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2018 Q1 tax calendar: Key deadlines for businesses and other employers

Posted by Mannia & Company Posted on Dec 07 2017

Here are some of the key tax-related deadlines affecting businesses and other employers during the first quarter of 2018. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

 

January 31

  • File 2017 Forms W-2, “Wage and Tax Statement,” with the Social Security Administration and provide copies to your employees.
  • Provide copies of 2017 Forms 1099-MISC, “Miscellaneous Income,” to recipients of income from your business where required.
  • File 2017 Forms 1099-MISC reporting nonemployee compensation payments in Box 7 with the IRS.
  • File Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return,” for 2017. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it’s more than $500, you must deposit it. However, if you deposited the tax for the year in full and on time, you have until February 12 to file the return.
  • File Form 941, “Employer’s Quarterly Federal Tax Return,” to report Medicare, Social Security and income taxes withheld in the fourth quarter of 2017. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until February 12 to file the return. (Employers that have an estimated annual employment tax liability of $1,000 or less may be eligible to file Form 944,“Employer’s Annual Federal Tax Return.”)
  • File Form 945, “Annual Return of Withheld Federal Income Tax,” for 2017 to report income tax withheld on all nonpayroll items, including backup withholding and withholding on accounts such as pensions, annuities and IRAs. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year in full and on time, you have until February 12 to file the return.

February 28

  • File 2017 Forms 1099-MISC with the IRS if 1) they’re not required to be filed earlier and 2) you’re filing paper copies. (Otherwise, the filing deadline is April 2.)

March 15

  • If a calendar-year partnership or S corporation, file or extend your 2017 tax return and pay any tax due. If the return isn’t extended, this is also the last day to make 2017 contributions to pension and profit-sharing plans.  © 2017

7 last-minute tax-saving tips

Posted by Mannia & Company Posted on Dec 05 2017

 

The year is quickly drawing to a close, but there’s still time to take steps to reduce your 2017 tax liability — you just must act by December 31:

  1. Pay your 2017 property tax bill that’s due in early 2018.
  2. Make your January 1 mortgage payment.
  3. Incur deductible medical expenses (if your deductible medical expenses for the year already exceed the 10% of adjusted gross income floor).
  4. Pay tuition for academic periods that will begin in January, February or March of 2018 (if it will make you eligible for a tax credit on your 2017 return).
  5. Donate to your favorite charities.
  6. Sell investments at a loss to offset capital gains you’ve recognized this year.
  7. Ask your employer if your bonus can be deferred until January.

Many of these strategies could be particularly beneficial if tax reform is signed into law this year that, beginning in 2018, reduces tax rates and limits or eliminates certain deductions (such as property tax, mortgage interest and medical expense deductions — though the Senate bill would actually reduce the medical expense deduction AGI floor to 7.5% for 2017 and 2018, potentially allowing more taxpayers to qualify for the deduction in these years and to enjoy a larger deduction).

Keep in mind, however, that in certain situations these strategies might not make sense. For example, if you’ll be subject to the alternative minimum tax this year or be in a higher tax bracket next year, taking some of these steps could have undesirable results. (Even with tax reform legislation, some taxpayers might find themselves in higher brackets next year.)

If you’re unsure whether these steps are right for you, consult us before taking action. © 2017

 

Even if your income is high, your family may be able to benefit from the 0% long-term capital gains rate

Posted by Mannia & Company Posted on Nov 29 2017

We’re entering the giving season, and if making financial gifts to your loved ones is part of your plans — or if you’d simply like to reduce your capital gains tax — consider giving appreciated stock instead of cash this year. Doing so might allow you to eliminate all federal tax liability on the appreciation, or at least significantly reduce it.

Leveraging lower rates

Investors generally are subject to a 15% tax rate on their long-term capital gains (20% if they’re in the top ordinary income tax bracket of 39.6%). But the long-term capital gains rate is 0% for gain that would be taxed at 10% or 15% based on the taxpayer’s ordinary-income rate.

In addition, taxpayers with modified adjusted gross income (MAGI) over $200,000 per year ($250,000 for joint filers and $125,000 for married filing separately) may owe the net investment income tax (NIIT). The NIIT equals 3.8% of the lesser of your net investment income or the amount by which your MAGI exceeds the applicable threshold.

If you have loved ones in the 0% bracket, you may be able to take advantage of it by transferring appreciated assets to them. The recipients can then sell the assets at no or a low federal tax cost.

The strategy in action

Faced with a long-term capital gains tax rate of 23.8% (20% for the top tax bracket, plus the 3.8% NIIT), Rick and Sara decide to transfer some appreciated stock to their adult daughter, Maia. Just out of college and making only enough from her entry-level job to leave her with $25,000 in taxable income, Maia falls into the 15% income tax bracket. Therefore, she qualifies for the 0% long-term capital gains rate.

However, the 0% rate applies only to the extent that capital gains “fill up” the gap between Maia’s taxable income and the top end of the 15% bracket. In 2017, the 15% bracket for singles tops out at $37,950.

When Maia sells the stock her parents transferred to her, her capital gains are $20,000. Of that amount $12,950 qualifies for the 0% rate and the remaining $7,050 is taxed at 15%. Maia pays only $1,057.50 of federal tax on the sale vs. the $4,760 her parents would have owed had they sold the stock themselves.  © 2017

 

You may need to add RMDs to your year-end to-do list

Posted by Mannia & Company Posted on Nov 21 2017

As the end of the year approaches, most of us have a lot of things on our to-do lists, from gift shopping to donating to our favorite charities to making New Year’s Eve plans. For taxpayers “of a certain age” with a tax-advantaged retirement account, as well as younger taxpayers who’ve inherited such an account, there may be one more thing that’s critical to check off the to-do list before year end: Take required minimum distributions (RMDs).

A huge penalty

After you reach age 70½, you generally must take annual RMDs from your:

  • IRAs (except Roth IRAs), and
  • Defined contribution plans, such as 401(k) plans (unless you’re still an employee and not a 5%-or-greater shareholder of the employer sponsoring the plan).

An RMD deferral is available in the initial year, but then you’ll have to take two RMDs the next year. The RMD rule can be avoided for Roth 401(k) accounts by rolling the balance into a Roth IRA.

For taxpayers who inherit a retirement plan, the RMD rules generally apply to defined-contribution plans and both traditional and Roth IRAs. (Special rules apply when the account is inherited from a spouse.)

RMDs usually must be taken by December 31. If you don’t comply, you can owe a penalty equal to 50% of the amount you should have withdrawn but didn’t.

Should you withdraw more than the RMD?

Taking only RMDs generally is advantageous because of tax-deferred compounding. But a larger distribution in a year your tax bracket is low may save tax.

Be sure, however, to consider the lost future tax-deferred growth and, if applicable, whether the distribution could: 1) cause Social Security payments to become taxable, 2) increase income-based Medicare premiums and prescription drug charges, or 3) affect other tax breaks with income-based limits.

Also keep in mind that, while retirement plan distributions aren’t subject to the additional 0.9% Medicare tax or 3.8% net investment income tax (NIIT), they are included in your modified adjusted gross income (MAGI). That means they could trigger or increase the NIIT, because the thresholds for that tax are based on MAGI.

For more information on RMDs or tax-savings strategies for your retirement plan distributions, please contact us. © 2017

Why you may want to accelerate your property tax payment into 2017

Posted by Mannia & Company Posted on Nov 14 2017

Accelerating deductible expenses, such as property tax on your home, into the current year typically is a good idea. Why? It will defer tax, which usually is beneficial. Prepaying property tax may be especially beneficial this year, because proposed tax legislation might reduce or eliminate the benefit of the property tax deduction beginning in 2018.

 

Proposed changes

The initial version of the House tax bill would cap the property tax deduction for individuals at $10,000. The initial version of the Senate tax bill would eliminate the property tax deduction for individuals altogether.

In addition, tax rates under both bills would go down for many taxpayers, making deductions less valuable. And because the standard deduction would increase significantly under both bills, some taxpayers might no longer benefit from itemizing deductions.

2017 year-end planning

You can prepay (by December 31) property taxes that relate to 2017 but that are due in 2018 and deduct the payment on your 2017 return. But you generally can’t prepay property tax that relates to 2018 and deduct the payment on your 2017 return.

Prepaying property tax will in most cases be beneficial if the property tax deduction is eliminated beginning in 2018. But even if the property tax deduction is retained, prepaying could still be beneficial. Here’s why:

  • If your property tax bill is very large, prepaying is likely a good idea in case the property tax deduction is capped beginning in 2018.
  • If you could be subject to a lower tax rate in 2018 or won’t have enough itemized deductions overall in 2018 to exceed a higher standard deduction, prepaying is also likely tax-smart because a property tax deduction next year would have less or no benefit.

However, there are a few caveats:

  • If you’re subject to the AMT in 2017, you won’t get any benefit from prepaying your property tax. And if the property tax deduction is retained for 2018, the prepayment could cost you a tax-saving opportunity next year.
  • If your income is high enough that the income-based itemized deduction reduction applies to you, the tax benefit of a prepayment may be reduced.
  • While the initial versions of both the House and Senate bills generally lower tax rates, some taxpayers might still end up being subject to higher tax rates in 2018, either because of tax law changes or simply because their income goes up next year. If you’re among them and the property tax deduction is retained, you may save more tax by holding off on paying property tax until it’s due next year.

It’s still uncertain what the final legislation will contain and whether it will be passed and signed into law this year. We can help you make the best decision based on tax law change developments and your specific situation.  © 2017

Could the AMT boost your 2017 tax bill?

Posted by Mannia & Company Posted on Nov 07 2017

A fundamental tax planning strategy is to accelerate deductible expenses into the current year. This typically will defer (and in some cases permanently reduce) your taxes. But there are exceptions. One is if the additional deductions this year trigger the alternative minimum tax (AMT).

Complicating matters for 2017 is the fact that tax legislation might be signed into law between now and year end that could affect year-end tax planning. For example, as released by the Ways and Means Committee of the U.S. House of Representatives on November 2, the Tax Cuts and Jobs Act would repeal the AMT for 2018 and beyond. But the bill would also limit the benefit of some deductions and eliminate others.

The AMT and deductions

Some deductions that currently are allowed for regular tax purposes can trigger the AMT because they aren’t allowed for AMT purposes:

  • State and local income tax deductions,
  • Property tax deductions, and
  • Miscellaneous itemized deductions subject to the 2% of adjusted gross income floor, such as investment expenses, tax return preparation expenses and unreimbursed employee business expenses.

Under traditional AMT strategies, if you expected to be subject to the AMT this year but not next year, to the extent possible, you’d try to defer these expenses until next year. If you ended up not being subject to the AMT this year, in the long-term you generally wouldn’t be any worse off because you could enjoy the tax benefits of these deferred expenses next year.

But under the November 2 version of the House bill, the state and local income tax deduction and certain miscellaneous itemized deductions would be eliminated beginning in 2018. And the property tax deduction would be limited. So if you were to defer such expenses to next year, you might permanently lose some or all of their tax benefit.

Income-related AMT triggers

Deductions aren’t the only things that can trigger the AMT. So can certain income-related items, such as:

  • Incentive stock option exercises,
  • Tax-exempt interest on certain private activity bonds, and
  • Accelerated depreciation adjustments and related gain or loss differences when assets are sold.

If you could be subject to the AMT this year, you may want to avoid exercising stock options. And before executing any asset sales that could involve depreciation adjustments, carefully consider the AMT implications.

Uncertainty complicates planning

It’s still uncertain whether the AMT will be repealed and whether various deductions will be eliminated or limited. The House bill will be revised as lawmakers negotiate on tax reform, and the Senate is releasing its own tax reform bill. It’s also possible Congress won’t be able to pass tax legislation this year.

With proper planning, you may be able to avoid the AMT, reduce its impact or even take advantage of its lower maximum rate (28% vs. 39.6%). But AMT planning is more complicated this year because of tax law uncertainty. We can help you determine the best strategies for your situation.  © 2017

The ins and outs of tax on "income investments"

Posted by Mannia & Company Posted on Nov 01 2017

Many investors, especially more risk-averse ones, hold much of their portfolios in “income investments” — those that pay interest or dividends, with less emphasis on growth in value. But all income investments aren’t alike when it comes to taxes. So it’s important to be aware of the different tax treatments when managing your income investments.

Varying tax treatment

The tax treatment of investment income varies partly based on whether the income is in the form of dividends or interest. Qualified dividends are taxed at your favorable long-term capital gains tax rate (currently 0%, 15% or 20%, depending on your tax bracket) rather than at your ordinary-income tax rate (which might be as high as 39.6%). Interest income generally is taxed at ordinary-income rates. So stocks that pay dividends might be more attractive tax-wise than interest-paying income investments, such as CDs and bonds.

But there are exceptions. For example, some dividends aren’t qualified and therefore are subject to ordinary-income rates, such as certain dividends from:

  • Real estate investment trusts (REITs),
  • Regulated investment companies (RICs),
  • Money market mutual funds, and
  • Certain foreign investments.

Also, the tax treatment of bond interest varies. For example:

  • Interest on U.S. government bonds is taxable on federal returns but exempt on state and local returns.
  • Interest on state and local government bonds is excludable on federal returns. If the bonds were issued in your home state, interest also might be excludable on your state return.
  • Corporate bond interest is fully taxable for federal and state purposes.

One of many factors

Keep in mind that tax reform legislation could affect the tax considerations for income investments. For example, if your ordinary rate goes down under tax reform, there could be less of a difference between the tax rate you’d pay on qualified vs. nonqualified dividends.

While tax treatment shouldn’t drive investment decisions, it’s one factor to consider — especially when it comes to income investments. For help factoring taxes into your investment strategy, contact us.  © 2017

Retirement savings opportunity for the self-employed

Posted by Mannia & Company Posted on Oct 24 2017

Did you know that if you’re self-employed you may be able to set up a retirement plan that allows you to contribute much more than you can contribute to an IRA or even an employer-sponsored 401(k)? There’s still time to set up such a plan for 2017, and it generally isn’t hard to do. So whether you’re a “full-time” independent contractor or you’re employed but earn some self-employment income on the side, consider setting up one of the following types of retirement plans this year.

Profit-sharing plan

This is a defined contribution plan that allows discretionary employer contributions and flexibility in plan design. (As a self-employed person, you’re both the employer and the employee.) You can make deductible 2017 contributions as late as the due date of your 2017 tax return, including extensions — provided your plan exists on Dec. 31, 2017.

For 2017, the maximum contribution is 25% of your net earnings from self-employment, up to a $54,000 contribution. If you include a 401(k) arrangement in the plan, you might be able to contribute a higher percentage of your income. If you include such an arrangement and are age 50 or older, you may be able to contribute as much as $60,000.

Simplified Employee Pension (SEP)

This is a defined contribution plan that provides benefits similar to those of a profit-sharing plan. But you can establish a SEP in 2018 and still make deductible 2017 contributions as late as the due date of your 2017 income tax return, including extensions. In addition, a SEP is easy to administer.

For 2017, the maximum SEP contribution is 25% of your net earnings from self-employment, up to a $54,000 contribution.

Defined benefit plan

This plan sets a future pension benefit and then actuarially calculates the contributions needed to attain that benefit. The maximum annual benefit for 2017 is generally $215,000 or 100% of average earned income for the highest three consecutive years, if less.

