Tri-Valley Tax & Financial Services Inc Blog http://www.mytrivalleytax.com/blog/ Read the latest articles from Tri-Valley Tax & Financial Services Inc en-us 2016 Tax Moves That Take Advantage of One of Trump's Tax Proposals http://www.mytrivalleytax.com/blog/2016-tax-moves-that-take-advantage-of-one-of-trumps-tax-proposals/42161 http://www.mytrivalleytax.com/blog/2016-tax-moves-that-take-advantage-of-one-of-trumps-tax-proposals/42161 Tri-Valley Tax & Financial Services Inc Article Highlights: Trump Proposes Higher Standard Deductions In 2017  Tax Strategy - Prepay Deductible Expenses In 2016  Take Standard Deduction 2017  Deductible Expenses That Can Be Prepaid  One of the tax proposals that President-elect Trump has made, which also falls in line with the general Republican tax proposals, is increasing the standard deduction for single taxpayers to $15,000 and to $30,000 for joint filers in 2017. That is more than double the standard deductions ($6,350 for singles and $12,700 for joint filers) that currently apply for 2017. There is no guarantee of these higher standard deductions. But since both the House and Senate have Republican majorities, the odds seem to be in favor of this happening. Assuming the standard deductions are increased, there is a way you can benefit in 2016. If your itemized deductions are generally lower than proposed increased amounts, you might consider prepaying as many itemized deduction expenses as possible in 2016 and then taking the standard deduction in 2017. Considerations include prepaying your charitable tithing or other charitable obligations, property tax installments, and any state income tax that might be due on your 2016 return. Also consider any unpaid medical expenses and employee business expenses that might occur. Call our office to see if this strategy might work for you without triggering the alternative minimum tax. But don't delay; the expenses must be paid before year-end! Thu, 08 Dec 2016 19:00:00 GMT Thinking of Becoming a Real Estate Flipper? Here's a Primer on the Tax Rules http://www.mytrivalleytax.com/blog/thinking-of-becoming-a-real-estate-flipper-heres-a-primer-on-the-tax-rules/42159 http://www.mytrivalleytax.com/blog/thinking-of-becoming-a-real-estate-flipper-heres-a-primer-on-the-tax-rules/42159 Tri-Valley Tax & Financial Services Inc Article Highlights: Definition of Flipping  Government Will Share in the Profits  Tax Treatment Depends on Being a Dealer, Investor or Homeowner  Distinguishing a Dealer from an Investor  With mortgage interest rates low and home prices finally making a comeback, flipping real estate appears to be on the rise. This activity is even the theme of several popular reality TV shows. House flipping is, essentially, purchasing a house or property, improving it and then selling it (presumably for a profit) in a short period of time. The key is to find a suitable fixer-upper that is priced under market for its location, fix it up and resell it for more than it cost to buy, hold, fix up and resell. Are you contemplating trying your hand at flipping? If so, keep in mind that you will have a silent partner, Uncle Sam, who will be waiting to take his share of any profits in taxes. (And most likely, Sam's cousin in your state capitol will expect a share, too.) Taxes play a significant role in the overall transaction, and tax treatment can be quite different depending upon whether you are a dealer, an investor or a homeowner. The following is the current tax treatment for each. Dealer in Real Estate - Gains received by a non-corporate taxpayer from business operations as a real estate dealer are taxed as ordinary income (10% to 39.6%), and in addition, individual sole proprietors are subject to the self-employment tax of 15.3% of their net profit (the equivalent of the FICA taxes for a self-employed person). Higher-income sole proprietors are also subject to an additional 0.9% Medicare surtax on their earnings. Thus, a dealer will generally pay significantly more tax on the profit than an investor. On the other hand, if the flip results in a loss, the dealer would be able to deduct the entire loss in the year of sale, which would generally reduce his or her tax at the same rates.   Investor - Gains as an investor are subject to capital gains rates (maximum of 20%) if the property is held for more than a year (long term). If held short term (less than a year, as will likely be the case for most flippers), ordinary income rates (10% to 39.6%) will apply. An investor is not subject to the self-employment tax, but could be subject to the 3.8% surtax on net investment income for higher-income taxpayers. A downside for the investor who has a loss from the transaction is that, after combining all long- and short-term capital gains and losses for the year, his or her deductible loss is limited to $3,000, with any excess capital loss being carried over to the next year. The rules get a bit more complicated if the investor rents out the property while trying to sell it, but such rules are beyond the scope of this article.   Homeowner - If the individual occupies the property as the primary residence while it is being fixed up, he or she would be treated as an investor, with three major differences: (1) if the individual has owned and occupied the property for two years and has not used a homeowner gain exclusion in the two years prior to closing the sale, he or she can exclude gain of up to $250,000 ($500,000 for a married couple); (2) if the transaction results in a loss, the homeowner will not be able to deduct the loss or even use it to offset gains from other sales; and (3) some fix-up costs may be deemed to be repairs rather than improvements, and repairs on one's primary residence are neither deductible nor includible as part of the cost basis of the home.  Being a homeowner is easily identifiable, but the distinction between a dealer and an investor is not clearly defined in the tax code. A real estate dealer is a person who buys and sells real estate property with a view to the trading profits to be derived and whose operations are so extensive as to constitute a separate business. A person acquiring property strictly for investment, though disposing of investment assets at intermittent intervals, generally does not deal in real estate on a regular basis. This issue has been debated in the tax courts frequently, and both the IRS and the courts have taken the following into consideration: whether the individual is already a dealer in real estate, such as a real estate sales person or broker;  the number and frequency of sales (flips);  whether the individual is more committed to another profession as opposed to fixing up and selling real estate; and  how much personal time is spent making improvements to the “flips” as opposed to another profession or employment.  The distinction between a dealer and an investor is truly based on the facts and circumstances of each case. Clearly, an individual who is not already in the real estate profession and flips one house is not a dealer. But one who flips five or more houses and/or properties and has substantial profits would probably be considered a dealer. Everything in between becomes various shades of grey, and the facts and circumstances of each case must be considered. If you have additional questions about flipping real estate or need assistance with your specific situation, please give this office a call. Tue, 06 Dec 2016 19:00:00 GMT Year-end Tax Planning 2016: Charitable Deductions http://www.mytrivalleytax.com/blog/year-end-tax-planning-2016-charitable-deductions/42160 http://www.mytrivalleytax.com/blog/year-end-tax-planning-2016-charitable-deductions/42160 Tri-Valley Tax & Financial Services Inc With tax law changes on the horizon, it may be time for you to consider year-end tax planning. One such opportunity, is to move up any charitable deductions planned for 2017 into the 2016 tax year. Watch the video below or call us to see if this strategy is right for you..embed-container { position: relative; padding-bottom: 56.25%; height: 0; overflow: hidden; max-width: 100%; } .embed-container iframe, .embed-container object, .embed-container embed { position: absolute; top: 0; left: 0; width: 100%; height: 100%; } Mon, 05 Dec 2016 19:00:00 GMT Dodging Tax Penalties http://www.mytrivalleytax.com/blog/dodging-tax-penalties/42148 http://www.mytrivalleytax.com/blog/dodging-tax-penalties/42148 Tri-Valley Tax & Financial Services Inc Article Highlights: Unintentional Penalties  Underpayment of Estimated Tax and Withholding  Late Payment Penalty  Late Filing Penalty  Negligence Penalty  Dishonored Check Penalty  Missing ID Number Penalty  Most taxpayers don't intentionally incur tax penalties, but many who are penalized are simply not aware of the penalties or the impact they can have on their wallet. As tax season approaches, let's look at some of the more commonly encountered penalties and how they may be avoided. Underpayment of Estimated Taxes and Withholding - Taxpayers are required to pay their tax liability as they go during the year, either through withholding or by making estimated tax payments. If the taxpayer owes more than $1,000 when filing his or her return for the year, the IRS will assess the underpayment of estimated tax penalty, which is currently 4% of the underpayment computed quarterly. There are “safe harbor” payments that can protect you from this penalty, which include payments in the following amounts: 90% of the current year's tax liability or 100% (110% for high-income taxpayers) of the prior year's tax liability. Farmers and fishermen need only prepay 66-2/3% of the current liability or 100% of the prior year's liability. Late Paying Penalty - When the tax owed on a return is paid after the unextended due date of the tax return (usually April 15), the taxpayer is subject to a penalty of 1/2% per month (maximum 25%) on the unpaid balance. Taxpayers are frequently caught by this penalty when they need an extension to file their tax return. Many fail to realize that the extension does not include an extension to pay. The only way to avoid or minimize this penalty is to have no or little balance due on the return when it is finally filed. The extension form includes a provision to pay the projected balance owed when filing the extension. Late Filing Penalty - If the return is filed after the due date, including extensions, a late filing penalty of 4.5% per month (maximum 22.5%) applies. The automatic extended due date for 2016 returns is October 18, 2017, but an extension request form must be filed by the April 2017 due date to qualify. Thus, the penalty would generally apply to 2016 returns filed after October 18, 2017. If the return is over 60 days late, the minimum penalty for failure to file is the lesser of $205 or 100% of the tax shown on the return. While the obvious way to avoid a late filing penalty is to file in a timely fashion, the IRS will consider abating the penalty if it can be proven that there was reasonable cause and no willful neglect for filing late. Negligence - When underpayment is due to negligence on the part of the taxpayer or when there are errors in tax valuations, 20% of the tax underpayment is charged. This penalty is frequently encountered when the IRS adjusts a filed return due to unreported income or overstated deductions. To reduce the chance that you may be subject to this penalty, be sure you provide all of your W-2s, 1099s, K-1s, etc. for the preparation of your return, complete any organizer that have been requested and ensure that you can substantiate all of the deductions you claim. Dishonored Check - The penalty for dishonored checks is 2% of the check amount, but if the amount is $1,250 or less, the penalty is the amount of the check or $25, whichever is less. If you don't have sufficient funds to pay your tax when you file your return, rather than writing a check that you know will bounce, you may be able to arrange an installment payment plan with the IRS. You may still incur late payment charges, but the penalty rate is lower if you are on a payment plan. Missing ID Number - This penalty of $50 for each missing number is charged when a taxpayer doesn't provide a required Social Security number (SSN) for him or herself, a dependent or another person on his or her tax return or doesn't. It is also charged when the taxpayer doesn't provide his or her SSN to another person or entity when required. There are more severe penalties not mentioned here that apply to fraudulent actions or claims. In addition to the late filing penalty, it is possible to have some of the other penalties abated for reasonable causes. If you have questions related to the application of any of these penalties, please give this office a call. Thu, 01 Dec 2016 19:00:00 GMT Tax Benefits for Single Parents http://www.mytrivalleytax.com/blog/tax-benefits-for-single-parents/42137 http://www.mytrivalleytax.com/blog/tax-benefits-for-single-parents/42137 Tri-Valley Tax & Financial Services Inc Article Highlights: Filing Status  Child Support  Alimony  Exemptions  Child Care Credit  Child Tax Credit  Earned Income Tax Credit  If you are a single parent dealing with the complicated tasks of working and raising a family, there are some tax benefits and issues you should be aware of. Filing Status - Just because you are single or widowed does not mean you have to file your tax returns using the single filing status. Tax law provides two far more beneficial filing statuses that you might qualify for. These statuses provide higher standard deductions and more beneficial tax rates: Head of Household - If you are unmarried and pay more than half the cost of maintaining a household that is the principal place of abode for your qualified child or children for more than one-half of the year, then you qualify for the head of household status. Qualified children generally include your children, grandchildren, foster children or stepchildren under the age of 19 or a full-time student under the age of 24 who is not self-supporting. This is true even if you allow the other parent to deduct the dependency exemption for the child. Qualified Widow - If you are widowed, you may qualify for the head of household status discussed just above. However, if your spouse passed away in one of the two prior years, you have a child or stepchild (not including a foster child or grandchild) whom you can claim as a dependent and who lived with you the whole year, and you paid more than half the cost of keeping up the home, you can use the higher standard deduction for married individuals filing jointly. In comparison, in 2016, the standard deduction for marrieds filing jointly is $12,600, which is twice the amount for a single individual. Child Support - Any child support you receive from the non-custodial parent is tax-free to you. Child support is also not included in household income for the purposes of determining the premium tax credit if you are otherwise qualified and obtain your health insurance through a government marketplace. Alimony - In most cases alimony payments received from your former spouse must be included in your income and are subject to tax. However, you can treat the alimony as earned income for purposes of making an IRA contribution of as much as $5,500 ($6,500 for those age 50 and over). Exemptions - You are entitled to an exemption allowance of $4,050 for yourself and each of your children and others whom you claim as dependents on your tax return. Generally, the custodial parent will be the one eligible to claim a child's exemption allowance. The value of the exemptions you claim is subtracted from your gross income when you are figuring out the amount of your taxable income. For example, if you are in the 25% tax bracket, each exemption allowance you deduct saves you $1,013 of tax. However, if you allow the non-custodial parent to claim the exemption of a qualified child, then you forego the $4,050 exemption allowance for that child. Releasing the exemption of a child to the noncustodial parent must be done in writing and to IRS's specifications as to required information. The noncustodial parent must then attach the written form to his or her return. The release can be for one year, for specified years or for all future years. If the exemption for the child is released, then the noncustodial parent will be able to claim the child tax credit (discussed below). Note: If a child is older and attending college, keep in mind when relinquishing the child's exemption that the partially refundable tuition credit goes to the one who claims the child. Child Care Credit - If your child or children are under age 13, and you are working or attending school, you may qualify for the non-refundable child and dependent care credit, which is based upon the amount of your earnings from working (or imputed income if attending school) and the amount of child care expenses, up to $3,000 for one child and $6,000 for two or more children. The credit can be as much as $1,050 for one child and $2,100 for two. Child Tax Credit - You are also entitled to a non-refundable tax credit of $1,000 for each child under the age of 17 that you claim as a dependent. However, this credit begins to phase out for those filing as head of household with incomes in excess of $75,000. Some taxpayers with lower income may qualify for some portion of this credit to be refundable. Earned Income Tax Credit (EITC) - If you are working, you may also qualify for the EITC. This refundable credit is available to lower-income taxpayers and is based on your income and the number of children you have, up to three. The maximum credits for 2016 are $506 with no children, $3,373 with one, $5,572 with two, and $6,269 with three or more. The credit is totally phased out at incomes of $14,880 with no children, $39,296 with one, $44,648 with two, and $47,955 with three or more. As you can see, there are a number of tax benefits that apply to single parents. Please consult with this office to be sure you are not missing out on one or more of the benefits available to you. If you are a custodial parent, before releasing your child's exemption to the noncustodial parent, you may wish to contact this office so the tax impact on your return(s) can be determined. Tue, 29 Nov 2016 19:00:00 GMT Better to Sell or Trade a Business Vehicle? http://www.mytrivalleytax.com/blog/better-to-sell-or-trade-a-business-vehicle/39480 http://www.mytrivalleytax.com/blog/better-to-sell-or-trade-a-business-vehicle/39480 Tri-Valley Tax & Financial Services Inc Article Highlights: Replacing a Business Vehicle  Selling the Old Vehicle at a Loss Trade-in is Treated as an Exchange  Prorate if Used for Business and Personal  As the end of the year approaches, business owners may be thinking about replacing a business vehicle. Profits from the business may be up, so the timing may be right to acquire a new vehicle, or the current vehicle may finally be on its last legs. A question then comes up: Is it better to sell the current vehicle outright or trade it in for a new vehicle? When replacing a business vehicle, it does make a difference for tax purposes if you decide to sell or trade it in for the replacement vehicle. If you sell a vehicle, the resulting gain or loss is reported on your tax return. As a result, it is generally better to sell a vehicle if the disposition of the vehicle will result in a loss. Since trade-ins are treated as an exchange and any gain or loss is absorbed into the replacement vehicle's depreciable basis, it is generally better to trade in a vehicle that would result in a gain. As an example, suppose you sell your business vehicle for $12,000. Your original purchase price was $32,000, and $17,000 has been taken in depreciation. As illustrated below, the sale results in a loss, so it generally would be better for you to sell the vehicle and deduct the loss rather than trading in the vehicle. Sales price  $12,000 Cost   $32,000 Depreciation Taken -$17,000 Depreciated Basis -$15,000 Loss  -$3,000 On the other hand, had you sold the business vehicle for $16,000, the sale would result in a $1,000 taxable gain and trading it in would be a better option. If the vehicle is used for both business and personal purposes, the loss or gain must be prorated for the business use. No loss would be deductible on the personal portion. Since trade-in values are generally lower than the actual sales value of the vehicle, the trade-in decision must also consider whether the tax benefits exceed the additional money that might be received from selling the old business vehicle. This concept can also be used when selling or disposing of other business assets. If you are planning to replace a business vehicle and would like to discuss how its disposition and the purchase of a new vehicle will affect your tax situation, please give this office a call. Tue, 22 Nov 2016 19:00:00 GMT December 2016 Individual Due Dates http://www.mytrivalleytax.com/blog/december-2016-individual-due-dates/35301 http://www.mytrivalleytax.com/blog/december-2016-individual-due-dates/35301 Tri-Valley Tax & Financial Services Inc December 1 - Time for Year-End Tax Planning December is the month to take final actions that can affect your tax result for 2016. Taxpayers with substantial increases or decreases in income, changes in marital status or dependent status, and those who sold property during 2016 should call for a tax planning consultation appointment. December 12 - Report Tips to Employer If you are an employee who works for tips and received more than $20 in tips during November, you are required to report them to your employer on IRS Form 4070 no later than December 12. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.December 31 - Last Day to Make Mandatory IRA Withdrawals Last day to withdraw funds from a Traditional IRA Account and avoid a penalty if you turned age 70½ before 2016. If the institution holding your IRA will not be open on December 31, you will need to arrange for withdrawal before that date.December 31 - Last Day to Pay Deductible Expenses for 2016 Last day to pay deductible expenses for the 2016 return (doesn’t apply to IRA, SEP or Keogh contributions, all of which can be made after December 31, 2016). Taxpayers who are making state estimated payments may find it advantageous to prepay the January state estimated tax payment in December (Please call the office for more information).December 31 - Caution! Last Day of the Year If the actions you wish to take cannot be completed on the 31st or a single day, you should consider taking action earlier than December 31st. Mon, 21 Nov 2016 19:00:00 GMT December 2016 Business Due Dates http://www.mytrivalleytax.com/blog/december-2016-business-due-dates/35302 http://www.mytrivalleytax.com/blog/december-2016-business-due-dates/35302 Tri-Valley Tax & Financial Services Inc December 1 - EmployersDuring December, ask employees whose withholding allowances will be different in 2017 to fill out a new Form W4 or Form W4(SP). December 15 - Social Security, Medicare and Withheld Income Tax If the monthly deposit rule applies, deposit the tax for payments in November.December 15 - Nonpayroll Withholding If the monthly deposit rule applies, deposit the tax for payments in November.December 15 - Corporations The fourth installment of estimated tax for 2016 calendar year corporations is due. December 31 - Last Day to Set Up a Keogh Account for 2016 If you are self-employed, December 31 is the last day to set up a Keogh Retirement Account if you plan to make a 2016 Contribution. If the institution where you plan to set up the account will not be open for business on the 31st, you will need to establish the plan before the 31st. Note: there are other options such as SEP plans that can be set up after the close of the year. Please call the office to discuss your options.December 31 - Caution! Last Day of the Year If the actions you wish to take cannot be completed on the 31st or a single day, you should consider taking action earlier than December 31st. Mon, 21 Nov 2016 19:00:00 GMT 10 Insane (But True) Ways to Grow Small Business Profits http://www.mytrivalleytax.com/blog/10-insane-but-true-ways-to-grow-small-business-profits/42113 http://www.mytrivalleytax.com/blog/10-insane-but-true-ways-to-grow-small-business-profits/42113 Tri-Valley Tax & Financial Services Inc When you were a kid, you imagined becoming an entrepreneur — a dream that turned into reality a few years ago when you started your first small business and began enjoying the freedom of being your own boss. But, since then, your profits haven't grown at the rate you'd hoped they would. If you can relate to this scenario, you're not alone. Thankfully, many proven methods exist to help small businesses increase revenues, cut costs and improve their bottom line. If you're ready to take your company to a new level of success, consider implementing one or more of the following insane (but true) ways to grow small business profits. Eliminate Low-Margin Clients, Products or Services To boost your small business profits, ask yourself the following questions: What clients, products or services generate the most money and offer the greatest growth potential right now? What clients, products or services generate the least profit and provide the least growth potential currently? After analyzing your findings, eliminate low-margin clients, products and services. With the saved time and money, focus on the higher-producing areas of your business. Purging clients, products or services from your company might be painful at first. However, this practice will likely slash stress and pay dividends in the long run. Embrace Technology Embrace technology, automate and go paperless. Besides helping the environment, you'll probably save a ton of money. In addition to cutting costs on paper, you'll also spend less money on printer maintenance and toner as well as file cabinets and binders. Increase Conversion Rates Through A/B Testing Regardless of what type of small business you have, turning more shoppers into buyers will improve your bottom line. To increase conversion rates, consider implementing A/B testing. Also referred to as split testing, A/B testing utilizes two distinct sales pages in order to ascertain which page converts more effectively. Depending on the nature of your business, converting might equate to a customer buying a product or a client purchasing a service. Experiment With Pricing Raising prices while adding value can perhaps be the simplest way to improve small business profits. However, you risk losing bargain-oriented customers. Fortunately, for many people, price isn't the most important factor when purchasing products and services. Lowering prices with the express intent of selling more products or services can also be a winning strategy. Increase Average Lifetime Value of Each Client Repeat customers can help your small business survive during stagnant economic times. Besides searching for effective ways to attract new customers, focus on increasing the average lifetime value of each client. You can accomplish this important task by: Offering loyal customers a product or service upgrade  Providing customers with something your competitors don't offer them  Being more convenient than your competitors  Looking for ways to solve problems for your customers  Providing stellar customer service  Reduce Churn Rates  Churn refers to when a client ends his or her relationship with a business. A high churn rate will negatively impact your ability to grow your small business profits. To reduce churn rates: Establish customer expectations and strive to meet or exceed them  Make your first impression a great one  Listen to your clientele  Closely monitor external environment changes  Speed Up Product or Service Delivery  Speeding up the delivery of your products and services is another ingenious way to improve profits. Fast deliveries make customers happy and encourage repeat business. Decreasing the amount of time projects sit in limbo will also save money. Bundle Products or Services Do you offer products or services that naturally fit together? Providing customers with product or service bundles is a great way to increase both your revenues and your bottom line. For example, an accounting firm might bundle bookkeeping, tax preparation and consulting services. Expand to a New Geographic Market If you've saturated your current geographic market, consider expanding to a new one. Obviously, the costs of such an undertaking must be analyzed. But the long-term benefits of tapping into new geographic markets might make the venture worthwhile. Provide Maintenance Contracts Do you want to generate a steady income stream for an extended period of time? Think about charging customers an ongoing fee in exchange for maintenance contracts. You can even offer discounts to customers who sign longer contractual agreements. When developing maintenance contacts, clearly list the products or services customers can expect to receive. For some professionals, growing small business profits seems like an impossibility. Dealing with saturated markets and a sluggish economy can dampen the outlook of even an eternally optimistic business owner. If you're struggling to improve the bottom line of your small business, consider adhering to one or more of these strategies. Mon, 21 Nov 2016 19:00:00 GMT Ringing Out 2016 in QuickBooks http://www.mytrivalleytax.com/blog/ringing-out-2016-in-quickbooks/42130 http://www.mytrivalleytax.com/blog/ringing-out-2016-in-quickbooks/42130 Tri-Valley Tax & Financial Services Inc 2017 is just around the corner. Now's the time to do your end-of-year QuickBooks tasks. Since early January of this year, you've been faithfully creating new records, entering transactions, and recording payments. You've run basic reports. You've done your collection duties. You may have paid employees and submitted payroll taxes. Now the end of the year is rapidly approaching. In the midst of holiday get-togethers, gift shopping, and perhaps preparing for travel, you probably have a list of work tasks that must be completed by December 31. Is your annual QuickBooks wrap-up on that list? It should be. Here are some of the things we suggest you fit into your busy schedule sometime this month. Create and send year-end statements. As your customers wrap up 2016, too, it's good to send statements to past-due accounts. In an ideal world, all of the invoices that are currently due would be paid off by the end of the year. We all know that that's not usually the reality. Two reports can help you here: the A/R Aging Summary and Open Invoices. Give everyone a chance to clear their accounts before December 31 by sending statements. Click Statements on the Home page (or Customers | Create Statements) to open the window pictured above. You have multiple options here that are fairly self-explanatory. The screen above is set up to create statements for all customers who have an open balance as of the date you select, but not for inactive customers or those with a zero balance or no account activity. That way, no one who's paid in full to date will receive a statement. Of course, if you didn't want statements created for anyone who's less than 30 days past due, you'd click in the box in front of Include only transactions over and enter a “30” in the following field. Questions about all of this? Give us a call. Tip: You can also find out who's overdue by clicking on the Customers tab in the left vertical pane to open the Customer Information screen. Click on the down arrow to the right of the field just below Customers & Jobs. QuickBooks provides several filters for your list. Reduce your inventory. Want to discount all or selected items in your inventory by the same percentage or amount? Open the Customers menu and click Change Item Prices. We can work with you on the whole item pricing process. The week between Christmas and New Year's Day might be a good time to sell excess inventory by having a sale. If you only sell a few products, you probably know what hasn't sold well in 2016. If your stable of products is larger, you can run QuickBooks reports like Inventory Stock Status by Item and Sales by Item Detail to identify your slow-sellers and discount them. You may need to filter your reports to see the right data. Talk to us about customization options if you're unsure of this. Clean up your contact lists. If you don't maintain your customer and vendor lists, you'll eventually start wasting time scrolling through them when you enter transactions. So this would be a good time to designate those contacts that you've not dealt with in 2016 as Inactive (you can delete their records entirely, but we advise against that). Simply open a Customer record, for example, and click the small pencil icon in the upper right to edit it. Click on the box in front of Customer is inactive. Run advanced reports. Here's where we come in. If we're not already creating and analyzing QuickBooks' advanced financial reports (found in the Accountant & Taxes submenu of Reports) monthly or quarterly, talk to us about it. They're important, and they give you insight that you can't get on your own. This is another activity that can spill into January.  