2014 TAX PREPARATION 12/04/14

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With the holiday season in full effect, we at Sterling Financial Services know that it is easy to become overwhelmed with the endless party invitations, gift shopping, bills and all the holiday hype. However, it is important to take a deep breath and collect oneself, knowing that we are here to help! With 2014 quickly coming to an end, why not get a jump start on compiling all pertinent information that we will need to prepare your personal and/or business taxes as well!

We will be ramping up our social media side with updates as there are many consistent changes in tax law that have been and will be happening that affect all of us.  This is especially true in regards to the constantly changing healthcare situation and tax code – so stay tuned!

Here is a quick and informative checklist to prepare for your 2014 personal or business taxes:

NOTE:  Similar to 2013, year-end tax planning will have its challenges as several key tax breaks were extended only through 2013.  Currently, it is unclear whether many of these tax breaks will be extended or made permanent to 2014 and beyond.  We do know the 3.8% Medicare surtax on net investment income will require special attention (as discussed below).  Net investment income includes taxable interest, dividends, and capital gains, as well as passive income, such as income from rental activities that do not constitute a trade or business. Sterling Financial Services can assist with strategies to minimize or eliminate this additional tax.

 

Year-End Moves for Individuals:

Adjust your tax withholding. If you’ve gotten married, divorced or had kids in 2014, then you probably need to update your withholding with your employer.

Check your beneficiaries. You can check the beneficiaries on your retirement accounts or insurance policies at any time, but it’s a good idea to do this at least annually when tax planning.

Take your required minimum distributions (RMD). In the year following the year you reach age 70 ½, you must take required minimum distributions from your IRA(s) by April 1.

Donate to charity. Dec. 31 is the deadline for most all charitable contributions you plan to deduct from your 2014 tax return.  These can be in the form of cash or non-cash, e.g. household goods & clothing, being sure to get receipts.

Max out retirement plan and/or education plan contributions. You have until you file your tax return next spring to make a 2014 contribution to an individual retirement account (IRA), but 401(k) contributions are only deductible when made in the same calendar year.  States often provide state tax breaks when education plan contributions are to a State sponsored plan.

Use up FSA money. If you still have money set aside in a flexible spending account for health care expenses, see if you can order new glasses or schedule that dental work you’ve been putting off.

Defer income and accelerate expenses. Income that arrives in 2015 is taxable in 2015, so in some instances, it might make sense to delay that income, e.g. bonuses, to delay the tax bill.

Consider realizing losses on the sale of stock.  Such losses offset other large capital gains (from the sale of stock, sale of a principal residence in excess of the exclusion amount, sale of investment property, etc.) and minimize the burden of the 3.8% Medicare surtax on net investment income, assuming your adjusted gross income is in excess of $200,000 ($250,000 if married filing joint).

Same sex couples should meet with your tax advisor.  Recent changes in State and Federal laws have resulted in personal and estate tax advantages.

 

Year-End Moves for Business Owners:

Meet with your tax advisor to make a 2014 Year-End estimated tax payment.  Payments made by January 15, 2015 avoid potential tax underpayment penalties.

Meet with your tax advisor if you are adding Payroll.  The Work Opportunity Tax Credit (WOTC) is available for targeted demographic groups and ranges from $2400 to $9600.  (This is an employer tax break still being debated by Congress for extension but assumed to be extended at least for 2014)

Meet with your tax advisor to ensure compliance with the Affordable Care Act (ACA and fondly referred to as ‘Obamacare’).  Understanding obligations to either provide qualifying health coverage (as a larger employer) or at least providing required notifications to employees (smaller employer) will avoid future penalties.

Consider Placing Business Property in service before Year-End.  Placing new business equipment and/or machinery in service before Year-End qualifies for the 50% bonus first year depreciation allowance.  It is assumed Congress will extend this provision thru 2014 but there are no guarantees for 2015.

Consider placing leasehold improvements in service before Year-End.  Currently there is a 15-year recovery period tax provision available (compared to a 39-year historical recovery period).  It is assumed Congress will extend this provision thru 2014 but there are no guarantees for 2015.

