The big news this tax season this the Affordable Care Act (ACA) (Obamacare). The ACA implantation (Obamacare) was not without its challenges. Turns out the implementation of the website was the easy part. Obamacare is the largest single change to the tax code in 20 years. The ACA affects just about everyone. Some benefit, most taxpayers don't. The pre-existing condition limitation has been eliminated (this is good), but most middle-class taxpayers have seen an increase in their health premiums and deductibles, and many have lost their existing plan and the doctor(s) that they had before the new law took effect.For those of you that didn't have a health insurance coverage by March 31, 2014, you may incur a penalty on your 2014 tax return of $85 or 1% of your income, whichever is greater. Penalties double in 2015. Those of you that purchased health insurance policies through federal and state-run market places and received a government subsidy to help pay for your health insurance plan, may find that you are required to repay some of the subsidy if your income increased in 2014 over 2012. The subsidy adjustment or tax credit will be reflected on your 2014 tax return.
For those of you that didn't have a health insurance coverage by March 31, 2014, you may incur a penalty on your 2014 tax return of $85 or 1% of your income, whichever is greater. Penalties double in 2015.
Those of you that purchased health insurance policies through federal and state-run market places and received a government subsidy to help pay for your health insurance plan, may find that you are required to repay some of the subsidy if your income increased in 2014 over 2012. The subsidy adjustment or tax credit will be reflected on your 2014 tax return.
Education Related Living Expenses - Pell Grants
Pell Grant funds received for living expenses may be counted as taxable income but overall may result in a larger educational tax credit.
Virtual Currency. For those of you that received Bitcoin (virtual currency) payments, you are now required to report the fair market value of the payments which will then be taxed. If you haven't a clue of what I'm talking about, then most likely you don't need to be concerned.
Health Flexible Spending Accounts (FSAs). FSAs were "use it or lose it" tax savings accounts. If you didn't spend all of the money you contributed to your FSA, you would lose those unspent funds. As of 2013, depending on the type of FSA, you may be able carry forward $500 to the next tax year but this makes you ineligible for participating in a health savings account (HSA). Like with many tax related issues, Congress gives and the IRS takes it away. FSA contributions limits are $2,500 for 2014 and $2,550 for 2015.
Unemployment Benefits. These benefits continue to be treated as taxable income. The U.S. Supreme Court ruled that any supplemental unemployment compensation, paid by a former employer, that is not tied to state unemployment benefits, will be treated as taxable wages subject to social security taxes. As if meeting your financial obligations wasn't already difficult enough for the unemployed.
IRA Rollover Limits. Starting in 2015, taxpayers will be limited to one indirect IRA rollover in a 12 month period from one IRA to another. Additional indirect rollovers will be subject to a premature distribution penalty of 10% as applicable, and a 6% excise tax. Direct rollovers from IRA trustee to trustee are not subject to the limitation. I recommend that you call me to discuss the tax implications before taking a premature distribution or a rollover from your retirement account.
Foster Care. You may be able to exclude, from your taxable income, payments that you received from the state or certified Medicare provider for medical support services, even if the person is related to you.
Use Tax. Again this year, Iíd like to remind California clients that make purchases on the internet and do not pay sales tax, most likely you owe the state of California some Use Tax. Most of us receive stacks of catalogues and purchase gifts, household items, clothing, and other items using a catalogue. Most of these catalogue companies are located outside of California and in many cases no sales tax is collected. So if you purchased items on the internet/out of state and did not pay sales tax, you are expected to pay the Use Tax on that/those items and report the appropriate sales tax on your California tax return. So please let me know if this applies to you when we talk or meet.
Changes to Itemized Deductions for Medical Expenses. For tax year starting 2013, the rules for itemized medical deductions changed. As of January 2013 the threshold for claiming out of pocket medical expenses was increased to 10% of your adjusted gross income (AGI) from 7.5%. There is a temporary exemption to keep the AGI at 7.5% for individuals age 65 or older effective from 2013-2016. As of January 2017 the 10% threshold will apply to everyone.
Standard Mileage Rate for 2014. For those of you that use your vehicle for work, the standard mileage rate has decreased from 56.5 to 56 cents per qualified business mile driven.
Qualified medical and moving mileages dropped to 23.5 cents/mile and remained at 14 cents for each qualified charitable mile.
2014 Tax Brackets. Federal tax brackets did not change in 2014. Brackets are 10%, 15%, 28%, 33%, 35%, and 39.6%. Please contact the office if you have questions.
Be alert also for e-mail scams that use the IRS name. The IRS will never request personal or financial information by e-mail, texting or any social media. You should forward scam e-mails to http://www.irs.gov/uac/Report-Phishing. Donít open any attachments or click on any links in those e-mails.
I received no less than 6 phone calls or e-mail from clients reporting that they received one or more telephone calls from someone claiming to be from the IRS. This person demanded cash payments or threaten to have the client arrested. Don't fall for this or any other IRS related scam. As of last November, the IRS had received over 90,000 complaints from taxpayers reporting scams.