Sun, 20 Nov 2016 19:00:00 GMT Time to Start Thinking About Year-End Tax Moves http://www.mytrivalleytax.com/blog/time-to-start-thinking-about-year-end-tax-moves/42110 http://www.mytrivalleytax.com/blog/time-to-start-thinking-about-year-end-tax-moves/42110 Tri-Valley Tax & Financial Services Inc Article Highlights: Maximize Education Tax Credits Roth IRA Conversions Minimum Required Distribution Advance Charitable Deductions Maximize Health Savings Account Contributions Prepay Taxes Pay Tax-deductible Medical Expenses Take Advantage of the Annual Gift Tax Exemption Avoid Underpayment Penalties With year-end just around the corner, it is time to think about those last-minute actions you can take to improve your tax situation for 2016. Year-end tax planning is probably something you will want to deal with before the holiday season crush arrives. There are numerous steps that can be taken before January 1 to save a considerable amount of tax. Not all actions recommended in this article will apply to your particular situation, but you will likely benefit from many of them. Maximize Education Tax Credits – If you qualify for either the American Opportunity or Lifetime Learning education credits, check to see how much you will have paid in qualified tuition and related expenses in 2016. If it is not the maximum allowed for computing the credits, you can prepay 2017 tuition as long as it is for an academic period beginning in the first three months of 2017. That will allow you to increase the credit for 2016. This technique is especially helpful when a student has just started college in the fall. Roth IRA Conversions – If your income is unusually low this year, you may wish to consider converting some or all of your traditional IRA into a Roth IRA. The lower income results in a lower tax rate, which provides you an opportunity to convert to a Roth IRA at a lower tax amount. Don’t Forget Your Minimum Required Distribution – If you are over 70.5 years of age and have not taken your 2016 required minimum distribution from your IRA or qualified retirement plan, you should do that before December 31 to avoid possible penalties. If you turned 70.5 this year, you may delay your 2016 distribution until the first quarter of 2017, but that will mean a double distribution in 2017 that will be taxed. Advance Charitable Deductions – If you regularly tithe at a house of worship or make pledges to other qualified charities, you might consider pre-paying part or all of your 2017 tithing or pledge, thus advancing the deduction into 2016. This can be especially helpful to individuals who marginally itemize their deductions, allowing them to itemize in one year and then take the standard deduction in the next. If you are age 70.5 or over, you can also take advantage of a direct IRA-to-charity transfer, which will count toward your RMD and may even reduce the taxes on your Social Security income. Maximize Health Savings Account Contributions – If you become eligible to make health savings account (HSA) contributions late this year, you can make a full year’s worth of deductible HSA contributions even if you were not eligible to make HSA contributions earlier in the year. This opportunity applies even if you first become eligible in December. Prepay Taxes – Both state income and property taxes are deductible if you itemize your deductions and you are not subject to the AMT. Prepaying them advances the deductions onto your 2016 return. So if you expect to owe state income tax, it may be appropriate to increase your state withholding tax at your place of employment or make an estimated tax payment before the close of 2016, and if you are paying your real property taxes in installments, pay the next installment before year-end. Pay Tax-deductible Medical Expenses – If you have outstanding medical or dental bills, paying the balance before year-end may be beneficial, but only if you already meet the 10% of AGI floor for deducting medical expenses, or if adding the payments would put you over the 10% threshold. You can even use a credit card to pay the expenses, but if you won’t be paying off the full balance on the card right away, do so only if the interest expense on the credit card is less than the tax savings. You might also wish to consider scheduling and paying for medical expenses such as glasses, dental work, etc., before the end of the year. See the “Seniors Beware” article if you or your spouse is age 65 and over. Take Advantage of the Annual Gift Tax Exemption – You can give $14,000 to each of an unlimited number of individuals without paying gift tax each year, but you can't carry over unused amounts from one year to the next. (The gifts are not tax deductible.) Avoid Underpayment Penalties – If you are going to owe taxes for 2016, you can take steps before year-end to avoid or minimize the underpayment penalty. The penalty is applied quarterly, so making a fourth-quarter estimated payment only reduces the fourth-quarter penalty. However, withholding is treated as paid ratably throughout the year, so increasing withholding at the end of the year can reduce the penalties for the earlier quarters. There are additional factors to consider for a number of the strategies suggested above, and you are encouraged to contact this office prior to acting on any of the advice to ensure that you will benefit given your specific tax circumstances. Thu, 17 Nov 2016 19:00:00 GMT De Minimis Expense Election Required Before Year End http://www.mytrivalleytax.com/blog/de-minimis-expense-election-required-before-year-end/42108 http://www.mytrivalleytax.com/blog/de-minimis-expense-election-required-before-year-end/42108 Tri-Valley Tax & Financial Services Inc Article Highlights: Accounting Procedure  $2,500 De Minimis Expensing  Annual Election  Small businesses can adopt an accounting procedure that allows them to expense, rather than to capitalize, the purchase (cost) of tangible business property. Generally, the maximum that can be expensed under this provision is whatever amount the business decides between $1 and $2,500 per item or per invoice. So if you have not adopted the accounting procedure, you have until December 31, 2016, to do so for 2017. (The rules require that the accounting procedure be in place as of the beginning of the business's tax year.) In addition, and even if your business may have already adopted an accounting procedure, an annual election is required to be included with your 2017 tax return to apply the accounting procedure to 2017. This can be used for computers, printers, tools, etc., rather than the Sec 179 expense allowance, which recaptures as income if the item is disposed of early. If you need assistance developing a de minimis expense accounting procedure and making the election to apply that procedure for 2017, please give this office a call. Tue, 15 Nov 2016 19:00:00 GMT Year-End Investment Moves http://www.mytrivalleytax.com/blog/year-end-investment-moves/42103 http://www.mytrivalleytax.com/blog/year-end-investment-moves/42103 Tri-Valley Tax & Financial Services Inc Article Highlights: Zero Capital Gains Rate  Offset Gains With Losses  Wash Sales  If you invest in publicly traded securities, here are a couple of tax-saving possibilities you shouldn't forget to consider before year-end. Zero Capital Gains Rate - If you are having a low-income year, there may be a way for you to take advantage of it. There is a zero long-term capital gains rate for those taxpayers whose regular tax brackets are 15% or less. This may allow you to sell some appreciated securities that you have owned for more than a year and actually pay no or very little tax on the gain. Offset Gains with Losses - At this time of year, you should review your portfolio with an eye to offset gains with losses and to take advantage of the $3,000 ($1,500 for married taxpayers filing separately) of allowable annual capital loss allowance. Any losses in excess of those amounts are carried forward to future years. However, keep in mind that if you replace a security that you sell for a loss, either 30 days before or after the date of sale, it will be considered a wash sale, and the loss cannot be used on your return, and instead, adjusts the basis of the replacement security. Please contact this office for assistance with your year-end tax planning needs. Thu, 10 Nov 2016 19:00:00 GMT Liberal Expensing Limits Can Create Major Year-End Tax Savings http://www.mytrivalleytax.com/blog/liberal-expensing-limits-can-create-major-year-end-tax-savings/42098 http://www.mytrivalleytax.com/blog/liberal-expensing-limits-can-create-major-year-end-tax-savings/42098 Tri-Valley Tax & Financial Services Inc Businesses seeking to increase deductions by acquiring machinery and equipment before year-end have an impressive array of tools to work with: Generous, up to $500,000, expensing under IRC Sec. 179,  A liberal, up to $2,500, expensing safe harbor for small businesses, and  First year 50% bonus depreciation.  The bonus depreciation also applies to leasehold improvements, which include the cost of interior qualified improvements to non-residential property after the building is placed in service. In addition, the IRC Sec 179 expense deduction is allowed for qualified leasehold property, qualified restaurant property and qualified retail improvements. On top of that, the Sec 179 allowance applies to off-the-shelf software and air conditioning units (but not residential rental air conditioning). Armed with these tools, and careful planning, a small business has the opportunity to legally manipulate the taxable profit of the business. However, to accomplish that end, all the machinery, equipment and improvements must be purchased and placed in service before the end of the year. If you need assistance planning your year-end purchase strategy to minimize your 2016 tax liability, please call this office. Tue, 08 Nov 2016 19:00:00 GMT 2016 TAX DEDUCTION FINDER & PROBLEM SOLVER http://www.mytrivalleytax.com/blog/2016-tax-deduction-finder--problem-solver/42099 http://www.mytrivalleytax.com/blog/2016-tax-deduction-finder--problem-solver/42099 Tri-Valley Tax & Financial Services Inc Our 2016 Tax Organizer is designed to help you identify missing tax deductions and get more organized before your appointment. We update the tax organizer annually to make sure you are in compliance with the latest tax law changes. The tax organizer currently posted below is primarily for the 2016 tax year, although it can be used for other years. The 2016 individual tax organizer is provided in three configurations to assist you in collecting relevant tax information needed to properly prepare your tax return.  Access any of the three versions by double clicking on the underlined title links below.  The organizers can be downloaded to your computer where you can fill and save the information until you have completed collecting all of your information.  After you have completed it, please forward the organizer (printed or digitally) to our office for immediate service.  If you have an office appointment, you can print it out and bring it with you to the meeting.  A word of caution: you can fill the organizers online and print them out.  However, if you close the file, your data will not be saved unless the form is saved to your computer.Once the completed organizer has been received, you will be contacted by phone, fax or e-mail with any questions, comments, or suggestions. If you e-mail our office advising us that you have sent your tax materials, we will notify you of their receipt.2016 Basic Organizer - This organizer is suitable for clients that are not itemizing their deductions and DO NOT have rental property or self-employment expenses.2016 Basic Organizer plus Itemized Deductions - This organizer is suitable for clients that are itemizing their deductions and DO NOT have rental property or self-employment expenses.2016 Full Organizer - This organizer includes the information included in the basic organizer, plus entries for itemized deductions, rental properties and self-employment expenses.2016 Business Organizer - Use this organizer for partnerships and incorporated business entities.2015 Prior Year Individual Organizer - If you are filing your 2015 return late, please use this organizer. Mon, 07 Nov 2016 19:00:00 GMT Having a Low Taxable Income Year? Ways to Take Advantage of It http://www.mytrivalleytax.com/blog/having-a-low-taxable-income-year-ways-to-take-advantage-of-it/42088 http://www.mytrivalleytax.com/blog/having-a-low-taxable-income-year-ways-to-take-advantage-of-it/42088 Tri-Valley Tax & Financial Services Inc Article Highlights: Taxable Income  Graduated Individual Tax Rates  Take IRA Distributions  Defer Deductions  Convert Traditional IRA Funds into a Roth IRA  Zero Capital Gains Rate  Business Expenses  Being unemployed, having had an accident that's kept you from earning income, incurring a net operating loss (NOL) from a business, having an NOL carryover from a prior year, suffering a casualty loss or other incidents that result in abnormally low taxable income for the year can actually give rise to some interesting tax planning strategies. But, before we consider actual strategies, let's look at key elements that govern tax rates and taxable income. Taxable Income - First, of all, to be simplistic, taxable income is your adjusted gross income (AGI) less the sum of your personal exemptions and the greater of the standard deduction for your filing status or your itemized deductions: AGI                  XXXX Exemptions     Deductions      Taxable Income XXXX If the exemptions and deductions exceed the AGI, you can end up with a negative taxable income, which means to the extent it is negative you can actually add income or reduce deductions without incurring any tax. Graduated Individual Tax Rates - Ordinary individual tax rates are graduated. So as the taxable income increases, so do the tax rates. Thus, the lower your taxable income, the lower your tax rate will be. Individual ordinary tax rates range from 10% to as high 39.6%. The taxable income amounts for 10% to 25% tax rates are: Filing Status (2016) Single Married Filing Jointly Head of Household Married Filing Separate 10% 9,275 18,550 13,250 9,275 15% 37,650 75,300 50,400 37,650 25% 91,150 151,900 130,150 75,950 So for instance if you are single, your first $9,275 of taxable income is taxed at 10%. The next $28,375 ($37,650 - $9,275) is taxed at 15% and the next $53,500 ($91,150 - $37,650) is taxed at 25%. Here are some strategies you can employ for your tax benefit. However, these strategies may be interdependent on one another and your particular tax circumstances. Take IRA Distributions - Depending upon your projected taxable income, you might consider taking an IRA distribution to add income for the year. For instance, if the projected taxable income is negative, you can actually take a withdrawal of up to the negative amount without incurring any tax. Even if projected taxable income is not negative and your normal taxable income would put you in the 25% or higher bracket, you might want to take out just enough to be taxed at the 10% or even the 15% tax rates. Of course, those are retirement dollars; consider moving them into a regular financial account set aside for your retirement. Also be aware that distributions before age 59½ are subject to a 10% early withdrawal penalty. Defer Deductions - When you itemize your deductions, you may claim only the deductions you actually pay during the tax year (the calendar year for most folks). If your projected taxable income is going to be negative and you are planning on itemizing your deductions, you might consider putting off some of those year-end deductible payments until after the first of the year and preserving the deductions for next year. Such payments might include house of worship tithing, year-end charitable giving, tax payments (but not those incurring late payment penalties), estimated state income tax payments, medical expenses, etc. Convert Traditional IRA Funds into a Roth IRA - To the extent of the negative taxable income or even just the lower tax rates, you may wish to consider converting some or all of your traditional IRA into a Roth IRA. The lower income results in a lower tax rate, which provides you with an opportunity to convert to a Roth IRA at a lower tax amount. Zero Capital Gains Rate - There is a zero long-term capital gains rate for those taxpayers whose regular tax brackets are 15% or less (see table above). This may allow you to sell some appreciated securities that you have owned for more than a year and pay no or very little tax on the gain. Business Expenses - The tax code has some very liberal provisions that allow a business to currently expense, rather than capitalize and slowly depreciate, the purchase cost of certain property. In a low-income year it may be appropriate to capitalize rather than expense these current year purchases and preserve the depreciation deduction for higher income years. This is especially true where there is a negative taxable income in the current year. If you have obtained your medical insurance through a government marketplace, employing any of the strategies mentioned could impact the amount of your allowable premium tax credit. If you would like to discuss how these strategies might provide you tax benefit based upon your particular tax circumstances or would like to schedule a tax planning appointment, please give the office a call. Thu, 03 Nov 2016 19:00:00 GMT Habits That Threaten Your Identity and Pocketbook http://www.mytrivalleytax.com/blog/habits-that-threaten-your-identity-and-pocketbook/42085 http://www.mytrivalleytax.com/blog/habits-that-threaten-your-identity-and-pocketbook/42085 Tri-Valley Tax & Financial Services Inc Article Highlights What's in Your Wallet or Purse Your Fear of the IRS Using Public Internet Connections Not Screening Your E-Mails E-Mailing and Texting Sensitive Information Being Free and Easy with Passwords Using Identical Passwords They're just old habits. You likely to do them without even thinking. But these habits could be making you vulnerable to hacks, scams, ID theft and Internet phishing schemes out to separate you from your hard-earned money. 1. What's in Your Wallet or Purse? Does it contain items that include your Social Security Number (SSN) and birth date? For instance, does it contain your driver's license and either your Social Security card or Medicare card? If it does, and the wallet or purse falls into the wrong hands, the thief will have both your SSN and birth date, the two key items that can be used to compromise your identity. If your ID gets hacked, you are in for a long-running and expensive nightmare. Make sure your wallet or purse isn't a jackpot for an ID thief. 2. Your Fear of the IRS. It is common for most folks to have a natural fear of the IRS. Get a letter in the mail from the IRS, and the adrenalin kicks in and your pulse rate quickens. Scammers play on that emotion to ply their scams on the unsuspecting who don't want to have any problems with the IRS. These range from e-mail messages to personal calls threatening arrest, property seizure or other dire consequences. But wait a minute! The IRS only initially communicates by U.S. mail, so any other form of communication is fake, and you can hang up on the caller or delete the e-mail without fearing you'll incur the IRS's wrath. Still unsure? Call your tax preparer. Don't be a victim! 3. Using Public Internet Connections. These days you can find public Internet connections almost anywhere – at the airport, your favorite coffee house and even shopping malls. Getting work done or taking care of financial dealings while you are out and about may seem like a good idea, but remember the cyber thieves also have access to that Wi-Fi and they have the know-how to access your computer through that Wi-Fi connection. Only use secure Internet connections to get work done or conduct financial transactions, and save public connections for personal browsing purposes. 4. Not Screening Your E-Mails. ID thieves send out e-mails trying to entice you into clicking on an imbedded link within the e-mail, which will then allow them access to your computer and whatever is on it. They will try to sucker you into clicking on the imbedded link by promising free this and that, or even telling you that you have won a monetary prize and need to go to a website to claim it. Don't be tempted; just remember, if it's too good to be true it probably isn't true. Just delete the e-mail! 5. E-Mailing and Texting Sensitive Information. What we all forget is how easy it is for e-mail and text messages to get hacked. You have to worry not only about your end getting hacked but also about the one to whom you are sending the message. Never send documents that include sensitive information. A common error is to inadvertently send a document with your SSN, birth date, passwords, or other information. The best practice is to always assume your e-mails and texts can be seen by others and act appropriately. 6. Being Free and Easy with Passwords. It may not seem like a big deal to share your password with a family member that you're close to, but even if that person is completely trustworthy, they may not be as safety conscious as you and may accidently leak the password. You should always keep your passwords completely confidential to ensure that they don't fall into the wrong hands. 7. Using Identical Passwords. It is easier to remember one password than several, and in today's digital world just about everything needs a password. But if you use just one and it gets compromised, then all your accounts are compromised. It is a best practice to use a different password for every account. In addition, it is a good idea to periodically change your passwords. Bottom line, stop and think before you act, always be skeptical of unsolicited and unexpected communications, guard your sensitive information like you are guarding Fort Knox and when in doubt call this office for assistance. .embed-container { position: relative; padding-bottom: 56.25%; height: 0; overflow: hidden; max-width: 100%; } .embed-container iframe, .embed-container object, .embed-container embed { position: absolute; top: 0; left: 0; width: 100%; height: 100%; } Tue, 01 Nov 2016 19:00:00 GMT Higher Income Taxpayers Hit with Exemption & Itemized Deductions Phase-out http://www.mytrivalleytax.com/blog/higher-income-taxpayers-hit-with-exemption--itemized-deductions-phase-out/37025 http://www.mytrivalleytax.com/blog/higher-income-taxpayers-hit-with-exemption--itemized-deductions-phase-out/37025 Tri-Valley Tax & Financial Services Inc Generally, in 2016 and 2017 taxpayers are allowed to deduct personal exemptions of $4,050 for themselves, their spouses and their dependents. In addition, taxpayers are allowed a standard deduction or, if their deductions are large, they can itemize their deductions. . However, the personal exemptions and itemized deductions for higher income taxpayers are phased out beginning when a taxpayer’s adjusted gross income (AGI) reaches a phase-out threshold amount. The threshold amounts are based on the taxpayers’ filing statuses and for 2017 are: $261,500 (up from $259,400 for 2016) for single filers, $287,650 (up from $285,350 for 2016) for individuals filing as heads of households, $313,800 (up from $311,300 for 2016) for married couples filing jointly and $156,900 (up from $155,650 for 2016) for married individuals filing separately. Here is how the phase-out works: Personal Exemption - The otherwise allowable exemption amounts are reduced by 2% for each $2,500 or part of $2,500 ($1,250 for a married taxpayer filing separately) that the taxpayer’s AGI exceeds the threshold amount for the taxpayer’s filing status. Example: Ralph and Louise have an AGI of $426,300 for 2017 and two children for a total of four exemptions totaling $16,200 (4 × $4,050). The threshold for a married couple is $313,800; thus, their income exceeds the threshold by $112,500. Dividing $112,500 by $2,500 equals 45. So 90% (45 × 2%) of their $16,200 exemption allowance is phased out, leaving them with a reduced exemption deduction of $1,620 ((100%–90%) × $16,200). Assuming Ralph and Louise are in the 33% federal tax bracket, the phase-out costs them an additional $4,811 ($16,200 × 90% × 33%) of tax. A divorced or separated parent subject to the phase-out should consider relinquishing the exemption of a dependent child to the other parent. Where a taxpayer is a party to a multiple support agreement, the taxpayer may want to allow another contributing member of the agreement who is not hit by the phase-out to claim the dependent’s exemption. Itemized Deductions - The total amount of itemized deductions is reduced by 3% of the amount by which the taxpayer’s AGI exceeds the threshold amount, with the reduction not to exceed 80% of the otherwise allowable itemized deductions. Not all itemized deductions are subject to phase-out. The following deductions are not subject to the phase-out: o Medical and dental expenses o Investment interest expenses o Casualty and theft losses from personal-use property o Casualty and theft losses from income-producing property o Gambling losses Thus, a taxpayer who is subject to the full phase-out still gets to deduct 20% of the deductions subject to the phase-out and 100% of the deductions listed above. Example: Ralph and Louise from the previous example, who had an AGI of $426,300 for 2017, exceed the threshold for a married couple by $112,500. Thus, they must reduce their itemized deductions subject to the phase-out by $3,375 (3% of $112,500), but the reduction must not exceed 80% of the deductions subject to the phase-out. For 2017, Ralph and Louise had the following itemized deductions: Subject to Phase-out Not Subject to Phase-out Home mortgage interest $10,000 Taxes $8,000 Charitable contributions $6,000 Casualty Loss $12,000 Total $24,000 $12,000 The phase-out is the lesser of $3,375 or $19,200 (80% of $24,000). Thus Ralph and Louise’s itemized deductions for 2017 will be $32,625 ($24,000 - $3,375 + $12,000). Assuming Ralph and Louise are in the 33% federal tax bracket, the phase-out will cost them an additional $1,114 ($3,375 × 33%) of tax. Conventional thinking is to maximize deductions. However, where taxpayers normally are not subject to a phase-out and have a high-income year because of unusual income, it may be appropriate, where possible, to defer paying deductible expenses to the year following the high-income year or perhaps pay and deduct the expenses in the preceding year if the out-of-the-ordinary additional income is planned for in advance. If you have questions about how these phase-outs will impact your specific situation, you want to adjust your withholding or estimated taxes, or you want to make a tax planning appointment, please give this office a call. Thu, 27 Oct 2016 19:00:00 GMT Accounting 101: How to Read an Income Statement http://www.mytrivalleytax.com/blog/accounting-101-how-to-read-an-income-statement/42060 http://www.mytrivalleytax.com/blog/accounting-101-how-to-read-an-income-statement/42060 Tri-Valley Tax & Financial Services Inc Your income statement is one of the most important documents your company produces. However, if you are the owner of a new business, or if you aren't familiar with this type of statement, preparing and interpreting it can be challenging. To read your income statement accurately, consult the information below. What is an Income Statement? An income statement, which may also be referred to as a "profit and loss statement," is an important financial report that communicates your business's ability to earn a profit. This statement includes information about the money that came into your company during a given period, the expenses your company incurred during that period, and the total amount of profit you earned after all expenses were paid. If your expenses during this time exceeded the amount of income you earned, your income statement will show a loss for the period. Sections of an Income Statement In most cases, your income statement will be divided into various sections, including Revenue, Operating Expenses and Taxes. Within each section, smaller subsections exist to provide more detailed information. The final line on the statement provides your net profit or loss, which is calculated as the difference between your revenue and all of the expenses paid to earn that revenue. Not every income statement includes the same information. However, most statements will include the following lines: Heading – At the top of the statement, you will find a heading that provides the name of your company and the period of time the statement covers. Revenue – The "Revenue" subheading begins the section of the statement that provides details about revenue earned during the period. Gross Sales – This line of the statement tells you the value of all sales made during the period before any deductions for expenses. Returns and Allowances – Returns and Allowances include the cost of any goods returned by customers or discounted by your company. Net Sales – Net Sales is calculated by subtracting the value of Returns and Allowances from your Gross Sales. Cost of Goods Sold – This line lists the total wholesale cost of all of the goods you sold during the period. Gross Profit – Gross Profit is calculated by deducting the Cost of Goods Sold from Net Sales. Operating Expenses – The Operating Expenses subheading begins the section of the income statement that includes all of the expenses your company paid to operate during the period in question. Sales and Marketing – Beneath the Operating Expenses subheading, you will find a smaller subheading labeled "Sales and Marketing." In this section, you will find a list of all of the expenses your company