Because it’s actuarially driven, the contribution needed to attain the projected future annual benefit may exceed the maximum contributions allowed by other plans, depending on your age and the desired benefit. You can make deductible 2017 defined benefit plan contributions until your return due date, provided your plan exists on Dec. 31, 2017.

More to think about

Additional rules and limits apply to these plans, and other types of plans are available. Also, keep in mind that things get more complicated — and more expensive — if you have employees. Why? Generally, they must be allowed to participate in the plan, provided they meet the qualification requirements. To learn more about retirement plans for the self-employed, contact us.      © 2017

2 ACA taxes that may apply to your "exec comp"

Posted by Mannia & Company Posted on Oct 17 2017

If you’re an executive or other key employee, you might be rewarded for your contributions to your company’s success with compensation such as restricted stock, stock options or nonqualified deferred compensation (NQDC). Tax planning for these forms of “exec comp,” however, is generally more complicated than for salaries, bonuses and traditional employee benefits.

And planning gets even more complicated if you could potentially be subject to two taxes under the Affordable Care Act (ACA): 1) the additional 0.9% Medicare tax, and 2) the net investment income tax (NIIT). These taxes apply when certain income exceeds the applicable threshold: $250,000 for married filing jointly, $125,000 for married filing separately, and $200,000 for other taxpayers.

Additional Medicare tax

The following types of exec comp could be subject to the additional 0.9% Medicare tax if your earned income exceeds the applicable threshold:

  • Fair market value (FMV) of restricted stock once the stock is no longer subject to risk of forfeiture or it’s sold,
  • FMV of restricted stock when it’s awarded if you make a Section 83(b) election,
  • Bargain element of nonqualified stock options when exercised, and
  • Nonqualified deferred compensation once the services have been performed and there’s no longer a substantial risk of forfeiture.

NIIT

The following types of gains from stock acquired through exec comp will be included in net investment income and could be subject to the 3.8% NIIT if your modified adjusted gross income (MAGI) exceeds the applicable threshold:

  • Gain on the sale of restricted stock if you’ve made the Sec. 83(b) election, and
  • Gain on the sale of stock from an incentive stock option exercise if you meet the holding requirements.

Keep in mind that the additional Medicare tax and the NIIT could possibly be eliminated under tax reform or ACA-related legislation. If you’re concerned about how your exec comp will be taxed, please contact us. We can help you assess the potential tax impact and implement strategies to reduce it.  © 2017

Don’t ignore the Oct. 16 extended filing deadline just because you can’t pay your tax bill

Posted by Mannia & Company Posted on Oct 11 2017

The extended deadline for filing 2016 individual federal income tax returns is October 16. If you extended your return and know you owe tax but can’t pay the bill, you may be wondering what to do next.

File by October 16

First and foremost, file your return by October 16. Filing by the extended deadline will allow you to avoid the 5%-per-month failure-to-file penalty.

The only cost for failing to pay what you owe is an interest charge. Because an extension of time to file isn’t an extension of time to pay, generally the interest will begin to accrue after the April 18 filing deadline even if you filed for an extension. If you still can’t pay when you file by the extended October 16 due date, interest will continue to accrue until you pay the tax.

Consider your payment options

So when must you pay the balance due? As soon as possible, if you want to halt the IRS interest charges. Here are a few options:

Pay with a credit card. You can pay your federal tax bill with American Express, Discover, MasterCard or Visa. But before pursuing this option, ask about the one-time fee your credit card company will charge (which might be deductible) and the interest rate.

Take out a loan. If you can borrow at a reasonable rate, this may be a good option.

Arrange an IRS installment agreement. You can request permission from the IRS to pay off your bill in installments. Approval of your installment payment request is automatic if you:

  • Owe $10,000 or less (not counting interest or penalties),
  • Propose a repayment period of 36 months or less,
  • Haven’t entered into an earlier installment agreement within the preceding five years, and
  • Have filed returns and paid taxes for the preceding five tax years.

As long as you have an unpaid balance, you’ll be charged interest. But this may be at a much lower rate than what you’d pay on a credit card or could arrange with a commercial lender.

Be aware that, when you enter into an installment agreement, you must pledge to stay current on your future taxes.

Act soon

Filing a 2016 federal income tax return is important even if you can’t pay the tax due right now. If you need assistance or would like more information, please contact us.  © 2017

"Bunching" medical expenses will be a tax-smart strategy for many in 2017

Posted by Mannia & Company Posted on Oct 03 2017

Various limits apply to most tax deductions, and one type of limit is a “floor,” which means expenses are deductible only if they exceed that floor (typically a specific percentage of your income). One example is the medical expense deduction.

Because it can be difficult to exceed the floor, a common strategy is to “bunch” deductible medical expenses into a particular year where possible. If tax reform legislation is signed into law, it might be especially beneficial to bunch deductible medical expenses into 2017.

The deduction

Medical expenses that aren’t reimbursable by insurance or paid through a tax-advantaged account (such as a Health Savings Account or Flexible Spending Account) may be deductible — but only to the extent that they exceed 10% of your adjusted gross income. The 10% floor applies for both regular tax and alternative minimum tax (AMT) purposes.

Beginning in 2017, even taxpayers age 65 and older are subject to the 10% floor. Previously, they generally enjoyed a 7.5% floor, except for AMT purposes, where they were also subject to the 10% floor.

Benefits of bunching

By bunching nonurgent medical procedures and other controllable expenses into alternating years, you may increase your ability to exceed the applicable floor. Controllable expenses might include prescription drugs, eyeglasses and contact lenses, hearing aids, dental work, and elective surgery.

Normally, if it’s looking like you’re close to exceeding the floor in the current year, it’s tax-smart to consider accelerating controllable expenses into the current year. But if you’re far from exceeding the floor, the traditional strategy is, to the extent possible (without harming your or your family’s health), to put off medical expenses until the next year, in case you have enough expenses in that year to exceed the floor.

However, in 2017, sticking to these traditional strategies might not make sense.

Possible elimination?

The nine-page “Unified Framework for Fixing Our Broken Tax Code” that President Trump and congressional Republicans released on September 27 proposes a variety of tax law changes. Among other things, the framework calls for increasing the standard deduction and eliminating “most” itemized deductions. While the framework doesn’t specifically mention the medical expense deduction, the only itemized deductions that it specifically states would be retained are those for home mortgage interest and charitable contributions.

If an elimination of the medical expense deduction were to go into effect in 2018, there could be a significant incentive for individuals to bunch deductible medical expenses into 2017. Even if you’re not close to exceeding the floor now, it could be beneficial to see if you can accelerate enough qualifying expense into 2017 to do so.

Keep in mind that tax reform legislation must be drafted, passed by the House and Senate and signed by the President. It’s still uncertain exactly what will be included in any legislation, whether it will be passed and signed into law this year, and, if it is, when its provisions would go into effect. For more information on how to bunch deductions, exactly what expenses are deductible, or other ways tax reform legislation could affect your 2017 year-end tax planning, please contact us.   © 2017

Investors: Beware of the wash sale rule

Posted by Mannia & Company Posted on Sept 26 2017

A tried-and-true tax-saving strategy for investors is to sell assets at a loss to offset gains that have been realized during the year. So if you’ve cashed in some big gains this year, consider looking for unrealized losses in your portfolio and selling those investments before year end to offset your gains. This can reduce your 2017 tax liability.

But what if you expect an investment that would produce a loss if sold now to not only recover but thrive in the future? Or perhaps you simply want to minimize the impact on your asset allocation. You might think you can simply sell the investment at a loss and then immediately buy it back. Not so fast: You need to beware of the wash sale rule.

The rule up close

The wash sale rule prevents you from taking a loss on a security if you buy a substantially identical security (or an option to buy such a security) within 30 days before or after you sell the security that created the loss. You can recognize the loss only when you sell the replacement security.

Keep in mind that the rule applies even if you repurchase the security in a tax-advantaged retirement account, such as a traditional or Roth IRA.

Achieving your goals

Fortunately, there are ways to avoid the wash sale rule and still achieve your goals:

  • Sell the security and immediately buy shares of a security of a different company in the same industry or shares in a mutual fund that holds securities much like the ones you sold.
  • Sell the security and wait 31 days to repurchase the same security.
  • Before selling the security, purchase additional shares of that security equal to the number you want to sell at a loss. Then wait 31 days to sell the original portion.

If you have a bond that would generate a loss if sold, you can do a bond swap, where you sell a bond, take a loss and then immediately buy another bond of similar quality and duration from a different issuer. Generally, the wash sale rule doesn’t apply because the bonds aren’t considered substantially identical. Thus, you can achieve a tax loss with virtually no change in economic position.

For more ideas on saving taxes on your investments, please contact us.  © 2017

Why you should boost your 401(k) contribution rate between now and year end

Posted by Mannia & Company Posted on Sept 19 2017

Why you should boost your 401(k) contribution rate between now and year end

One important step to both reducing taxes and saving for retirement is to contribute to a tax-advantaged retirement plan. If your employer offers a 401(k) plan, contributing to that is likely your best first step.

If you’re not already contributing the maximum allowed, consider increasing your contribution rate between now and year end. Because of tax-deferred compounding (tax-free in the case of Roth accounts), boosting contributions sooner rather than later can have a significant impact on the size of your nest egg at retirement.

Traditional 401(k)

A traditional 401(k) offers many benefits:

  • Contributions are pretax, reducing your modified adjusted gross income (MAGI), which can also help you reduce or avoid exposure to the 3.8% net investment income tax.
  • Plan assets can grow tax-deferred — meaning you pay no income tax until you take distributions.
  • Your employer may match some or all of your contributions pretax.

For 2017, you can contribute up to $18,000. So if your current contribution rate will leave you short of the limit, try to increase your contribution rate through the end of the year to get as close to that limit as you can afford. Keep in mind that your paycheck will be reduced by less than the dollar amount of the contribution, because the contributions are pre-tax so income tax isn’t withheld.

If you’ll be age 50 or older by December 31, you can also make “catch-up” contributions (up to $6,000 for 2017). So if you didn’t contribute much when you were younger, this may allow you to partially make up for lost time. Even if you did make significant contributions before age 50, catch-up contributions can still be beneficial, allowing you to further leverage the power of tax-deferred compounding.

Roth 401(k)

Employers can include a Roth option in their 401(k) plans. If your plan offers this, you can designate some or all of your contribution as Roth contributions. While such contributions don’t reduce your current MAGI, qualified distributions will be tax-free.

Roth 401(k) contributions may be especially beneficial for higher-income earners, because they don’t have the option to contribute to a Roth IRA. On the other hand, if you expect your tax rate to be lower in retirement, you may be better off sticking with traditional 401(k) contributions.

Finally, keep in mind that any employer matches to Roth 401(k) contributions will be pretax and go into your traditional 401(k) account.

How much and which type

Have questions about how much to contribute or the best mix between traditional and Roth contributions? Contact us. We’d be pleased to discuss the tax and retirement-saving considerations with you.  © 2017

Surviving the Equifax Data Breach

Posted by Mannia & Company Posted on Sept 18 2017

Odds are, you or someone you know were impacted by the Equifax data breach. The breach, which is estimated to have impacted 143 million Americans – nearly half the US population – is considered one of largest data breaches in history. Adding insult to financial injury, Equifax has put the onus on consumers to do their own research about whether or not they need to worry.

But don’t panic just yet—we’ve got steps you can take to help protect yourself. Let’s start with the basics:

What is Equifax? And why do they have my information?

Equifax is one of three major U.S. consumer credit agencies, and if you have ever purchased anything of note, like a car or a house, or rented an apartment, or have had any reason to request a credit report, these agencies have your information.

How did the breach happen?

Cyber thieves were able to access information via a weak point in the Equifax website software between May and July of this year.

What can you do now?

First, check to see if you were potentially affected.

Equifax has an online tool that allows you to look yourself up by your last name and last six digits of you social security number. The tool indicates whether or not you may have been impacted. There have been criticisms of the tool, chief among them it doesn’t definitively tell you whether you have been affected, just that it is likely you have (or have not). But it is a start. To be safe, you should look yourself up by any names you have ever used. For example, I ran it under both my married and maiden names and found no issues but my poor husband, who has only ever had one name, was impacted.

You were impacted: What now?

Keep an eye on your accounts at all times. It isn’t enough to simply check after a new cyber security breach is reported in the news. This breach happened at least six weeks ago, giving hackers plenty of time to steal valuable information.

Sign up for fraud protection. Equifax is offering a year of free fraud protection monitoring through its TrustedID Premier program, though there have been some concerns about the program. There are other programs you can sign up for as well if you choose to do so.

Freeze your credit. If you are really worried, you can freeze your credit. In this scenario, no one can access your credit unless you unlock it using a PIN only you have. If you lose the PIN, however, you will have to go through an arduous process to prove your identity before you can get another one.

File your taxes early. This will help keep a hacker from filing a return with your stolen information.

How can this be prevented?

Unfortunately, there is nothing consumers can do to prevent being victimized by this type of hack. But organizations, like Equifax, must employ rigorous cyber security programs to protect the information they store. As technology advances, so must our security.

Save more for college through the tax advantages of a 529 savings plan

Posted by Mannia & Company Posted on Sept 12 2017

With kids back in school, it’s a good time for parents (and grandparents) to think about college funding. One option, which can be especially beneficial if the children in question still have many years until they’ll be starting their higher education, is a Section 529 plan.

 

Tax-deferred compounding

529 plans are generally state-sponsored, and the savings-plan option offers the opportunity to potentially build up a significant college nest egg because of tax-deferred compounding. So these plans can be particularly powerful if contributions begin when the child is quite young. Although contributions aren’t deductible for federal purposes, plan assets can grow tax-deferred. In addition, some states offer tax incentives for contributing.

Distributions used to pay qualified expenses (such as tuition, mandatory fees, books, supplies, computer equipment, software, Internet service and, generally, room and board) are income-tax-free for federal purposes and typically for state purposes as well, thus making the tax deferral a permanent savings.

More pluses

529 plans offer other benefits as well:

  • They usually have high contribution limits.
  • There are no income-based phaseouts further limiting contributions.
  • There’s generally no beneficiary age limit for contributions or distributions.
  • You can control the account, even after the child is a legal adult.
  • You can make tax-free rollovers to another qualifying family member.

Finally, 529 plans provide estate planning benefits: A special break for 529 plans allows you to front-load five years’ worth of annual gift tax exclusions, which means you can make up to a $70,000 contribution (or $140,000 if you split the gift with your spouse) in 2017. In the case of grandparents, this also can avoid generation-skipping transfer taxes.

Minimal minuses

One negative of a 529 plan is that your investment options are limited. Another is that you can make changes to your options only twice a year or if you change the beneficiary.

But whenever you make a new contribution, you can choose a different option for that contribution, no matter how many times you contribute during the year. Also, you can make a tax-free rollover to another 529 plan for the same child every 12 months.

We’ve focused on 529 savings plans here; a prepaid tuition version of 529 plans is also available. If you’d like to learn more about either type of 529 plan, please contact us. We can also tell you about other tax-smart strategies for funding education expenses.  © 2017

The ABC's of the tax deduction for educator expenses

Posted by Mannia & Company Posted on Aug 29 2017

At back-to-school time, much of the focus is on the students returning to the classroom — and on their parents buying them school supplies, backpacks, clothes, etc., for the new school year. But let’s not forget about the teachers. It’s common for teachers to pay for some classroom supplies out of pocket, and the tax code provides a special break that makes it a little easier for these educators to deduct some of their expenses.