 Defer income and accelerate expenses.  Defer billings to January 1, 2015 and pay expenses (even if not due) before December 31, 2014 using a credit card if necessary and cash flow permitting to help reduce tax liability.

Reimburse Yourself for Out-of-Pocket Business Expenses.  You will need to keep an Expense Report — these count as an expense to the business in the current year.

 

Never hesitate to give us a call or to send your designated tax preparer an email. Also please look on our website for our many helpful resources!

TAX CREDIT FOR ADOPTIVE PARENTS!

TAX CREDIT FOR ADOPTIVE PARENTS! THE GOVERNMENT WANTS TO HELP COVER THE COSTS!

If you adopted a child in 2011, you could be eligible for up to $13,360 to cover the costs!

The Federal Affordable Care Act’s Adoption Tax Credit has recently been expanded to help adoptive parents cover the costs of adopting a child. This is great news for adoptive parents as the amount of the credit has been raised and the credit has been made refundable. This means that, even if your tax liability is zero, you can still receive the money you qualify for as a check sent to your mailbox!

Under the Credit’s guidelines, a parent(s) who adopted a child during 2011 is eligible to receive a refund on qualifying expenses relating to the legal process of adoption. These expenses could include the costs of paying for a lawyer, court costs, expenses related to travel, and, of course, the adoption fees themselves. To qualify, the child must be under 18 years of age, or mentally or physically unable to care for themselves. For 2012, you can still claim the credit, it just is no longer refundable.

If you welcomed a new member into your family in the past year, then just think of how many diapers $13,360 can buy!

 

 

 

PAYROLL TAX CUT EXTENDED! Well at least for now…

 

Payroll Tax Cut

PAYROLL TAX CUT EXTENDED! Well at least for now…

The US Congress just recently passed a two-month extension of the payroll tax cut on the employee side starting at the first of the year.  This cut lowered the employee portion of the payroll tax from 6.2% down to 4.2%.  The temporary extension was passed eight days before it was set to expire.  Additionally, the extension also keeps in place expanded unemployment benefits and it suspends a reduction in Medicare payments to doctors through the end of February.

With the 2012 elections coming up, neither side wants to take the blame for lowering the net pay of voters everywhere.  That would be political disaster.  We can only hope in the next couple months when Congress reconvenes that they will be able to work out a longer solution or reorganization.  Good ole bipartisanship at its best!

VETERANS – LISTEN UP! BUSINESSES WANT YOU!

Businesses Want You!

VETERANS – LISTEN UP! BUSINESSES WANT YOU!

On November 21, 2011, a new law was enacted that creates employment incentives designed to get unemployed veterans back to work after their service.  This should create a much smoother transition for vets to getting back into the workplace and give the businesses that hire them an incentive to do so.  Veterans’ experience can prove to be invaluable in private enterprise and combined with this new law, will give businesses an even greater advantage when employing a vet.

The law provides for a “Returning Heroes Tax Credit” for businesses hiring unemployed veterans.  The tax credit provides:

      • $2,400 maximum for vets unemployed for at least one month
  • $5,600 maximum for vets unemployed for at least six months

The law retains the “Work Opportunity Credit” providing:

  • Maximum credit of $4,800 for hiring unemployed veterans with service-related disabilities

Lastly, the law creates a “Wounded Warrior Tax Credit” providing:

  • Maximum of $9,600 for hiring vets who have service-related disabilities and who have been unemployed for longer than six months

Get those resumes ready!

INFLATION = INCREASED TAX BENEFITS? YES FOR 2012!

 

Inflation = Increased Tax Benefits? Yes for 2012!

Today’s economy sometimes makes us feel like the flower in the picture, which leaves us asking is there any benefit from the situation. Well I do have good news amongst all the bull (referring to the picture of course). Uncle Sam is increasing various tax breaks effective for the 2012 tax year including:

Each personal and dependent exemption will be $3,800, which is up $100 from this year.

The new standard deduction is $11,900 for married couples filing jointly, $5,950 for single individuals and those couples that are filing separate, and $8,700 for people filing as head of household. These increased by various amounts as much as $300 from this year.

Tax-bracket thresholds have increased for each filing status. This essentially means that more of the money you make will be taxed at more favorable rates. Most will not notice a huge difference in overall tax savings, but everything helps.