incurred in relation to marketing. Examples include advertising, commissions and direct marketing. At the bottom of this section, you will find a total of these expenses. General Administrative – This section of the document includes all of the administrative expenses paid during the period, including office supplies, utilities and more. At the end of this section, all general administrative expenses are totaled. Depreciation and Amortization – Under this heading, any expensive assets your business is currently depreciating will be listed, along with the total amount of depreciation for the period. Total Operating Expenses – This section of the income statement provides the total of your operating expenses for the period, including depreciation, administrative expenses and advertising expenses. Operating Income – Your Operating Income is the amount of income left over after all of your operating expenses are deducted from your gross profit. Nonoperating Income – This section includes all of the income you earned outside of your standard operations, such as by the sale of assets or investments. Nonoperating Expenses – Nonoperating expenses include expenses you paid that were not related to the operations of your business. These expenses may be related to earning nonoperating income. Income before Taxes – The value on this line is calculated by adding your Operating Income and Nonoperating Income and then subtracting your Nonoperating Expenses. Taxes – This section includes all of the taxes your business paid during the period, including prepaid income tax and payroll taxes. Total Net Income – The final line on your income statement is your total net income. It is calculated by subtracting your total Taxes from Income before Taxes. If your expenses for the period exceeded your income, this value will be negative, representing an overall loss. In some cases, an income statement will have more than one column so that you can compare income and expenses from different periods. Getting Professional Help Preparing an income statement is no easy task, and interpreting it can also be taxing for many business owners. However, you can dramatically simplify this process by allowing an accounting professional to help you with your income statement and the other financial reports your business produces. A reputable accounting professional will not only ensure that your income statement is accurate, but the professional will also be able to help you gain important insight from these statements that can be used to boost your business's profitability in the future. .embed-container { position: relative; padding-bottom: 56.25%; height: 0; overflow: hidden; max-width: 100%; } .embed-container iframe, .embed-container object, .embed-container embed { position: absolute; top: 0; left: 0; width: 100%; height: 100%; } Wed, 26 Oct 2016 19:00:00 GMT Tips for Holiday Charity Giving http://www.mytrivalleytax.com/blog/tips-for-holiday-charity-giving/42055 http://www.mytrivalleytax.com/blog/tips-for-holiday-charity-giving/42055 Tri-Valley Tax & Financial Services Inc Article Highlights: Holiday Season Charity Gifts  Long-form Itemization Required  Documentation for Taxes  Monetary Donations  Property Donations  Charity Scams  Qualified Charities Only  Disaster Scams  ID Thieves  The holiday season is the favorite time of the year for charities to solicit donations. It is also the time of year when scammers show up in force, pretending to be legitimate charities in hopes of swindling you. It is also a festive and very busy time of the year, and you may inadvertently overlook the documentation needed to verify your generosity for tax purposes. Here are some tips for charitable giving. Documentation - To claim a charitable deduction, you must itemize your deductions; if you don't, there is no need to keep any records of your donations. There are two types of charitable gifts: monetary and property. Monetary donations include those made by cash, check, credit card, or other means. This type of contribution is only deductible if the donor maintains a record of the contribution in the form of either a bank record (such as a cancelled check) or a written communication from the charity (such as a receipt or a letter) showing the name of the charity, the date of the contribution, and the amount of the contribution. In addition, if the contribution is $250 or more, the donor must also get an acknowledgment from the charity for each deductible donation. Keep in mind that dropping cash in a holiday donation kettle without any documentation is not deductible. Non-cash holiday contributions to organizations such as Toys for Tots and to seasonal food drives by recognized charities are also deductible. The deductible amount is the fair market value (FMV) of the items at the time of the donation, and you must document your donation with a detailed list of what was given and the name of the charity receiving the gift. Where the FMV of your gifts is $250 or more, you must also obtain an acknowledgment from the charity for each deductible donation. When gifts of property are $500 or more, there are additional record keeping requirements, so please call for details if you plan to make gifts of this value. Watch Out for Charity Scams - To avoid scammers getting your charitable donations, make sure you are contributing to a legitimate charity and not to a bunch of crooks who work overtime during the holidays to trick you out of money. Be wary of charities with names that are similar to familiar or nationally known organizations. Some phony charities use names or websites that sound or look like those of respected, legitimate organizations. When in doubt, you should take a few extra minutes to ensure your gifts are going to legitimate charities. IRS.gov has a search feature—Exempt Organizations Select Check—that allows you to find legitimate, qualified charities to which donations may be tax deductible. Disaster Scams - In the wake of significant natural disasters, such as Hurricane Matthew, it's common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers. Scam artists use a variety of tactics including contacting people by telephone or email to solicit money or financial information, and they may even set up phony websites that claim to solicit funds on behalf of disaster victims. Watch Out for ID Thieves - Don't give out personal financial information such as your Social Security number or passwords to anyone who solicits a contribution from you. Scam artists may use this information to steal your identity and money. Using a credit card to make legitimate donations is quite common, but please be very careful when you are speaking with someone who called you; don't give out your credit card number unless you are certain the caller represents a legal charity. Don't be a victim; make sure you are donating to recognized charities. Deductions to charities that are not legitimate are not tax deductible. If you have questions, please give this office a call. Tue, 25 Oct 2016 19:00:00 GMT November 2016 Individual Due Dates http://www.mytrivalleytax.com/blog/november-2016-individual-due-dates/34877 http://www.mytrivalleytax.com/blog/november-2016-individual-due-dates/34877 Tri-Valley Tax & Financial Services Inc November 10 - Report Tips to Employer If you are an employee who works for tips and received more than $20 in tips during October, you are required to report them to your employer on IRS Form 4070 no later than November 10. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed. Sun, 23 Oct 2016 19:00:00 GMT November 2016 Business Due Dates http://www.mytrivalleytax.com/blog/november-2016-business-due-dates/34878 http://www.mytrivalleytax.com/blog/november-2016-business-due-dates/34878 Tri-Valley Tax & Financial Services Inc November 10 - Social Security, Medicare and Withheld Income Tax File Form 941 for the third quarter of 2016. This due date applies only if you deposited the tax for the quarter in full and on time. November 15 - Social Security, Medicare and Withheld Income Tax If the monthly deposit rule applies, deposit the tax for payments in October. November 15 - Nonpayroll Withholding If the monthly deposit rule applies, deposit the tax for payments in October. Sun, 23 Oct 2016 19:00:00 GMT Little-Known Tactic Increases Child Care Credit http://www.mytrivalleytax.com/blog/little-known-tactic-increases-child-care-credit/42023 http://www.mytrivalleytax.com/blog/little-known-tactic-increases-child-care-credit/42023 Tri-Valley Tax & Financial Services Inc Article Highlights: Social Security Benefits Child Care Credit Partnership Joint Venture Material Participation Retirement Benefits When both spouses in a married couple are jointly involved in the operation of an unincorporated business (generally a Schedule C), it is fairly common – but incorrect – for all of that business’s income to be reported as just one spouse’s income, even when they both work in the business. In such cases, the spouse not taking credit for his or her portion of the earned income loses out on the chance to accumulate his or her own eligibility for Social Security benefits. In addition, to claim a child care credit, both spouses on a joint return must have earned income (or imputed income if one of the spouses is a full-time student or is disabled), so unless the spouse not including a portion of the income from the joint business has another source of earned income, the couple will not be allowed a child care credit. There are ways to remedy this situation, however. One option is to file a partnership return for the activity, in which case each spouse will receive a K-1 that reports his or her share of the net profit. An approach that avoids the necessity of filing a partnership return, and that is probably less complicated, is a qualified joint-venture election, in which each spouse elects to file a separate Schedule C for his or her respective share of the business. This gives them both self-employed income for the purposes of the self-employment tax and for claiming the child care credit. A qualified joint venture refers to any joint venture involving the conduct of a trade or business if: (1) The only members of the joint venture are husband and wife, (2) Both spouses materially participate in the trade or business, and (3) Both spouses elect to apply this rule. Generally, to meet the material participation requirement, each spouse will have to participate in the activity for 500 hours or more during the tax year. If the net income from the business exceeds the annual cap on income subject to the Social Security tax, the combined self-employment tax for the spouses with split Schedule Cs will exceed what a single spouse would have paid if he or she had filed a single Schedule C. An additional benefit when filing split Schedule Cs is the opportunity for both spouses to participate in IRAs and self-employed retirement plans. If you have questions about how splitting the business income between spouses might apply to your specific situation, please contact this office. Thu, 20 Oct 2016 19:00:00 GMT Can't Keep Up with Bills? QuickBooks Online Can Help http://www.mytrivalleytax.com/blog/cant-keep-up-with-bills-quickbooks-online-can-help/42025 http://www.mytrivalleytax.com/blog/cant-keep-up-with-bills-quickbooks-online-can-help/42025 Tri-Valley Tax & Financial Services Inc There are more pleasant accounting tasks than paying bills, but QuickBooks Online organizes and simplifies this critical chore. How does your company keep track of its bills now? If you’re like a lot of small businesses, you’re still dealing with a lot of paper. You may have a paper or electronic calendar where you enter all of the due dates as bills come in. When you see one approaching, you either take out your checkbook or schedule an online payment. Then you store all of your paid paper bills in file folders in case you have to look back at them. It’s probably pretty clear to you that this isn’t the best system. You occasionally miss payments because a bill was lost in transit or for some other reason didn’t make its way to you. Or you were out of the office for a few days and didn’t look back on deadlines you missed. QuickBooks Online can help keep bill-payment running smoothly and your relationships with vendors on the up-and-up. Two-Step Process Before you can start paying bills, you have to enter them into QuickBooks Online. This will entail a bit of extra work the first time you deal with a particular vendor, but there are numerous benefits to handling your accounts payable in this fashion, like: Speed. Once you’ve created a framework (template) for a bill, it will take minimal time to pay it in the future. Documentation. All of your bill payments will be recorded in QuickBooks Online, so you won’t have to hunt through checkbook registers or file folders to see if a bill was paid. Timeliness. QuickBooks Online will always remind you when a bill must be paid (if you’ve set it up correctly). To enter a bill, click the plus (+) sign at the top of the screen and click on Vendors and then Bill. This screen opens: You’ll enter information about each bill on a screen like this. There are fields not pictured here that you’ll sometimes have to complete. So let’s start a conversation about the whole process. Looks pretty simple, doesn’t it? It is – if you have a simple bill like the one you receive for gas and electric. You select the vendor by clicking on the arrow next to the blank field in the upper left and choosing from the list that opens. The Mailing Address and Terms should fill in automatically if you’ve done all of your initial QuickBooks Online setup. If not, you can add and edit this information. Bill date refers to the date of the bill itself, not the day payment is due to the vendor. That goes in the Due date field. Select your Account from the list that opens when you click in that field, and enter a Description and Amount. If that’s all that’s required for that bill, you can save it and proceed to the next. It’s now recorded as a bill that needs to be paid. Recurring Payments Some of your bills are just one-offs, but others arrive on a regular basis. So QuickBooks Online has tools that will minimize the time required to process them after you’ve entered the basic information once. After you’ve completed a bill, click Make recurring at the bottom of the page to see this screen: QuickBooks Online lets you create templates for bills to use in future payments. This screen is self-explanatory. You simply tell QuickBooks Online how much notice you want before a bill’s due date so you can process the payment. Take care with this screen to avoid paying bills too early, which affects your cash flow unnecessarily, or too late. You have three options when you’re creating a Recurring Bill template. You’ll choose one from the list that opens when you click the arrow in the Type field: Scheduled. This is best used when the details of a transaction don’t change, like rent or a loan payment. You don’t have to do anything for the payment to be dispatched; it’s done automatically for you at the interval you set. You can, however, ask to be notified every time this occurs. Reminder. You could use this for periodic payments that will require editing before they’re sent. For example, you’ll probably need to change the amount on your utility bills every month. QuickBooks Online will place a reminder in your Activities list on the home page. Unscheduled. If you have bills that contain a great deal of detail but aren’t due on a set schedule, you can save the template and call it up when you need it by clicking the gear icon in the upper right and selecting Recurring Transactions. Next month, we’ll talk about the process of actually paying bills. If in the meantime you start entering bills and find that you’re having trouble completing the fields required for more complex bills, call us to schedule a session or two. Thu, 20 Oct 2016 19:00:00 GMT So You Want To Deduct Your Work Clothes; Better Read This http://www.mytrivalleytax.com/blog/so-you-want-to-deduct-your-work-clothes-better-read-this/42022 http://www.mytrivalleytax.com/blog/so-you-want-to-deduct-your-work-clothes-better-read-this/42022 Tri-Valley Tax & Financial Services Inc Article Highlights: Condition of Employment  Not Suitable for Everyday Wear  Uniforms  Protective Clothing  Military  Miscellaneous Deduction  A frequent question that arises is: Can I deduct the cost of my work clothing on my tax return? The answer to that question is “maybe.” The IRS provides the following guidelines for when expenses for work clothes are deductible: 1) They are worn as a condition of employment, AND 2) The clothing is not suitable for everyday wear. It is not enough that the clothing be distinctive; it must be specifically required by the taxpayer's employer. Nor is it enough that the taxpayer does not, in fact, wear the work clothes away from work. The clothing must not be suitable for taking the place of the taxpayer's regular clothing. So, just because your employer requires you to wear a suit at work does not make that suit deductible, because it is suitable for everyday wear. The following are examples of workers who may be able to deduct the cost and upkeep of work clothes: delivery workers, firefighters, health care workers, law enforcement officers, letter carriers, professional athletes, and transportation workers (air, rail, bus, etc.). Note that those types of occupations usually require uniform-type clothing, which is generally deductible if required by the employer. Musicians and entertainers can deduct the cost of theatrical clothing and accessories if they are not suitable for everyday wear. The IRS contends that white bib overalls and standard shoes, such as a painter might wear, are not distinctive in character or in the nature of a uniform, so they are not deductible. Generally, when deciding whether costs to purchase and maintain clothing are eligible to be deducted, the courts use an objective test that makes no reference to the individual taxpayer's lifestyle or personal taste. Instead, the courts in considering whether clothing is adaptable for personal or general use look to what is generally considered ordinary street wear. For example, in a recent Tax Court case, the court held that a salesman for Ralph Lauren who was required to purchase and wear the designer's apparel while representing the company couldn't deduct the cost of such clothing. The court found that the clothing was clearly suitable for regular wear and therefore not deductible. Protective Clothing - The costs of protective clothing required for work, such as safety shoes or boots, safety glasses, hard hats and work gloves, are deductible. Examples of workers who may require safety items include carpenters, cement workers, chemical workers, electricians, fishing workers, linemen, machinists, oil field workers, pipe fitters and truck drivers. Military Uniforms - Taxpayers generally cannot deduct the cost of uniforms if they are on full-time active duty in the armed forces. However, armed forces reservists can deduct the unreimbursed cost of uniforms if military regulations restrict the taxpayers from wearing a uniform except while on duty as a reservist. A student at an armed forces academy cannot deduct the cost of uniforms if they replace regular clothing. However, the cost of insignia, shoulder boards, and related items are deductible. Civilian faculty and staff members of a military school can deduct the cost of uniforms. When deductible, the cost of the clothing and upkeep is considered a miscellaneous itemized deduction. However, miscellaneous itemized deductions are only allowed to the extent that they exceed 2% of your adjusted gross income. So higher-income taxpayers with no or few other miscellaneous itemized deductions may not benefit from a deduction. Please contact this office if you have any questions about the deductibility of work clothing. Tue, 18 Oct 2016 19:00:00 GMT Thinking of Converting Your Home to a Rental? Better Read this First http://www.mytrivalleytax.com/blog/thinking-of-converting-your-home-to-a-rental-better-read-this-first/42021 http://www.mytrivalleytax.com/blog/thinking-of-converting-your-home-to-a-rental-better-read-this-first/42021 Tri-Valley Tax & Financial Services Inc Article Highlights: Home Gain Exclusion Converting Homes that Have Declined in Value Converted Basis Passive Loss Limitations If you are considering converting your home to a rental, there are a number of tax issues you need to consider before making a final decision. One of the first issues to consider is that by converting your main home to a rental, you may be giving up an opportunity to realize tax-free income. Currently, taxpayers are allowed to exclude $250,000 ($500,000 for married taxpayers filing jointly) of home gain when they sell a home if they owned and occupied the home as a primary residence two of the five years prior to the sale. Once converted, the property is no longer your primary residence, and if you sell it more than three years after the conversion, any gain would no longer qualify for the home gain exclusion and would be fully taxable. Not all homes will have appreciated in value, and in some cases, as we've seen over the last few years, some homes may have declined in value from the time they were purchased. If a primary residence is sold at a loss, that loss is not deductible for tax purposes because losses are never allowed for personal use property. Some homeowners have the mistaken belief that if they convert their home that has declined in value to rental use, they can then deduct a loss when they sell the property, which is not the case. When a residence or other nonbusiness property is converted from personal use to business use, such as a rental, it needs to be appraised by a certified real estate appraiser, and that appraised value is the value (basis) from which a loss is determined when the property is subsequently sold. In other words, any loss attributable to the period it was a personal use property is not allowed. However, for purposes of computing gain, the value (basis) from which gain is measured is the original cost of the home plus improvements less any depreciation claimed. If your decision is to convert the home to a rental, the rental period begins when you actually make the home available for rent, which is generally the date you advertise the property for rent. From this point on the depreciation, mortgage interest, property taxes, other taxes, utilities, repairs, advertising and other expenses are reported along with rental income on Schedule E of the 1040. Rentals are considered passive activities, and generally losses from passive activities can only offset gains from passive activities. However, there is a special rule that allows up to $25,000 of losses from rental real estate activities to be deductible annually. However, that special loss allowance phases out ratably for taxpayers with AGIs between $100,000 and $150,000, and once the top of the phaseout range is reached, no loss is allowed. However, in this case, the loss that can't be deducted can be carried over to future years. That carryover may not do much good year by year for someone whose AGI is consistently over the top of the phaseout range, until the year the property is sold and the suspended losses are released and can be deducted. For more details related to converting your home to rental use and applying the rules to your specific situation, please give this office a call. .embed-container { position: relative; padding-bottom: 56.25%; height: 0; overflow: hidden; max-width: 100%; } .embed-container iframe, .embed-container object, .embed-container embed { position: absolute; top: 0; left: 0; width: 100%; height: 100%; } Thu, 13 Oct 2016 19:00:00 GMT Taking Advantage of Back-Door Roth IRAs http://www.mytrivalleytax.com/blog/taking-advantage-of-back-door-roth-iras/42020 http://www.mytrivalleytax.com/blog/taking-advantage-of-back-door-roth-iras/42020 Tri-Valley Tax & Financial Services Inc Article Highlights: Roth IRA High Income Phaseout  Traditional-to-Roth IRA Conversions  Non-deductible Traditional IRA Contributions  Back-door Roth IRA  Pitfall of Traditional-to-Roth Conversions  If you are a high-income taxpayer and would like to contribute to a Roth IRA but cannot because of income limitations, there is a work-around that will allow you to fund a Roth IRA. High-income taxpayers are limited in the annual amount they can contribute to a Roth IRA. In 2016, the allowable contribution phases out for joint-filing taxpayers with an AGI between $184,000 and $194,000 (or an AGI between $0 and $9,999 for married taxpayers filing separately). For unmarried taxpayers, the phaseout is between $117,000 and $132,000. Once the upper end of the range is reached, no contribution is allowed for the year. However, those AGI limitations can be circumvented by what is frequently referred to as a back-door Roth IRA. Here is how a back-door Roth IRA works: 1. First, you contribute to a traditional IRA. For higher-income taxpayers who participate in an employer-sponsored retirement plan, a traditional IRA is allowed but is not deductible. Even if all or some portion is deductible, the contribution can be designated as not deductible. 2. Then, since the law allows an individual to convert a traditional IRA to a Roth IRA without any income limitations, you now convert the non-deductible Traditional IRA to a Roth IRA. Since the Traditional IRA was non-deductible, the only tax related to the conversion would be on any appreciation in value of the Traditional IRA before the conversion is completed. Potential Pitfall - There is a potential pitfall to the back-door Roth IRA that is often overlooked by investment counselors and taxpayers alike that could result in an unexpected taxable event upon conversion. For distribution or conversion purposes, all of your IRAs (except Roth IRAs) are considered as one account and any distribution or converted amounts are deemed taken ratably from the deductible and non-deductible portions of the traditional IRA, and the portion that comes from the deductible contributions would be taxable. This may or not may affect your decision to use the back-door Roth IRA method but does need to be considered prior to making the conversion. There is a possible, although complicated, solution. Taxpayers are allowed to roll over or make a trustee-to-trustee transfer of IRA funds into employer qualified plans if the employer's plan permits. If the rollover or transfer to the qualified plan is permitted, such rollovers or transfers are limited to the taxable portion of the IRA account, thus leaving behind the non-taxable contributions, which can then be converted to a Roth IRA without any taxability. Please call this office if you need assistance with your Roth IRA strategies or need assistance in planning traditional -to -Roth IRA conversions. Tue, 11 Oct 2016 19:00:00 GMT Seniors Beware, Affordable Care Act Will Be Cutting Your Medical Deductions http://www.mytrivalleytax.com/blog/seniors-beware-affordable-care-act-will-be-cutting-your-medical-deductions/42009 http://www.mytrivalleytax.com/blog/seniors-beware-affordable-care-act-will-be-cutting-your-medical-deductions/42009 Tri-Valley Tax & Financial Services Inc Article Highlights: Seniors and Medical Deductions  AGI Limitations in 2017  Taking Advantage in 2016  When an individual itemizes deductions, one of those deductions is the cost of medical and dental expenses, including health insurance premiums. However, the medical expense deduction has been historically limited to the amount that exceeds 7.5% of a taxpayer's adjusted gross income (AGI). With passage of the Affordable Care Act, commonly referred to as Obamacare, the percentage of AGI that reduces medical expenses was increased to 10%, but was retained at 7.5% for taxpayers age 65 and over (for married seniors if either spouse is age 65 or over). However, this lower percentage of AGI for seniors expires after 2016, and beginning for the year 2017, the limitation percentage for them also becomes 10%, which can result in a substantially lower medical deduction for seniors. Although there is nothing that can be done about the higher percentage of AGI reduction that begins in 2017, seniors can still take advantage of the lower 7.5% of AGI limit by maximizing their medical deductions for 2016. If you have any unpaid medical expenses, discretionary medical treatments, prescriptions you can stock up on, prescription eyeglasses that need to be replaced, dental work that needs to be done or other medical expenses that you can take care of and pay for in 2016, you may be able to benefit from the 7.5% limit in its last year. Don't go crazy, though - that face lift or tummy tuck you've been thinking about and other elective cosmetic surgery don't qualify as deductible medical expenses. You are also cautioned to make sure you will benefit tax-wise by incurring medical expenses ahead of when you normally would. For example, if you ordinarily claim the standard deduction instead of itemizing deductions on your return, accelerating your medical expenses into 2016 may not result in any tax savings for you. If you have questions, please give this office a call.     