The miscellaneous itemized deduction

Generally, your employee expenses are deductible if they’re unreimbursed by your employer and ordinary and necessary to your business of being an employee. An expense is ordinary if it is common and accepted in your business. An expense is necessary if it is appropriate and helpful to your business.

These expenses must be claimed as a miscellaneous itemized deduction and are subject to a 2% of adjusted gross income (AGI) floor. This means you’ll enjoy a tax benefit only if all your deductions subject to the floor, combined, exceed 2% of your AGI. For many taxpayers, including teachers, this can be a difficult threshold to meet.

The educator expense deduction

Congress created the educator expense deduction to allow more teachers and other educators to receive a tax benefit from some of their unreimbursed out-of-pocket classroom expenses. The break was made permanent under the Protecting Americans from Tax Hikes (PATH) Act of 2015. Since 2016, the deduction has been annually indexed for inflation (though because of low inflation it hasn’t increased yet) and has included professional development expenses.

Qualifying elementary and secondary school teachers and other eligible educators (such as counselors and principals) can deduct up to $250 of qualified expenses. (If you’re married filing jointly and both you and your spouse are educators, you can deduct up to $500 of unreimbursed expenses — but not more than $250 each.)

Qualified expenses include amounts paid or incurred during the tax year for books, supplies, computer equipment (including related software and services), other equipment and supplementary materials that you use in the classroom. For courses in health and physical education, the costs for supplies are qualified expenses only if related to athletics.

An added benefit

The educator expense deduction is an “above-the-line” deduction, which means you don’t have to itemize and it reduces your AGI, which has an added benefit: Because AGI-based limits affect a variety of tax breaks (such as the previously mentioned miscellaneous itemized deductions), lowering your AGI might help you maximize your tax breaks overall.

Contact us for more details about the educator expense deduction or tax breaks available for other work-related expenses.          © 2017

Yes, you can undo a Roth IRA conversion

Posted by Mannia & Company Posted on Aug 22 2017

Converting a traditional IRA to a Roth IRA can provide tax-free growth and the ability to withdraw funds tax-free in retirement. But what if you convert a traditional IRA — subject to income taxes on all earnings and deductible contributions — and then discover that you would have been better off if you hadn’t converted it? Fortunately, it’s possible to undo a Roth IRA conversion, using a “recharacterization.”

Reasons to recharacterize

There are several possible reasons to undo a Roth IRA conversion. For example:

  • You lack sufficient liquid funds to pay the tax liability.
  • The conversion combined with your other income has pushed you into a higher tax bracket.
  • You expect your tax rate to go down either in the near future or in retirement.
  • The value of your account has declined since the conversion, which means you would owe taxes partially on money you no longer have.

Generally, when you convert to a Roth IRA, if you extend your tax return, you have until October 15 of the following year to undo it. (For 2016 returns, the extended deadline is October 16 because the 15th falls on a weekend in 2017.)

In some cases it can make sense to undo a Roth IRA conversion and then redo it. If you want to redo the conversion, you must wait until the later of 1) the first day of the year following the year of the original conversion, or 2) the 31st day after the recharacterization.

Keep in mind that, if you reversed a conversion because your IRA’s value declined, there’s a risk that your investments will bounce back during the waiting period. This could cause you to reconvert at a higher tax cost.

Recharacterization in action

Nick had a traditional IRA with a balance of $100,000. In 2016, he converted it to a Roth IRA, which, combined with his other income for the year, put him in the 33% tax bracket. So normally he’d have owed $33,000 in federal income taxes on the conversion in April 2017. However, Nick extended his return and, by September 2017, the value of his account drops to $80,000.

On October 1, Nick recharacterizes the account as a traditional IRA and files his return to exclude the $100,000 in income. On November 1, he reconverts the traditional IRA, whose value remains at $80,000, to a Roth IRA. He’ll report that amount on his 2017 tax return. This time, he’ll owe $26,400 — deferred for a year and resulting in a tax savings of $6,600. If the $20,000 difference in income keeps him in the 28% tax bracket or tax reform legislation is signed into law that reduces rates retroactively to January 1, 2017, he could save even more.

If you convert a traditional IRA to a Roth IRA, monitor your financial situation. If the advantages of the conversion diminish, we can help you assess your options.                     © 2017

How to lend money to a family member or friend

Posted by Mannia & Company Posted on Aug 17 2017

How to lend money to a family member or friend

How to determine if you need to worry about estate taxes.

Posted by Mannia & Company Posted on Aug 17 2017

Among the taxes that are being considered for repeal as part of tax reform legislation is the estate tax. This tax applies to transfers of wealth at death, hence why it’s commonly referred to as the “death tax.” Its sibling, the gift tax — also being considered for repeal — applies to transfers during life. Yet most taxpayers won’t face these taxes even if the taxes remain in place.

 

Exclusions and exemptions

For 2017, the lifetime gift and estate tax exemption is $5.49 million per taxpayer. (The exemption is annually indexed for inflation.) If your estate doesn’t exceed your available exemption at your death, then no federal estate tax will be due.

Any gift tax exemption you use during life does reduce the amount of estate tax exemption available at your death. But every gift you make won’t use up part of your lifetime exemption. For example:

  • Gifts to your U.S. citizen spouse are tax-free under the marital deduction. (So are transfers at death — that is, bequests.)
  • Gifts and bequests to qualified charities aren’t subject to gift and estate taxes.
  • Payments of another person’s health care or tuition expenses aren’t subject to gift tax if paid directly to the provider.
  • Each year you can make gifts up to the annual exclusion amount ($14,000 per recipient for 2017) tax-free without using up any of your lifetime exemption.

What’s your estate tax exposure?

Here’s a simplified way to project your estate tax exposure. Take the value of your estate, net of any debts. Also subtract any assets that will pass to charity on your death.

Then, if you’re married and your spouse is a U.S. citizen, subtract any assets you’ll pass to him or her. (But keep in mind that there could be estate tax exposure on your surviving spouse’s death, depending on the size of his or her estate.) The net number represents your taxable estate.

You can then apply the exemption amount you expect to have available at death. Remember, any gift tax exemption amount you use during your life must be subtracted. But if your spouse predeceases you, then his or her unused estate tax exemption, if any, may be added to yours (provided the applicable requirements are met).

If your taxable estate is equal to or less than your available estate tax exemption, no federal estate tax will be due at your death. But if your taxable estate exceeds this amount, the excess will be subject to federal estate tax.

Be aware that many states impose estate tax at a lower threshold than the federal government does. So you could have state estate tax exposure even if you don’t need to worry about federal estate tax.

If you’re not sure whether you’re at risk for the estate tax or if you’d like to learn about gift and estate planning strategies to reduce your potential liability, please contact us. We also can keep you up to date on any estate tax law changes.     © 2017

Will congress revive expired tax breaks?

Posted by Mannia & Company Posted on Aug 08 2017

Most of the talk about possible tax legislation this year has focused on either wide-sweeping tax reform or taxes that are part of the Affordable Care Act. But there are a few other potential tax developments for individuals to keep an eye on.

Back in December of 2015, Congress passed the PATH Act, which made a multitude of tax breaks permanent. However, there were a few valuable breaks for individuals that it extended only through 2016. The question now is whether Congress will extend them for 2017.

An education break

One break the PATH Act extended through 2016 was the above-the-line deduction for qualified tuition and related expenses for higher education. The deduction was capped at $4,000 for taxpayers whose adjusted gross income (AGI) didn’t exceed $65,000 ($130,000 for joint filers) or, for those beyond those amounts, $2,000 for taxpayers whose AGI didn’t exceed $80,000 ($160,000 for joint filers).

You couldn’t take the American Opportunity credit, its cousin the Lifetime Learning credit and the tuition deduction in the same year for the same student. If you were eligible for all three breaks, the American Opportunity credit would typically be the most valuable in terms of tax savings.

But in some situations, the AGI reduction from the tuition deduction might prove more beneficial than taking the Lifetime Learning credit. For example, a lower AGI might help avoid having other tax breaks reduced or eliminated due to AGI-based phaseouts.

Mortgage-related tax breaks

Under the PATH Act, through 2016 you could treat qualified mortgage insurance premiums as interest for purposes of the mortgage interest deduction. The deduction phased out for taxpayers with AGI of $100,000 to $110,000.

The PATH Act likewise extended through 2016 the exclusion from gross income for mortgage loan forgiveness. It also modified the exclusion to apply to mortgage forgiveness that occurs in 2017 as long as it’s granted pursuant to a written agreement entered into in 2016. So even if this break isn’t extended, you might still be able to benefit from it on your 2017 income tax return.

Act now

Please check back with us for the latest information. In the meantime, keep in mind that, if you qualify and you haven’t filed your 2016 income tax return yet, you can take advantage of these breaks on that tax return. The deadline for individual extended returns is October 16, 2017.  © 2017

A refresher on the ACA’s tax penalty on individuals without health insurance

Posted by Mannia & Company Posted on Aug 02 2017

Now that Affordable Care Act (ACA) repeal and replacement efforts appear to have collapsed, at least for the time being, it’s a good time for a refresher on the tax penalty the ACA imposes on individuals who fail to have “minimum essential” health insurance coverage for any month of the year. This requirement is commonly called the “individual mandate.”

Penalty exemptions

Before we review how the penalty is calculated, let’s take a quick look at exceptions to the penalty. Taxpayers may be exempt if they fit into one of these categories for 2017:

  • Their household income is below the federal income tax return filing threshold.
  • They lack access to affordable minimum essential coverage.
  • They suffered a hardship in obtaining coverage.
  • They have only a short-term coverage gap.
  • They qualify for an exception on religious grounds or have coverage through a health care sharing ministry.
  • They’re not a U.S. citizen or national.
  • They’re incarcerated.
  • They’re a member of a Native American tribe.

Calculating the tax

So how much can the penalty cost? That’s a tricky question. If you owe the penalty, the tentative amount equals the greater of the following two prongs:

  1. The applicable percentage of your household income above the applicable federal income tax return filing threshold, or
  2. The applicable dollar amount times the number of uninsured individuals in your household, limited to 300% of the applicable dollar amount.

In terms of the percentage-of-income prong of the penalty, the applicable percentage of income is 2.5% for 2017.

In terms of the dollar-amount prong of the penalty, the applicable dollar amount for each uninsured household member is $695 for 2017. For a household member who’s under age 18, the applicable dollar amounts are cut by 50%, to $347.50. The maximum penalty under this prong for 2017 is $2,085 (300% of $695).

The final penalty amount per person can’t exceed the national average cost of “bronze coverage” (the cheapest category of ACA-compliant coverage) for your household. The important thing to know is that a high-income person or household could owe more than 300% of the applicable dollar amount but not more than the cost of bronze coverage.

If you have minimum essential coverage for only part of the year, the final penalty is calculated on a monthly basis using prorated annual figures.

Also be aware that the extent to which the penalty will continue to be enforced isn’t certain. The IRS has been accepting 2016 tax returns even if a taxpayer hasn’t completed the line indicating health coverage status. That said, the ACA is still the law, so compliance is highly recommended. For more information about this and other ACA-imposed taxes, contact us.

© 2017

Three midyear tax planning strategies for individuals

Posted by Mannia & Company Posted on July 25 2017

In the quest to reduce your tax bill, year end planning can only go so far. Tax-saving strategies take time to implement, so review your options now. Here are three strategies that can be more effective if you begin executing them midyear:

1. Consider your bracket

The top income tax rate is 39.6% for taxpayers with taxable income over $418,400 (singles), $444,550 (heads of households) and $470,700 (married filing jointly; half that amount for married filing separately). If you expect this year’s income to be near the threshold, consider strategies for reducing your taxable income and staying out of the top bracket. For example, you could take steps to defer income and accelerate deductible expenses. (This strategy can save tax even if you’re not at risk for the 39.6% bracket or you can’t avoid the bracket.)

You could also shift income to family members in lower tax brackets by giving them income-producing assets. This strategy won’t work, however, if the recipient is subject to the “kiddie tax.” Generally, this tax applies the parents’ marginal rate to unearned income (including investment income) received by a dependent child under the age of 19 (24 for full-time students) in excess of a specified threshold ($2,100 for 2017).

2. Look at investment income

This year, the capital gains rate for taxpayers in the top bracket is 20%. If you’ve realized, or expect to realize, significant capital gains, consider selling some depreciated investments to generate losses you can use to offset those gains. It may be possible to repurchase those investments, so long as you wait at least 31 days to avoid the “wash sale” rule.

Depending on what happens with health care and tax reform legislation, you also may need to plan for the 3.8% net investment income tax (NIIT). Under the Affordable Care Act, this tax can affect taxpayers with modified adjusted gross income (MAGI) over $200,000 ($250,000 for joint filers). The NIIT applies to net investment income for the year or the excess of MAGI over the threshold, whichever is less. So, if the NIIT remains in effect (check back with us for the latest information), you may be able to lower your tax liability by reducing your MAGI, reducing net investment income or both.

3. Plan for medical expenses

The threshold for deducting medical expenses is 10% of AGI. You can deduct only expenses that exceed that floor. (The threshold could be affected by health care legislation. Again, check back with us for the latest information.)

Deductible expenses may include health insurance premiums (if not deducted from your wages pretax); long-term care insurance premiums (age-based limits apply); medical and dental services and prescription drugs (if not reimbursable by insurance or paid through a tax-advantaged account); and mileage driven for health care purposes (17 cents per mile driven in 2017). You may be able to control the timing of some of these expenses so you can bunch them into every other year and exceed the applicable floor.

These are just a few ideas for slashing your 2017 tax bill. To benefit from midyear tax planning, consult us now. If you wait until the end of the year, it may be too late to execute the strategies that would save you the most tax.   © 2017

Even geniuses can have trouble with income taxes.

Posted by Mannia & Company Posted on July 19 2017

Nonqualified stock options demand tax planning attention

Posted by Mannia & Company Posted on July 19 2017

Your compensation may take several forms, including salary, fringe benefits and bonuses. If you work for a corporation, you might also receive stock-based compensation, such as stock options. These come in two varieties: nonqualified (NQSOs) and incentive (ISOs). With both NQSOs and ISOs, if the stock appreciates beyond your exercise price, you can buy shares at a price below what they’re trading for.

The tax consequences of these types of compensation can be complex. So smart tax planning is critical. Let’s take a closer look at the tax treatment of NQSOs, and how it differs from that of the perhaps better known ISOs.

Compensation income

NQSOs create compensation income — taxed at ordinary-income rates — on the “bargain element” (the difference between the stock’s fair market value and the exercise price) when exercised. This is regardless of whether the stock is held or sold immediately.

ISOs, on the other hand, generally don’t create compensation income taxed at ordinary rates unless you sell the stock from the exercise without holding it for more than a year, in a “disqualified disposition.” If the stock from an ISO exercise is held more than one year, then generally your lower long-term capital gains tax rate applies when you sell the stock.

Also, NQSO exercises don’t create an alternative minimum tax (AMT) preference item that can trigger AMT liability. ISO exercises can trigger AMT unless the stock is sold in a disqualified disposition (though it’s possible the AMT could be repealed under tax reform legislation).

More tax consequences to consider

When you exercise NQSOs, you may need to make estimated tax payments or increase withholding to fully cover the tax. Otherwise you might face underpayment penalties.

Also keep in mind that an exercise could trigger or increase exposure to top tax rates, the additional 0.9% Medicare tax and the 3.8% net investment income tax (NIIT). These two taxes might be repealed or reduced as part of Affordable Care Act repeal and replace legislation or tax reform legislation, possibly retroactive to January 1 of this year. But that’s still uncertain.

