tax preparation tips and reminders -...
TRANSCRIPT
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Tax Preparation Tips and Reminders Presented by: Brian Barksdale & Catherine Casey
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Agenda
• Filing Status and Common Forms
• Reporting Income
• Deductions and Credits
• Documentation Retention and IRS Communications
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Filing Status and Common Forms
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• Five options:
1. Single
2. Married filing jointly
3. Married filing separately
4. Head of household
5. Qualifying widow(er) with dependent child
• Marital status determined as of the last day of the tax year
Filing Status
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• 1040, 1040EZ, 1040A Individual Income Tax
• Schedule A Itemized deductions
• Schedule B Interest and Ordinary Dividends
• Schedule C Profit or Loss from Business
• Schedule D Capital Gains and Losses
• Schedule SE Self-Employment Tax
Common Forms
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Reporting Income
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• W2 Wages
– Employers must complete by January 31
– Verify name, address, SSN
• 1099 Misc Nonemployee Compensation
– Estimated tax safe harbor:
Wages and Salaries
Prior year tax: Pay at least 100% of prior year liability or 110% if AGI exceeds $75K for single filers or $150k if filing jointly
90% of current year tax: Pay at least 90% of current year tax
Annualization: Pay at least 90% of the 2014 tax based on annualization of actual year-to-date income for each quarter of the year
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Owner-Employees: Corporations
Only income received as salary is subject to employment taxes and, if applicable, the 0.9% Medicare tax
• S corporations
– Reduce employment tax by keeping salary relatively, but not unreasonably, low and increasing distributions of company income
• C corporations
– May prefer to take more income as salary as opposed to dividends if the overall tax paid by both the corporation and would be less
WARNING: To avoid back taxes and penalties,
salary must be “reasonable.”
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Owner-Employees: Partnerships and LLCs
• Generally all trade or business income that flows through to you will also be subject to self-employment taxes
– Even if the income is not actually distributed to you
• Such income generally is not subject to employment taxes if you are:
– A limited partner or
– An LLC member whose ownership interest is the equivalent of a limited partnership interest
• The extent to which the additional 0.9% Medicare tax or 3.8% net investment income tax (NIIT) will apply depends on the situation
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Self-Employment Taxes
• Pay both the employee and employer portions of employment taxes
– Employer portion (6.2% for Social Security tax and 1.45% for Medicare tax) is deductible above the line
• Other above-the-line deductions
– 100% of health insurance costs up to net self-employment income
– Contributions to a retirement plan
– Contributions to an HSA (if eligible)
• Above-the-line deductions are particularly valuable because they reduce AGI and modified AGI (MAGI)
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• Gambling winnings
• Prizes and awards
• Bartering
• Illegal activities
• Found property
Other Taxable Income
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Deductions and Credits
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Home-Related Deductions
• Property tax deduction
– Pay tax when it is most beneficial
– Is not deductible for alternative minimum tax (AMT) purposes
• Mortgage interest deduction
– Up to combined total of $1 million of mortgage debt
– Deduct points paid related to principal residence
• Home equity debt interest deduction
– Debt limit of $100,000 on debt used for any purpose
– Consider using home equity debt to pay off credit cards or auto loans WARNING: Interest on home equity debt not used for home
improvements could trigger or increase AMT liability.
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Home Office Deduction
• Deduct portion of expenses allocable to the portion of home used for the office
– Mortgage interest and property taxes
– Insurance and utilities
– Depreciation
• Alternatively, take the new, simpler “safe harbor” deduction
• Also deduct direct expenses
• Miscellaneous itemized deduction subject to 2% floor
– If self-employed, use deduction to offset self-employment income; no floor WARNING: Your use of the home office must be for your employer’s
benefit (unless you are self-employed), and that must be the only use of the space.
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Vehicle-Related Deductions
• Deduct actual out-of-pocket expenses (fuel, insurance, depreciation, etc.) or mileage
– 56/57.5 cents per business mile driven in 2014/2015
– Job related mileage is subject to limits
– Schedule C business mileage deducted against business income
• Purchases of new or used vehicles in a business may be eligible for Sec. 179 expensing
• If a vehicle is used for both business and personal purposes, then associated expenses must be allocated between deductible and nondeductible use
WARNING: The depreciation limit is reduced if the business use is less than 100%. If business use is 50% or less, you can’t use Sec. 179 expensing or the
accelerated regular MACRS; you must use the straight-line method.