Thu, 06 Oct 2016 19:00:00 GMT Who Claims the Kids? You or Your Ex-Spouse? http://www.mytrivalleytax.com/blog/who-claims-the-kids-you-or-your-ex-spouse/42004 http://www.mytrivalleytax.com/blog/who-claims-the-kids-you-or-your-ex-spouse/42004 Tri-Valley Tax & Financial Services Inc Article Highlights: Custodial Parent Dependency (Exemption) Release Joint Custody Tiebreaker Rules Child’s Exemption Head of Household Filing Status Tuition Credit Child Care Credit Child Tax Credit Affordable Care Act Earned Income Tax Credit If you are a divorced or separated parent with children, a commonly encountered but often-misunderstood issue is who claims the child or children for tax purposes. This is sometimes a hotly disputed issue between parents; however, tax law includes some very specific but complicated rules about who profits from the child-related tax benefits. At issue are a number of benefits, including the children’s dependency tax exemption, child tax credit, child care credit, higher-education tuition credit, earned income tax credit, and in some cases even filing status. This is actually one of the most complicated areas of tax law, and serious mistakes can be made by taxpayers preparing their own returns or inexperienced tax preparers, especially if the parents are not communicating well. Where parents will cooperate with each other, they often can work out the best tax result overall, even though it may not be the best for them individually, and compensate for it in other ways. Where a family court awards physical custody of a child to one of the parents, tax law is very specific in awarding that child’s dependency to the parent with physical custody, regardless of the amount of child support provided by the other parent. However, the custodial parent may release the dependency (exemption) to the non-custodial parent by completing the appropriate IRS form. CAUTION - The decision to relinquish the dependency should not be taken lightly, as it impacts a number of tax benefits. On the other hand, if the family court awards joint physical custody, only one of the parents may claim the child as a dependent for tax purposes. If the parents cannot agree between themselves as to who will claim the child and the child is actually claimed by both, the IRS tiebreaker rules will apply. Per the tiebreaker rules, the child is treated as a dependent of the parent with whom the child resided for the greater number of nights during the tax year, or if the child resides with both parents for the same amount of time during the tax year, the parent with the higher adjusted gross income claims the child as a dependent. Child’s Exemption - The parent who claims the child as a dependent is entitled to the child’s tax exemption – which is actually a deduction from income of $4,050 in 2016. However, the exemption begins to phase out for higher-income taxpayers with an AGI of $259,400 for single taxpayers, $285,350 for those qualifying for head of household filing status and $311,300 for married taxpayers filing jointly. Head of Household Filing Status – An unmarried parent can claim the more favorable head of household, rather than single, filing status if the parent is the custodial parent and pays more than one-half of the cost of maintaining as his or her home a household which is the principal place of abode for more than one-half the year for that child. This is true even when the child’s dependency (and therefore the $4,050 exemption deduction) is released to the non-custodial parent. Tuition Credit – If the child qualifies for either the American Opportunity or the Lifetime Learning higher-education tax credit, the credit goes to whoever claims the child’s exemption. Credits are significant tax benefits because they reduce the amount of tax dollar-for-dollar, while deductions reduce income to arrive at taxable income that is then taxed according to the individual’s tax bracket. For instance, the American Opportunity Tax Credit (AOTC) provides a tax credit of up to $2,500, 40% of which is refundable. However, both education credits phase out for higher-income taxpayers. For instance, the AOTC phases out between $65,000 and $80,000 for unmarried taxpayers and $130,000 and $160,000 for married taxpayers. Child Care Credit - A nonrefundable tax credit is available to the custodial parent for the care of the child while the parent is gainfully employed or seeking employment. To qualify for this credit, the child must be under the age of 13 and be a dependent of the parent. However, a special rule for divorced or separated parents provides that where the custodial parent releases the child’s exemption to the non-custodial parent, the custodial parent would still qualify to claim the childcare credit, and it cannot be claimed by the noncustodial parent. Child Tax Credit – A credit of $1,000 is allowed for a child under the age of 17. That credit goes to the parent claiming the child as a dependent. However, this credit phases out for higher-income parents, beginning at $75,000 for unmarried parents and $110,000 for married parents filing jointly. Affordable Care Act – Parents must keep in mind that where the child does not have medical insurance during periods of the year, the parent claiming the child as a dependent (claims the $4,050 exemption) is the one responsible for any applicable penalties when the child does not have health insurance coverage. Earned Income Tax Credit (EITC) – Lower-income parents with earned income (wages or self-employment income) may qualify for the EITC. This credit is based on the number of children (under age 19 or a full-time student under age 24) the custodial parent has, up to a maximum of three children. Releasing the dependency exemption to the noncustodial parent will not disqualify the custodial parent from using the children to qualify for the EITC. In fact, the noncustodial parent is prohibited from claiming the EITC based on the child or children whose exemption has been released by the custodial parent. As you can see, there are some complex rules that apply to the tax benefits provided by children of divorced parents. It is highly recommended that you consult this office for the preparation of your return. If you are the custodial parent you should also consult with this office before making the decision to release a child’s exemption. Tue, 04 Oct 2016 19:00:00 GMT Cutting the IRS Out of Your Gifts http://www.mytrivalleytax.com/blog/cutting-the-irs-out-of-your-gifts/41991 http://www.mytrivalleytax.com/blog/cutting-the-irs-out-of-your-gifts/41991 Tri-Valley Tax & Financial Services Inc Article Highlights: Gift Tax Rule  Annual Exemption  Lifetime Exemption  Medical and Tuition Exemptions  Gift Splitting  Gifts of Property  If you are financially well off, you may want to gift money or property to family members or others you care about. If that is the case, there are some gift tax issues you should be aware of. Oh yes, the government even taxes gifts if they are large enough, so it is best to know the rules; otherwise you may end up making a gift of taxes to the IRS. The gift tax rules provide two exclusions from gift tax, the annual exclusion and the lifetime exclusion: Annual Exclusion - The annual exclusion is periodically inflation adjusted and is currently $14,000 per individual. Thus you can give $14,000 a year to as many individuals as you wish without any gift tax or gift tax return filing requirements. Lifetime Exclusion - On top of the annual exclusion, there is a lifetime exclusion that is linked to the estate tax exemption, which is also inflation adjusted, and for 2016 is $5.45 Million. Thus, in addition to the $14,000 annual per donee exclusion, there is a $5.45 Million exclusion that applies to the aggregate of all gifts in excess of the $14,000 per year per donee gifts. There are complications to utilizing the lifetime exclusion. You must file a gift tax return to claim the lifetime exclusion, and the amounts of the lifetime exclusion used as an exclusion from gift tax will be tracked on any gift tax return(s) filed and will reduce the estate tax exemption. So for example, if in 2016 you make a gift of $3,014,000 to your child, and you haven't made gifts in the past that exceeded the annual per donee gift tax exclusion, you will pay no gift tax, but you will have reduced your remaining lifetime exclusion to $2.45 Million. If you make more large gifts in the future that use up your remaining lifetime exclusion, not only will you then be subject to gift tax on the excess gifts, but at your passing, and assuming the value of your estate is large enough to be subject to estate tax, you will have no estate tax exclusion left to offset the estate's value, so it will all be subject to estate tax. CAUTIONThe estate tax rates and the lifetime exclusion have long been a political football. They date back to 2006, when the lifetime exclusion was $2 Million. Congress can change the current $5.45 Million exclusion at any time. In fact, Democratic presidential candidate Hillary Clinton has proposed reducing the exclusion to $3 Million and raising the top estate tax rate from 40% to 45%. She would also disconnect the gift and estate tax exclusions and limit the lifetime gift exclusion to $1 Million. Special Tuition/Medical Exclusion - In addition to the current $14,000 annual exclusion, a donor may make gifts that are totally excluded from the gift tax in the following circumstances: Payments made directly to an educational institution for tuition. This includes college and private primary education. It does not include books or room and board.   Payments made directly to any person or entity providing medical care for the donee.  In both cases, it is critical that the payments be made directly to the educational institution or health care provider. Reimbursement paid to the donee will not qualify. The tuition/medical exclusion is often overlooked, but these expenses can be quite significant. Parents and grandparents interested in estate reduction should strongly consider these gifts. Gift Splitting - A husband and wife can each make annual exclusion gifts, thereby increasing the exclusion from the current $14,000 to $28,000 per year per couple. However, only one of the spouses may be in a financial position to make the gifts. Spouses may elect on the gift tax return to treat a gift made by one spouse as being made by both spouses. Gift splitting can be used for annual exclusion gifts, lifetime exclusion gifts, and gifts above the lifetime exclusions. Example - Gift Splitting - John and Jane are married and have two children. In a year when the annual exclusion limit is $14,000, they would like to exclude $56,000 ($14,000 x 2 donors x 2 donees) in gifts. Jane received a large inheritance some years back; John has only a modest estate. Jane gives the children $28,000 each. Then the couple elects to gift split so that the $28,000 gift is treated as given one-half by Jane and one-half by John (or $14,000 each). The gifts all qualify for the annual exclusion. Even if both spouses have sufficient resources to make gifts, gift splitting is useful when the husband and wife have different estate planning goals. For residents of community property states, if community property is given, gift splitting is not necessary. Regardless of who holds the property's title, or who “makes” the gift, the property is owned one-half by each and is therefore given one-half by each. Gifts of Property - Gifts of property have some of their own circumstances to consider. For instance, where gifts are made of appreciated property such as stocks or real estate, although the donor's gift is considered at the fair market value (FMV) for purposes of valuing the gift, the beneficiary of the gift assumes the donor's basis. As a result, the beneficiary of the gift is assuming any taxable gain the donor would have had if he or she had sold the property instead of gifting it and will have to include as income that gain when and if the gifted property is later sold. Although the FMV of traded stocks is readily available, the same is not true of most other types of property, in which case a qualified appraisal will be needed to determine the value as of the date of the gift. Finally, keep in mind that a beneficiary inherits property at its FMV at the date of the decedent's death as opposed to assuming the decedent's basis, as happens in the case of a gift. If you are contemplating gifting money or property to an individual, it may be appropriate to consult this office in advance to minimize the impact on estate taxes and help with any gift tax filings that may be required. Thu, 29 Sep 2016 19:00:00 GMT Don't Be Left Holding the Tax Bag http://www.mytrivalleytax.com/blog/dont-be-left-holding-the-tax-bag/41976 http://www.mytrivalleytax.com/blog/dont-be-left-holding-the-tax-bag/41976 Tri-Valley Tax & Financial Services Inc Article Highlights: Paying Independent Contractors  1099-MISC Reporting Threshold  Form W-9 Benefits  Penalties  Due Date  If you use independent contractors in your business and pay them $600 or more during the calendar year, you are required to issue them a 1099-MISC after the close of the year. If you fail to do so, and your (if you operate as a Schedule C sole proprietor) or your business's income tax return is subsequently audited, you could lose the deduction for those payments and end up paying taxes on that income yourself, not to mention potential penalties. A big tax trap for businesses is the $600 reporting threshold. Say your business uses the services of an independent contractor early in the year at a cost below the $600 threshold, and you don't bother to obtain the necessary reporting information from the contractor. If you use the contractor's services again later in the year and the combined total you've paid him or her exceeds the reporting threshold, you won't have the required reporting information. Sorry to say, you may find it difficult to obtain that information after the fact, as not all self-employed individuals report all their income, and contractors may not be willing to give you their tax ID information once they've completed the work and gotten your payment for their services. So, it is good practice to collect that information upfront before engaging the contractor regardless of the amount. The IRS provides Form W-9 - Request for Taxpayer Identification Number and Certification - as a means for you to obtain the data required from your vendors in order to file the required 1099-MISC forms after the close of the year. A completed W-9 also provides you with verification that you complied with the law should the vendor provide you with incorrect information. In addition, there are substantial penalties if you fail to file a correct 1099-MISC by the due date and you cannot show reasonable cause for not filing. Generally, for 1099 forms due in 2017, the penalty is $50 per 1099-MISC for not filing by the due date. The penalty increases to $100 if the form is not filed within 30 days of the due date and $260 after August 1, 2017. The maximum penalty for small businesses is $532,000, so you can see this is not a reporting requirement to be taken lightly. Oh, and by the way, the due date for filing 2016 Forms 1099-MISC with the IRS is January 31, 2017, when you are reporting nonemployee compensation (box 7 of the form), which includes the income paid to independent contractors. This due date is a month (two months if you've been filing your 1099s electronically) earlier than it has been in the past. So now both the government's copy and the one you provide the contractor are due by the same date. If you have questions related to your 1099-MISC reporting requirements or need assistance filing the required forms after the end of the year, please give this office a call. Tue, 27 Sep 2016 19:00:00 GMT October 2016 Individual Due Dates http://www.mytrivalleytax.com/blog/october-2016-individual-due-dates/34391 http://www.mytrivalleytax.com/blog/october-2016-individual-due-dates/34391 Tri-Valley Tax & Financial Services Inc October 11 - Report Tips to Employer If you are an employee who works for tips and received more than $20 in tips during September, you are required to report them to your employer on IRS Form 4070 no later than October 11. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.October 17 - Individuals If you have an automatic 6-month extension to file your income tax return for 2015, file Form 1040, 1040A, or 1040EZ and pay any tax, interest, and penalties due.October 17 - SEP IRA & Keogh Contributions Last day to contribute to SEP or Keogh retirement plan for calendar year 2015 if tax return is on extension through October 15. Sat, 24 Sep 2016 19:00:00 GMT October 2016 Business Due Dates http://www.mytrivalleytax.com/blog/october-2016-business-due-dates/34392 http://www.mytrivalleytax.com/blog/october-2016-business-due-dates/34392 Tri-Valley Tax & Financial Services Inc October 17 - Electing Large Partnerships File a 2015 calendar year return (Form 1065-B). This due date applies only if you were given an additional 6-month extension. March 15 was the due date for furnishing Schedules K-1 or substitute Schedule K-1 to the partners.October 17 - Social Security, Medicare and withheld income tax If the monthly deposit rule applies, deposit the tax for payments in September. October 17 - Nonpayroll Withholding If the monthly deposit rule applies, deposit the tax for payments in September. October 31 - Social Security, Medicare and Withheld Income TaxFile Form 941 for the third quarter of 2016. Deposit or pay any undeposited tax under the accuracy of deposit rules. 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 November 10 to file the return. October 31 - Certain Small Employers Deposit any undeposited tax if your tax liability is $2,500 or more for 2016 but less than $2,500 for the third quarter.October 31 - Federal Unemployment Tax Deposit the tax owed through September if more than $500. Sat, 24 Sep 2016 19:00:00 GMT Customizing QuickBooks Online Forms http://www.mytrivalleytax.com/blog/customizing-quickbooks-online-forms/41941 http://www.mytrivalleytax.com/blog/customizing-quickbooks-online-forms/41941 Tri-Valley Tax & Financial Services Inc Make a good impression on your customers by sending them well-designed sales forms. QuickBooks Online helps you create them. Your company's “brand” can be composed of many things (and has many definitions), but it's really about what pops into your customers' minds when they think of you. Key components include your logo, your color scheme, and any other identifying visual element that people associate with your business. A good way to reinforce this image is by making sure that a unifying graphic theme runs through every piece of print or web-based customer content you create, like your website, brochures, blog, and ebooks. Your brand should also be visible on all sales forms you dispatch, like invoices and receipts. QuickBooks Online comes with its own default sales form style; this is the layout and content that will automatically display when you start a new transaction. You can easily change this and have it apply to all transactions. Your logo is an important element of your company's brand. QuickBooks Online lets you include it on sales forms. Here's how it works. Click on the gear icon in the upper right of the screen, next to your company name. Select Custom Form Styles to open the table of existing styles. There should be one labeled Standard, though there may be another labeled Classic. You can make either the default by clicking Make Default or Remove as default using the down arrows and links under ACTION at the far right of each row. Click the Edit link for the default style. This screen contains many of QuickBooks Online's customization tools. The Style tab in the left vertical toolbar is automatically highlighted. In the column to its right, click through the five design options available and leave the desired one selected. Then click the plus (+) sign in the upper right of the screen. Browse for your logo file when the directory opens and double-click on it to add it to the top of your sales forms. Choose the color scheme you want by clicking in the correct box displayed below. When you're done there, click on the Appearance tab to specify your logo's placement and change any other settings. Content Critical You can decide which fields should and shouldn't appear on your sales forms by checking and unchecking boxes. You won't necessarily need to make every data field available on your sales forms. But you want to include every field you might possibly need without displaying extraneous content areas. QuickBooks Online lets you turn fields on and off and change their labels easily by checking and unchecking boxes. Click the Header tab on the left to start this process. Among your options here are: Form names. Do you want invoices to say “Invoice,” for example? Do you want to use form numbers and allow custom transaction numbers?  Company. How much of your company's contact information should appear?  Customer. Do you want fields for Terms, Due date, etc?  Custom. Do you need to define custom fields?  You'll see more options when you click on the Activity Table tab in the left vertical pane (see image above). Not only can you choose what content appears and how its labels read, but you can also indicate what percentage of that line each entry should occupy. Under WIDTH%, click on the plus (+) and minus (-) buttons to the right of each number to size it (your numbers, of course, should total 100). Warning: Many of the decisions you have to make when customizing sales forms are simple. Others take some consideration, like custom fields and the handling of billable time. We can help you with these. Click on the final tab in the left navigation pane, Footer, to add or edit text that should be displayed at the bottom of your sales forms. Click Save in the lower right when you're done. Some settings may need to be tweaked in Account and Settings. Note: As you're browsing through the content options available as described above, you may find that a field appears to be missing or needs a default setting changed. If this occurs, click on the gear icon in the upper right of the main screen, then on Your Company | Account and Settings. Click on the Sales tab in the left vertical pane to get to Sales form content. Consistent, well-designed sales forms will help promote your brand and present a polished, professional image to your customers. Fri, 23 Sep 2016 19:00:00 GMT 2015 Return Not Filed Yet? You Could Lose Eligibility for 2017 Advance Premium Credit http://www.mytrivalleytax.com/blog/2015-return-not-filed-yet-you-could-lose-eligibility-for-2017-advance-premium-credit/41940 http://www.mytrivalleytax.com/blog/2015-return-not-filed-yet-you-could-lose-eligibility-for-2017-advance-premium-credit/41940 Tri-Valley Tax & Financial Services Inc Article Highlights: Advance Premium Tax Credit (APTC)  Premium Tax Credit (PTC)  Reconciling the Credit  Responsibility to File and Reconcile  Losing Eligibility for APTC  Individuals who procure their health insurance through a government marketplace may qualify for the advance premium tax credit (APTC), which is used to reduce the cost of their insurance premiums. The reason it is called an “advance” premium tax credit is because the marketplace estimates the amount of the premium tax credit (PTC) that individuals will ultimately qualify for when they file their tax returns for the year. The estimation is based on information the individual provides the marketplace as to the amount of anticipated household income and family size. APTC is provided to reduce the financial burden of having to pay the full premium amounts during the year and then receiving the credit after the fact. However, receiving the APTC comes with a responsibility. Those who receive APTC must file their tax returns and reconcile the amount of APTC received and PTC they are entitled to based on their actual household income and family status. An individual who has received more APTC than they are entitled to must pay back the excess when they file their tax return. If they qualified for more than they received, then they are entitled to the difference as a refundable credit on their return. But, if an individual does not file a return and reconcile the amount of credit received in advance during 2015 with the amount they are entitled to by the October 17, 2016, extended due date for 2015 returns, they will be disqualified from receiving APTC for 2017. That will mean having to pay the full amount of the insurance premiums during the upcoming year and waiting until the 2017 return is filed in 2018 to receive any PTC to which they are entitled. The IRS is sending letters to taxpayers who received advance payments of the premium tax credit in 2015 but who have not yet filed their tax returns. If you receive Letter 5858 or 5862, you are being reminded to file your 2015 federal tax return along with Form 8962, the IRS form where the APTC and PTC are reconciled. If you have not yet filed, we encourage you to call this office so we can quickly file your return to make sure your eligibility for the APTC is not jeopardized. Thu, 22 Sep 2016 19:00:00 GMT 9 Finance Tips All Business Owners Should Follow http://www.mytrivalleytax.com/blog/9-finance-tips-all-business-owners-should-follow/41938 http://www.mytrivalleytax.com/blog/9-finance-tips-all-business-owners-should-follow/41938 Tri-Valley Tax & Financial Services Inc Business owners are experts at their industry. You know your products and services well – better than the competition. You know how to reach those customers, too. But, managing what’s behind the scene isn’t always as easy. With the right tools and resources, including a professional by your side, you can enhance the way you do business, reduce your spend, and increase your profit margins. To get started, you need some basic information on finance. #1: Recognize the Importance of Your Books Invoices, bank statements, and even some accounting work is commonly done through software programs today. However, it’s more than just accounting for your revenue and losses that’s important. In other words, you need to turn this data into usable information. Your figures can help you know how to grow profits even further if you know how to read them properly. #2: Stop Putting It Off It is much harder to manage that stack of papers at the end of the month than it is to spend a few minutes each day entering details. Having a pro to do this for you makes it even easier. If you are procrastinating, though, you’re hurting your short-term and long-term financial goals. #3: Know Your Risks A Headway Capital study found that 57% of business owners planned to grow this year. Most companies set out to grow for the year, but they often lack attention spent on minimizing risks. What’s the worst-case scenario? What’s your break-even point? Addressing risks as a part of your financial strategy really can streamline your finances should the year not go as you planned. #4: You Really Didn’t Budget, Did You? Some small to medium businesses lack the time it takes to budget. It’s understandable, but that doesn’t make it okay. Budgeting helps address those risks, but it also helps you to make better buying decisions. And, when you have tools in place to help you monitor inventory, expenses, and other unforeseen costs, you can create better budgets that allow you to do more with your profits. #5: Tax Mistakes Are Common Small to medium businesses suffer from some of the most complicated taxes. Without having a professional to monitor and guide your taxes throughout the year, your business could suffer significantly. The IRS says that, in 2014, $1.2 billion in civil penalties were placed against small business income tax filers. Most small businesses need reliable support to ensure tax filing and reporting isn’t a secondary importance. #6: Build from Your Strengths You don’t have to build your business on new products or start from scratch each time. It’s best to simply build onto what you have. For example, you’ll want to pinpoint where your biggest profit margins come from. Once you understand who your moneymakers are, target them within your business. By identifying and focusing on these areas, you can build your revenue and profits faster, therefore giving you the room to expand in other areas later. #7: Building a Business Is More Than Hours Worked It’s very common for business owners to spend a lot of time and hard work building their business on their own. Are you putting in 80 hours a week? If so, you may be limiting your growth potential. Instead, empower professionals and employees to help you with delegated tasks. This can give you more time to spend on what’s really making you money and help you to sleep at night. #8: Focus on Lean Practices Less really is more. As a business owner, you’ll want to incorporate the lean philosophy of keeping less on hand so you reduce your overhead. You create more value for your customers with less. #9: Access Capital When You Can, Not When You Need To Having a steady stream of income on hand is important. Instead of waiting until you are desperate for funding, and having to show your investors that you are in that place, focus on planning ahead and minimizing the risk of a negative situation. As a business owner, making wise financial decisions for your company is an ongoing process. But, you don’t have to do it alone. Allow professionals to help you along the way to better manage your money and you could see it grow faster than you thought possible. Wed, 21 Sep 2016 19:00:00 GMT Time Is Running Out! Extended Tax Due Date Just Around the Corner http://www.mytrivalleytax.com/blog/time-is-running-out-extended-tax-due-date-just-around-the-corner/41937 http://www.mytrivalleytax.com/blog/time-is-running-out-extended-tax-due-date-just-around-the-corner/41937 Tri-Valley Tax & Financial Services Inc Article Highlights: Extended Due Date  Funding Retirement Plans  K-1 Due Dates  Late Filing Penalty  Interest on Amount Due  If could not file your 2015 return by the normal April due date and requested an extension, be aware that the final due date for your return is October 17, 2016. The date is normally October 15, but that falls on a weekend this year, giving you two extra days to meet your individual tax-filing obligation. There are no additional extensions, so this is it! Even though you have until October 17, you need to be thinking about getting the return completed in advance of the actual due date. Preparing a return takes time, and last-minute issues may need to be resolved before the return is ready to file. In addition, between 10% and 15% of all tax returns are on extension, creating a rush for this office as many people file at once. If you are self-employed, October 17 is also the final date when you can fund your existing self-employed retirement plan or establish a new one; without completing your return, there is no way to determine how much you can (or want to) contribute to that retirement plan. The extended deadline for K-1s from partnerships, S-corporations, or fiduciary returns to be sent out was September 15, so if you have not received that information yet, you should make inquiries. Extended individual federal returns are subject to a penalty of 5% of the tax due for each month (or part of a month) for which the return is not filed by the October 17 due date, with a maximum penalty of 25% of the tax due. In addition, if you end up owing taxes, the IRS will charge you interest on any tax due, going all the way back to the original April due date. If do not file a required state return and do owe state taxes, the state will also charge a late filing penalty and interest. If this office is waiting for you to supply missing information to complete your return, we will need that information at least a week before the October 17 due date. Please call this office immediately if you anticipate complications related to providing the needed information so that we can determine a course of action for avoiding potential penalties. Tue, 20 Sep 2016 19:00:00 GMT Ingenious Scam Targets Taxpayers http://www.mytrivalleytax.com/blog/ingenious-scam-targets-taxpayers/41935 http://www.mytrivalleytax.com/blog/ingenious-scam-targets-taxpayers/41935 Tri-Valley Tax & Financial Services Inc Article Highlights: Scammers Change Tactics Fake IRS Mail Notices Have Your Tax Preparer Review Notice Crooks have tried all sorts of e-mails scams, but almost everyone has figured out that the IRS does not send out notices by e-mail. So crooks have changed their tactics. Now, there are reports of taxpayers receiving by mail (or email) fake notices requiring immediate payment to a P.O. Box. The P.O. Boxes are located in cities where the IRS has service centers, but of course are not IRS P.O. Box addresses. These scammers have duplicated the look of official IRS mail notices, which to the untrained eye would lead one to believe a notice was really from the IRS. So be extremely cautious of any notice you may have received from the IRS. If a notice is demanding immediate payment and there has not been any prior contact by the IRS over the issue, then the notice is probably from a scammer. Reports indicate the initial letters were numbered CP-2000. Here is a sample fake IRS CP-2000 supplied by Iowa State University. Don’t be a victim, have any notice you receive from the IRS, or any tax authority for that matter, reviewed by this office before taking action..embed-container { position: relative; padding-bottom: 56.25%; height: 0; overflow: hidden; max-width: 100%; } .embed-container iframe, .embed-container object, .embed-container embed { position: absolute; top: 0; left: 0; width: 100%; height: 100%; } Mon, 19 Sep 2016 19:00:00 GMT Looking for Ways to Maximize Your Retirement Contributions? http://www.mytrivalleytax.com/blog/looking-for-ways-to-maximize-your-retirement-contributions/41933 http://www.mytrivalleytax.com/blog/looking-for-ways-to-maximize-your-retirement-contributions/41933 Tri-Valley Tax & Financial Services Inc Article Highlights: Key Benefits  Solo 401(k) Contributions  Discretionary Funding  Where Deducted  Deadlines  Roth Option  If you are a sole proprietor with no full-time employees other than yourself and/or your spouse, and you are seeking to maximize your retirement plan contributions, a Solo 401(k) may be right for you. The key benefits of a Solo 401(k) plan allow you to: Manage your own account directly without any brokers, banks, or trust companies as middlemen.  