Have tax questions about NQSOs or other stock-based compensation? Let us know — we’d be happy to answer them.   © 2017

Own a vacation home? Adjusting rental vs. personal use might save taxes

Posted by Mannia & Company Posted on July 11 2017

Now that we’ve hit midsummer, if you own a vacation home that you both rent out and use personally, it’s a good time to review the potential tax consequences:

If you rent it out for less than 15 days: You don’t have to report the income. But expenses associated with the rental (such as advertising and cleaning) won’t be deductible.

If you rent it out for 15 days or more: You must report the income. But what expenses you can deduct depends on how the home is classified for tax purposes, based on the amount of personal vs. rental use:

  • Rental property. If you (or your immediate family) use the home for 14 days or less, or under 10% of the days you rent out the property, whichever is greater, the IRS will classify the home as a rental property. You can deduct rental expenses, including losses, subject to the real estate activity rules. You can’t deduct any interest that’s attributable to your personal use of the home, but you can take the personal portion of property tax as an itemized deduction.
  • Nonrental property. If you (or your immediate family) use the home for more than 14 days or 10% of the days you rent out the property, whichever is greater, the IRS will classify the home as a personal residence, but you will still have to report the rental income. You can deduct rental expenses only to the extent of your rental income. Any excess can be carried forward to offset rental income in future years. You also can take an itemized deduction for the personal portion of both mortgage interest and property tax.

Look at the use of your vacation home year-to-date to project how it will be classified for tax purposes. Adjusting the number of days you rent it out and/or use it personally between now and year end might allow the home to be classified in a more beneficial way.

For assistance, please contact us. We’d be pleased to help. © 2017

Claiming a federal tax deduction for moving costs

Posted by Mannia & Company Posted on June 28 2017

Summer is a popular time to move, whether it’s so the kids don’t have to change schools mid-school-year, to avoid having to move in bad weather or simply because it can be an easier time to sell a home. Unfortunately, moving can be expensive. The good news is that you might be eligible for a federal tax deduction for your moving costs.

Pass the tests

The first requirement is that the move be work-related. You don’t have to be an employee; the self-employed can also be eligible for the moving expense deduction.

The second is a distance test. The new main job location must be at least 50 miles farther from your former home than your former main job location was from that home. So a work-related move from city to suburb or from town to neighboring town probably won’t qualify, even if not moving would increase your commute significantly.

Finally, there’s a time test. You must work full time at the new job location for at least 39 weeks during the first year. If you’re self-employed, you must meet that test plus work full time for at least 78 weeks during the first 24 months at the new job location. (Certain limited exceptions apply.)

What’s deductible

So which expenses can be written off? Generally, you can deduct transportation and lodging expenses for yourself and household members while moving.

In addition, you can likely deduct the cost of packing and transporting your household goods and other personal property. And you may be able to deduct the expense of storing and insuring these items while in transit. Costs related to connecting or disconnecting utilities are usually deductible, too.

But don’t expect to write off everything. Meal costs during move-related travel aren’t deductible. Nor is any part of the purchase price of a new home or expenses incurred selling your old one. And, if your employer later reimburses you for any of the moving costs you’ve deducted, you may have to include the reimbursement as income on your tax return.

Questions about whether your moving expenses are deductible? Or what you can deduct? Contact us.  © 2017

Are income taxes take a bite out of your trusts?

Posted by Mannia & Company Posted on June 20 2017

If your estate plan includes one or more trusts, review them in light of income taxes. For trusts, the income threshold is very low for triggering the:

 

  • Top income tax rate of 39.6%,
  • Top long-term capital gains rate of 20%, and
  • Net investment income tax (NIIT) of 3.8%.

The threshold is only $12,500 for 2017.

3 ways to soften the blow

Three strategies can help you soften the blow of higher taxes on trust income:

1. Use grantor trusts. An intentionally defective grantor trust (IDGT) is designed so that you, the grantor, are treated as the trust’s owner for income tax purposes — even though your contributions to the trust are considered “completed gifts” for estate- and gift-tax purposes.

IDGTs offer significant advantages. The trust’s income is taxed to you, so the trust itself avoids taxation. This allows trust assets to grow tax-free, leaving more for your beneficiaries. And it reduces the size of your estate. Further, as the owner, you can sell assets to the trust or engage in other transactions without tax consequences.

Keep in mind that, if your personal income exceeds the applicable thresholds for your filing status, using an IDGT won’t avoid the tax rates described above. Still, the other benefits of these trusts make them attractive.

2. Change your investment strategy. Despite the advantages of grantor trusts, nongrantor trusts are sometimes desirable or necessary. At some point, for example, you may decide to convert a grantor trust to a nongrantor trust to relieve yourself of the burden of paying the trust’s taxes. Also, grantor trusts become nongrantor trusts after the grantor’s death.

One strategy for easing the tax burden on nongrantor trusts is for the trustee to shift investments into tax-exempt or tax-deferred investments.

3. Distribute income. Generally, nongrantor trusts are subject to tax only to the extent they accumulate taxable income. When a trust makes distributions to a beneficiary, it passes along ordinary income (and, in some cases, capital gains), which are taxed at the beneficiary’s marginal rate.

Thus, one strategy for minimizing taxes on trust income is to distribute the income to beneficiaries in lower tax brackets. The trustee might also consider distributing appreciated assets, rather than cash, to take advantage of a beneficiary’s lower capital gains rate.

Of course, this strategy may conflict with a trust’s purposes, such as providing incentives to beneficiaries, preserving assets for future generations and shielding assets from beneficiaries’ creditors.

If you’re concerned about income taxes on your trusts, contact us. We can review your estate plan to uncover opportunities to reduce your family’s tax burden.

© 2017

Business Valuation Starts Here

Posted by Mannia & Company Posted on June 19 2017

The first three things business valuation pros consider.

Pay attention to the details when selling investments

Posted by Mannia & Company Posted on June 14 2017

The tax consequences of the sale of an investment, as well as your net return, can be affected by a variety of factors. You’re probably focused on factors such as how much you paid for the investment vs. how much you’re selling it for, whether you held the investment long-term (more than one year) and the tax rate that will apply.

But there are additional details you should pay attention to. If you don’t, the tax consequences of a sale may be different from what you expect. Here are a few details to consider when selling an investment:

Which shares you’re selling. If you bought the same security at different times and prices and want to sell high-tax-basis shares to reduce gain or increase a loss to offset other gains, be sure to specifically identify which block of shares is being sold.

Trade date vs. settlement date. When it gets close to year end, keep in mind that the trade date, not the settlement date, of publicly traded securities determines the year in which you recognize the gain or loss.

Transaction costs. While transaction costs, such as broker fees, aren’t taxes, like taxes they can have a significant impact on your net returns, especially over time, because they also reduce the amount of money you have available to invest.

If you have questions about the potential tax impact of an investment sale you’re considering — or all of the details you should keep in mind to minimize it — please contact us.

Donating a vehicle might not provide the tax deduction you expect

Posted by Mannia & Company Posted on June 01 2017

All charitable donations aren’t created equal — some provide larger deductions than others. And it isn’t necessarily just how much or even what you donate that matters. How the charity uses your donation might also affect your deduction.

Take vehicle donations, for example. If you donate your vehicle, the value of your deduction can vary greatly depending on what the charity does with it.

Determining your deduction

You can deduct the vehicle’s fair market value (FMV) if the charity:

  • Uses the vehicle for a significant charitable purpose (such as delivering meals-on-wheels to the elderly),
  • Sells the vehicle for substantially less than FMV in furtherance of a charitable purpose (such as a sale to a low-income person needing transportation), or
  • Makes “material improvements” to the vehicle.

But in most other circumstances, if the charity sells the vehicle, your deduction is limited to the amount of the sales proceeds.

Getting proper substantiation

You also must obtain proper substantiation from the charity, including a written acknowledgment that:

  • Certifies whether the charity sold the vehicle or retained it for use for a charitable purpose,
  • Includes your name and tax identification number and the vehicle identification number, and
  • Reports, if applicable, details concerning the sale of the vehicle within 30 days of the sale.

For more information on these and other rules that apply to vehicle donation deductions — or deductions for other charitable gifts — please contact us.

© 2017

A "back door" Roth IRA can benefit higher-income taxpayers

Posted by Mannia & Company Posted on May 24 2017

A potential downside of tax-deferred saving through a traditional retirement plan is that you’ll have to pay taxes when you make withdrawals at retirement. Roth plans, on the other hand, allow tax-free distributions; the tradeoff is that contributions to these plans don’t reduce your current-year taxable income.

Unfortunately, your employer might not offer a Roth 401(k) or another Roth option, and modified adjusted gross income (MAGI)-based phaseouts may reduce or eliminate your ability to contribute to a Roth IRA. Fortunately, there is a solution: the “back door” Roth IRA.

Are you phased out?

The 2017 contribution limit for all IRAs combined is $5,500 (plus an additional $1,000 catch-up contribution if you’ll be age 50 or older by December 31). You can make a partial Roth IRA contribution if your MAGI falls within the applicable phaseout range, but no contribution if it exceeds the top of the range:

  • For married taxpayers filing jointly: $186,000–$196,000.
  • For single and head-of-household taxpayers: $118,000–$133,000.

(Note: Married taxpayers filing separately are subject to much lower phaseout ranges.)

Using the back door

If the income-based phaseout prevents you from making Roth IRA contributions and you don’t already have a traditional IRA, a “back door” IRA might be right for you.

How does it work? You set up a traditional account and make a nondeductible contribution to it. You then wait until the transaction clears and convert the traditional account to a Roth account. The only tax due will be on any growth in the account between the time you made the contribution and the date of conversion, which should be little, if any, assuming you’re able to make the conversion quickly.

More limited tax benefit in some cases

If you do already have a traditional IRA, the back-door Roth IRA strategy is still available but there will be more tax liability on the conversion. A portion of the amount you convert to a Roth IRA will be considered attributable to deductible contributions and thus be taxable. It doesn’t matter if you set up a new traditional IRA for the nondeductible contributions; all of your traditional IRAs will be treated as one for tax purposes.

Roth IRAs have other benefits and downsides you need to factor into your decision, and additional rules apply to IRA conversions. Please contact us for assistance in determining whether a backdoor Roth IRA is right for you.

© 2017

Turning Next Year's Tax Refund Into Cash in Your Pocket Now

Posted by Mannia & Company Posted on May 08 2017

Each year, millions of taxpayers claim an income tax refund. To be sure, receiving a payment from the IRS for a few thousand dollars can be a pleasant influx of cash. But it means you were essentially giving the government an interest-free loan for close to a year, which isn’t the best use of your money.

Fortunately, there is a way to begin collecting your 2017 refund now: You can review the amounts you’re having withheld and/or what estimated tax payments you’re making, and adjust them to keep more money in your pocket during the year.

Reasons to modify amounts

It’s particularly important to check your withholding and/or estimated tax payments if:

  • You received an especially large 2016 refund,
  • You’ve gotten married or divorced or added a dependent,
  • You’ve purchased a home,
  • You’ve started or lost a job, or
  • Your investment income has changed significantly.

Even if you haven’t encountered any major life changes during the past year, changes in the tax law may affect withholding levels, making it worthwhile to double-check your withholding or estimated tax payments.

Making a change

You can modify your withholding at any time during the year, or even several times within a year. To do so, you simply submit a new Form W-4 to your employer. Changes typically will go into effect several weeks after the new Form W-4 is submitted. For estimated tax payments, you can make adjustments each time quarterly payments are due.

While reducing withholdings or estimated tax payments will, indeed, put more money in your pocket now, you also need to be careful that you don’t reduce them too much. If you don’t pay enough tax during the year, you could end up owing interest and penalties when you file your return, even if you pay your outstanding tax liability by the April 2018 deadline.

If you’d like help determining what your withholding or estimated tax payments should be for the rest of the year, please contact us.

Now's A Great Time to Purge Old Tax Records

Posted by Mannia & Company Posted on Apr 25 2017

Whether you filed your 2016 tax return by the April 18 deadline or you filed for an extension, you may be overwhelmed by the amount of documentation involved. While you need to hold on to all of your 2016 tax records for now, it’s a great time to take a look at your records for previous tax years to see what you can purge.

Consider the statute of limitations

At minimum, keep tax records for as long as the IRS has the ability to audit your return or assess additional taxes, which generally is three years after you file your return. This means you likely can shred and toss — or electronically purge — most records related to tax returns for 2013 and earlier years (2012 and earlier if you filed for an extension for 2013).

In some cases, the statute of limitations extends beyond three years. If you understate your adjusted gross income by more than 25%, for example, the limitations period jumps to six years. And there is no statute of limitations if you fail to file a tax return or file a fraudulent one.

Keep some documents longer

You’ll need to hang on to certain records beyond the statute of limitations:

Tax returns. Keep them forever, so you can prove to the IRS that you actually filed.

W-2 forms. Consider holding them until you begin receiving Social Security benefits. Why? In case a question arises regarding your work record or earnings for a particular year.

Records related to real estate or investments. Keep these as long as you own the asset, plus three years after you sell it and report the sale on your tax return (or six years if you’re concerned about the six-year statute of limitations).

This is only a sampling of retention guidelines for tax-related documents. If you have questions about other documents, please contact us.

© 2017

When it comes to charitable deductions, all donations aren't creatd equal

Posted by Mannia & Company Posted on Mar 01 2017

As you file your 2016 income tax return and plan your charitable giving for 2017, it’s important to keep in mind the available deduction. It can vary significantly depending on a variety of factors. 

 

What you give

Other than the actual amount you donate, one of the biggest factors that can affect your deduction is what you give:

Cash. This includes not just actual cash but gifts made by check, credit card or payroll deduction. You may deduct 100%.

Ordinary-income property. Examples include stocks and bonds held one year or less, inventory, and property subject to depreciation recapture. You generally may deduct only the lesser of fair market value or your tax basis.

Long-term capital gains property. You may deduct the current fair market value of appreciated stocks and bonds held for more than one year.

Tangible personal property. Your deduction depends on the situation:

  • If the property isn’t related to the charity’s tax-exempt function (such as an antique donated for a charity auction), your deduction is limited to your basis.
  • If the property is related to the charity’s tax-exempt function (such as an antique donated to a museum for its collection), you can deduct the fair market value.

Vehicle. Unless the vehicle is being used by the charity, you generally may deduct only the amount the charity receives when it sells the vehicle.

Use of property. Examples include use of a vacation home and a loan of artwork. Generally, you receive no deduction because it isn’t considered a completed gift.

Services. You may deduct only your out-of-pocket expenses, not the fair market value of your services. You can deduct 14 cents per charitable mile driven.

Other factors

Your annual charitable donation deductions may be reduced if they exceed certain income-based limits. And if you receive some benefit from the charity, your deduction generally must be reduced by the benefit’s value.

In addition, various substantiation requirements apply. And the charity must be eligible to receive tax-deductible contributions. Finally, keep in mind that tax law changes could be passed later this year that might affect your 2017 charitable deductions.

If you have questions about how much you can deduct on your 2016 return, let us know. We also can keep you apprised of the latest information on any tax law changes. © 2017

Deduct all of the mileage you’re entitled to — but not more

Posted by Mannia & Company Posted on Feb 21 2017

Rather than keeping track of the actual cost of operating a vehicle, employees and self-employed taxpayers can use a standard mileage rate to compute their deduction related to using a vehicle for business. But you might also be able to deduct miles driven for other purposes, including medical, moving and charitable purposes.