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Depreciation-Related Tax Breaks
50% bonus depreciation
• Additional first-year depreciation allowance
• For new qualifying equipment, furniture and leasehold improvements
Section 179 expensing
• An election to deduct under Sec. 179 up to $500,000
• For new or used qualifying property
• Cannot exceed taxable income
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• Required documentation:
– Amount, time and place, business purpose
– For entertainment expenses, the business relationship to the taxpayer of the persons entertained
Travel & Entertainment
Adequate Records Documentary Evidence
• An account book, diary, log, statement of expense, trip sheets, or similar
• Documentary evidence that, in combination, are sufficient to establish the required documentation noted above
• Includes paid bill, written receipt • Required for all T&E expenses of $75
or more • Required for lodging, regardless of
amount • Not required for transit charges if
not readily available (e.g. cab fare)
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• Per diem option available for meals and incidental expenses, not lodging
• In lieu of accounting for and deducting actual travel costs
• Time, place, and business purpose must still be substantiated with adequate documentation
• Business travel per diem can be at or below: – The applicable federal per diem rate – A flat rate or stated schedule, or – In accordance with an IRS-specified rate or schedule
Per Diem Allowance for Business Travel
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• Business gifts: – Up to $25 to any individual person
– Widely distributed gifts under $4 with your name on them
• Required documentation: – An amount, date, description
– Business purpose, or nature of benefit expected from offering the gift
– Description of the business relationship to the taxpayer
Business Gifts
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Examples:
• Uniforms – cannot be suitable substitute for everyday clothing
• Job search expenses in your present occupation
• Tools and supplies used in your work
• Work-related education
• Educator expenses
Other Unreimbursed Employee Business Expenses
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Healthcare Related Deductions
• If medical expenses exceed 10% of AGI, then deduct the excess amount – 7.5% floor for taxpayers age 65 and older
• Eligible expenses may include: – Health insurance premiums
– Long-term care insurance premiums (limits apply)
– Medical and dental services
– Prescription drugs
– Mileage (23.5 cents per mile driven for health care purposes)
• Consider bunching non-urgent medical procedures into one year to exceed the floor
• Expenses that are reimbursable by insurance or paid through a tax-advantaged account are not deductible
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Healthcare Related Credit
• Eligibility:
– Ineligible for minimum essential coverage under a government sponsored program
– No access to affordable employer-sponsored health insurance that provides minimum essential coverage
– Household income between 100%-400% of the federal poverty line
– Not a dependent
– Files a joint return if married (with exceptions)
• Change in income/circumstances should be reported to the exchange as soon as possible
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Cash Donations
• Easy to make; the key is to substantiate them
– Under $250: Gift supported by canceled check, credit card receipt or written communication from charity
– $250 or over: Gift must be substantiated by the charity
• Deduction limits
– Cannot exceed 50% of adjusted gross income (AGI)
• 30% for gifts to nonoperating private foundations
– Excess can be carried forward up to five years
WARNING: Charitable deductions are allowed for alternative minimum tax (AMT) purposes, but your tax savings may be less.
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Noncash Donations
• Valuing noncash contributions
– Burden is on the taxpayer (not the charity) to establish FMV
– “Thrift store value” can be used to determine FMV
– Donated items should be in “good” or better condition
• Documentation:
– <$500 – Receipt from charity documenting name, date, location, description of property
– >$500 – Document how you received the property and your basis in the property
– >$5,000 – Obtain a qualified appraisal
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Stock donations
• Publicly traded stock held more than one year can be one of the best charitable gifts – Can deduct current fair market value – Avoid tax on gain from selling the property – Especially beneficial if faced with the 3.8% net investment
income tax (NIIT) or the top 20% long-term capital gains rate
• Deduction limits – Cannot exceed 30% of AGI
• 20% for nonoperating private foundations – Excess can be carried forward up to five years
WARNING: Do not donate stock worth less than your basis. Instead, sell it so you can deduct the loss. Then donate the
proceeds.
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Education Credits
• American Opportunity credit
– For first four years of postsecondary education
– Up to $2,500 per student per year
– Income-based phaseout may reduce or eliminate your credit
• Joint filers: $160,000–$180,000 MAGI
• Lifetime Learning credit
– For postsecondary education expenses, even beyond the first four years
– Up to $2,000 per tax return per year
– Income-based phaseout may reduce or eliminate your credit
• Joint filers: $108,000–$128,000 MAGI
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Education Deductions
• Tuition and fees deduction
– Deduct above-the-line up to $4,000 of qualified higher education tuition and fees
– Modified AGI (MAGI) limit: $80,000 single/$160,000 MFJ
• Student loan interest deduction
– Deduct up to $2,500 of interest per tax return
– Income-based phaseout may reduce or eliminate deduction
• Single filers: $65,000-$80,000 MAGI
• Joint filers: $130,000–$160,000 MAGI
WARNING: When the tuition and fees deduction is available, expenses paid with tax-free distributions from
529 plans or ESAs can’t be used to claim the deduction.
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Documentation Retention and IRS Communications
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• See the Carr, Riggs & Ingram record retention schedule at our website: – http://www.cricpa.com/CRI_Record_Retention_Sche
dule.pdf
• Keep filed tax returns indefinitely • Income tax records should be retained for 3 years,
with exceptions, such as the following: – Underreported >25% of gross income (6 yrs) – Filed fraudulent return (indefinitely) – Did not file return (indefinitely) – Claimed loss from worthless securities or bad debt
deduction (7 yrs)
Tax Documentation Retention
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• IRS never contacts taxpayers by email, texts, or social media
• First contact will be by mail, not by phone
• IRS will not call demanding payment without opportunity to question or appeal
• Be aware of callers who may alter caller ID and offer fake IRS badge numbers
IRS Communications
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JOIN OUR CONVERSATION
• Contact us:
• Website
www.CRIcpa.com
• Blog Site
http://blog.CRIcpa.com
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