Generally contribute larger amounts, approximately equal to the 401(k) and profit-sharing amounts combined.  Legally avoid the unrelated business income tax (UBIT) that would apply to certain self-directed IRA transactions.  Make Roth contributions to the 401(k) element (not the profit-sharing part) of the plan, regardless of the AGI limitations that apply to regular Roth contributions.  Transfer existing retirement funds into the Solo 401(k).  Direct your investments with absolutely no restrictions on investment choices (including real estate, private companies, foreign assets, precious metals, etc.).  Solo 401(k) Contributions - The maximum annual contribution to a Solo 401(k) for 2016 is $53,000 but not exceeding 100% of compensation. The Solo 401(k) contribution consists of two parts: (1) a profit-sharing contribution of up to 20% of net self-employment income for unincorporated businesses or 25% of W-2 income for incorporated businesses and (2) a salary-deferral contribution (same as the 401(k)) of as much as 100% of the first $18,000 ($24,000 if age 50 or over) of the remaining compensation after the profit-sharing contribution, as a tax-deductible contribution. Given sufficient income, a self-employed individual and spouse (assuming the spouse is employed in the same business) may contribute, for 2016, up to $106,000 combined. Because of the way the contribution is calculated, a larger contribution can usually be made into a Solo 401(k) than to a Keogh or SEP IRA at the same income level. Discretionary Funding - The funding of the Solo 401(k) plan is completely discretionary and flexible every year. Funding can be increased, decreased, or skipped entirely, if necessary. Where Deducted - If your business is organized as a Subchapter S or C corporation, or LLC electing to be taxed as a corporation, then you are an employee of the business, so the salary-deferral contribution reduces your personal W-2 earnings and the profit-sharing contribution is deducted as a business expense. For a sole proprietorship, a partnership, or an LLC taxed as a sole proprietorship, the owner's salary-deferral and profit-sharing contributions are deductible only from personal income (i.e., on page 1 of Form 1040, as an adjustment to gross income), and not as an expense of the business. Deadlines - The deadline for establishing a Solo 401(k) is December 31st for an individual or the fiscal year end for corporations. For unincorporated businesses, the deadline for making the contributions is the regular April income tax filing due date plus extensions. For incorporated businesses, the deadline is 15 days after the close of the fiscal year. Roth Option - The 401(k) portion of the contribution can be designated as a non-deductible qualified Roth contribution, provided the plan document permits Roth contributions. If you think a Solo 401(k) might be right for you, please call this office for further details and to determine if your particular circumstances permit you have and whether you will benefit from a Solo 401(k). Thu, 15 Sep 2016 19:00:00 GMT 14 interviews with some of the most influential #entrepreneurs of our time. http://www.mytrivalleytax.com/blog/14-interviews-with-some-of-the-most-influential-entrepreneurs-of-our-time/41932 http://www.mytrivalleytax.com/blog/14-interviews-with-some-of-the-most-influential-entrepreneurs-of-our-time/41932 Tri-Valley Tax & Financial Services Inc As a business owner, sometimes it feels like the weight of the world is on your shoulders. It is your money and time on the line. It is your business decisions and the risks you take on that will help define your future. We compiled a list of interviews of some of the most successful thought leaders that might help shed light on the struggles all entrepreneurs go through. Sometimes it just makes you feel better when you hear how others overcame the same struggles you face and made it big. Time to get inspired. 1) Entrepreneur: Elon Musk - CEO of Tesla Motors and SpaceX Why you should listen: Elon Musk is one of the biggest disruptors of our time. His ambitions are forward-thinking and, if executed, will redefine many aspects of our lives. This interview goes into some background and describes his passion for the way he does things. Quotable: “...a lot of friends of mine tried to talk me out of starting a rocket company because they thought it was crazy.” 2) Entrepreneur: Scott Cook - Founder and Chairman of the Executive Committee, Intuit Why you should listen: Scott Cook and his company revolutionized accounting for small-business owners. He talks about how Intuit started and grew into such an influential company. Quotable: “No VC said yes.” 3) Entrepreneur: Drew Houston - CEO and Founder of Dropbox Why you should listen: Dropbox is now used by over 300 million people worldwide. Drew goes over how he started writing code when he was 5 and landed his first job at age 14. Quotable: “Reading about business is probably the most important thing that's prepared me for running Dropbox.” 4) Entrepreneur: Oprah Winfrey - The Secret of My Success Why you should listen: Oprah Winfrey discusses the qualities that made her a top-rated talk-show host and the importance of spirituality. Quotable: “I work at staying awake.” 5) Entrepreneur: John Paul DeJoria's Top 10 Rules For Success Why you should listen: John Paul DeJoria is a self-made businessman who overcame homelessness to become a multi-billionaire. His 10 rules of success are a must for any business owner. Quotable: “...reorder business, you are never selling, you are trying to get it in someone's hands, whether it is a service or a product, knowing that it is so darn good they are going to want to order again or tell a friend about it...” 6) Entrepreneurs: Steve Jobs and Bill Gates - Together Sit Down Why you should listen: Two of the brightest technology minds on the planet took the stage together for a rare look into their rivalry and mutual respect. Quotable: Jobs: “Building a company is really hard, and it requires your greatest persuasive abilities...” Gates: “We build the products we want to use ourselves.” 7) Entrepreneur: Larry Ellison, Oracle: Top 10 Rules for Success Why you should listen: Larry is one of the most competitive entrepreneurs the planet has ever seen. His accomplishments include running Oracle and his other hobbies, like America's Cup. Quotable: “Translating a good idea into a great product is unbelievably hard.” 8) Entrepreneur: Tony Robbins: TED Talks Why We Do What We Do Why you should listen: Tony has helped guide millions to learn their “why” in life. You can't miss the high-five to Al Gore during this TED Talks presentation. Quotable: “Decision is the ultimate power.” 9) Entrepreneur: Richard Branson Why you should listen: Richard Branson talks to TED's Chris Anderson about the ups and the downs of his career, from his multibillionaire success to his multiple near-death experiences — and reveals some of his (very surprising) motivations. Quotable: “All you have in life is your reputation. And it is a very small world.” 10) Entrepreneur: Jeff Bezos - Amazon Why you should listen: Amazon CEO Jeff Bezos sat down with Henry Blodget at Business Insider's Ignition 2014 for an in-depth interview on a variety of topics. Jeff talks about his philosophy and how he deals with “mistakes.” Quotable: “I have made billions of dollars of failures at Amazon.com.” 11) Entrepreneur: Sheryl Sandberg Lean in: A Discussion on Leadership Why you should listen: Sheryl Sandberg is the COO of Facebook and addresses an audience at the Pentagon to talk over leadership and gender bias. Quotable: “That little girl is not bossy. That little girl has executive leadership skills.” 12) Entrepreneur: Arianna Huffington - On Entrepreneurship Why you should listen: Arianne Huffington and Joshua Kushner are exploring what it takes to be an entrepreneur from both ends - investment and entrepreneurship. Being both investor (Thrive Capital) and entrepreneur (Oscar), Joshua is the ideal team member for this ping-pong session on the ying-yang of start-ups. Quotable: “We all need time to disconnect from our important jobs and our innovations and our startup and reconnect with ourselves.” 13) Entrepreneurs: Victoria Ransom, CEO Wildfire, Alexa von Tobel, CEO, LearnVest and Shunee Yee, Founder and CEO, CSOFT International Why you should listen: A talk with some of the best and brightest female founders and entrepreneurs. Quotable: “I just wanted to get out of bed every morning and feel like I was making a difference.” 14) 50 Entrepreneurs share priceless advice in short clips Why you should listen: Over 50 of the best of the best entrepreneurs share their thoughts in short bursts in this inspiring ensemble of short clips.Quotable: “By why, I mean what is your purpose, what is your cause, your belief, why does your organization exist.” Wed, 14 Sep 2016 19:00:00 GMT Time for Baby Boomers to Pay Up http://www.mytrivalleytax.com/blog/time-for-baby-boomers-to-pay-up/41928 http://www.mytrivalleytax.com/blog/time-for-baby-boomers-to-pay-up/41928 Tri-Valley Tax & Financial Services Inc Article Highlights: Required Minimum Distribution (RMD) Distribution Period Penalty for Not Taking an RMD Multiple Accounts Non-Taxable Amounts Roth Conversions Effect on Other Income & Deductions Once RMDs Start Additional Withholding or Estimated Tax Charitable Option All you baby boomers who have been stashing away tax-deferred retirement savings, take note: it is getting close to the time to start withdrawing funds from those accounts and, of course, paying taxes on those withdrawals. This includes distributions from traditional IRAs and 401(k)s. The same Internal Revenue Code that allowed you to save tax dollars when you contributed to those tax-deferred retirement plans also generally requires you to begin withdrawals on the year you reach age 70½. These distributions are called required minimum distributions (RMDs) and are based on annuity tables. Generally, most individuals will utilize the single life table, but the joint life annuity tables are used if the individual’s spouse is more than 10 years younger. Keep in mind that you can always take as much as you wish from your tax-deferred retirement accounts, but you must take the RMD amount each year, beginning with the year you turn age 70½, or you will be subject to a very severe penalty, which we will discuss later. One exception is that you can delay the payout for the year you become 70½ until no later than April 1 of the following year. However, since you will also need to make an RMD for that following year, you will end up with two years’ worth of distributions being taxed in one year if you use the delayed distribution option. The following is an abbreviated single life table. The actual table goes to age 111. Age 70 71 72 73 74 75 Distribution Period (Years) 27.4 26.5 24.7 24.7 23.8 22.9 Required Minimum Distribution – To determine an RMD, first determine the distribution period (life expectancy) based on your current age. So, for the year you turn 70½, the distribution period would be 27.4 years. Next, determine the retirement account’s balance on December 31 of the prior year. The account balance divided by the distribution period equals the RMD. For example, say you will turn age 70½ in 2016 and your tax-deferred retirement account had a balance of $500,000 on December 31, 2015. Your 2016 RMD would be $18,248 ($500,000/27.4). Failure to Take an RMD Penalty – When the full amount of an RMD is not taken, the penalty is 50% of the amount you didn’t withdraw. Luckily, the IRS is very lenient on this penalty and will generally waive it when an under-distribution is inadvertent or due to ignorance of the law, provided that the RMD amounts are made up as soon as possible once the error is discovered. Avoid RMD problems by having your account custodian or trustee determine the RMD annually and then transfer the distribution directly to your checking, savings or non-retirement plan brokerage account. Multiple Retirement Accounts – When you have multiple accounts, the question often is, “Which account should I take the RMD from?” All traditional IRAs are treated as one for distribution purposes. So, you can take the RMD for the IRA accounts from any combination of the accounts that you choose. However, that may cause a problem with a trustee of the IRA account(s) from which you didn’t take a distribution, who may think you didn’t take your RMD for the year. So, it is less problematic to take a distribution from each account. You may wish to simplify the RMD distributions by transferring all of your traditional IRAs into one account, if you have several traditional IRAs. This is best done by having the trustees make direct transfers to the target IRA, rather than you receiving the distributions and then rolling over the funds, since you are only allowed one IRA rollover each twelve months (trustee-to-trustee transfers don’t count as rollovers). Note that spouses must maintain their accounts separately and cannot combine their accounts with yours when figuring RMDs. If you have a 401(k) account, the RMD for it must be figured separately from any IRA accounts you also have. And, if you have multiple 401(k)s, each 401(k) account’s RMD is figured separately from those of your other 401(k) plans. Non-Taxable Amounts – If your tax deduction for the contribution was limited when you made your traditional IRA contribution because you were a high-income taxpayer, you would have created a non-taxable basis in your IRA. If this is true, then that non-taxable basis is recovered tax-free in proportion to your distribution. Roth Conversions – The ability of individuals to convert amounts of their traditional IRAs to Roth IRAs gives rise to some possible tax-saving moves in the years leading up to the RMD age. Things to consider are: Is you tax bracket lower now than it will be after retirement? If so, you might consider converting some portion of your traditional IRA to a Roth IRA now. You will pay tax on the traditional IRA distribution in the year of the conversion, but when you withdraw it from the Roth IRA, it will be tax-free. If you have a low-income year for some reason, and if you are age 59½ or older, it might be appropriate to take a distribution in that year and pay little or no tax. You won’t get a credit against a future RMD by doing so but you will be lowering the balance in the account for the eventual calculation of RMDs. These types of strategies require careful planning, and you should consult this office first. Effect on Taxable Income Once RMDs Start – Your taxable income may be increased by more than just the amount of the RMD. Adding your RMD to your income that is already taxed will increase your adjusted gross income (AGI); as a result, the amount of your Social Security benefits that is taxed may also increase. In addition, since the AGI is the amount on which the phaseout or reduction of many tax deductions is based, you may also find that you are getting less tax benefit from such items as medical expenses, charitable contributions, and investment-related expenses – all of which means your tax bill will go up by more than it otherwise would by just adding the RMD to your income. Plan for Additional Withholding or Estimated Tax – Once you start taking distributions from your IRA or 401(k), and to avoid a potential underpayment of tax penalty, you will likely need to increase your tax prepayments, either by having federal (and possibly state) income taxes withheld from the distributions or by making quarterly estimated tax payments. If you already make estimated tax payments, you may need to increase the installment amounts. If You Don’t Need the RMD – If you simply don’t need the retirement distribution, after reaching age 70½, you can donate up to $100,000 of IRA funds per year to a qualified charity without having to include the distribution in your income, and it will still count towards your RMD. If you are married and your spouse has an IRA and is also 70½ or older, he or she may also make a charitable IRA distribution of up to $100,000. So, if you are someone who gives substantial amounts to charity each year, this is a distribution strategy you may want to consider after reaching RMD age. CAUTION: To qualify under this provision, the funds must be directly transferred from the IRA account to the charity. RMD issues can be quite complicated, and it is highly suggested that you consult with this office for pre-RMD planning, determining the correct RMD amounts, and analyzing your withholding and/or estimated tax obligations. Tue, 13 Sep 2016 19:00:00 GMT Hobbies and Income Tax http://www.mytrivalleytax.com/blog/hobbies-and-income-tax/41920 http://www.mytrivalleytax.com/blog/hobbies-and-income-tax/41920 Tri-Valley Tax & Financial Services Inc Article Highlights: Hobby, Trade, or Business  Profit Motive  Factors Determining Profit Motive  Presumption of Profit Motive  Tax Treatment of Hobbies Millions of U.S. taxpayers engage in hobbies such as collecting stamps or coins, refurbishing old cars, making crafts, painting or breeding horses, and the list goes on. Some hobbies will actually generate income, and some will even evolve into businesses. The tax treatment of hobbies with income is quite different than that of a trade or business, and making the distinction can be rather complicated. The main issue here is that the IRS does not want taxpayers to write off hobby expenses under the guise of trade or businesses expenses. So, the first question is whether the activity is a hobby, trade or business. The tax law doesn't really provide a bright-line definition of the term “trade or business,” probably because no single definition will apply in all cases. But certainly, to be considered a trade or business, an activity must be motivated by the taxpayer's profit motive, even if that motivation is unrealistic. Along with a profit motive, the taxpayer must carry on some kind of economic activity. Factors to determine profit motive - The IRS uses a series of factors to determine whether an activity is for profit. No one factor is decisive, but all of them must be considered together in making the determination. (1) Is the activity carried out in a businesslike manner? (2) How much time and effort does the taxpayer spend on the activity? (3) Does the taxpayer depend on the activity as a source of income? (4) Are losses from the activity the result of sources beyond the taxpayer's control? (5) Has the taxpayer changed business methods in attempts to improve profitability? (6) What is the taxpayer's expertise in the field? (7) What success has the taxpayer had in similar operations? (8) What is the possibility of profit? (9) Will there be a possibility of profit from asset appreciation? Presumption of profit motive - There is a presumption that a taxpayer has a profit motive if an activity shows a profit for any three or more years during a period of five consecutive years. However, if the activity involves breeding, training, showing or racing horses, the period is two out of seven consecutive years. An activity that is reported on a tax return as a business but has had year after year of losses and no gains is likely to eventually come under scrutiny by the IRS. Tax Treatment of Hobbies - While trades or businesses can have losses without restriction, if the activity is deemed to be a hobby, then special rules - frequently referred to as “hobby loss” rules - apply. Under these rules, any income from the hobby is reported on the face of the tax return, and the expenses are only deductible if a taxpayer itemizes their deductions on Schedule A. In addition, hobby expenses are limited by category as follows: Category 1: This category includes deductions for home mortgage interest, taxes, and casualty losses. They are reported on the appropriate lines of Schedule A as they would be if no hobby activity existed. Category 2: Deductions that don't result in an adjustment to the basis of property are allowed next, but only to the extent that gross income from the activity is greater than the deductions under Category 1. Most expenses that a business would incur, such as those for advertising, insurance premiums, interest, utilities, wages, etc., belong in this category. Category 3: Business deductions that decrease the basis of property are allowed last, but only to the extent that the gross income from the activity is more than the deductions under the first two categories. The deductions for depreciation and amortization belong in this category. Additional limit - Individuals must claim the amounts in categories (2) and (3) as miscellaneous deductions on Schedule A, which are subject to the 2% AGI reduction; as a result, they are not deductible for alternative minimum tax purposes. Hobby loss rules can be complicated. If you need assistance determining whether your activity qualifies as trade or business, or whether it is subject to the hobby loss rules, please give this office a call. Thu, 08 Sep 2016 19:00:00 GMT Preparing Your Own Tax Return? That May Not Be a Wise Decision. http://www.mytrivalleytax.com/blog/preparing-your-own-tax-return-that-may-not-be-a-wise-decision/41911 http://www.mytrivalleytax.com/blog/preparing-your-own-tax-return-that-may-not-be-a-wise-decision/41911 Tri-Valley Tax & Financial Services Inc Article Highlights: Tax Law Complexity  Getting Back More Than You Are Entitled To  When the IRS Wants Some of Your Refund Back Missing Out on Financial and Retirement Advice  We hear a lot about the complexity of the tax code these days and a lot of rhetoric from Washington about simplifying it. The tax code was originally written simply to bring in money (taxes) to pay for government costs. But over the years, Congress has used the tax code more and more as a tool to manage social reform, and as a result the code has gotten quite complex. So with taxes becoming more complex with each passing year, why do people think they can prepare their own returns? Professional tax preparers use software-costing thousands of dollars, so why do individuals, not educated in tax law and using low-cost computer software, think they can get their tax result right? Well, they may not, and they may miss deductions, credits, income exclusions, retirement benefits, and even more beneficial filing options just to save a few bucks on tax preparation costs. However, paying a little more in tax than they need to should not be their biggest concern. A more troublesome situation is getting more tax refund than they are entitled to, and then a year or two later getting a letter from the IRS wanting the excess back. This is especially devastating to lower-income individuals and families that spend what they bring in just making ends meet and have no savings to fall back on when the IRS comes calling, leaving them with even a bigger financial hole. To make matters worse, they may not even understand the IRS letter or the issue it is dealing with, and since they did their own return, they have no one to call for help in getting the tax assessment reduced or knowing how to get penalties abated. Professional tax preparation offers more than just entering numbers into a computer program. So, if you are a tax return do-it-yourselfer, perhaps you should consider a firm that can not only prepare your taxes properly, but also provide tax, financial, and retirement guidance along with planning for the future, helping you to avoid run-ins with Uncle Sam. Please give this office a call. Tue, 06 Sep 2016 19:00:00 GMT Did You Know Gambling Can Increase Your Health Insurance Costs? http://www.mytrivalleytax.com/blog/did-you-know-gambling-can-increase-your-health-insurance-costs/41890 http://www.mytrivalleytax.com/blog/did-you-know-gambling-can-increase-your-health-insurance-costs/41890 Tri-Valley Tax & Financial Services Inc Article Highlights: Adjusted Gross Income  Reporting Gambling Winnings  Reporting Gambling Losses  Netting Gambling Winnings & Losses  Premium Tax Credit  Game Show Winnings  Medicare Premiums  If you are a recreational gambler, there is a quirk in the tax law that can actually cause you to pay more for your health insurance if you have gambling winnings, even if the overall result from gambling for the year is actually a loss. How can this be? Well, you know how tangled a web our tax laws are, and adding Obamacare into the equation has created some interesting fallout, such as this oddity. To understand how it happens, you must first understand how gambling winnings and losses are treated on your tax return. They are generally not netted on the tax return. The total gambling winnings are included in your adjusted gross income (AGI) for the year, and your losses are taken as an itemized deduction and limited to an amount not exceeding your reported winnings. So, whether or not you itemize your deductions and deduct your gambling losses, the full amount of the gambling winnings is included in your AGI, and your AGI is included in your household income, which is used to determine the amount of premium tax credit (PTC) to which you are entitled. PTC is the subsidy provided by the government to help pay for your insurance when you purchase it through the government insurance Marketplace. The higher your income, the lower your PTC, and the lower the PTC, the higher your insurance premiums. If your gambling winnings exceed certain thresholds based on the type of gambling you did and the amount you won, the casino, poker palace or racetrack is required to send you and the IRS a Form W-2G that shows the winnings, so you can be sure the IRS will be aware of your gambling income. Even if your losses for the year exceed your winnings, or if you don't receive a W-2G form, the IRS expects you to report your winnings, which will increase your AGI and, likely, your Marketplace-purchased insurance premiums also. The same requirement applies if you win on a game show: the winnings are included in your AGI, and even if you give the goods you won to charity and deducted the contribution as an itemized deduction, your gross income includes the entire winnings. Although impacting very few individuals, if you are retired and on Medicare, there is a similar scenario that can increase the cost of Medicare B and D premiums. An individual's Medicare B and D premiums are based on his or her AGI from two years prior. Thus, if you hit it big a couple of years back, you could see a rise in both your monthly Medicare B premium and a supplement for the Medicare D premium (prescription drug coverage). However, the Medicare premium increase generally impacts higher-income individuals who can deal more easily with the increased costs. If you have any questions about how gambling winnings and losses may affect your tax return and medical insurance costs, please give this office a call. Thu, 01 Sep 2016 19:00:00 GMT Avoid These 4 Common Small Business Accounting Mistakes http://www.mytrivalleytax.com/blog/avoid-these-4-common-small-business-accounting-mistakes/41879 http://www.mytrivalleytax.com/blog/avoid-these-4-common-small-business-accounting-mistakes/41879 Tri-Valley Tax & Financial Services Inc Article Highlights: Reporting employees as independent contractors  Not reconciling bank accounts regularly  Forgetting to record payments against open invoices  Not understanding the differences between cash flow and profit  When you decided to open for business, you had a vision for the future. You identified a need and came up with a solution you could provide and sell, and you invested your time, your money, your knowledge, and your drive to make it into a reality. The only problem in this scenario, if you're like a lot of small business owners, is that you did not anticipate having to handle your business's accounting needs. Many highly intelligent, responsible business operators get caught making common small-business accounting mistakes that can trip them up and cost them in the long run. If you are afraid this might happen to you — or if it already has — the best way to avoid these costly errors is to learn the top four small-business accounting mistakes and how to prevent them. The Top 4 Accounting Mistakes Made by Small Businesses The truth is that these four mistakes are relatively easy to address. The best way to avoid them is to set aside time every week for the specific purpose of taking care of basic accounting tasks. Once you get into the habit of doing them regularly and the right way, you'll be able to avoid the hassle of having to go back and correct these mistakes in the future. Let's look at each one individually, in a bit more depth. Reporting Employees as Independent Contractors If you hire people to work for you, it's important for you to understand the difference between employees and contractors, and to classify them correctly. There are very specific ways that you must account for each type of worker, and if you don't get it right you will likely have to make corrections — and possibly pay penalties — in the future. If somebody is your employee, then you have control over when they work, how they get paid, and how they do their job. You are also responsible for withholding payroll tax on their behalf. By contrast, when you bring somebody in to do work for you as an independent contractor, they have more control over their own schedule, the work that they do, and how they get paid by you. They are responsible for their own taxes. Not Reconciling Bank Accounts Regularly Just as there are certain tasks that need to be done to keep your business running smoothly, there are certain accounting tasks that need to be addressed on a regular basis. Reconciling your bank accounts is one of those things. You need to make sure that every expense and every deposit is recorded in your books, and the best way to do that is to compare what you've written down to the statement that the bank provides. When you do this regularly, you are able to more immediately identify and address items that don't match up so that you can correct any mistakes and take full advantage of available deductions. Far too often small business owners assume that this task is a waste of time and wait until the end of the year to do it. Not only is this much more time consuming, but it is harder to catch all mistakes and figure out what is missing when you have a full year's worth of information to go through. Forgetting to Record Payments Against Open Invoices You receive a check in the mail or make a deposit into your bank account for an open invoice. If you don't go back and check off the box showing that receivable as paid, your accounting data will be incorrect and incomplete. Get into the habit of immediately linking payments to their open invoices in order to avoid problems in the future. Not Understanding the Differences Between Cash Flow and Profit The money that comes in from your customers and the money that goes out as you make expenditures to operate your business represents cash flow. It's important to have a positive cash flow, as that is a good indication that your company is healthy. It also means that you can pay your bills. But cash flow is not the same thing as profit. Profitability is a measure of whether you are making more from the sale of your service or product than you spend in bringing it to market. You may be profitable, but if the cash isn't in hand then you can still have a negative cash flow. And people can pay you quickly so that you have cash on hand but you still may not be making a profit. The single best and easiest way to avoid these mistakes it is by taking advantage of all of the tools and functions that your accounting software package offers. Most accounting programs include powerful tools and how-to guides, but in many cases small business owners just invest in the packages without taking the time to learn all that they can do — or to learn it well. By taking a little time on the front end to go through the available tutorials, you'll find that you'll save yourself both time and trouble on the back end. Our best advice is to set aside time one day of the week, first to learn the software and then, going forward, to go through that week's records. Set aside the same time slot each week as if it is a meeting or appointment. It's a good habit to get into. If you find yourself struggling to learn your software and you need help, don't hesitate to contact us for tips and/or training — we're happy to help. And once you learn what you're doing, make sure that you include backing up your files as part of your weekly appointment with yourself. There's nothing quite like doing the right thing and then having it disappear into the ether. Wed, 31 Aug 2016 19:00:00 GMT Are You In Compliance With Your Multi-State Income Tax Filings? http://www.mytrivalleytax.com/blog/are-you-in-compliance-with-your-multi-state-income-tax-filings/41872 http://www.mytrivalleytax.com/blog/are-you-in-compliance-with-your-multi-state-income-tax-filings/41872 Tri-Valley Tax & Financial Services Inc Article Highlights: Individuals with Multi-State Income  Businesses with Nexus In Multiple States  Federal Law PL 86-272  Dual Taxation  We all know that we must file individual and business entity federal tax returns when specified income thresholds are met, and we will also need to file a return for our resident state if it has an individual or business entity income tax filing requirement. But what may be overlooked is the possible requirement to file returns in other states as well. This can happen in a variety of situations. Here are some examples for individuals: If they earned wages in another state.  