What are the deduction rates?

The rates vary depending on the purpose and the year:

Business: 54 cents (2016), 53.5 cents (2017)

Medical: 19 cents (2016), 17 cents (2017)

Moving: 19 cents (2016), 17 cents (2017)

Charitable: 14 cents (2016 and 2017)

The business standard mileage rate is considerably higher than the medical, moving and charitable rates because the business rate contains a depreciation component. No depreciation is allowed for the medical, moving or charitable use of a vehicle.

In addition to deductions based on the standard mileage rate, you may deduct related parking fees and tolls.

What other limits apply?

The rules surrounding the various mileage deductions are complex. Some are subject to floors and some require you to meet specific tests in order to qualify.

For example, miles driven for health-care-related purposes are deductible as part of the medical expense deduction. But medical expenses generally are deductible only to the extent they exceed 10% of your adjusted gross income. (For 2016, the deduction threshold is 7.5% for qualifying seniors.)

And while miles driven related to moving can be deductible, the move must be work-related. In addition, among other requirements, the distance from your old residence to the new job must be at least 50 miles more than the distance from your old residence to your old job.

Other considerations

There are also substantiation requirements, which include tracking miles driven. And, in some cases, you might be better off deducting actual expenses rather than using the mileage rates.

So contact us to help ensure you deduct all the mileage you’re entitled to on your 2016 tax return — but not more. You don’t want to risk back taxes and penalties later.

And if you drove potentially eligible miles in 2016 but can’t deduct them because you didn’t track them, start tracking your miles now so you can potentially take advantage of the deduction when you file your 2017 return next year.

© 2017

Do you need to file a 2016 gift tax return by April 18?

Posted by Mannia & Company Posted on Feb 15 2017

Last year you may have made significant gifts to your children, grandchildren or other heirs as part of your estate planning strategy. Or perhaps you just wanted to provide loved ones with some helpful financial support. Regardless of the reason for making a gift, it’s important to know under what circumstances you’re required to file a gift tax return.

Some transfers require a return even if you don’t owe tax. And sometimes it’s desirable to file a return even if it isn’t required.

When filing is required

Generally, you’ll need to file a gift tax return for 2016 if, during the tax year, you made gifts:

  • That exceeded the $14,000-per-recipient gift tax annual exclusion (other than to your U.S. citizen spouse),
  • That exceeded the $148,000 annual exclusion for gifts to a noncitizen spouse,
  • That you wish to split with your spouse to take advantage of your combined $28,000 annual exclusions,
  • To a Section 529 college savings plan for your child, grandchild or other loved one and wish to accelerate up to five years’ worth of annual exclusions ($70,000) into 2016,
  • Of future interests — such as remainder interests in a trust — regardless of the amount, or
  • Of jointly held or community property.

When filing isn’t required

No return is required if your gifts for the year consist solely of annual exclusion gifts, present interest gifts to a U.S. citizen spouse, qualifying educational or medical expenses paid directly to a school or health care provider, and political or charitable contributions.

If you transferred hard-to-value property, such as artwork or interests in a family-owned business, consider filing a gift tax return even if you’re not required to. Adequate disclosure of the transfer in a return triggers the statute of limitations, generally preventing the IRS from challenging your valuation more than three years after you file.

Meeting the deadline

The gift tax return deadline is the same as the income tax filing deadline. For 2016 returns, it’s April 18, 2017 (or October 16 if you file for an extension). If you owe gift tax, the payment deadline is also April 18, regardless of whether you file for an extension.

Have questions about gift tax and the filing requirements? Contact us to learn more.

© 2017

What you need to know about the tax treatment of ISOs

Posted by Mannia & Company Posted on Feb 08 2017

Incentive stock options allow you to buy company stock in the future at a fixed price equal to or greater than the stock’s fair market value on the grant date. If the stock appreciates, you can buy shares at a price below what they’re then trading for. However, complex tax rules apply to this type of compensation.

Current tax treatment

ISOs must comply with many rules but receive tax-favored treatment:

  • You owe no tax when ISOs are granted.
  • You owe no regular income tax when you exercise ISOs, but there could be alternative minimum tax (AMT) consequences.
  • If you sell the stock after holding the shares at least one year from the exercise date and two years from the grant date, you pay tax on the sale at your long-term capital gains rate. You also may owe the 3.8% net investment income tax (NIIT).
  • If you sell the stock before long-term capital gains treatment applies, a “disqualifying disposition” occurs and any gain is taxed as compensation at ordinary-income rates.

So if you were granted ISOs in 2016, there likely isn’t any impact on your 2016 income tax return. But if in 2016 you exercised ISOs or you sold stock you’d acquired via exercising ISOs, then it could affect your 2016 tax liability. And it’s important to properly report the exercise or sale on your return to avoid potential interest and penalties for underpayment of tax.

Future exercises and stock sales

If you receive ISOs in 2017 or already hold ISOs that you haven’t yet exercised, plan carefully when to exercise them. Waiting to exercise ISOs until just before the expiration date (when the stock value may be the highest, assuming the stock is appreciating) may make sense. But exercising ISOs earlier can be advantageous in some situations.

Once you’ve exercised ISOs, the question is whether to immediately sell the shares received or to hold on to them long enough to garner long-term capital gains treatment. The latter strategy often is beneficial from a tax perspective, but there’s also market risk to consider. For example, it may be better to sell the stock in a disqualifying disposition and pay the higher ordinary-income rate if it would avoid AMT on potentially disappearing appreciation.

The timing of the sale of stock acquired via an exercise could also positively or negatively affect your liability for higher ordinary-income tax rates, the top long-term capital gains rate and the NIIT.

Planning ahead

Keep in mind that the NIIT is part of the Affordable Care Act (ACA), and lawmakers in Washington are starting to take steps to repeal or replace the ACA. So the NIIT may not be a factor in the future. In addition, tax law changes are expected later this year that might include elimination of the AMT and could reduce ordinary and long-term capital gains rates for some taxpayers. When changes might go into effect and exactly what they’ll be is still uncertain.

If you’ve received ISOs, contact us. We can help you ensure you’re reporting everything properly on your 2016 return and evaluate the risks and crunch the numbers to determine the best strategy for you going forward.

© 2017

2016 Higher-education breaks can save your family taxes

Posted by Mannia & Company Posted on Feb 01 2017

Was a college student in your family last year? Or were you a student yourself? You may be eligible for some valuable tax breaks on your 2016 return. To max out your higher education breaks, you need to see which ones you’re eligible for and then claim the one(s) that will provide the greatest benefit. In most cases you can take only one break per student, and, for some breaks, only one per tax return.

Credits vs. deductions

Tax credits can be especially valuable because they reduce taxes dollar-for-dollar; deductions reduce only the amount of income that’s taxed. A couple of credits are available for higher education expenses:

  1. The American Opportunity credit — up to $2,500 per year per student for qualifying expenses for the first four years of postsecondary education.
  2. The Lifetime Learning credit — up to $2,000 per tax return for postsecondary education expenses, even beyond the first four years.

But income-based phaseouts apply to these credits.

If you’re eligible for the American Opportunity credit, it will likely provide the most tax savings. If you’re not, the Lifetime Learning credit isn’t necessarily the best alternative.

Despite the dollar-for-dollar tax savings credits offer, you might be better off deducting up to $4,000 of qualified higher education tuition and fees. Because it’s an above-the-line deduction, it reduces your adjusted gross income, which could provide additional tax benefits. But income-based limits also apply to the tuition and fees deduction.

Be aware that the tuition and fees deduction expired December 31, 2016. So it won’t be available on your 2017 return unless Congress extends it or makes it permanent.

How much can your family save?

Keep in mind that, if you don’t qualify for breaks for your child’s higher education expenses because your income is too high, your child might. Many additional rules and limits apply to the credits and deduction, however. To learn which breaks your family might be eligible for on your 2016 tax returns — and which will provide the greatest tax savings — please contact us.

© 2017

The Investment Interest Expense Deduction: Less beneficial than you might think

Posted by Mannia & Company Posted on Jan 25 2017

Investment interest — interest on debt used to buy assets held for investment, such as margin debt used to buy securities — generally is deductible for both regular tax and alternative minimum tax purposes. But special rules apply that can make this itemized deduction less beneficial than you might think.

Limits on the deduction
First, you can’t deduct interest you incurred to produce tax-exempt income. For example, if you borrow money to invest in municipal bonds, which are exempt from federal income tax, you can’t deduct the interest.

Second, and perhaps more significant, your investment interest deduction is limited to your net investment income, which, for the purposes of this deduction, generally includes taxable interest, nonqualified dividends and net short-term capital gains, reduced by other investment expenses. In other words, long-term capital gains and qualified dividends aren’t included.

However, any disallowed interest is carried forward. You can then deduct the disallowed interest in a later year if you have excess net investment income.

Changing the tax treatment
You may elect to treat net long-term capital gains or qualified dividends as investment income in order to deduct more of your investment interest. But if you do, that portion of the long-term capital gain or dividend will be taxed at ordinary-income rates.

If you’re wondering whether you can claim the investment interest expense deduction on your 2016 return, please contact us. We can run the numbers to calculate your potential deduction or to determine whether you could benefit from treating gains or dividends differently to maximize your deduction.
© 2017
 

Deduction for state and local sales tax benefits some, but not all taxpayers

Posted by Mannia & Company Posted on Jan 17 2017

The break allowing taxpayers to take an itemized deduction for state and local sales taxes in lieu of state and local income taxes was made “permanent” a little over a year ago. This break can be valuable to those residing in states with no or low income taxes or who purchase major items, such as a car or boat.

Your 2016 tax return

How do you determine whether you can save more by deducting sales tax on your 2016 return? Compare your potential deduction for state and local income tax to your potential deduction for state and local sales tax.

Don’t worry — you don’t have to have receipts documenting all of the sales tax you actually paid during the year to take full advantage of the deduction. Your deduction can be determined by using an IRS sales tax calculator that will base the deduction on your income and the sales tax rates in your locale plus the tax you actually paid on certain major purchases (for which you will need substantiation).

2017 and beyond

If you’re considering making a large purchase in 2017, you shouldn’t necessarily count on the sales tax deduction being available on your 2017 return. When the PATH Act made the break “permanent” in late 2015, that just meant that there’s no scheduled expiration date for it. Congress could pass legislation to eliminate the break (or reduce its benefit) at any time.

Recent Republican proposals have included elimination of many itemized deductions, and the new President has proposed putting a cap on itemized deductions. Which proposals will make it into tax legislation in 2017 and when various provisions will be signed into law and go into effect is still uncertain.

Questions about the sales tax deduction or other breaks that might help you save taxes on your 2016 tax return? Or about the impact of possible tax law changes on your 2017 tax planning? Contact us — we can help you maximize your 2016 savings and effectively plan for 2017.

© 2017

Fun Fact: What do pottery and accounting have in common?

Posted by Mannia & Company Posted on Jan 13 2017

Help Prevent Tax Identity Theft by Filing Early

Posted by Mannia & Company Posted on Jan 10 2017

If you’re like many Americans, you might not start thinking about filing your tax return until close to this year’s April 18 deadline. You might even want to file for an extension so you don’t have to send your return to the IRS until October 16.

But there’s another date you should keep in mind: January 23. That’s the date the IRS will begin accepting 2016 returns, and filing as close to that date as possible could protect you from tax identity theft.

Why early filing helps

In an increasingly common scam, thieves use victims’ personal information to file fraudulent tax returns electronically and claim bogus refunds. This is usually done early in the tax filing season. When the real taxpayers file, they’re notified that they’re attempting to file duplicate returns.

A victim typically discovers the fraud after he or she files a tax return and is informed by the IRS that the return has been rejected because one with the same Social Security number has already been filed for the same tax year. The IRS then must determine who the legitimate taxpayer is.

Tax identity theft can cause major headaches to straighten out and significantly delay legitimate refunds. But if you file first, it will be the tax return filed by a potential thief that will be rejected — not yours.

Another important date

Of course, in order to file your tax return, you’ll need to have your W-2s and 1099s. So another key date to be aware of is January 31 — the deadline for employers to issue 2016 W-2s to employees and, generally, for businesses to issue 1099s to recipients of any 2016 interest, dividend or reportable miscellaneous income payments.

Delays for some refunds

The IRS reminded taxpayers claiming the earned income tax credit or the additional child tax credit to expect a longer wait for their refunds. A law passed in 2015 requires the IRS to hold refunds on tax returns claiming these credits until at least February 15.

An additional benefit

Let us know if you have questions about tax identity theft or would like help filing your 2016 return early. If you’ll be getting a refund, an added bonus of filing early is that you’ll be able to enjoy your refund sooner.

© 2017

Are You Able to Deduct Medical Expenses on Your Tax Return?

Posted by Mannia & Company Posted on Jan 04 2017

For many people, the cost of medical care keeps going up. So if possible, you should find ways to claim tax breaks related to health care. Unfortunately, it can be difficult because there’s a threshold for deducting itemized medical expenses that can be tough to meet.

To make matters worse, the threshold for senior taxpayers is going up beginning January 1, 2017.

General rules

Before 2013, you could claim an itemized deduction for unreimbursed medical expenses paid for you, your spouse and your dependents, to the extent those expenses exceeded 7.5% of your adjusted gross income (AGI). AGI includes all of your taxable income items, reduced by certain write-offs, including those for deductible IRA contributions, alimony payments and student loan interest.

As part of the Affordable Care Act, a higher deduction threshold of 10% of AGI now applies to most taxpayers. However, if either you or your spouse were at least 65 as of December 31, 2016, the 10%-of-AGI deduction threshold won’t affect you for the 2016 tax year (the tax return you’ll file in 2017). For 2016, the 7.5%-of-AGI deduction threshold still applies for qualifying seniors.

However, this exemption is temporary. Beginning January 1, 2017, the 10% threshold will apply to all taxpayers, including those over 65.

Consider “bunching” expenses in alternating years

If you aren’t eligible for a deduction, you might be able to qualify if you concentrate medical expenses in alternating years. That way, you may qualify to claim an itemized medical expense deduction every other year — instead of losing the opportunity to claim any deduction for health care costs. Of course, this might only work if you have flexibility about when medical expenses are incurred.

Eligible expenses

Qualified medical expenses involve the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. This includes payments to physicians, dentists and other medical practitioners, as well as equipment, supplies, diagnostic devices, prescription drugs and other health care expenses.

Contact us if you have questions about what expenses are eligible and whether you can qualify for a deduction. 

© 2017

Few Changes to Retirement Plan Contribution Limits for 2017

Posted by Mannia & Company Posted on Jan 03 2017

Retirement plan contribution limits are indexed for inflation, but with inflation remaining low, most of the limits remain unchanged for 2017. The only limit that has increased from the 2016 level is for contributions to defined contribution plans, which has gone up by $1,000.

Type of limit

2017 limit

Elective deferrals to 401(k), 403(b), 457(b)(2) and 457(c)(1) plans

$18,000

Contributions to defined contribution plans

$54,000

Contributions to SIMPLEs

$12,500

Contributions to IRAs

$5,500

Catch-up contributions to 401(k), 403(b), 457(b)(2) and 457(c)(1) plans

$6,000

Catch-up contributions to SIMPLEs

$3,000

Catch-up contributions to IRAs

$1,000

Nevertheless, if you’re not already maxing out your contributions, you still have an opportunity to save more in 2017. And if you turn age 50 in 2017, you can begin to take advantage of catch-up contributions.