Nothing brings fear to the law abiding taxpayer than a demand notification from the IRS saying that they owe additional taxes. The IRS is warning the public about a phone scam that targets people across the nation, including recent immigrants. Callers claiming to be from the IRS tell intended victims they owe taxes and must pay using a pre-paid debit card or wire transfer. The scammers threaten those who refuse to pay with deportation or loss of a business or driverís license.The callers who commit this fraud often:
The truth is the IRS usually first contacts people by mail - not by phone or e-mail - about unpaid taxes. And the IRS wonít ask for payment using a pre-paid debit card, wire transfer, or cash. The agency also wonít ask for a credit card number over the phone.
If you get a call from someone claiming to be from the IRS asking for a payment, hereís what to do:
As in past years, this organizer is designed to help me minimize your tax liability and keep your tax preparation costs down. This is a team effort and starts with you pulling together all of your documents and records that I'll need to prepare your tax returns. So if you haven't already done so, find a secure location in your home where kids and pets won't eat your homework, and start collecting your organizer data. The better prepared and organized you are, the more likely we will be able to minimize your 2014 tax liability.
The office information remains the same. We have been located in the same Carlsbad Village office in the Old World Center since 1994. Don't forget that the mileage to and from the office may also be tax deductible.
As always, I have toys, books, and vintage video games to keep kids of all ages busy during the appointment. I will have a fresh supply of candy, coffee and tea, cold drinks, and of course red-vines.
Schedule Early. Please call 760-720-9730 to schedule your appointment or to contact the office. Fax is 760-720-9729. I can also be contacted by e-mail at email@example.com.
Appointments by Mail/Phone. For those of you that don't have the time or wish to fight the traffic driving to the Carlsbad office for your annual appointment, I will continue to do appointments by phone, e-mail and snail-mail. Just mail your completed 2014 tax organizer, original or copies of W-2s, 1098s, and 1099s to the office and I will prepare your tax returns from your documentation. Upon receipt of your paperwork, we will contact you to let you know that we received your paperwork and to schedule a telephone appointment if necessary.
Be sure to include your up-to-date phone numbers, home address, banking information (for direct deposit of refunds), and e-mail addresses on your organizer. Any missing information can be added when we talk on the telephone. During our telephone conversation, we will fill in the blanks, confirm income, expenses and bank account information for direct deposits, and look for additional information that may not have been included with your organizer. The only difference is that you won't be exposed in person to my charm or indulge in my fresh red-vines and candy. E-mail and or faxes can also be used to relay missing information.
Please don't mail me a copy of your previous tax return if it was prepared by me. I have copies here in the office.
Credit cards accepted. Again this year, as a convenience to my clients, your tax preparation fee can be paid with Visa and MasterCard. Please note that all work is COD. Your tax returns won't be e-filed or sent out of the office until payment is received.
Electronic Filing.Electronic filing is now mandatory for all professional tax preparers. For those of you that will be receiving a tax refund this year, I strongly recommend a direct deposit of your refund(s) instead of having the government send you a check. To do this I'll need to know your bank information (i.e., bank name, type of account (savings or checking), routing number, and account number). Please make sure that you include that information or attach a voided check (or copy) to your organizer if different from last tax season.
A reminder for those of you that have moved/escaped to or from California, I prepare returns for all States.
Thank You Again for Your Referrals. If you are happy with the service please tell your friends, family, and those that you work with. I always have enough time to work new referrals into my schedule but existing clients always have schedule priority. Also, if you aren't happy, please don't tell anyone else until you give me a chance to fix the problem. I know that I can't make everyone happy all of the time but I'll continue to try. The longevity of my business depends on your satisfaction and referrals.
The 2014 Tax Organizer will assist you in collecting and reporting information necessary for me to properly prepare your 2014 income tax returns and to minimize your tax liability. Please complete the organizer sheets as appropriate to the best of your ability and attach supporting documentation where necessary. This is not a test so please don't stress. Just do the best that you can. Data related to 2013 returns that I prepared is included on the organizer sheets for your reference. To make it easier on yourself, you may just attach the supporting W-2s, 1099s and 1098s to the applicable organizer pages to cut down on your writing.
If you had some new activities in 2014 such as real estate rental property, a new partnership, LLC, corporation, started a new business, etc., please contact the office and we will send you the applicable additional forms to help with your organization.
If you added a new addition to the family in 2014, recommend that you bring in the baby's social security card to ensure that we accurately report the information on the tax returns. The IRS checks the names and social security numbers against the social security database. You won't get the applicable deduction or tax credit if the data doesn't match. If the name is spelled incorrectly on the Social Security card, then it must be spelled incorrectly on the tax return so they match.
Please note that I spend a lot of time generating and mailing each client a personal organizer, not to mention the associated expenses for printing, material, and postage. In other words, I spend thousands of dollars and a lot of time in an attempt to increase my productivity, accuracy, and to try and keep your fees down. Many of you have your own system of organization but trust me, utilizing my organizer is the best approach. I realize that some of you are confused by the organizer. If you are having a problem you can call the office for help. Those clients that do not attempt to use their organizer can expect to see an increase in my fees.