If they have rental property in another state.  If they receive gas or oil royalties from another state.  If they are a partner in a partnership or stockholder in an S corporation doing business in another state.  Generally, investment income, such as income from interest and dividends, is taxable to a taxpayer's state of residence only and does not require multi-state filings. Business entities can also be subject to state taxes in multiple states and to filing requirements in states where they have a ”nexus.” Although a nexus is defined on a state-by-state basis, certain activities or conditions indicate when a nexus exists. A nexus is generally present in the following situations: Incorporation within a state  Having legal domicile within a state  Having a principal place of business within a state  Having an office or other facility within a state  Employment of capital or property within a state  Providing services within a state  Solicitation of business from within a state  Federal Law PL 86-272, enacted in 1959, blocks the various states from claiming a nexus if the only contact within a state is the employment of salespersons or independent contractors whose only purpose is to solicit sales of tangible personal property for out-of-state approval and fulfillment. This exception is very narrow and limits the activities of the salesperson or contractor; it doesn't apply to solicitations for the sale of real estate, services or intangible property. All decisions and customer support must be handled outside the state or states in which the salesperson works. Many states are extremely aggressive in their interpretation of a nexus, often leading to confrontations with state tax authorities. It is relatively easy for states to find delinquent tax filers by matching payroll, sales or property tax forms against required income tax filings. Although filing multiple state returns means more paperwork, it does not necessarily mean more taxes. Generally, income must be either apportioned among the states, or where it is taxed by two states, generally a tax credit is provided, usually by the resident state, to offset the taxes paid to the other state. Any individual or business entity state-filing requirement is of course based on each state's tax laws, and they vary widely. If you feel you have a multi-state individual or business entity filing requirement based upon the sources of your income or nexus with multiple states in either the current or a prior year, please call this office so your particular filing requirements can be determined. Tue, 30 Aug 2016 19:00:00 GMT New Business? First-Year Deduction Strategies http://www.mytrivalleytax.com/blog/new-business-first-year-deduction-strategies/41854 http://www.mytrivalleytax.com/blog/new-business-first-year-deduction-strategies/41854 Tri-Valley Tax & Financial Services Inc Article Highlights: Equipment Depreciation & Expensing Opportunities  Vehicle Luxury Auto Rules  Leasehold Improvement Expense Options  Start-Up Cost Elections  Organizational Expense Alternatives  If you are planning a new business start-up and are incurring some expenses, you probably anticipate deducting those expenses in the first year of the business's operation. Unfortunately it is a little more complicated than that. Expenses a business incurs in the beginning can include equipment purchases, vehicle purchases and use, leasehold improvements, organizational costs and start-up expenses, and each receives a different tax treatment. Equipment - The equipment you buy can't be deducted until it is placed in service. For that reason, you can't make any equipment deductions until the business is actually functioning. However, deductions for most equipment purchases are very liberal. For most small businesses, this means the entire cost of equipment and office furnishings can generally be written off in the year of purchase, if that is also the year when the equipment is put into service, using the Sec 179 expensing election. However, the deductible amount is limited to taxable income from all the taxpayer's active trades or businesses (including a spouse's active trades or businesses if married and filing jointly). Income from trades also includes W-2 income. Sometimes it may not be appropriate to write off the entire cost in the first year, in which case the equipment can be depreciated over its useful life (according to recovery periods established by the IRS). Most office furniture, fixtures and equipment are assigned a 7 year recovery period, but the depreciable period for computers is 5 years. The recovery period of equipment may vary depending on the type of business activity. There is also a 50% bonus depreciation election for the first year the equipment is placed in service.   Vehicles - Automobiles and small trucks that are purchased for use by the business are treated like equipment, as above, except their recovery period is 5 years and they are subject to the so-called luxury auto rules. These rules limit the depreciation to a maximum of $3,160 ($3,560 for light trucks and vans) for the first year. If bonus depreciation is elected, add $8,000 to the first-year maximum.   Leasehold Improvements - Generally, leasehold improvements are depreciated over 15 years. But through 2019, bonus depreciation may be elected, allowing between 30% and 50% of the cost of interior qualified improvements to non-residential property after the building is placed in service to be deducted in the first year. In addition, the Sec 179 expense deduction is allowed for qualified leasehold property, qualified restaurant property and qualified retail improvements.   Start-Up Costs - Taxpayers can elect to deduct up to $5,000 of start-up costs in the first year of a business. However, the $5,000 amount is reduced by the amount of the start-up costs in excess of $50,000. If the election is made, the start-up costs over and above the first-year deductible amount are amortized over 15 years. If the election is not made, the start-up costs must be capitalized, meaning the expenses can only be recovered upon the termination or disposition of the business. Start-up costs include: o Surveys/analyses of potential markets, labor supply, products, transportation, facilities, etc.; o Wages paid to employees, and their instructors, while they are being trained; o Advertisements related to opening the business; o Fees and salaries paid to consultants or others for professional services; and o Travel and related costs to secure prospective customers, distributors and suppliers.    Organizational Expenses - If the new business involves a partnership or corporation, the business can elect to deduct up to $5,000 of organization expenses in the first year of a business. This is in addition to the election for start-up expenses. Like start-up expenses, the $5,000 amount is reduced by the amount of the start-up costs in excess of $50,000. If the election is made, the start-up costs over and above the first-year deductible amount are amortized over 15 years. If the election is not made, the start-up costs must be capitalized. Organizational expenses include outlays for legal services, incorporation fees, temporary directors' fees and organizational meeting costs, etc.  The foregoing is an overview of some of the expense issues in a business's first year. As you can see, major decisions and elections need to be made that can have a lasting impact on the new business. You are encouraged to consult with this office for additional details and assistance in preparing a tax plan for your planned new business. Thu, 25 Aug 2016 19:00:00 GMT September 2016 Individual Due Dates http://www.mytrivalleytax.com/blog/september-2016-individual-due-dates/33942 http://www.mytrivalleytax.com/blog/september-2016-individual-due-dates/33942 Tri-Valley Tax & Financial Services Inc September 1 - 2016 Fall and 2017Tax Planning Contact this office to schedule a consultation appointment. September 12 - Report Tips to Employer If you are an employee who works for tips and received more than $20 in tips during August, you are required to report them to your employer on IRS Form 4070 no later than September 12. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.September 15 - Estimated Tax Payment Due The third installment of 2016 individual estimated taxes is due. Our tax system is a “pay-as-you-go” system. To facilitate that concept, the government has provided several means of assisting taxpayers in meeting the “pay-as-you-go” requirement. These include: Payroll withholding for employees; Pension withholding for retirees; and  Estimated tax payments for self-employed individuals and those with other sources of income not covered by withholding. When a taxpayer fails to prepay a safe harbor (minimum) amount, they can be subject to the underpayment penalty. This penalty is equal to the federal short-term rate plus 3 percentage points, and the penalty is computed on a quarter-by-quarter basis. Federal tax law does provide ways to avoid the underpayment penalty. If the underpayment is less than $1,000 (the de minimis amount), no penalty is assessed. In addition, the law provides "safe harbor" prepayments. There are two safe harbors: The first safe harbor is based on the tax owed in the current year. If your payments equal or exceed 90% of what is owed in the current year, you can escape a penalty. The second safe harbor is based on the tax owed in the immediately preceding tax year. This safe harbor is generally 100% of the prior year's tax liability. However, for taxpayers whose AGI exceeds $150,000 ($75,000 for married taxpayers filing separately), the prior year's safe harbor is 110%. Example: Suppose your tax for the year is $10,000 and your prepayments total $5,600. The result is that you owe an additional $4,400 on your tax return. To find out if you owe a penalty, see if you meet the first safe harbor exception. Since 90% of $10,000 is $9,000, your prepayments fell short of the mark. You can't avoid the penalty under this exception. However, in the above example, the safe harbor may still apply. Assume your prior year's tax was $5,000. Since you prepaid $5,600, which is greater than 110% of the prior year's tax (110% = $5,500), you qualify for this safe harbor and can escape the penalty. This example underscores the importance of making sure your prepayments are adequate, especially if you have a large increase in income. This is common when there is a large gain from the sale of stocks, sale of property, when large bonuses are paid, when a taxpayer retires, etc. Timely payment of each required estimated tax installment is also a requirement to meet the safe harbor exception to the penalty. If you have questions regarding your safe harbor estimates, please call this office as soon as possible. CAUTION: Some state de minimis amounts and safe harbor estimate rules are different than those for the Federal estimates. Please call this office for particular state safe harbor rules. Tue, 23 Aug 2016 19:00:00 GMT September 2016 Business Due Dates http://www.mytrivalleytax.com/blog/september-2016-business-due-dates/33943 http://www.mytrivalleytax.com/blog/september-2016-business-due-dates/33943 Tri-Valley Tax & Financial Services Inc September 15 - Corporations File a 2015 calendar year income tax return (Form 1120 or 1120-A) and pay any tax, interest, and penalties due. This due date applies only if you timely requested an automatic 6-month extension.September 15 - S Corporations File a 2015 calendar year income tax return (Form 1120S) and pay any tax due. This due date applies only if you requested an automatic 6-month extension. September 15 - Corporations Deposit the third installment of estimated income tax for 2016 for calendar year corporations.September 15 - Social Security, Medicare and withheld income tax If the monthly deposit rule applies, deposit the tax for payments in August. September 15 - Nonpayroll Withholding If the monthly deposit rule applies, deposit the tax for payments in August. September 15 - Partnerships File a 2015 calendar year return (Form 1065). This due date applies only if you were given an additional 5-month extension. Provide each partner with a copy of K-1 (Form 1065) or a substitute Schedule K-1.September 15 - Fiduciaries of Estates and Trusts File a 2015 calendar year return (Form 1041). This due date applies only if you were given an additional 5-month extension. If applicable, provide each beneficiary with a copy of K-1 (Form 1041) or a substitute Schedule K-1. Tue, 23 Aug 2016 19:00:00 GMT Grandchild IRA Gift Idea http://www.mytrivalleytax.com/blog/grandchild-ira-gift-idea/41833 http://www.mytrivalleytax.com/blog/grandchild-ira-gift-idea/41833 Tri-Valley Tax & Financial Services Inc Article Highlights: IRA Gift Idea  Maximum Amount  Traditional IRA  ROTH IRA  Gift Tax Implications  If you have a young grandchild, we have a gift suggestion for you that can provide a lasting legacy between you and your grandchild. Many teens and young adults work during the summer months, and the wages they earn qualify them to make a contribution to either a traditional or Roth IRA. However, most young people are reluctant to fund an IRA account with their hard-earned summer income, and few are concerned with retirement, which is probably the last thing on their minds at their age. This is incentive for a grandparent, or anyone for that matter, to gift the child money to fund an IRA. The maximum that can be contributed to an IRA is the lesser of the child's earned income or $5,500 (the 2016 limit for an individual under age 50). Although that is the maximum amount, a lesser amount can be contributed. If you take our suggestion, you will also need to decide whether the IRA should be a traditional or Roth IRA. Traditional IRA contributions are tax deductible, but the withdrawals at retirement are taxable. Most youngsters working during the summer months or part time year-round may not earn enough to even have any taxable income, and even if they do, the income is likely to be in the lowest tax brackets, so an IRA deduction would provide little if any tax benefit. On the other hand, a ROTH contribution is not tax deductible and the distributions, including earnings, are tax-free at retirement, making it the best option in most cases. Accomplishing this gifting will require cooperation from the child, as he or she will need to actually set up the IRA account so you can fund it. This may entail getting the child's parents involved as well. What you don't want to do is just make a check out to the child, who could then cash the check without actually putting the money into the IRA. Your contribution to the IRA would be treated as a gift for gift tax purposes, but since the contribution amount would be below the annual $14,000 (2016) gifting exemption, it would not be subject to any gift tax reporting unless additional reportable gifts were given to the child during the year. Unfortunately, you won't get any benefit on your own income tax return for your generosity, but knowing you've made a long-term investment in your grandchild's future will probably be benefit enough. If you need assistance determining the contribution amount or the type of IRA, please give this office a call. Tue, 23 Aug 2016 19:00:00 GMT Back to School? Tax Breaks May Help to Pay the Cost! http://www.mytrivalleytax.com/blog/back-to-school-tax-breaks-may-help-to-pay-the-cost/41830 http://www.mytrivalleytax.com/blog/back-to-school-tax-breaks-may-help-to-pay-the-cost/41830 Tri-Valley Tax & Financial Services Inc Article Highlights: Education Credits  American Opportunity Tax Credit  Lifetime Learning Credit  Qualified Expenses  Qualified Educational Institutions  1098-T  Now that summer is over, it is time for many young adults to head back to college or university, and it is time for their parents or family members to dig into their pockets to help pay for that schooling. Paying for education can be financially challenging for many families. However, tuition and related expenses paid for higher education can qualify for one of two tax credits, which will lower the income tax burden for the individual who claims the exemption for the student. For example, if the student were claimed as a dependent on the parents' return, the parents would claim the credit, but if the student filed independently, he or she would get the credit. This is true regardless of who actually pays the tuition and related expenses. American Opportunity Tax Credit (AOTC) - The AOTC provides a credit of up to $2,500 per year per eligible student. Generally, tax credits are non-refundable, meaning they can only be used to offset any tax liability the taxpayer may have for the year. However, up to 40% of the AOTC is refundable, even when the taxpayer has no tax liability. Thus, it can result in a refund of as much as $1,000 (40% of $2,500). The credit is for 100% of the first $2,000 of tuition and related expenses and 25% of the next $2,000 of qualifying expenses. However, the AOTC is only allowed for four years of post-secondary education. It is also determined on a per student basis and phases out for higher-income taxpayers. The student must be enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential for at least one academic period beginning in the tax year of the credit. Lifetime Learning Credit (LLC) ‒ The LLC is a non-refundable credit worth up to $2,000 per year, and there is no limit on the number of years that the LLC can be claimed. Unlike the AOTC, there is no “half-time student” requirement, and single courses can qualify. The credit is 20% of the cost of tuition and related expenses. However, while the AOTC is determined on a per student basis, the LLC is based upon the tax family's qualified education expenses for the year. Where a student qualifies for the more beneficial AOTC, that student's expenses cannot be used for the LLC. There are additional requirements that apply to both credits: Qualified expenses ‒ Qualified expenses include the costs you pay for tuition, fees, and other related expenses for an eligible student to enroll at or attend an eligible educational institution.   Eligible educational institutions ‒ Eligible institutions generally include any accredited public, nonprofit, or proprietary post-secondary institution eligible to participate in the student aid programs administered by the Department of Education. This includes most colleges and universities. Vocational schools or other post-secondary schools may also qualify. If you aren't sure if the student's school is eligible, ask the school if it is an eligible educational institution.   Form 1098-T ‒ In most cases, you (or the student) should receive Form 1098-T, Tuition Statement, from the school reporting the qualifying expenses to the IRS and to you. The amount shown on the form may be either (1) the amount you paid to the school for qualifying tuition and related expenses, or (2) the amount billed by the school for qualifying tuition and related expenses. Therefore, the amount shown on the form may be different from the amount eligible for the credit. Don't forget that you can only claim an education credit for the qualifying tuition and related expenses that you paid in the tax year and not just the amount the school billed. There is a provision that allows the tuition for the first three months of the next year to be prepaid and deducted on the tax return for the year of payment. However, prepaid tuition cannot be deducted in the subsequent year.  There are other education tax benefits available as well, such as the education loan interest deduction and savings bond interest exclusion. If you are reading this article so you can plan for the future, there are also tax-advantage education savings plans available - the Coverdell and Sec 529 plans. If you would like to learn how the education credits or other tax benefits might apply to your particular circumstances, please give this office a call. Thu, 18 Aug 2016 19:00:00 GMT Is the HERO Solar Financing Solution Really a Hero? http://www.mytrivalleytax.com/blog/is-the-hero-solar-financing-solution-really-a-hero/41825 http://www.mytrivalleytax.com/blog/is-the-hero-solar-financing-solution-really-a-hero/41825 Tri-Valley Tax & Financial Services Inc Article Highlights: HERO Program  Payments Included in Property Tax Payments  Payments Are Not Deductible Property Tax Payments  Deducting HERO Interest Payments  Energy Credits  The Home Energy Renovation Opportunity (HERO) Plan is a program that finances the purchase and installation of eligible energy-efficient and water-saving upgrades in a taxpayer's home. These upgrades include solar panels, air conditioning, roofing, windows, lighting controls, and landscape-related products. The HERO program originated in Riverside County in Southern California, the purpose being to provide financing for high-cost energy-related improvements for a taxpayer's home, such as solar panels, with principal and interest payments added to the taxpayer's property tax bill for the year. The HERO program has since spread to almost all counties in CA, and even some areas outside of California. You can also find ads for this program popping up frequently on the Internet. The fact that the loan payments are included with the property tax payments has led to considerable misunderstanding, with many real estate agents and others claiming the entire payment is tax deductible, which is not true. Although included in the tax bill, the HERO payments are separately stated and not deductible as property tax. However, the portion of the HERO payment that represents interest is generally deductible as home mortgage interest. Although the interest portion is not spelled out on the property tax bill, the HERO program does supply each borrower with a loan amortization schedule that allows the homeowner to determine the amount of interest paid for the year and the amount that may be deductible. Another issue is that the IRS requires lenders to issue Form 1098, which shows the amount of interest paid by the homeowner each year. The IRS uses that information to match the amount of interest deducted by the homeowner, and mismatches will result in an IRS inquiry. With the HERO program no 1098 is issued, and care must be taken with regard to how the interest is deducted on the tax return to avoid receiving a letter from the IRS. This problem has been so prevalent that the IRS Chief Counsel's Office issued an advice letter, and most recently the California Franchise Tax Board offered guidance on the issue. The HERO program has very liberal qualifications, with no money down, fixed rates and variable terms between 5 and 20 years. However, compared to today's interest rates, those charged by the HERO program are quite high, generally in excess of 8%, and individuals should explore other avenues of financing first. Although many of these energy-related improvements will qualify for tax credits, these credits are not refundable, which means they will only reduce your tax liability to zero, and the excess can be carried forward to future years as long as the credit is still in existence. The most substantial federal credit available is the popular solar credit of 30% of the cost of a solar installation, with no cap on the credit. Example: If you install a $25,000 solar system on your home, the federal credit would be $7,500. However, if your tax liability for the year is only $1,500, you will only be able to use $1,500 of the credit, and the balance carries forward to a future a year. The solar credit percentage remains at 30% through 2019, and then gets lower each year until the credit ends in 2021. If you are considering making energy-related home improvements and would like to discuss the tax benefits and your financing options, please give this office a call. Tue, 16 Aug 2016 19:00:00 GMT Find Your Unclaimed Money http://www.mytrivalleytax.com/blog/find-your-unclaimed-money/41823 http://www.mytrivalleytax.com/blog/find-your-unclaimed-money/41823 Tri-Valley Tax & Financial Services Inc Each year literally billions of dollars go unclaimed from federal and state governments, financial institutions and companies no longer generating activity. These can include tax refunds, savings or checking accounts, stocks, uncashed dividends or payroll checks, traveler's checks, trust distributions, unredeemed money orders or gift certificates (in some states), insurance payments or refunds and life insurance policies, annuities, certificates of deposit, customer overpayments, utility security deposits, mineral royalty payments, and contents of safe deposit boxes. Currently, states, federal agencies and other organizations collectively hold more than $50 billion in unclaimed cash and benefits. CNNMoney About $2 billion in lottery prizes go unclaimed every year. CNNMoney January 12, 2016 The IRS has nearly $1 billion in unclaimed tax refunds from 2012 alone. IRS unclaimed refunds 2012 You might be eligible to claim the earned income tax credit, or EITC, for that tax year when you finally send in the return. For 2012, the credit is worth as much as $5,891. IRS 2012 data The State of California is currently in possession of more than $8 billion in Unclaimed Property belonging to approximately 32.5 million individuals and organizations. California State Controller Office 8/02/2016 Start Your Search for Your Unclaimed Property at USA.gov. (Click the image to increase size) Mon, 15 Aug 2016 19:00:00 GMT Should Our Olympic Champs Be Taxed On Their Prize Money & Medals? http://www.mytrivalleytax.com/blog/should-our-olympic-champs-be-taxed-on-their-prize-money--medals/41819 http://www.mytrivalleytax.com/blog/should-our-olympic-champs-be-taxed-on-their-prize-money--medals/41819 Tri-Valley Tax & Financial Services Inc Article Highlights: Olympian Prize Money  Gold Medals Aren't Solid Gold  Legislation to Exempt Prize Money and Medals from Taxation  You may not realize this, but in addition to winning an Olympic medal, winners are compensated by the U.S. Olympic Committee with prize money: $25,000 for a gold medal, $15,000 for a silver medal and $10,000 for a bronze medal. Oh, and by the way, the gold medals are not solid gold. In fact, they haven't been solid gold since the 1912 Stockholm Games. This year's gold medals are 92.5% silver with 24k gold plating. The 2016 Summer Olympics medals are worth roughly $587 in precious metals; however, they can bring many times that in an auction. According to Sen. Charles Schumer, D-NY, both the prize money and the value of the medals are taxable income to our athletes. Schumer and Sen. John Thune, R-SD, have sponsored legislation exempting the value of medals and prizes awarded to Olympic and Paralympic athletes. The Senate has already passed the bill, but it has not been taken up by the House yet. Gone (for 30 years now) are the days of Olympic participants being amateurs only. Some oppose exempting U.S. Olympians from being taxed on their awards for a couple of reasons: (1) recipients of other prizes, such as the Oscar swag bags, are required to pay tax on the value of their prizes, so why should Olympic athletes be treated differently? and (2) professional athletes who participate in sports as a business (NBA players, PGA golfers, etc.) can deduct their training and travel expenses as business expenses, and those who participate as a hobby may also be allowed some limited deductions. So is it necessary to exempt the Olympians' winnings? Congress is in summer recess and will not reconvene until after the games are completed. So we'll have to wait for the results post-games. Thu, 11 Aug 2016 19:00:00 GMT Partners May Not Be Employees http://www.mytrivalleytax.com/blog/partners-may-not-be-employees/41802 http://www.mytrivalleytax.com/blog/partners-may-not-be-employees/41802 Tri-Valley Tax & Financial Services Inc Article Highlights: Partner Employee Issue  Self-employment Tax  Employee Benefit Plans  If your partnership has been treating you and other partners as employees of a disregarded entity owned by the partnership in order for the partners to participate in employee benefit plans and receive other employee benefits, you'd better read this. Temporary tax regulations(1) recently issued by the IRS take aim at this practice and were written to put a stop to it. Background: A disregarded entity is treated as a corporation(2) for the purposes of employment taxes. Therefore, the disregarded entity, rather than the owner, is considered to be the employer of the entity's employees for the purposes of employment taxes. However, the owner is not treated as an employee and instead pays self-employment tax on the net earnings from