credit – Possible credit available if you provide Health Insurance for your employees
  • Capital Gain Rates of 10% and 15% extended through 2014
  • Charitable Contributions – documentation must met IRS requirements to be deductible
  • IRS is now requesting and accepting electronic data files (i.e. Quickbooks).
  • Estates – Portability of Unused Exemption - Amount is available to carryover to spouse if election is  timely made by filing Form 706.  See Notice 2011-82 for more information.