However, keep in mind that additional factors may affect how much you’re allowed to contribute (or how much your employer can contribute on your behalf). For example, income-based limits may reduce or eliminate your ability to make Roth IRA contributions or to make deductible traditional IRA contributions. If you have questions about how much you can contribute to tax-advantaged retirement plans in 2017, check with us.

© 2016

Want to Save for Education? Make 2016 ESA Contributions by December 31

Posted by Mannia & Company Posted on Dec 20 2016

There are many ways to save for a child’s or grandchild’s education. But one has annual contribution limits, and if you don’t make a 2016 contribution by December 31, the opportunity will be lost forever. We’re talking about Coverdell Education Savings Accounts (ESAs).

How ESAs work
With an ESA, you contribute money now that the beneficiary can use later to pay qualified education expenses:
• Although contributions aren’t deductible, plan assets can grow tax-deferred, and distributions used for qualified education expenses are tax-free.
• You can contribute until the child reaches age 18 (except beneficiaries with special needs).
• You remain in control of the account — even after the child is of legal age.
• You can make rollovers to another qualifying family member.

Not just for college
One major advantage of ESAs over another popular education saving tool, the Section 529 plan, is that tax-free ESA distributions aren’t limited to college expenses; they also can fund elementary and secondary school costs. That means you can use ESA funds to pay for such qualified expenses as tutoring and private school tuition.

Another advantage is that you have more investment options. So ESAs are beneficial if you’d like to have direct control over how and where your contributions are invested.

Annual contribution limits
The annual contribution limit is $2,000 per beneficiary. However, the ability to contribute is phased out based on income.

The limit begins to phase out at a modified adjusted gross income (MAGI) of $190,000 for married filing jointly and $95,000 for other filers. No contribution can be made when MAGI hits $220,000 and $110,000, respectively.

Maximizing ESA savings

Because the annual contribution limit is low, if you want to maximize your ESA savings, it’s important to contribute every year in which you’re eligible. The contribution limit doesn’t carry over from year to year. In other words, if you don’t make a $2,000 contribution in 2016, you can’t add that $2,000 to the 2017 limit and make a $4,000 contribution next year.

However, because the contribution limit applies on a per beneficiary basis, before contributing make sure no one else has contributed to an ESA on behalf of the same beneficiary. If someone else has, you’ll need to reduce your contribution accordingly.

Would you like more information about ESAs or other tax-advantaged ways to fund your child’s — or grandchild’s — education expenses? Contact us!
© 2016
 

Why Making Annual Exclusion Gifts Before Year End Can Still Be a Good Idea

Posted by Mannia & Company Posted on Dec 13 2016

A tried-and-true estate planning strategy is to make tax-free gifts to loved ones during life, because it reduces potential estate tax at death. There are many ways to make tax-free gifts, but one of the simplest is to take advantage of the annual gift tax exclusion with direct gifts. Even in a potentially changing estate tax environment, making annual exclusion gifts before year end can still be a good idea.

What is the annual exclusion?

The 2016 gift tax annual exclusion allows you to give up to $14,000 per recipient tax-free without using up any of your $5.45 million lifetime gift tax exemption. If you and your spouse “split” the gift, you can give $28,000 per recipient. The gifts are also generally excluded from the generation-skipping transfer tax, which typically applies to transfers to grandchildren and others more than one generation below you.

The gifted assets are removed from your taxable estate, which can be especially advantageous if you expect them to appreciate. That’s because the future appreciation can also avoid gift and estate taxes.

Making gifts in 2016

The exclusion is scheduled to remain at $14,000 ($28,000 for split gifts) in 2017. But that’s not a reason to skip making annual exclusion gifts this year. You need to use your 2016 exclusion by Dec. 31 or you’ll lose it.

The exclusion doesn’t carry from one year to the next. For example, if you don’t make an annual exclusion gift to your daughter this year, you can’t add $14,000 to your 2017 exclusion to make a $28,000 tax-free gift to her next year.

While the President-elect and Republicans in Congress have indicated that they want to repeal the estate tax, it’s uncertain exactly what tax law changes will be passed, since the Republicans don’t have a filibuster-proof majority in the Senate. Plus, in some states there’s a state-level estate tax. So if you have a large estate, making 2016 annual exclusion gifts is generally still well worth considering.

We can help you determine how to make the most of your 2016 gift tax annual exclusion.

Fun fact: Do you know when employees stopped paying income tax in one lump sum?

Posted by Mannia & Company Posted on Dec 09 2016

Workers Age 50 and Up: Boost Retirement Savings Before Year End with Catch-up Contributions

Posted by Mannia & Company Posted on Dec 06 2016

Whether you didn’t save as much for retirement as you would have wished earlier in your career or you’d simply like to make the most of tax-advantaged savings opportunities, if you’ll be age 50 or older on December 31, consider making “catch-up” contributions to your employer-sponsored retirement plan by that date. These are additional contributions beyond the regular annual limits that can be made to certain retirement accounts.

401(k)s and SIMPLEs
Under 2016 401(k) limits, if you’re age 50 or older, after you’ve reached the $18,000 maximum limit for all employees, you can contribute an extra $6,000, for a total of $24,000. If your employer offers a Savings Incentive Match Plan for Employees (SIMPLE) instead, your regular contribution maxes out at $12,500 in 2016. If you’re 50 or older, you’re allowed to contribute an additional $3,000 — or $15,500 in total for the year.

But, check with your employer because, while most 401(k) plans and SIMPLEs offer catch-up contributions, not all do.

Self-employed plans
If you’re self-employed, retirement plans such as an individual 401(k) — or solo 401(k) — also allow catch-up contributions. A solo 401(k) is a plan for those with no other employees. You can defer 100% of your self-employment income or compensation, up to the regular yearly deferral limit of $18,000, plus a $6,000 catch-up contribution in 2016. But that’s just the employee salary deferral portion of the contribution.

You can also make an “employer” contribution of up to 20% of self-employment income or 25% of compensation. The total combined employee-employer contribution is limited to $53,000, plus the $6,000 catch-up contribution.

Catch-up contributions to non-Roth accounts not only can enlarge your retirement nest egg, but also can reduce your 2016 tax liability. And keep in mind that catch-up contributions are available for IRAs, too, but the deadline for 2016 contributions is later: April 18, 2017. If you have questions about catch-up contributions or other retirement saving strategies, please contact us.
© 2016
 

Ensure Your Year-end Donations Will Be Deductible On Your 2016 Return

Posted by Mannia & Company Posted on Nov 29 2016

Donations to qualified charities are generally fully deductible, and they may be the easiest deductible expense to time to your tax advantage. After all, you control exactly when and how much you give. To ensure your donations will be deductible on your 2016 return, you must make them by year end to qualified charities.
When’s the delivery date?
To be deductible on your 2016 return, a charitable donation must be made by Dec. 31, 2016. According to the IRS, a donation generally is “made” at the time of its “unconditional delivery.” But what does this mean? Is it the date you, for example, write a check or make an online gift via your credit card? Or is it the date the charity actually receives the funds — or perhaps the date of the charity’s acknowledgment of your gift?
The delivery date depends in part on what you donate and how you donate it. Here are a few examples for common donations:
Check. The date you mail it.
Credit card. The date you make the charge.
Pay-by-phone account. The date the financial institution pays the amount.
Stock certificate. The date you mail the properly endorsed stock certificate to the charity.
Is the organization “qualified”?
To be deductible, a donation also must be made to a “qualified charity” — one that’s eligible to receive tax-deductible contributions.

The IRS’s online search tool, Exempt Organizations (EO) Select Check, can help you more easily find out whether an organization is eligible to receive tax-deductible charitable contributions. You can access EO Select Check at http://apps.irs.gov/app/eos. Information about organizations eligible to receive deductible contributions is updated monthly.

Many additional rules apply to the charitable donation deduction, so please contact us if you have questions about the deductibility of a gift you’ve made or are considering making. But act soon — you don’t have much time left to make donations that will reduce your 2016 tax bill.
© 2016
 

Accelerating Your Property Tax Deduction to Reduce Your 2016 Tax Bill

Posted by Mannia & Company Posted on Nov 23 2016

Smart timing of deductible expenses can reduce your tax liability, and poor timing can unnecessarily increase it. When you don’t expect to be subject to the alternative minimum tax (AMT) in the current year, accelerating deductible expenses into the current year typically is a good idea. Why? Because it will defer tax, which usually is beneficial. One deductible expense you may be able to control is your property tax payment.

You can prepay (by December 31) property taxes that relate to 2016 but that are due in 2017, and deduct the payment on your return for this year. But you generally can’t prepay property taxes that relate to 2017 and deduct the payment on this year’s return.

Should you or shouldn’t you?

As noted earlier, accelerating deductible expenses like property tax payments generally is beneficial. Prepaying your property tax may be especially beneficial if tax rates go down for 2017, which could happen based on the outcome of the November election. Deductions save more tax when tax rates are higher.

However, under the President-elect’s proposed tax plan, some taxpayers (such as certain single and head of household filers) might be subject to higher tax rates. These taxpayers may save more tax from the property tax deduction by holding off on paying their property tax until it’s due next year.

Likewise, taxpayers who expect to see a big jump in their income next year that would push them into a higher tax bracket also may benefit by not prepaying their property tax bill.

 

A Brief Overview of the President-elect's Tax Plan for Individuals

Posted by Mannia & Company Posted on Nov 16 2016

Now that Donald Trump has been elected President of the United States and Republicans have retained control of both chambers of Congress, an overhaul of the U.S. tax code next year is likely. President-elect Trump’s tax reform plan, released earlier this year, includes the following changes that would affect individuals:

•    Reducing the number of income tax brackets from seven to three, with rates on ordinary income of 12%, 25% and 33% (reducing rates for many taxpayers but resulting in a tax hike for certain single filers),
•    Aligning the 0%, 15% and 20% long-term capital gains and qualified   dividends rates with the new brackets,
•    Eliminating the head of household filing status (which could cause rates to go up for some of these filers, who would have to file as singles),
•    Abolishing the net investment income tax,
•    Eliminating the personal exemption (but expanding child-related breaks),
•    More than doubling the standard deduction, to $15,000 for singles and $30,000 for married couples filing jointly,
•    Capping itemized deductions at $100,000 for single filers and $200,000 for joint filers,
•    Abolishing the alternative minimum tax, and
•    Abolishing the federal gift and estate tax, but disallowing the step-up in basis for estates worth more than $10 million.

The House Republicans’ plan is somewhat different. And because Republicans didn’t reach the 60 Senate members necessary to become filibuster-proof, they may need to compromise on some issues in order to get their legislation through the Senate. The bottom line is that exactly which proposals will make it into legislation and signed into law is uncertain, but major changes are just about a sure thing.

If it looks like you could be eligible for lower income tax rates next year, it may make sense to accelerate deductible expenses into 2016 (when they may be more valuable) and defer income to 2017 (when it might be subject to a lower tax rate). But if it looks like your rates could be higher next year, the opposite approach may be beneficial.

In either situation, there is some risk to these strategies, given the uncertainty as to exactly what tax law changes will be enacted. We can help you create the best year-end tax strategy based on how potential changes may affect your specific situation.

 

Infographic: Tax breaks to purchase efficient energy property and electric vehicles.

Posted by Mannia & Company Posted on Nov 15 2016

It’s Time to “Harvest” Investment Losses

Posted by Mannia & Company Posted on Nov 08 2016

If you hold investments outside of tax-advantaged retirement plans, you may be able to take steps before year end to reduce your 2016 tax liability.
 

Offsetting gains with losses
Suppose you’ve sold investments at a loss this year but you have other investments in your portfolio that have appreciated. If you believe those appreciated investments have peaked in value, you may want to sell them before this year ends, at least to the extent that the gains from the sales will be offset by your losses.

What if you’ve sold investments and are fortunate to have gains this year? By the last business day of the year (Dec. 30 in 2016), consider selling some losing investments to absorb the gains.

Tax rates to consider
At the federal level, long-term capital gains (on investments held more than one year) are taxed at rates as high as 20% — 23.8% if you’re subject to the net investment income tax. The short-term capital gains rate (on investments held one year or less) is the same as the tax rate you pay on ordinary income and can go as high as 39.6%.

The netting rules
Before taking action, you need to keep in mind the netting rules for gains and losses, which depend on whether gains and losses are long term or short  term.

To determine your net gain or loss for the year, long-term capital losses offset long-term capital gains before they offset short-term capital gains. In the same way, short-term capital losses offset short-term capital gains before they offset long-term capital gains. And you may use up to $3,000 of total capital losses in excess of total capital gains as a deduction against ordinary income in computing your adjusted gross income. Any remaining net losses are carried forward to future years.

Start planning now
Careful handling of your capital gains and losses can save you substantial amounts of tax. But make sure you fully understand all of the implications for your tax and investment situation. Contact us if you have questions:  260-432-1504 or info@manniaco.com
© 2016   
 

What You Should Know About Changes in Education Provisions in the Tax Law

Posted by Mannia & Company Posted on Oct 19 2016

Are you making the most of tax benefits designed to offset some of the high costs of education? The American Opportunity Tax Credit, extended through 2017, provides a tax break of up to $2,500 for qualified college expenses. The Act also made permanent several education-related tax options, including a $2,000 maximum contribution amount for Coverdell education savings accounts, which can be used to pay certain elementary, secondary and post-secondary expenses.

Given the many changes, we can help you make sense of the benefits available to you and ensure you’re taking full advantage of them. We can also offer advice on smart steps for financing the high cost of education, so please contact our office with all your questions.

Higher 2017 HSA Contribution Limits for Individuals

Posted by Mannia & Company Posted on Oct 10 2016

Do you contribute to a health savings account, or HSA, to help you cover your medical expenses? Taxpayers are allowed to make tax-deductible contributions to HSAs if they have health plans that have high deductibles, based on Internal Revenue Service guidelines. If you have an HSA, you’ll be happy to hear that the annual deductible contribution limit certain coverage has been raised for 2017. For individuals (with self-only coverage), it will be increased by $50 from 2016 to $3,400. The limit for family coverage will be unchanged at $6,750.

If you’re uncertain whether you are eligible for an HSA, or how these plans can fit into your overall financial and tax planning strategy, be sure to call our office today. We can explain your options and offer the advice you need to make smart financial decisions.  

© 2016 American Institute of Certified Public Accountants

Plan Now to Save on Taxes Later

Posted by Mannia & Company Posted on Sept 29 2016

Even though tax filing time is far away, the fall is the perfect time to start your planning so you can take advantage of all opportunities to minimize your tax bill. That begins with ensuring you’ve taken all the deductions that can help reduce your taxable income. Have you maxed out retirement plan contributions, for example? Set aside money for 529 college savings plans or health savings accounts? Considered which charitable donations you want to make before year’s end? Those are just a few of options that might help cut your taxes. 

At the same time, since tax rates for high-income taxpayers have risen in recent years, it’s also smart to investigate ways to lower the income you report this year and to avoid generating passive income. With only a few months left in the year, contact our office today for advice on steps you can take now that will pay off on April 15. 

© 2016 American Institute of Certified Public Accountants

 

WORK APPORTUNITY TAX CREDIT

Posted by Mannia & Company Posted on July 11 2016

Employing qualified target group members can reduce an employer’s income tax liability.  At the end of the tax year, the employer claims a credit of up to $2,400 for most WOTC certified new hires.  In general, the credit is based on 40 percent of up to $6,000 of qualified first-year wages paid to those employed 400 hours or more.  For certified employees that worked at least 120 hours but less than 400 hours, the tax credit is 25 percent of wages paid up to a maximum of $6,000 of qualified first year wages.  There are other levels dependent on the specific target group.