self-employment resulting from the disregarded entity's activities. The current regulations do not include an example where the disregarded entity is owned by a partnership, and because of that some taxpayers have interpreted the regulations in a way unintended by the IRS. Under this incorrect interpretation of the regulations, some partnerships have permitted partners to participate in certain tax-favored employee benefit plans, which is contrary to the IRS's intention. The IRS and the Treasury have noted that regulations did not create a distinction between a disregarded entity owned by an individual (a sole proprietorship) and a disregarded entity owned by a partnership in the application of the self-employment tax rule. In addition, the IRS does not believe that the regulations alter the long- standing holding(3) that: (1) A bona fide member of a partnership is not an employee of the partnership, and (2) A partner who devotes time and energy to conducting the partnership's trade or business, or who provides services to the partnership as an independent contractor, is considered self-employed and is not an employee. To resolve this issue, the IRS has issued temporary regulations modifying the original regulations to clarify the rule that an entity disregarded for self-employment tax purposes applies to partners in the same way that it applies to a sole proprietor owner. Accordingly, the partners are subject to the same self-employment tax rules as partners in a partnership that does not own a disregarded entity. The IRS is allowing any plan sponsored by an entity that is disregarded as an entity separate from its owner to apply the revisions on Aug. 1, 2016, or the first day of the latest-starting plan year following May 4, 2016, whichever is later. If this issue affects you, your partnership, and a disregarded entity owned by the partnership and you have questions, please give this office a call. (1) Reg. Sec. 301.7701-2T (2) Reg. Sec. 301.7701-2(c)(2)(iv)(B) (3) Rev. Rul. 69-184 Tue, 09 Aug 2016 19:00:00 GMT Taxation of Employee Stock Options http://www.mytrivalleytax.com/blog/taxation-of-employee-stock-options/41795 http://www.mytrivalleytax.com/blog/taxation-of-employee-stock-options/41795 Tri-Valley Tax & Financial Services Inc Article Highlights: Employee Stock Options  Stock Option Terminology  Incentive Stock Options  Non-qualified Stock Options  Tax Strategies  If you are an employee of a corporation, the company may offer you the option to purchase shares of the corporation at a fixed price at some future date so that you can benefit from your commitment to the success of the company by sharing in the company's growth through the increase in stock value. There are generally two types of stock options: qualified, also referred to as incentive stock options (ISOs), and non-qualified. The taxation of the two can be quite different. In case you are not familiar with the terminology used in employee stock option plans, here's a rundown. The option price is the price the company sets as the cost you would pay for a certain number of shares should you decide to purchase the stock (exercise your option); this price will apply even if the stock is trading at a higher value when purchased. The opportunity to exercise the option is often limited to a specific time period in the future. The trading price at the time you purchase the stock is considered the fair market value (FMV) of the stock at the time you purchase it. You may even be granted (awarded) options at different prices and on different exercise dates. Incentive Stock Options - The big advantage of ISOs is the special tax treatment that permits delayed taxation of the difference between the exercise price and the FMV and allows the employee to benefit from long-term capital gains rates when the shares are ultimately sold. However, for that to happen, the stock must not be sold before 2 years have elapsed between the time the option was granted and the sale of the stock, and the stock must be held for more than one year after exercising the option. There is a downside to ISOs. For alternative minimum tax (AMT) purposes, the difference between the exercise price and the FMV of the stock is considered a preference item, and although it is not taxable for regular tax purposes, it is included in AMT income in the year of the exercise. When the difference between the exercise price and the FMV of the stock at exercise is significant, it will trigger the AMT. The AMT is generally a punitive method of computing income tax that does not allow some of the tax preferences and deductions that are allowed for the regular tax computation. When an AMT computation results in a higher tax, the higher tax applies. This can sometimes outweigh the benefits of ISOs. However, an AMT credit may be created to reduce the employee's tax in a future year. Unfortunately, using this credit applies only to years when there is an AMT, so its benefit is limited.   Non-qualified Options - For non-qualified options, the difference between the exercise price and the fair market value (FMV) of the stock at the time the option is exercised is treated as ordinary income to the taxpayer in the year of the exercise, and for employees, this amount is generally included as income on their W-2. Even though the income is included on the employee's W-2, the stock sale generally still must be reported on Schedule D and sometimes will result in a loss when the employee has incurred sales costs or the purchase and sale were not simultaneous and have resulted in a gain or loss because of market fluctuations. Where the option was an ISO, it may be appropriate to avoid the AMT in the year of exercise by selling the stock in the same year. Doing so means the difference between the exercise price and the FMV of the stock will be treated as ordinary income so that the income is the same for regular and AMT purposes; this eliminates the AMT preference for the year. The decision to sell the stock in the year the ISO is exercised or to hold it for long-term capital gain rates requires careful analysis to determine which is the best course of action. Alternatively, when doing so is beneficial, the taxpayer can exercise an ISO option in small blocks over a period of years, thus avoiding or minimizing the AMT and taking advantage of long-term capital gain rates. If you have options from your employer and need assistance with the tax ramifications of your particular situation or wish to plan a strategy to excise and sell the stock from options while minimizing the tax, please contact this office. Thu, 04 Aug 2016 19:00:00 GMT Surprised by the Alternative Minimum Tax? http://www.mytrivalleytax.com/blog/surprised-by-the-alternative-minimum-tax/41792 http://www.mytrivalleytax.com/blog/surprised-by-the-alternative-minimum-tax/41792 Tri-Valley Tax & Financial Services Inc Article Highlights: How the AMT Is Determined  Medical Deductions  Deduction for Taxes Paid  Home Mortgage Interest  Miscellaneous Itemized Deductions  Personal Exemptions  Standard Deduction  Incentive Stock Options  Business Incentives  When looking over your tax return, do you notice an amount on line 45? If an amount is entered there, it is because you are subject to the alternative minimum tax (AMT). The AMT is a generally punitive method of computing income tax that does not allow some of the tax preferences and deductions that regular tax computation allows. When an AMT computation results in a higher tax, the higher tax applies, and the additional tax from the AMT is added on line 45 of your return. The AMT was originally designed (nearly 50 years ago) to impose a minimum tax on higher-income taxpayers who were avoiding taxes by claiming certain (legal) deductions or other tax benefits (also termed “preferences”). However, years of inflation have caused an increasing number of taxpayers to be subject to the AMT. It is complicated to determine when an individual will be subject to the AMT, for many tax preferences can trigger the AMT, alone or in combination. The following are some of the items that frequently trigger the AMT for the average taxpayer: Medical Deductions - Deductions for medical expenses are allowed for the AMT computation - but only to the extent that they exceed 10% of the taxpayer's income. Although the limit is also 10% for regular tax purposes, through 2016, taxpayers age 65 and over enjoy a lower limit of 7.5%, which leads to an AMT adjustment. Sometimes, it is possible to defer or accelerate medical expenses from one year to another (for example, by paying an orthodontist in installments or all at once). If your employer offers a flexible spending plan, consider participating, as such plans allow you to pay medical expenses with pretax dollars while avoiding both regular and AMT deduction limitations.   Deduction for Taxes Paid - When itemizing deductions, a taxpayer is allowed to deduct a variety of other taxes, such as real or personal property taxes and state income or sales taxes. However, for AMT purposes, none of these itemized taxes is deductible. For most taxpayers, this represents one of the largest tax deductions, and it frequently triggers the AMT. If you are affected by the AMT, conventional wisdom dictates deferring tax payments to a subsequent year when the AMT may not apply. When deferring, care should be exercised regarding late-payment penalties and interest on underpayments. In addition, taxpayers can annually elect to capitalize their taxes on unimproved and unproductive real estate. This means foregoing the deduction and adding the tax paid to the cost basis of the real property.   Home Mortgage Interest - For both regular tax and AMT computations, interest paid on a debt to acquire or substantially improve a first or second home is deductible as long as it does not exceed the debt limit (generally $1 million). This is also true of refinanced debt, except that any increase in debt is treated as equity debt. For regular tax purposes, the interest on up to $100,000 of equity debt on the first two homes can also be deducted. However, equity debt is not deductible when computing the AMT; neither is acquisition or equity debt on a motor home or boat that may qualify as a second home. Therefore, taxpayers should exercise caution when incurring home equity debt. Generally, loan brokers are not aware of these limitations, and there are numerous pitfalls.   Miscellaneous Itemized Deductions - Among miscellaneous deductions, the category that includes employee business and investment expenses is not deductible for AMT purposes. For certain taxpayers with deductible employee business expenses, this will often trigger the AMT. Employees with significant employee business expenses should attempt to negotiate an “accountable” reimbursement plan with their employers. Under this type of plan, reimbursement for qualified expenses is tax-free. An employee who has been reimbursed no longer claims a deduction for those expenses, thus eliminating the miscellaneous deduction. Another strategy would be to defer the expenses to a year that is not affected by the AMT.   Personal Exemptions - The AMT computation does not allow a deduction for personal exemptions, which in 2016 is $4,050 each for the taxpayer, his or her spouse (if any) and any dependents. Divorced or separated parents should carefully consider which party should claim the exemption for their children if one of the parents is subject to the AMT.   Standard Deduction - For regular tax purposes, taxpayers have the option of itemizing their deductions or taking the standard deduction. However, for AMT purposes, there is no standard deduction. Thus, a taxpayer who ends up with an AMT when taking the standard deduction should try to force itemized deductions, even if the result is less than the standard deduction. The result will be an increased regular tax but a reduced AMT, which could result in overall tax savings. Even the smallest of deductions will benefit those who are taxed at a minimum of 26% (the lowest bracket for the AMT).   Incentive Stock Options - Although not frequently encountered, incentive stock options (ISOs) can have a profound impact on a taxpayer's AMT. Generally, to achieve the beneficial long-term capital gains rates on stock acquired through an ISO, a taxpayer must hold the stock for more than one year after exercising the stock option and two years after the option is granted. However, the difference between the fair market value and the option price must be added to the taxpayer's AMT income in the year the option is exercised. To avoid this substantial AMT preference income, the taxpayer can sell the stock in the year that the option is exercised and forego long-term capital gains rates. Alternatively, when doing so is beneficial, the taxpayer can exercise the option in small blocks over a period of years.   Business Incentives - Taxpayers' investments in businesses and partnerships sometimes provide tax incentives that the AMT does not allow. There is a long list of these incentives, but the most common are depletion allowances and intangible drill costs. Generally, these items appear on a Schedule K-1 (which the business activity issues to the investor) and are then included in the taxpayer's AMT calculation.  As you can see, the AMT can be an extremely complicated area of tax law. Careful planning is required to minimize its effects. Please contact our office for further assistance. Tue, 02 Aug 2016 19:00:00 GMT Don’t Miss out on the Electric Vehicle Credit http://www.mytrivalleytax.com/blog/don8217t-miss-out-on-the-electric-vehicle-credit/41784 http://www.mytrivalleytax.com/blog/don8217t-miss-out-on-the-electric-vehicle-credit/41784 Tri-Valley Tax & Financial Services Inc Article Highlights: • How the Credit Amount Is Determined • Manufacturer Phaseouts • Credit for Specific Vehicles • Allocation between Business and Personal Use • Non-refundable Limitations If you are considering purchasing a new car or light truck (less than 14,000 pounds), maybe you should consider one of the many electric vehicles currently being offered for sale and take advantage of a federal income tax credit worth as much as $7,500. The tax credit is actually made up of two parts: the basic amount of $2,500, which requires the electric vehicle to have a battery with at least 5 kilowatt-hours of capacity, and an additional $417 of credit for each kilowatt-hour of battery capacity in excess of 5 kilowatt-hours. The total amount of the credit allowed for any qualified vehicle is limited to $7,500. However, the credit begins to be phased out for a particular manufacturer’s vehicles when at least 200,000 qualifying vehicles have been sold for use in the United States. If you are not an electrical engineer, it may seem a little complicated to figure out which vehicles qualify for the credit and for how much. You can usually rely on the information provided by the dealer. However, to be on the safe side, you can verify which vehicles are qualified and the credit amount available, based on the vehicle’s kilowatt-hours and the reduction in credit due to the credit phaseout, by visiting the IRS website. From the list on the linked page, click on the manufacturer of the vehicle you are interested in to find out if the model and year of that vehicle qualify for the credit and the amount of the credit. To be eligible for the credit, you must acquire the vehicle for use or lease and not for resale. Additionally, the original use of the vehicle must commence with you, and you must use the vehicle predominantly in the United States. The vehicle is not considered acquired prior to the time when its title passes to you under your state’s law. The credit is available whether you use the vehicle for business, personally or a combination of both. The prorated portion of the credit that applies to business use becomes part of the general business credit, and any amount not used on your return for the year when you purchase the vehicle can be carried back to the previous year and then carried forward until used up, but for no more than 20 years. What a Dealer May Not Tell You – The portion of the credit that is not treated as a general business credit (i.e., the personal use portion of the credit) is non-refundable. That means it can only be used to offset your tax liability for the year when you purchase the vehicle, and any excess credit is lost. Assuming you purchase the vehicle in 2016 and your 2016 tax return will be similar to your 2015 return, you can get an idea of how the credit will apply to you by comparing the amount on line 47 of your 2015 Form 1040 to the credit the vehicle provides. If line 47 is greater than the credit, then you will probably benefit from the entire amount of the credit on your 2016 return. If it is less, then you will only benefit from the amount on line 47 as it will be figured for your 2016 return. If your 2016 tax return will be significantly different from your 2015 return, or you simply want to verify your benefit from the credit, please give this office a call. Thu, 28 Jul 2016 19:00:00 GMT Win an Employment Lawsuit? Here Are the Good and Bad Tax News http://www.mytrivalleytax.com/blog/win-an-employment-lawsuit-here-are-the-good-and-bad-tax-news/41754 http://www.mytrivalleytax.com/blog/win-an-employment-lawsuit-here-are-the-good-and-bad-tax-news/41754 Tri-Valley Tax & Financial Services Inc Article Highlights: Physical Injury and Physical Sickness  Wrongful Death  Emotional Distress  Previously Deducted Medical Expenses  Employment Discrimination  Age Discrimination  Unpaid or Disputed Employment Earnings  Interest  Settlements  Legal Costs  The tax laws related to the taxability of monetary settlements and damage awards as the result of employment legal actions are often complex and sometimes seemingly discriminatory. The actual taxation of the award is primarily based on the following factors: The nature of the legal action,  Whether a settlement occurred before trial, and  How the legal costs were handled.  Nature of the Legal Action - Generally, all monetary awards as the result of an employment-related legal action are fully taxable, with one exception. Under the exception, the tax code allows an exclusion from gross income for damages received due to a personal physical injury or a physical sickness. Consequently, when a lawsuit is based on a physical injury or sickness, all damages (other than punitive damages, which are always taxable) flowing from that suit are treated as payments received due to a physical injury or sickness, and are therefore excluded from income. This is true whether or not the recipient of the damages is the injured party. Here are some commonly encountered situations and their taxability: Wrongful Death - Wrongful death is considered physical injury or physical sickness for purposes of the income exclusion. In addition, punitive damages are excludable where state law provides that only punitive damages can be awarded in wrongful death suits.  Emotional Distress - Emotional distress isn't considered physical injury or physical sickness for purposes of the income exclusion. However, the exclusion from gross income does apply to the amount of damages received for emotional distress that is attributable to a physical injury, but not in excess of the amount paid for medical care related to emotional distress.   Previously Deducted Medical Expenses - Even though awards for physical injury or physical sickness are excludable, if any part of the award received is compensation for medical expenses deducted in a prior year, that portion of the award must be included as income, up to the amount of the deduction taken.   Employment Discrimination - No exclusion is allowed for damages received in a suit involving employment discrimination or an injury to reputation that is accompanied by a claim of emotional distress. However, the exclusion would apply to a claim of emotional distress related to a physical injury or physical sickness.   Age Discrimination - The law doesn't consider back pay or liquidated damages received under the Age Discrimination in Employment Act (ADEA) to be compensation for personal injuries; therefore, these payments are includable in income. But see the special treatment of attorney fees below.   Punitive Damages - Punitive damages are made as a punishment for unlawful conduct and are always taxable; they cannot be excluded from income as damages received due to personal physical injury or physical sickness, except as noted above for wrongful death.   Unpaid or Disputed Employment Earnings - Back pay, severance pay, overtime pay, etc., are all treated as W-2 type income and are both taxable and subject to payroll FICA withholding.   Interest - Interest that may be included in an award, even one for personal injury or sickness, is not excludable and must be included in gross income.  Settlements - In legal actions, the plaintiff may frequently sue for both excludable and non-excludable damages. For example, an employee is injured on the job and sues for back vacation pay of $10,000 and damages for personal injury in the amount of $90,000 (a total of $100,000). If the suit is settled for $50,000 without a stipulation of how the settlement is applied, the settlement will need to be allocated in the same manner as the original suit. In this example, the settlement would be allocated $5,000 for back vacation pay (taxable) and $45,000 for personal injury (excludable). Legal Costs - Generally, legal costs associated with employment-related legal actions can only be deducted as a miscellaneous itemized deduction on the employee's Schedule A itemized deductions. When all or some of the monetary award is excludable, the fees are prorated between the taxable and excludable award, and only the portion allocated to the taxable portion is deductible. This is where significant tax problems are encountered because miscellaneous itemized deductions must be reduced by 2% of the employee-taxpayer's adjusted gross income (AGI), and the gross monetary award received is included in the employee's AGI, making it abnormally high. On top of that, miscellaneous itemized deductions are not even allowed for purposes of the alternative minimum tax (AMT), which is very frequently triggered in situations of this nature. This would result in the taxpayer having to include the entire monetary award in income and not being able to deduct much, if any, of the legal costs. The taxpayer, in effect, is paying taxes on just about the entire, or in some cases the total, amount, including what the attorney got. There is a very limited exception that allows attorney fees to be deducted above-the-line (without itemizing), thus eliminating the 2% reduction and the AMT issues. However, it only applies in connection with a claim of unlawful discrimination, certain claims against the federal government, or a private cause of action under the Medicare Secondary Payer statute. So, before you rush out and spend any of the award money you received, you had better drop by the office and see what the government's share is, because it could be substantial. In addition, with some careful analysis, it may be possible to take actions that will reduce the tax. Tue, 26 Jul 2016 19:00:00 GMT August 2016 Individual Due Dates http://www.mytrivalleytax.com/blog/august-2016-individual-due-dates/33379 http://www.mytrivalleytax.com/blog/august-2016-individual-due-dates/33379 Tri-Valley Tax & Financial Services Inc August 10 - Report Tips to Employer If you are an employee who works for tips and received more than $20 in tips during July, you are required to report them to your employer on IRS Form 4070 no later than August 10. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed. Sat, 23 Jul 2016 19:00:00 GMT August 2016 Business Due Dates http://www.mytrivalleytax.com/blog/august-2016-business-due-dates/33380 http://www.mytrivalleytax.com/blog/august-2016-business-due-dates/33380 Tri-Valley Tax & Financial Services Inc August 1 - Self-Employed Individuals with Pension Plans If you have a pension or profit-sharing plan, this is the final due date for filing Form 5500 or 5500-EZ for calendar year 2015. August 1 - Social Security, Medicare and Withheld Income TaxFile Form 941 for the second quarter of 2016. Deposit or pay any undeposited tax under the accuracy of deposit rules. 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 August 10 to file the return. August 1 - Certain Small Employers Deposit any undeposited tax if your tax liability is $2,500 or more for 2016 but less than $2,500 for the second quarter. August 1 - Federal Unemployment Tax Deposit the tax owed through June if more than $500. August 1 - All Employers If you maintain an employee benefit plan, such as a pension, profit-sharing, or stock bonus plan, file Form 5500 or 5500-EZ for calendar year 2015. If you use a fiscal year as your plan year, file the form by the last day of the seventh month after the plan year-ends. August 10 - Social Security, Medicare and Withheld Income Tax File Form 941 for the second quarter of 2016. This due date applies only if you deposited the tax for the quarter in full and on time. August 15 - Social Security, Medicare and Withheld Income Tax If the monthly deposit rule applies, deposit the tax for payments in July. August 15 - Non-Payroll Withholding If the monthly deposit rule applies, deposit the tax for payments in July. Sat, 23 Jul 2016 19:00:00 GMT Married to a Non-U.S. Citizen? http://www.mytrivalleytax.com/blog/married-to-a-non-us-citizen/41743 http://www.mytrivalleytax.com/blog/married-to-a-non-us-citizen/41743 Tri-Valley Tax & Financial Services Inc Article Highlights: Worldwide Income  Filing Status  Resident Alien Spouse  Non-resident Alien Spouse  Undocumented Alien Spouse  Substantial Presence Test  With modern transportation the world continues to shrink, and it is increasingly common for a U.S. citizen to marry someone from another country who is not a U.S. citizen. If this describes your marital circumstances, there are some special tax filing issues you will have to deal with. Based on your particular situation, the filing issues could be very complicated or straightforward. But in either case, someone knowledgeable with non-U.S. citizen issues should complete the preparation of your return. There are two important tax principles that apply in all situations: U.S. citizens are taxed on worldwide income, and  If you are married, you must either file jointly with your spouse, file as a married person filing separately or file as head of household if you otherwise qualify.  The next issue is the status of your non-U.S. citizen spouse, which dictates how you are taxed. Although there may be certain special situations, the status of your non-U.S. citizen spouse is generally one of the following: A permanent resident of the U.S. - A permanent resident, also referred to as a green card holder, is taxed in the same manner as a U.S. citizen, so there are no special filing requirements and the return, or returns if filing separately, are prepared in the same way and under the same rules as they would be if you were married to a U.S. citizen. A non-resident alien - A non-resident alien is someone who is not a U.S. citizen and who has not met the requirements to have a green card (which would give the non-U.S. citizen the privilege, according to immigration laws, of residing permanently in the United States as an immigrant) or who hasn't been in the U.S. long enough to meet the substantial presence test described later. Often a non-resident alien resides outside of the U.S. If you are married to a non-resident alien, you generally have the following two filing options: File as a married individual filing separately or head of household if you have provided over half the costs of keeping up a home for a qualifying individual and you have not made the election described next to treat your spouse as a resident alien, or   Elect to file jointly with your non-resident alien spouse, effectively treating the spouse as a resident alien for tax purposes. However, this election is binding until revoked, and both spouses must affirmatively agree to the election. Once the election is made, the joint U.S. tax return must include the worldwide income of both spouses.  An undocumented alien - If you are married to an undocumented alien, there are two possible situations:  Spouse meets the substantial presence test - An individual who meets the substantial presence test is taxed in the same manner as a U.S. citizen or resident alien, so there are no special filing requirements and the return, or returns if filing separately, are prepared in the same way as when married to a U.S. citizen or resident alien. To meet the substantial presence test, your spouse must have been physically present in the United States on at least 31 days during the current year and 183 days during the 3-year period that includes the current year and the 2 years immediately before it, counting all the days present in the current year, 1/3 of the days present in the first year before the current year, and 1/6 of the days present in the second year before the current year.   Spouse does not meet the substantial presence test - If the spouse does not meet the substantial presence test, the spouse is treated as a non-resident alien, as discussed previously.  