PLEASE DON'T CANCEL YOUR APPOINTMENT JUST BECAUSE YOU ARE MISSING SOME INFORMATION. The missing information can be sent after your appointment. The sooner we meet, the sooner I can assign your any required homework. Also, it may be difficult to reschedule your appointment to another date that will accommodate both of our busy schedules.
**Note: If you've sold stocks, bonds, or mutual funds in 2014 outside of a retirement account, you've incurred a taxable event that must be reported to the IRS. Please fill out, to the best of your ability, the Capital Gains & Losses (schedule D) form in your organizer.
Visit my website if the form is not included with your organizer. This form will provide me with the information necessary to record your sales transactions on schedule D of your return. Like your broker who charges a fee for selling stocks, I charge a nominal fee for each transaction recorded on the schedule D. You can save yourself money, and me time, if you provide the necessary security disposition information in an electronic format, preferably a Microsoft Excel spreadsheet. If prepared properly, I can quickly import your data into my tax software.
This should be in a tabular format that includes quantity of items sold, item description, sale date, purchase date, net sale price, and net purchase price (basis), and sales commissions (if not included in net sale amount). Please separate your short term capital gains (investments held for less than 1 year) from your long term capital gains. Please contact the office if you need some help.
Need Help Filling Out Your 1099 Forms? Contact the office if you need help filling out form 1099-misc. for your business. For a small fee we will fill out and mail your 1099-misc and 1096 forms for you.
Many of you have already contacted the office to discuss year-end tax planning. If you expect a significant increase or decrease in your 2015 income or your business expenses, I suggest that you call me to discuss some last minute strategies that may save you some tax dollars.
Call or e-mail me if you need help determining if these strategies are applicable for your situation.
Charitable Contributions. As I tell you every year, this time of year is always a good time to clean out your closets and garage, and donate those items that you or your spouse no longer need or want. Some of us get more frequent spousal encouragement to donate our stuff than others. Please note that donated non-cash items must be in in “good used condition” or better. For those of you that need help determining the value of your donated non-cash items this year, my website contains an extremely conservative worksheet to help you compute the fair-market-value of those donations. Just make sure that you get receipts from the tax-exempt organization(s). Also, it's very cheap to take a digital photo of your donations to refresh your memory and document the condition of the donated items
If total non-cash contributions exceed $500 for the year, I will need the following information:
This sounds like a lot of work but well worth your time. These donations may be eliminated in the near future.
Please note that all cash donations must be documented by a cancelled check or a receipt. If you want to drop money into the Salvation Army kettle, I recommend that you drop in a check instead of cash.
Should you sell or donate your car?Every year I get many calls on whether the client should donate a car, truck, or boat or sell the item. In most cases you are better off selling the vehicle outright. Father Joe doesn't want me to say that but it's a fact. Under the current tax law, you only get to deduct the amount the car, truck, boat, or airplane was sold for by the charitable organization. In most cases the stated value of items doesn't matter. So if the charitable organization takes your $5,000 car and sells it at auction for $500, you only get to claim a $500 donation. If you are in a 25% tax bracket, you will save $125 on your taxes ($500 x 25%). On the other hand, if the charitable organization retains the vehicle for their use, then you can write off 100% of the fair market value. In either case, you will also need written documentation from the charitable organization. If you sell the car for $5,000, you put $5,000 in your pocket. Even if you sold the vehicle for $2,500 just to get rid of it, you'd probably be better off financially. You don't have to be a rocket scientist to figure this one out. Of course many of you won't want to hassle with selling a vehicle. There are a lot of very strange people out there. Your call!
Roth IRA Conversions. There have been numerous articles written, investment seminars, and radio investment shows addressing converting your traditional tax deferred Individual Retirement Account (IRA) to a Roth IRA. Doing such a conversion could possibly benefit some of you. If you plan to do such a conversion, it needs to be done prior to January 1, 2015. If you are considering a Roth conversion, I recommend that you contact me before you do it to discuss the tax implications. The tax impact for a conversion is unique to each household.
How Long Do I Need to Keep My Receipts? This is probably the question I'm asked most each year. Just because you filed your tax return doesn't mean that you can throw away your tax related records. In most cases, the statute of limitations is 3 years for the IRS and 4 for the state of California if filed on time. If you didn't file, there are no statute of limitations. If the IRS suspects fraud, they may go back 7 years. To make it easy on yourself, just retain your tax related receipts and documents for a minimum of 4 years. This includes gambling receipts if you had gambling winnings. Also make sure that you keep your bank and credit card statements that document and support those tax deductible receipts. If you didn't save your 2014 bank statements, I strongly recommend that you download these statements from the financial institution's website while they are still available.
With our country's debt approaching 20 trillion dollars we can expect the government to increase taxes and audits to generate additional revenue. Record keeping is the key to protecting yourself. So please continue to practice safe record keeping!
Looking forward to seeing and or talking to you soon. Have a safe, happy, and healthy 2015.