The Target Groups

Qualified Temporary Assistance to needy Families Recipients (TANF)

Qualified Veterans/Disabled Veterans

Qualified Ex-felons

Qualified Designated Community Residents (DCR) residing in an Empowerment Zone (EZ), Renewal Community (RC), or in a Rural Renewal County (RRC)

Qualified Vocational Rehabilitation Agency Referrals

Qualified Food Stamp Recipients (FS)

Qualified Supplemental Security Income Recipients (SSI)

Qualified Long-Term Family Assistance Recipients (LTFAR)

Qualified Long-Term Unemployed (LTU)

 

These Are the Maximum Credits Available

$2,400 for each adult hired

$4,800 for each new Disabled Veteran hired

$9,000 for each new Long Term Family Assistance Recipient hired over a two year period   

IDR Identity Confirmation Quiz

Posted by Mannia & Company Posted on Jan 21 2016

The Identity Confirmation Quiz is an increased security feature to protect taxpayers from the recent epidemic of identity theft.

* It is a simple 4 question quiz that can be taken on a secure website in 2 minutes or less

* Currently, only 5 percent of taxpayers are chosen to take it

* Selected taxpayers will receive an official letter from the department with instructions

* For identity protection tips visit http://www.in.gov/dor/4794.htm

Thank you for helping to protect taxpayers and the State of Indiana from identity theft.

Governor Pence Announces Advance Payment to Unemployment Insurance Loan

Posted by Mannia & Company Posted on Oct 29 2015

Indianapolis – Governor Mike Pence announced (10/22/15) that the state of Indiana will advance funds to the Department of Workforce Development (DWD) to eliminate the outstanding federal unemployment loan and avoid the Federal Unemployment Tax Act (FUTA) penalty facing employers in January. If the loan balance is paid off by  November 10, 2015, businesses will avoid $327 million in taxes, equating to $126 per employee in the state. 

“I’m proud today to announce that because of our prudent fiscal management and financial planning, Indiana will eliminate the tax on hiring for Hoosier employers,” said Governor Pence. “By advancing funds to the Department of Workforce Development to pay off the outstanding loan to our unemployment trust fund, Indiana is demonstrating the importance of growing and maintaining economic achievement in our state. Removing this tax penalty for employers frees up resources that can be invested in hiring new employees, growing existing companies, raising wages, and more, and I’m confident that by removing this financial impediment to hiring, Hoosiers will continue to see economic opportunity all across our state.”  

The state of Indiana first began borrowing from the federal government to pay unemployment benefits in 2008. If a state borrows for two consecutive years, Federal Unemployment Tax Act (FUTA) tax credits are decreased by the federal government, resulting in a tax increase to employers. This tax continues to increase for each successive year the loan is outstanding. 

Today, Indiana employers face the highest FUTA penalty in the country at 1.8 percent.

Employers pay both federal and state unemployment taxes to fund the unemployment insurance system, and this advance of funds will significantly decrease the penalties for federal taxes. The advance will be repaid to the State  from the collections of existing state unemployment taxes. It is expected that the advance will be repaid by the end of fiscal year 2016. Once repaid, the funds used to  eliminate the outstanding FUTA penalty will be available to be used for other priorities. 

A fact sheet outlining the process for how the payment advance will work can be found on the Indana govement web site.

http://www.in.gov/activecalendar/EventList.aspx?view=EventDetails&eventidn=238262&information_id=232985&type=&syndicate=syndicate

Contact Information:
Name: Kara Brooks
Phone: 317-232-1622
Email: kbrooks@gov.in.gov

Take Charge: Your Money. Your Life.

Posted by Mannia & Company, LLC Posted on May 21 2015

How to Choose the Right Financial Planner

Choosing the right financial planner may be one of the more important decisions you make in your lifetime.  Ideally, you will be creating a trusted relationship that works for the long term.  Selecting a planner is like choosing a CFO, a confidant, a friend, a teacher, a psychiatrist and counselor all rolled into one.  Here are some tips to help you make this important decision:

1.  Educate yourself.  Just about anyone can call themselves a financial planner.  They are not all alike and one size does not fit all.  Learn what to look for in a planner in a planner in the next section.

2.   Ask probing, meaningful questions that will help you really understand the person in front of you.  For example, “What qualifies you to provide financial advice?”  Also, get them to talk about themselves personally so that you can determine whether you are compatible moving forward.

3. Add a healthy dose of skepticism.  Don’t take every answer at face value.  And get particularly important statements in writing – statements like “I will avoid conflicts of interest that impair my objectivity” and “I will disclose to you everything you need to know to understand exactly how I get compensated and where my loyalties lie.”

4.   Inquire and investigate.  Check with state and federal regulators and professional organizations on any disciplinary actions against this person or firm.  Call the college or university to verify attendance and graduation.

5.    Connect.  Is the communication smooth and easy with this person?  Do you feel that a bond of trust and confidence could develop over time?  Trust your gut (but only after everything checks out, of course).

How do you get started on your search for a financial planner?

You’ll find many financial planner options and varying levels of qualifications.

So where do you turn to get the kind of financial plan you really need?  There are many different answers to that question.  Financial planners hold varying levels of education, qualifications and credentials.  They may have their own practice or be a part of a larger one, they may work for a CPA firm or a financial services organization.  Their services will differ as well.  So it’s important that you do your homework and ask the right questions to ensure they are capable of meeting your unique needs.

The CPA financial planner offers both financial planning and tax expertise.

As a trusted advisor, your CPA (Certified Public Accountant) is in a unique position to understand the details of your financial situation.  CPAs who are also financial planners or who hold the Personal Financial Specialist (PFS) credential have added ability and experience to help you see the big picture – providing objective recommendations so you can make informed decisions. It’s the comprehensive knowledge in both financial planning and tax that uniquely qualifies the CPA financial planner.

Licensed, rigorously trained and accountable to a strict professional code of conduct.

CPAs first and foremost are licensed by the state in which they practice and adhere to a strict professional code of conduct.  They’ve passed a rigorous exam and are required to complete 40 hours of continuing professional education every year.  Where you are working with a CPA/PFS or CPA financial planner, you can count on competence, objectivity and the highest standard of integrity for your most important financial decisions.

Anyone planning their financial future will sleep better knowing their plan is CPA strong.

 AICPA

American Institute of CPAs

UNFORGETTABLE PASSWORDS

Posted by Mannia & Compnay, LLC Posted on May 14 2015

Q - What are the minimum criteria for creating a strong password?

 A - Microsoft provides a Password Checker website at tinyurl.com/d7e2hoj, where you can enter the password to check its strength.

To achieve the maximum strength, Microsoft’s password checker requires at least 14 characters containing at least one of each of the following types of characters; an uppercase letter, a lowercase letter, a number, and a special character.  As added security, most experts also recommend that passwords not contain your username, real name, company name, or complete words; that each password be unique; and that all passwords be significantly different from previous passwords.

Because the above rules result in a bevy of passwords that are difficult to remember, I use a different approach that you may want to consider.  All of my passwords start with the same lengthy prefix, such as childhood telephone number, for example, 9126364242 (this is not the actual prefix I use).  Next, my passwords all include the name of the account, such as Delta, Amazon, or AICPA.  Finally, each of my passwords ends with a four-digit personal identification number (PIN).  The results are strong and lengthy passwords that I have a good chance of remembering, such as the examples shown below (which are not my actual passwords):          

            Delta account password:                    9126364242delta7543

                        Amazon account password:               9126364242amazon9312

                        AICPA account password:                 9126364242aicpa2209

 Using this approach, the red PINs are all I need to remember, and because hackers don’t know the actual lengthy prefix I use, these passwords are very strong.  With 263 active passwords on my list, this structured approach gives me a fighting chance of remembering many of them.  Because uppercase and special characters are more difficult characters to type, (especially on a smartphone device), I avoid these types of characters unless they are required.

                                                                                    

ACADEMIC JOURNAL ARTICLE   By Collins, J. Carlton
Journal of Accountancy , Vol. 219, No. 4 , April-May 2015
            

Apply the Four-Year Rule When Throwing Away Old Payroll Records

Posted by Mannia Posted on Apr 22 2015

The Spring, 2015 issue of the SSA/IRS Reporter, a joint publication of the Social Security Administration and IRS, offers some valuable pointers for employers to follow in cleaning up their old payroll files. In most (but not all) cases, that means following a four-year retention rule. The Reporter cautions that failure to meet record retention requirements can result in sizable penalties and large settlement awards for employers unable to provide the required information when requested by IRS or in an employment-related lawsuit.

Records relating to income, Social Security, and Medicare taxes. The record retention rule for these taxes is set forth in Reg. § 31.6001-1(e). As applied to employers that withhold and pay federal income, Social Security, and Medicare taxes, the SSA/IRS Report says records relating to such taxes must be kept for at least four years after the due date of the employee's personal income tax return (generally, April 15) for the year in which the payment was made.

According to the SSA/IRS Reporter, these records include:

  • The Employer Identification Number (EIN);
  • The employee's name, address, occupation, and social security number;
  • The total amount and date of each payment of compensation and amounts withheld for taxes or otherwise, including reported tips and the fair market value of non-cash payments;
  • The amount of compensation subject to withholding for federal income, social security, and Medicare taxes, and the corresponding amount withheld for each tax (and the date withheld if withholding occurred on a different day than the payment date);
  • The pay period covered by each payment of compensation;
  • where applicable, the reason(s) why total compensation and taxable amount for each tax rate are different;
  • The employee's Form W-4, Employee's Withholding Allowance Certificate;
  • Each employee's beginning and ending dates of employment;
  • Any statements provided by the employee reporting tips received;
  • Fringe benefits provided to employees and any required substantiation;
  • Adjustments or settlements of taxes; and
  • Amounts and dates of tax deposits.

Employers should also follow the four-year retention rule for records relating to wage continuation payments made to employees by an employer or third party under an accident or health plan. Such records should include the beginning and ending dates of the period of absence, and the amount and weekly rate of each payment (including payments made by third parties). Employers also should keep copies of the employee's Form W-4S, Request for Federal Income Tax Withholding From Sick Pay, and, where applicable, copies of Form 8922, Third-Party Sick Pay Recap.

A different rule applies for records substantiating any information returns and employer statements to employees regarding tip allocations. Under Code Sec. 31.6053-1(l), these records must be kept for at least three years after the due date of the return or statement to which they relate.

Claims for refund of withheld tax. The SSA/IRS Reporter says employers that file a claim for refund, credit, or abatement of withheld income and employment taxes must retain records related to the claim for at least four years after the filing date of the claim.

Fringe benefit records. Code Sec. 6039D(b) provides an explicit recordkeeping requirement for employers with enumerated fringe benefit plans, such as health insurance, cafeteria, educational assistance, adoption assistance, or dependent care assistance plan. They are required to keep whatever records are needed to determine whether the plan meets the requirements for excluding the benefit amounts from income.

RIA observation: Code Sec. 6039D(b) does not specify how long records pertaining to specified fringe benefits should be kept. Presumably, they are subject to the four-year rule under the "records in general rule" in Reg. § 31.6001-1(e) and thus should be kept at least four years after the due date of such tax for the return period to which the records relate, or the date such tax is paid, whichever is the later.

RIA caution: To the extent that any fringe benefit records must also comply with ERISA Title I, then a longer retention period applies under ERISA Sec. 107, i.e., six years.

Unemployment tax records. The Federal Unemployment Tax Act (FUTA) requires employers to retain records relating to compensation earned and unemployment contributions made. Under the "records in general rule" in Reg. § 31.6001-1(e), such records must be retained for four years after the due date of the Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, or the date the required FUTA tax was paid, whichever is later.

Records should be retained substantiating:

  • The total amount of employee compensation paid during the calendar year;
  • The amount of compensation subject to FUTA tax;
  • State unemployment contributions made, with separate totals for amounts paid by the employer and amounts withheld from employees' wages (currently, Alaska, New Jersey, and Pennsylvania require employee contributions);
  • All information shown on Form 940 (with Schedule A and/or R as applicable); and
  • If applicable, the reason why total compensation and the taxable amounts are different.

The SSA/IRS Reporter reminds employers that record retention requirements are also set by the federal Department of Labor (DOL) and state wage-hour and unemployment insurance agencies.

References: For employers' withheld income tax record-keeping requirements, see FTC 2d/FIN ¶ S-3202 ; United States Tax Reporter ¶ 35,014 ;TG ¶ 812,034. 

Largest-ever U.S. Tax Fraud Phone Scam Targets Thousands - IRS watchdog

Posted by Mannia Posted on Mar 26 2014

By Patrick Temple-West

WASHINGTON (Reuters) - Thousands of Americans nationwide have been targeted since August by a phone scam in which fraudsters claim to be from the U.S. Internal Revenue Service and demand money for unpaid taxes, said the IRS' watchdog on Thursday. The Treasury Inspector General for Tax Administration (TIGTA) said it has received more than 20,000 complaints from people, including recent immigrants, about the scam.

Thousands of victims have collectively paid more than $1 million to the scammers, TIGTA said.  "This is the largest scam of its kind that we have ever seen," said J. Russell George, the head of TIGTA in a statement. The fraudsters can manipulate victim's phone's caller ID so it displays the number of a local IRS office, TIGTA said.   In some cases, the fraudsters have also told victims parts of their Social Security numbers. In cases where victims hung up, fraudsters have called back displaying a local police phone number on caller ID, TIGTA said.  Potential victims worried about their immigration status have been threatened with deportation, TIGTA said.  The scam has occurred in almost every state and the fraudsters have followed a uniform script, a senior TIGTA official said on a conference call with reporters.  The technology needed to manipulate caller ID displays is easily available to the public, the official said.  Major phone companies have been warned about the scam, as well as companies that provide voice-over-the-Internet call services, the official said.

Claudia Hill, a licensed tax preparer in Cupertino, California, said that in one week last month, four of her clients complained of such scam calls. Before this year, none of her clients had previously mentioned phone scams, said Hill, who said she prepares about 1,000 tax returns a year.  "The IRS is not proactive enough in getting out in front of any of this mess," she said.

What's New on Your 2013 Form 1040

Posted by Mannia Posted on Jan 21 2014
The IRS starts processing individual tax returns on January 31. But beware. Upper-income taxpayers could owe significantly more when they file their returns this year. For better or for worse, same-sex couples are also expected to file as married taxpayers this year. Here's more information on the key tax law changes that took effect for the 2013 tax year.
Copyright © 2014

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Wrap Up Last-Chance Tax Breaks for 2013

Posted by Mannia Posted on Dec 12 2013
Find some time in the midst of the holiday bustle to examine your tax situation for the year. Here are six potentially money-saving opportunities involving charitable contributions, investments, retirement plans, IRA distributions, medical expenses and college costs that must be acted on by Tuesday, December 31.
Copyright © 2013

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Thanksgiving

Posted by Mannia Posted on Nov 27 2013

At this time of giving thanks, we want you to know that we appreciate your business.  Thank you for giving us the opportunity to serve you and for your trust and consideration. Please let us know if we can do anything to serve you better.