Additionally, many other deductions and credits have been adjusted for inflation as well. Among these is the Earned Income Credit which will increase by various amounts depending on filing status and amount of dependents claimed. The foreign income deduction, income thresholds for education benefits, and medical savings account deductible amounts will all rise slightly in 2012 just to mention a few. At least in these inflationary times we will see some benefit; however slight it might be in the overall picture!

AZ MINIMUM WAGE INCREASES! Hourlies and Business Owners Listen Up!

AZ MINIMUM WAGE INCREASES! Hourlies and Business Owners Listen Up!

On October 13th, 2011, the Industrial Commission of Arizona bumped up the minimum wage by $.30 to $7.65/hour starting on Jan 1, 2011.  Tipped employees, who make $3 below the standard minimum wage, will also receive the raise.  For a full-time wage worker, that is $624 more next year.

This is partially due to fact that the U.S. Bureau of Labor Statistics reported that the year-to-year cost of living for all urban areas went up 3.8% from August 2010.  With the upcoming change in minimum wage, AZ will be above the federal rate of $7.25/hour.  Enjoy it or hate it, it is going in effect starting 2012!

CARPE PER DIEM! IRS Raises Per Diem Rate!

Carpe Per Diem!  IRS Raises Per Diem Rate!

Effective October 1, 2011, businesses may now pay themselves or their employees $242 a day for meals, lodging, and incidentals in 43 high-cost regions (surprise surprise…Sedona = one of those high-cost regions). In all other localities, it increased to $163. For solely meals and incidentals, the rate remains unchanged – $65 a day in high-cost areas and $52 elsewhere.

For self-employed individuals, the meals and incidental rate can be used in lieu of keeping receipts, but lodging expenses must be kept separately. Keep this in mind when planning your next business trip!

For information on the localities you can visit http://www.irs.gov/publications/p1542/ar02.html. Safe travels!

 

 

 

American Opportunity Credit – Refundable Tax Credit for Paying College Expenses?

American Opportunity Credit – Refundable Tax Credit for Paying College Expenses?

The short answer? Yes! The American Opportunity Credit (AOC) replaced the Hope credit of previous years and is a great way to get a little money back from the ever-increasing amount of college expenses that are incurred every year. Here it is in a nutshell:

• Up to $2,500 for each of the first four years and up to $1,000 of the credit is refundable (meaning even if you owe zero tax, you still can get up $1,000 back)

• College students or parents claiming students as dependents are eligible for this credit

• Qualified expenses include:

o Required course material (books, supplies, and equipment needed for the course of study even if not purchased from the post-secondary education institution as a condition of enrollment or attendance)

o Tuition and fees

• Valid for the first four years of college

• Expires 12/31/2012 so take advantage of it while you can!

Of course there is fine print such as limitations, phaseouts, etc, but for the majority of people, it is typically a great way to help ease some of the burden of those mounting college expenses we have come to know.

 

Special Assessment on Taxable Wages Paid in 2011 & 2012 – AZ Employers Listen Up!

Tax Burden

Arizona is one of more than 30 states that borrowed money from the federal government after our states’ unemployment trust funds were sucked dry during the economic recession. This enabled us to keep paying unemployment benefits to those that qualified as required by federal law.  What does this mean?

MORE TAXES – unfortunately.

A House Bill passed on July 20 of this year retroactively imposing a “Special Assessment” tax on all taxable wages paid in 2011 and 2012.  The first three calendar quarters of 2011 is now due by October 31, 2011.  The agency that will be collecting it is the DES Unemployment Insurance Tax Section from which you should be receiving a letter or notice shortly (if you haven’t already).  Here are the details:

• All employers subject to Arizona UI Tax in 2011 and 2012 are also subject to the Special Assessment
• “Taxable Wages” are the first $7,000 of gross wages paid to each employee in the calendar year
• For 2011, it is .4% of taxable wages (max of $28 per employee)
• For 2012, it is estimated to be around .6% – .8% ($42 – $56 max per employee)

You already know the bad news… The small amount of good news? It is tax deductible as a cost of doing business.

We will continue to post updates so stay tuned for more info on how to not get like the little guy in the picture…