Greg, Donna, Mark, Kathy, Marna, Lynn, Dee, and Joni

Gearing Up for Next Year's Tax Season

Posted by Mannia Posted on Oct 31 2013
The IRS has announced that there will be a one or two week delay in the start of the 2014 tax season (for 2013 returns), due to the recent 16-day government shutdown. This article explains the delay along with the other factors you need to prepare, including the 2013 income tax rates, investment income rates, new Medicare surtaxes, medical expense deduction changes and a list of expiring tax breaks.
Copyright © 2013

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Reducing Audit Risks

Posted by Mannia Posted on Oct 16 2013
While only the IRS knows the criteria for audits, some items are likely to increase your odds of an audit. Take a look at these six audit targets.
Copyright © 2013

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What Does the Government Shutdown Mean for Taxes?

Posted by Mannia Posted on Oct 07 2013

As Congress continues to debate the federal government shutdown, the IRS has issued an announcement, providing details about tax filing deadlines, available assistance from the tax agency, and services that will not be accessible until normal operations resume. Continue reading to receive answers to questions you may be asking.

Click Here for Full Article

Sell Underwater Incentive Stock Option Shares Before Year End

Posted by Mannia Posted on Oct 02 2013
If you have underwater shares from exercising an incentive stock option earlier this year, selling before year end could help you avert a big alternative minimum tax (AMT) hit. These employer stock options have federal tax advantages but a special set of AMT rules apply when you exercise and sell shares acquired by exercising them. This article explains the complex rules that affected taxpayers face.
Copyright © 2013

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Important Employer Deadline under the Healthcare Law Is Almost Here

aca
Posted by Mannia Posted on Sept 26 2013

If your organization hasn't done so already, you have until October 1 to inform employees about their option to enroll in a public health exchange under the Affordable Care Act. Here's what most employers need to do -- and a possible way to turn a lemon requirement into lemonade. 

Click to read the full article

Maximize Your Social Security Benefits

Posted by Mannia Posted on Sept 17 2013
Social Security Taxes video Of The WeekDuring your working years, you pay Social Security taxes on earned income. When you start collecting Social Security retirement benefits, you may owe federal (and possibly state) income taxes on the payments. This video offers an explanation of how to plan to maximize benefits if you plan to continue working. The article shows you how to determine if you will owe taxes to Uncle Sam once you start collecting.

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Affordable Care Act - Mandatory notice due to all employees by October 1, 2013

aca
Posted by Mannia Posted on Sept 11 2013

We know there is a lot of information being passed through all sorts of media regarding the Affordable Care Act or ACA. We wanted to make sure you as employers are aware of an important part of this new legislation regarding a required "Notice of Exchange" that all employers subject to the Fair Labor Standards Act (FLSA) must provide to their employees by October 1, 2013 or within 14 days of hire date if hired after October 1, 2013. Technically employers subject to the FLSA are all employers engaging in or producing goods for interstate commerce, whose annual sales total $500,000 or more and have one or more employees. This is essentially all private-sector employers and certain governmental entities, such as schools, hospitals, nursing homes, institutions of higher learning and federal, state and local government agencies.

If you have any questions, please call us at 260-432-1504

 

Seeking a Job? You May Be Able to Deduct the Expenses

Posted by Mannia Posted on Aug 28 2013

Did you know that if you are trying to find work in your current occupation, the costs of your search, including expenses for preparing and sending resumes, employment agency fees and related travel expenses, should be deductible?

The deductions aren't available in all cases. For example, you're not eligible to use them if you are seeking employment in a new field or if this will be your first job.  If it's been a long time since you left your last job, your costs also may not qualify.  Don't try to navigate the rules on your own. If you want to learn more about these deductions, or ask any questions about your tax situation, contact us today.

Telephone... (260) 432-1504
Email... info@manniaco.com

Plan Ahead as if You Will Be Audited

Posted by Mannia Posted on Aug 21 2013
Keeping good records and following appropriate procedures can be a hassle when you're running a company. But as one couple learned in U.S. Tax Court, if you don't operate in a business-like manner, you may lose an IRS challenge. So it's a good idea to be ready for an IRS audit. Keeping occasional logs and haphazardly throwing receipts in a box is not the answer! Here are the details of the recent case along with some important recordkeeping tips.
Copyright © 2013

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Health Risks of a Desk Job

Posted by Mannia Posted on Aug 21 2013

If you just started a new job that involves sitting at a desk for long periods of time or you've had a stationary career for years, there are some things you need to know and should NOT ignore!

 

1.      HEALTH RISKS

Anyone who sits for long periods of time at work or at home has a greater risk of developing type 2 diabetes.

 

Prevention: Take a quick break once an hour. Try walking around for a few minutes it will not only get your blood pumping, but will also wake you up and burn a couple extra calories!

 

2.      MISALIGNED HIPS

Women's hip sockets are wider than men's. Sitting for hours can weaken hips and put more pressure on your knees and spine which can lead to tendinitis and cause many other painful symptoms.**

 

Prevention: Make sure your chair is adjusted right. Set your chair so that the angle between your back and legs is 90 degrees or less, allowing better rotation for your hip flexors. Stretch! Yoga stretches, like the lizard (a low lunge with your back leg straight and forearms on the ground), can release tension in your hips and hamstrings and open the spine.

 

3. CARPAL TUNNEL

Is your keyboard causing you pain? Carpal Tunnel Syndrome is a pinched median nerve in the wrist,

this can be three times more common in women's smaller wrists than in men's.***

 

Prevention: Make sure your keyboard is in the right position! Having your keyboard up too high can

cause a painful throbbing sensation. Ergonomic keyboards are another solution.  If this doesn't fix the problem, wear a brace at work, giving yourself a 15-minute break every hour.

 

4. WEIGHT GAIN

61 % of Americans snack at their desks, leading to mindless munching and over eating which add

extra calories to your daily intake.

 

Prevention: Moderation and preparation! Healthy foods like yogurt and nuts that are high in protein

and fiber can help you feel fuller longer and balance out that 2:30 feeling when your blood-sugar

drops. It takes about 20 minutes for your body to realize its full, so if you feel hungry, get up and

move around, drink water to see if it goes away. Daily exercise is crucial if you sit at a desk all day!

Take walks, go for a bicycle ride or swimming after work are all good ways to de-stress and burn

some of those added calories.

5. DRY EYES

Staring at a computer screen tends to cause an increase in eyestrain which can cause you to suffer from dry eyes or headaches. Your eyes are not designed to keep focusing and moving repetitively across a computer screen.

 

Prevention: When your eyes are focused on an object in the distance, they're

meeting optical infinity, in which eyes are totally at rest. For 20 seconds every 20 minutes, take a

break and look 20 feet away. Blink more! Normal workers blink 12 to 15 times a minute, but those

reading on computer screens blink only seven times.

 

6. VARICOSE VEINS

Sitting for an extended period of time increases the chance of developing varicose or spider veins,

conditions that affect some men and about 50 percent of women.

 

Prevention: Standing up will get your blood flowing again. If you lose track of time, set a timer so

you know when it's time to stretch! Tights with a high amount of Lycra can compress the legs,

boosting circulation and calming symptoms. Laser procedures may help, but can be painful and

expensive.

University of Leicester Departments of Health Sciences and Cardiovascular Sciences. *
Tara Stiles' book -Yoga Cures. ** 

http://www.workplacestaff.com

 

Which Employers Must Pay the New 'PCORI' Fee Due July 31?

Posted by Mannia Posted on July 11 2013
Some employers face a July 31 deadline to pay a new fee required under the Affordable Care Act. The fee must be paid by employers who sponsor self-insured health plans, including health reimbursement arrangements and flexible spending arrangements. The new requirement may take some employers by surprise -- and, of course, there are penalties for failing to comply. This article explains what the federal government will use the money for and which employers must pay it.
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Where's My Refund?

Posted by Mannia Posted on July 01 2013

Are you still waiting for your tax refund from the IRS or Indiana Department of Revenue? The following is how you can check online to see what the status of the refunds is. For the IRS, go to www.irs.gov/ and click on "where's my refund?" Follow the instructions on how to get to the refund status.  Read the information provided. If it has been more than four weeks since the return was filed and the information provided indicates that it is still being processed, this may warrant a telephone call to the IRS to make sure they have no issues. The IRS is giving extra scrutiny to large tax refunds in light of identity theft problem. If you are not comfortable calling the IRS, we would be happy to make the call on your behalf. To make the call and to be able to resolve any issues, we will most likely ask you to sign a Power of Attorney form so we can resolve the matter as quickly as possible. If you are comfortable in calling the IRS yourself that is fine also, but be prepared to be on hold 30 minutes or longer.

You can also check the status of amended tax returns by going to www.irs.gov/ and in the Search box, type ?Where's my amended return??  On the next screen, click on ?Where?s My Amended Return?? and follow the instructions on how to get the amended return status.  Read the information provided. If it indicates that the return is still being processed and it has been at least four weeks, you may want to follow up with a telephone call or have us call. They will tell you it usually takes 8 to 12 weeks, but it is better to find out sooner than later if there is a question on the amended return. If when you check on an amended return and the IRS indicates they have none on file, a telephone call needs to be made to find out if there is a problem.

You can also check the status of your Indiana refund by going to www.in.gov/dor. Click on ?Check the Status of Your Refund? and follow the instructions. Read the message on the status of your return. If it is still being processed and it has been four weeks, a call should be made. Indiana is also looking at large refunds more closely because of identity theft. In one case that I called on, they said the refund was being held up for accuracy review. They had not notified the taxpayer and it appeared they were just waiting for someone to call about the refund.

If you have any questions about a refund that you have not received, please give us a call so we can make sure you receive what is due to you.

Mark Beaver, CPA

Mannia & Company, LLC

Our Summer Hours

Posted by Mannia Posted on July 01 2013

Beginning July 1st, we will begin our summer business hours schedule. Our hours will be 8:00 a.m. to 5:00 p.m. Monday thru Thursday; the office will be closed on Fridays. These hours will remain in effect through August at which time we will update you on any changes.

We hope you are enjoying your summer!

Can You Deduct an IRA Loss?

Posted by Mannia Posted on May 29 2013
If you sell stocks with losses in your taxable accounts, you may offset losses against gains and deduct an additional $3,000 of excess losses against ordinary income. But what about losses in your traditional and Roth individual retirement accounts? Click "Full Article" for the answer.
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Buried in Tax Paperwork? What Can You Throw Away?

Posted by Mannia Posted on Apr 18 2013

Once you file your 2012 tax return, you can clear away some of the paperwork cluttering up your files. But save essential records that can protect you during an IRS audit, help you collect a future refund or assist you with filing next year. What records do you have to keep and which ones can you throw away? How long do you have to hold onto certain records? We'll provide the answers in this article.
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Will the Healthcare Law Increase Your Costs?

Posted by Mannia Posted on Apr 03 2013
The sweeping Affordable Care Act has provisions that have already gone into effect, as well as some major changes that will take effect in 2014. What will the new law mean for your individual healthcare costs -- and for employers' costs? Take a look at what a new study is predicting will happen by 2017.

The high cost of health insurance caused one divorced spouse to ask a court to amend her decree to become legally separated instead. See how a state appeals court ruled.
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Filing an Extension

Posted by Mannia Posted on Mar 20 2013
 

If you can't meet the April 15 deadline to file your tax return, you can get an automatic six-month extension of time to file from the IRS. The extension will give you extra time to get the paperwork into the IRS, but it does not extend the time you have to pay any tax due. You will owe interest on any amounts not paid by the April deadline, plus a late payment penalty if you have paid less than 90 percent of your total tax by that date.  Click Full Article to continue....



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Look Out for These Tax Mistakes

Posted by Mannia Posted on Feb 21 2013
If your objective is to pay the least amount of income taxes,
then you need to be aware of common tax mistakes. Here are seven you should watch out for.
 
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RS Cracks Down on Tax ID Theft: Could You Be a Victim?

Posted by Mannia Posted on Feb 11 2013
In recent years, the IRS has been inundated with thieves filing tax returns using fraudulent information with the goal of stealing other individuals' tax refunds. The tax agency announced that it is cracking down this filing season. Here are the details of the tax identity theft crackdown, as well as a list of "high-risk" areas identified by the IRS and what you can do to help protect yourself.
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What's New for the 2013 Tax Filing Season?

Posted by Mannia Posted on Jan 31 2013
Although the IRS delayed the start of tax filing season due to the "fiscal cliff" legislation, it's now time to get ready to file. This article explains some of the changes you may notice on your 2012 Form 1040, which is due on Monday, April 15, 2013.
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Fiscal Cliff Law Extends IRA Donation Tax Break: Can You Benefit?

Posted by Mannia Posted on Jan 17 2013

The new "fiscal cliff" tax law includes an extension of a tax-saving opportunity for some affluent IRA owners who want to pass some of their wealth onto favorite charities. Here are the details about who can take advantage of the opportunity, as well as how to arrange qualified charitable distributions and an important January 31 deadline.
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IRS Provides Guidance on the New 0.9 Percent Medicare Tax

Posted by Mannia Posted on Jan 04 2013
Two new surtaxes are kicking in on January 1, 2013 for some taxpayers. These taxes have nothing to do with the expiring tax breaks involved in the "fiscal cliff." The first is a 3.8 percent Medicare tax on net investment income. The second is an additional 0.9 percent Medicare tax on wages and self-employment income. It's possible for a taxpayer to be subject to both taxes (although not on the same type of income). This article explains how the new 0.9 percent Medicare tax works.
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'Taxmageddon:' Prepare to Potentially Pay More on Investment Income

Posted by Mannia Posted on Sept 18 2012

'Taxmageddon:' Prepare to Potentially Pay More on Investment Income

On January 1, 2013,an array of tax increases will kick in and leave Americans with significantly larger tax bills -- unless Congress acts. Increases are scheduled on capital gains, dividends and the tax rates on wages. That's not all. More people will be liable for the estate tax, the alternative minimum tax and the marriage penalty. The payroll tax cut expires, which means employees will see smaller paychecks, and many other taxpayer-friendly provisions will end. The result has been dubbed "Taxmageddon." This article looks at what might happen to investment income rates and how you can prepare in the coming months.
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Make Sure Charitable Contributions Pass Strict Documentation Rules

Posted by Mannia Posted on Sept 18 2012

Make Sure Charitable Contributions Pass Strict Documentation Rules

In a recent case, the Tax Court was not sympathetic to the plight of a couple who made a large charitable contribution that was disallowed by the IRS. The case illustrates that a cancelled check and improper documentation are not enough to claim a deduction. Here are the details of the case, along with a rundown of the rules that taxpayers must comply with in order to benefit from charitable donations on their tax returns.
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Estate Tax Update: Here We Go Again

Posted by Mannia Posted on Sept 18 2012

Estate Tax Update: Here We Go Again

For more than a decade, the federal estate and gift tax rules have been changing and next year will be no different. A tax law passed in 2010 established estate and gift tax rules that will expire on January 1, 2013. To add more uncertainty, the upcoming presidential election is likely to have a large effect on what eventually happens. This article explains the rules as they stand now, as well as what might happen next year.

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Tax Records: What Can You Throw Away?

Posted by Mannia Posted on Sept 18 2012

Tax Records: What Can You Throw Away?

Get out the paper shredder! Once you meet the April 17 federal deadline and file your tax return, you can clear away some of the paperwork cluttering up your files. But save essential records that can protect you during an IRS audit -- or help you collect a future refund. Click "Full Article" for a handy reference guide to the business and personal tax records you need to retain -- and how long you should keep them.
Copyright © 2012

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