Where your spouse is a non-resident alien and has U.S. source income and does not elect to file jointly with you, then your spouse must file a Form 1040NR to pay the taxes on the U.S. source income, generally at a flat rate of 30%. If you reside in a foreign country with your non-U.S. citizen spouse, that does not exempt you from U.S. taxes. As was noted at the beginning of this article, U.S. citizens are taxed on worldwide income. There are provisions that help shield you from double taxation, such as an exclusion of foreign earned income (limited each year to an inflation-adjusted amount, $101,300 for 2016), a foreign tax credit (not available on the same foreign income that is excluded), and provisions spelled out in the tax treaties between the U.S. and foreign countries. These and other nuances encountered when you are married to a non-U.S. citizen need to be addressed based upon your particular circumstances. Please contact this office for assistance. Thu, 21 Jul 2016 19:00:00 GMT Have Fewer Than 50 Employees? Here is How the Health Care Act Affects You http://www.mytrivalleytax.com/blog/have-fewer-than-50-employees-here-is-how-the-health-care-act-affects-you/41731 http://www.mytrivalleytax.com/blog/have-fewer-than-50-employees-here-is-how-the-health-care-act-affects-you/41731 Tri-Valley Tax & Financial Services Inc Article Highlights: Under the 50-Employee Threshold  Determining the 50-Employee Threshold  Full-Time Employee  Equivalent Full-Time Employees  Information Return Requirements  SHOP Marketplace  Small Business Health Care Credit  When Congress came up with the Affordable Care Act (ACA), they carved out two basic categories of businesses, those with 50 full-time employees and/or full-time equivalent employees (FTEEs) and those with fewer than 50 employees. Under the ACA, businesses in the first category have a requirement to offer affordable insurance to their full-time employees and their dependents. If you are an employer with fewer than 50 full-time employees or FTEEs, you are not subject to the insurance requirement, but there are still some ACA issues you need to be aware of. First of all, you need to make sure you are in the under-50 category, because the penalties can be backbreaking if you aren't and you didn't offer affordable health coverage. Determining if your business meets or exceeds the 50-employee threshold requires maneuvering through lots of special rules, and not all of these intricacies can be covered in this article. Generally, the 50-employee threshold is determined by adding together the number of full-time employees and the total number of full-time equivalent employees for each calendar month of the prior calendar year and dividing that total number by 12. Full-time employees are generally those working 30 hours or more per week, and the number of FTEEs is determined by dividing all the hours worked by part-time employees for the month by 120. In addition, certain employees, such as seasonal employees, are excluded from the count. If you have any doubt whether you are under the 50-employee threshold, please call this office for assistance. If you are under the 50-employee threshold, you are not subject to any ACA information reporting that is required of larger employers—with one exception. If you provide insurance and you are self-insured, then you are required to annually file a Form 1094-C along with a 1095-C for each employee. If you wish to provide insurance to your employees, even though you are not required to since you are under the 50-employee threshold, you are allowed to purchase health insurance coverage through the Small Business Health Options Program, better known as the SHOP Marketplace. Even though purchased through the Marketplace, this type of group coverage does not qualify your employees for the premium tax credit subsidy they might otherwise be entitled to if they acquired coverage directly from the individual policy Marketplace. As an enticement for employers that have fewer than 25 FTEEs with average annual wages of less than $50,000 to provide health insurance to their employees, the ACA added a small business health care tax credit. To qualify, the business needs to purchase the health insurance through the SHOP Marketplace and cover at least 50 percent of their full-time employees' premium costs. However, this credit applies for only 2 years, after which time the employer will receive no further financial assistance from Uncle Sam. A recent General Accounting Office report noted that far fewer small businesses were taking advantage of the credit than expected by Congress. If you have questions, need assistance in determining whether you meet the 50-employee threshold, or would like to determine the benefit of the small business health care tax credit, please give this office a call. Tue, 19 Jul 2016 19:00:00 GMT Delaying Mandatory Taxable IRA Distributions - Are Qualified Longevity Annuities the Answer? http://www.mytrivalleytax.com/blog/delaying-mandatory-taxable-ira-distributions-are-qualified-longevity-annuities-the-answer/41727 http://www.mytrivalleytax.com/blog/delaying-mandatory-taxable-ira-distributions-are-qualified-longevity-annuities-the-answer/41727 Tri-Valley Tax & Financial Services Inc Article Highlights: Stretching IRA Distributions  Required Minimum Distributions  Qualified Longevity Annuity  Taxable Social Security  People are living longer these days, and they may be concerned about outliving their retirement income, especially since tax law requires them to begin taking mandatory distributions from their retirement plans (such as IRAs) once they reach age 70.5. These distributions, called required minimum distributions (RMD), are generally determined by dividing the retirement account balance at the end of the preceding year by the individual's life expectancy from an IRS annuity table. While most retirees need the money from these distributions to live on, some individuals may still be working or have other resources, and they may not want or need to withdraw funds from their retirement accounts at this time. Unfortunately, it isn't as easy as just not taking some or all of the required distribution because, when less than the RMD is taken, a stiff penalty is applied equal to 50% of the difference between the RMD that should have been withdrawn and the amount actually distributed for the year. IRS regulations finalized in 2014 provide some relief for individuals who want to stretch out their retirement funds by allowing taxpayers to use up to $125,000 or 25% of their retirement account (whichever is lower) to purchase a qualified longevity annuity contract (QLAC) within the account. The amount used to purchase the QLAC is subtracted from the account balance, thus reducing the RMD from the retirement account each year until a specified time in the future when distributions from the annuity must begin. Although this is not a perfect solution, a QLAC can, in effect, delay the distributions associated with the funds used to purchase the QLAC until as late as the predetermined date for the start of the annuity payments (no later than age 85). As an example, Dan, who is age 72, has a traditional IRA with a balance of $700,000. From the IRS annuity table for age 72, Dan has an expected distribution period (life expectancy) of 25.6 years, and his RMD for the year would be $27,344 ($700,000/25.6). However, Dan could have purchased a QLAC in the amount of $125,000 (as this is less than 25% of $700,000) with IRA funds prior to the end of the year, thus reducing the IRA balance that is currently subject to mandatory distribution to $575,000. As a result, his RMD for the year would be $22,461. In addition, his QLAC would begin distributions at whatever date Dan selected for the start date (no later than age 85). Since Social Security (SS) income becomes taxable when half of the taxpayer's SS benefits plus the taxpayer's other income (including nontaxable interest income) exceeds $25,000 ($32,000 for married taxpayers filing jointly), using a QLAC to reduce a taxpayer's RMD income can actually reduce the tax on the taxpayer's SS income. QLACs do not apply to Roth IRAs, which have no RMD requirements and generally provide tax-free income. Although many taxpayers are not fans of annuities, they do provide a guaranteed income for life and address the risk of outliving their assets while also delaying distributions to a later time for those who are still working or who have no current need for distributions. Please call this office if you have questions about how a QLAC might apply to your situation. Thu, 14 Jul 2016 19:00:00 GMT Are You a Non-Filer? Ready to Escalate Problems with the IRS? http://www.mytrivalleytax.com/blog/are-you-a-non-filer-ready-to-escalate-problems-with-the-irs/41720 http://www.mytrivalleytax.com/blog/are-you-a-non-filer-ready-to-escalate-problems-with-the-irs/41720 Tri-Valley Tax & Financial Services Inc Article Highlights: Non-Filers  IRS Information Reporting  IRS Prepared Substitute Return  Notice of Deficiency  Tax Court Appeal  Liens and Levies  There are millions of individuals who do not file a tax return each year, many of them simply because their income is below the filing threshold levels for the year based upon their filing status. Still others simply procrastinate and risk forfeiting their rightful refunds, including earned income tax credits, child tax credits, tuition credits and excess withholding. Then there are others who believe they owe, whether they actually do or not, and don't file because they think they can't pay what they owe. Not filing on time and owing money can result in a 5% per month (maximum 25%) failure-to-file penalty, plus failure-to-pay penalties and statutory interest in addition to what is owed. It does not make sense to incur unnecessary penalties, especially when the IRS has payment options and, in certain hardship situations, compromise options that may apply. If you are in the situation just described and think the IRS is not aware of you, think again. The IRS information reporting system knows a lot more about you than you might imagine. Here is just a short list of items that get reported to the IRS's computer and added to your file: W-2s for wages filed by employers.  W-2Gs for wagering winnings from racetracks, casinos, poker parlors, etc.  1099-MISC forms from businesses you have contracted with.  1099-INT and 1099-DIV showing interest and dividends earned from financial accounts.  1099-B forms showing the gross proceeds from the sales of securities.  1099-K forms showing the credit card transactions for your business.  1099-S forms reporting the gross proceeds from sales of real estate.  K-1s from businesses and trusts you are connected with.  Form 8300 transaction forms from banks showing large transactions.  The list goes on and on.  So what does the IRS do with all this information when you haven't filed a return? Well, if the gross income is enough that they believe you have a filing requirement, the IRS will prepare a substitute return for you based upon the information they have. This is when things can get really nasty, because the substitute return is based solely on the income reported to the IRS without the benefit of exemptions, itemized deductions, any of the many credits to which you may be entitled, or cost basis for any property or assets sold. In addition, the substitute return will treat you as married filing separate (the filing status for which the higher tax rates kick in quicker). Along with the substitute return, you will generally receive a notice of statutory deficiency (commonly referred to as a 90-day letter), which will give you 90 days to file an appeal with the Tax Court. At this point things really get expensive because you will need a tax attorney to handle the appeal. If you ignore the 90-day letter or the 90 days run out, the tax assessment becomes final and the IRS can institute liens and levies. Then life really gets miserable. Your credit rating will take a nosedive, liens will be put on your property, and wages and refunds will be attached. Although there are further remedies, they are increasingly expensive in terms of legal costs. Don't let things escalate to this point; give this office a call so we can get your past returns filed before you start receiving notices from the IRS. If you've already received notices and have been ignoring them, gather them up in chronological order and bring them to the office so we can figure out the next steps required. If you have lost or misplaced past years' records, we can order a transcript from the IRS that includes the information reported from various sources for each unfiled year. There are even ways to get penalties waived. Tue, 12 Jul 2016 19:00:00 GMT Where did your Federal income tax dollars go in 2015? http://www.mytrivalleytax.com/blog/where-did-your-federal-income-tax-dollars-go-in-2015/41719 http://www.mytrivalleytax.com/blog/where-did-your-federal-income-tax-dollars-go-in-2015/41719 Tri-Valley Tax & Financial Services Inc The National Priorities Project recently broke down the United States $4.2 trillion dollar Federal budget detailing where your tax dollars were allocated. The majority of your Federal income tax dollars go to health programs, defense and interest on the national debt. In 2015, the average household paid $13,000 in Federal income taxes. CNNMoney designed a nice infographic based on a dollar bill to highlight where the Government spent the average tax receipts. You can also access the National Priorities Project calculator to see how your share was spent. The breakdown of your tax dollar: Thu, 07 Jul 2016 19:00:00 GMT Combining a Vacation with a Foreign Business Trip? Here Are Some Tax Pointers http://www.mytrivalleytax.com/blog/combining-a-vacation-with-a-foreign-business-trip-here-are-some-tax-pointers/41712 http://www.mytrivalleytax.com/blog/combining-a-vacation-with-a-foreign-business-trip-here-are-some-tax-pointers/41712 Tri-Valley Tax & Financial Services Inc Article Highlights: Primarily Business  Primarily Vacation  Special Circumstances  Foreign Conventions, Seminars and Meetings  Cruise Ships  Spousal Travel Expenses  When an individual makes a business trip outside of the U.S. and the trip is 100% devoted to business, all of the ordinary and necessary business travel expenses are deductible, just as if the business trip were within the U.S. On the other hand, if the trip also incorporates a vacation, special rules determine the deductibility of the travel expenses to and from the destination; when the other business travel expenses, such as lodging, meals, local travel and incidentals, can be deducted; and when they must be allocated. So, whether you are just visiting one of our neighboring countries or traveling to Europe or even more exotic locales, here are some travel tax pointers: Primarily Vacation - If the travel is primarily for vacation and only a few hours are spent attending professional seminars or meeting with foreign business colleagues, none of the expenses incurred in traveling to and from the general business location are deductible. Other travel expenses must be allocated on a day-by-day basis, and only the business portion is deductible. Primarily Business - If the trip is primarily for business and meets one of the conditions listed below, the expenses incurred in traveling to and from the business destination are deductible in full (same as for travel within the U.S.). (1) The travel outside the U.S. is for a period of one week or less (seven consecutive days, excluding the departure day but including the day of return). In addition, all other ordinary and necessary travel expenses are fully deductible. (2) Less than 25% of the total time outside the U.S. is spent on non-business activities. In addition, all other ordinary and necessary travel expenses are fully deductible. (If 25% of more of the total time is spent on non-business activities, a day-by-day allocation of all travel expenses between personal and business activities is necessary and only the business portion is deductible.) (3) The individual incurring the travel expenses can establish that a personal vacation or holiday was not a major consideration. In addition, all other ordinary and necessary travel expenses are fully deductible. (4) The taxpayer did not have “substantial control” over arranging the trip. In addition, all other ordinary and necessary travel expenses are fully deductible. When determining what constitutes business and non-business time, business days include: days en route to or from the business destination by a reasonably direct route without interruption; days when actual business is transacted; weekends or standby days that fall between business days; and days when business was to have been transacted but was canceled due to unforeseen circumstances. Nonbusiness days are days spent on nonbusiness activities as well as weekends, holidays and other standby days that fall at the end of the business activity, if the taxpayer remains at the business destination for personal reasons. Foreign Conventions, Seminars or Meetings - Tax law does not permit a deduction for travel expenses to attend a convention, seminar or similar meeting held outside of the North American area unless the taxpayer establishes that: (1) The meeting is directly related to the active conduct of the taxpayer's trade or business, and (2) It is “as reasonable” for the meeting to be held outside of the North American area as it is within the North American area. The IRS defines “North American area” quite broadly and includes not just the U.S., Canada and Mexico, as you would expect, but also Bermuda, several countries in the Caribbean basin, U.S. possessions such as American Samoa and other Pacific island nations, and some Central American countries as well. Cruise Ship Conventions - In order for a taxpayer to deduct the cost of attending a convention related to his or her trade or business on a cruise ship, the ship must be a U.S. flagship, and all the ports of call must be within the U.S. or its possessions. In addition, the maximum deduction is limited to $2,000 per attendee. Substantiation requirements include certain signed statements by the both the taxpayer and an officer of the convention sponsor. Spousal* Travel Expenses - Generally, deductions are denied for travel expenses for a spouse, dependent or employee of the taxpayer on a business trip unless: 1. The spouse is an employee of the taxpayer, and 2. The travel of the spouse, etc., is for a bona fide business purpose, and 3. The expenses would otherwise be a deductible business travel expense for the spouse. *These rules also apply to a dependent or employee of the taxpayer. However, the law allows a deduction for the single rate for lodging on qualified business trips, and frequently, there is no rate difference between one and two occupants. Thus, virtually the entire lodging expense for an accompanying spouse will be deductible. When traveling by car, the law does not require any allocation because the spouse is also traveling in the vehicle. Thus, if traveling by vehicle, the entire cost of the business-related transportation would be deductible. This would generally also apply to taxis at the destination. As you can see, determining the tax deduction for a foreign business trip that is combined with a vacation can be complicated. If you need additional tax guidance or help planning such a trip, please give this office a call. Tue, 05 Jul 2016 19:00:00 GMT Employer Offered You Health Insurance but You Got Yours through the Marketplace. You May Be in for an Unpleasant Surprise! http://www.mytrivalleytax.com/blog/employer-offered-you-health-insurance-but-you-got-yours-through-the-marketplace-you-may-be-in-for-an-unpleasant-surprise/41709 http://www.mytrivalleytax.com/blog/employer-offered-you-health-insurance-but-you-got-yours-through-the-marketplace-you-may-be-in-for-an-unpleasant-surprise/41709 Tri-Valley Tax & Financial Services Inc Article Highlights: Premium Tax Credit  Employer “Offer” of Insurance  Affordable  Denial of Premium Tax Credit  Form 1095-C  One of the key provisions of Obamacare is the premium tax credit (PTC), which serves as a subsidy for the cost of health insurance for lower-income individuals and families. Although the credit is determined at the end of the year based upon income, taxpayers are allowed to estimate their income and receive the credit in advance, thereby reducing their premium costs. Another key provision of Obamacare requires large employers to offer full-time employees affordable healthcare insurance. The term “affordable” means that the employee's insurance costs less than 9.66% (2016 percentage) of the employee's household income. In addition, because the government wants to limit its outlay for the PTC, the law denies PTC to employees who are offered affordable healthcare insurance by their employer. This is where a potential problem arises! Quite often, the cost of insurance subsidized by the advance PTC obtained through the Marketplace is substantially less costly than the “affordable” insurance offered by the employer; as a result, the employee will instead obtain the less expensive insurance through the Marketplace, while not realizing that they are not entitled to the PTC because the employer offered them “affordable” insurance. Prior to 2015, the government had no way of determining who was offered “affordable” insurance by their employer and therefore was unable to enforce the “no PTC rule.” However, beginning in 2015, employers with 100 or more equivalent full-time employees were required to file the new Form 1095-C, which shows month-by-month when an employee was offered “affordable” healthcare insurance. Generally, the employer is required to furnish a copy of Form 1095-C (or a substitute form) to the employee. Beginning in 2016, even employers with 50 or more equivalent full-time employees are required to file 1095-Cs. The IRS will begin matching the information on the 1095-Cs that the employers have filed with taxpayers who claimed the PTC for months during which they were also offered “affordable” insurance by their employer. Those taxpayers will be receiving notices from the IRS requiring them to repay the premium tax credit for the months when they were offered affordable care. If you are concerned that you claimed the PTC and might be subject to repayment, you can look at your copy of Form 1095-C from your employer. Check line 14 and see if there are entries in any of the months. The entries will be codes, which are explained on the reverse of the form. If you need assistance or additional information related to Form 1095-C and its impact on the PTC, please give this office a call. Thu, 30 Jun 2016 19:00:00 GMT Tax Consequences of Losing Your Job http://www.mytrivalleytax.com/blog/tax-consequences-of-losing-your-job/41699 http://www.mytrivalleytax.com/blog/tax-consequences-of-losing-your-job/41699 Tri-Valley Tax & Financial Services Inc Article Highlights: Severance Pay  Unemployment Compensation  Health Insurance  Employer Pension Plan  Job Search Expenses  Moving Expenses  Home Sale  If you have lost your job, there are a number of tax issues that you may encounter. How you deal with these issues can profoundly impact both your taxes and your finances. The following are typical issues along with their tax treatment: Severance Pay - Your employer may provide you with severance pay. Severance pay and payment for unused vacation time will be included in your W-2 income, and both are fully taxable. Unemployment Compensation - If you do not find another job right away, you generally will qualify for unemployment compensation. Unemployment benefits are taxable for federal purposes and may or may not be taxable by your state of residence. Heath Insurance - When you lose your job and you had health insurance through your employer's group health coverage plan, you will need to determine your available options for continued coverage via COBRA or a replacement policy. If you give up coverage, you may be subject to Obamacare penalties for not being insured. COBRA Coverage - The Consolidated Omnibus Budget Reconciliation Act (COBRA) requires continuation coverage to be offered to covered employees, their spouses, former spouses, and dependent children when group health coverage would otherwise be lost. COBRA continuation coverage is often more expensive than the amount that active employees are required to pay for group health coverage because the employer usually pays part of the cost of employees' coverage, whereas 102% of the total cost can be charged to individuals receiving continuation coverage (the extra 2% covers administration costs). COBRA generally applies to private-sector employers with 20 or more employees and state or local governments that offer group health coverage to their employees. In most cases COBRA coverage is limited to 18 months.   Obamacare - When existing health coverage is lost, a family may enroll in Obamacare through a government health insurance Marketplace outside of the normal enrollment window. In addition, depending upon your income for the year, you may qualify for the premium tax credit for the part of the year when you don't have coverage through your employer, which will help pay for the insurance.  Employer Pension Plan - Depending upon the provisions of your employer's pension plan, you may be able to leave your retirement funds in the employer's plan or have the option of moving the funds to your IRA account. You can have the funds transferred to your IRA or take a distribution and roll it into your IRA within 60 days. However, this is where a tax trap exists; for a distribution, the employer is required to withhold 20% for federal taxes, meaning only 80% of the funds will be available to roll over and the remaining 20% will end up being taxable unless you can make up the difference with other funds. In the event you should ever want to roll those funds into a new employer's retirement plan, those retirement distributions should not be comingled with other IRA accounts. Should you be tempted not to roll the funds over, be aware that the distribution will generally be taxable, and if you are under the age of 59.5 there will also be a 10% early withdrawal penalty. Job Search Expenses - Expenses incurred while looking for a new job in your current occupation are deductible, even if a new job is not obtained. Examples of eligible expenses include: Fees you pay to employment and outplacement agencies and for career counseling.   Resume preparation costs, such as typing, printing and mailing.   Travel and transportation expenses if the trip is primarily to look for a new job. Even if the travel expenses to an area aren't deductible because job search wasn't your primary reason for the trip, the expenses looking for work in the area are allowed.  Moving Expenses - If you end up moving to obtain employment, you may qualify to deduct your moving costs, which generally include shipping, moving van, truck rentals, packing, insurance and in-transit storage. To qualify, the distance from your former home to your new work site must be at least 50 miles further than the distance from your old home to your old job, and you must work in the new location for 39 of the first 52 weeks in the new location. Home Sale - If you relocate and have to sell your home and have owned and occupied the home as your primary residence for 2 of the previous 5 years, you will be able to exclude up to $250,000 of the gain ($500,000 if you are married and both you and your spouse qualify for the exclusion). If you do not meet the 2-out-of-5-years qualifications because you have lost your job, you will be allowed a prorated gain exclusion. As you can see, there are a number of issues that may apply when a job loss occurs. To learn more about how these issues might affect your particular situation, please give this office a call. Tue, 28 Jun 2016 19:00:00 GMT Short-Term Rental, Special Treatment http://www.mytrivalleytax.com/blog/short-term-rental-special-treatment/41678 http://www.mytrivalleytax.com/blog/short-term-rental-special-treatment/41678 Tri-Valley Tax & Financial Services Inc Article Highlights: Airbnb, VRBO, and HomeAway Rented for Fewer than 15 Days During the Year The 7-day and 30-day Rules Exceptions to the 30-Day Rule Schedule C Reporting If you are one of the many taxpayers who rents out a first or second home using rental agents or online rental services (such as Airbnb, VRBO and HomeAway) that match property owners with prospective renters, then some special tax rules may apply to you. These special (and sometimes complex) taxation rules can make the rents that you charge tax-free. However, other situations may force your rental income and expenses to be treated as a business reported on a Schedule C, as opposed to a rental activity reported on Schedule E. The following is a synopsis of the rules governing short-term rentals. Rented for Fewer than 15 Days During the Year – When a property is rented for fewer than 15 days during the tax year, the rental income is not reportable, and the expenses associated with that rental are not deductible. Interest and property taxes are not prorated, and the full amounts of the qualified mortgage interest and property taxes are reported as itemized deductions (as usual) on the taxpayer’s Schedule A. The 7-Day and 30-Day Rules – Rentals are generally passive activities. However, an activity is not treated as a rental if either of these statements applies: A. The average customer use of the property is for 7 days or fewer—or for 30 days or fewer if the owner (or someone on the owner’s behalf) provides significant personal services. B. The owner (or someone on the owner’s behalf) provides extraordinary personal services without regard to the property’s average period of customer use. If the activity is not treated as a rental, then it will be treated as a trade or business, and the income and expenses, including prorated interest and taxes, will be reported on Schedule C. IRS Publication 527 states: “If you provide substantial services that are primarily for your tenant’s convenience, such as regular cleaning, changing linen, or maid service, you report your rental income and expenses on Schedule C.” Substantial services do not include the furnishing of heat and light, the cleaning of public areas, the collecting of trash, and such. Exception to the 30-Day Rule – If the personal services provided are similar to those that generally are provided in connection with long-term rentals of high-grade commercial or residential real property (such as public area cleaning and trash collection), and if the rental also includes maid and linen services that cost less than 10% of the rental fee, then the personal services are neither significant nor extraordinary for the purposes of the 30-day rule. Profits & Losses on Schedule C – Profit from a rental activity is not subject to self-employment tax, but a profitable rental activity that is reported as a business on Schedule C is subject to this tax. A loss from this type of activity is still treated as a passive-activity loss unless the taxpayer meets the material participation test – generally, providing 500 or more hours of personal services during the year or qualifying as a real estate professional. Losses from passive activities are deductible only up to the passive income amount, but unused losses can be carried forward to future years. A special allowance for real-estate rental activities with active participation permits a loss against nonpassive income of up to $25,000 – phasing out when modified adjusted gross income is between $100K and $150K. However, this allowance does NOT apply when the activity is reported on Schedule C. These rules can be complicated; please call this office to determine how they apply to your particular circumstances and what actions you can take to minimize tax liability and maximize tax benefits from your rental activities. Thu, 23 Jun 2016 19:00:00 GMT July 2016 Individual Due Dates http://www.mytrivalleytax.com/blog/july-2016-individual-due-dates/32760 http://www.mytrivalleytax.com/blog/july-2016-individual-due-dates/32760 Tri-Valley Tax & Financial Services Inc July 1 - Time for a Mid-Year Tax Check Up Time to review your 2016 year-to-date income and expenses to ensure estimated tax payments and withholding are adequate to avoid underpayment penalties.July 11 - Report Tips to EmployerIf you are an employee who works for tips and received more than $20 in tips during June, you are required to report them to your employer on IRS Form 4070 no later than July 11. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed. Tue, 21 Jun 2016 19:00:00 GMT July 2016 Business Due Dates http://www.mytrivalleytax.com/blog/july-2016-business-due-dates/32762 http://www.mytrivalleytax.com/blog/july-2016-business-due-dates/32762 Tri-Valley Tax & Financial Services Inc July 1 - Self-Employed Individuals with Pension Plans If you have a pension or profit-sharing plan, you may need to file a Form 5500 or 5500-EZ for calendar year 2015. Even though the forms do not need to be filed until August 1, you should contact this office now to see if you have a filing requirement, and if you do, allow time to prepare the return. July 15 - Non-Payroll Withholding If the monthly deposit rule applies, deposit the tax for payments in June. July 15 - Social Security, Medicare and Withheld Income TaxIf the monthly deposit rule applies, deposit the tax for payments in June. Tue, 21 Jun 2016 19:00:00 GMT Tax Court Ruled Employer's Independent Contractor Interpretation Reasonable http://www.mytrivalleytax.com/blog/tax-court-ruled-employers-independent-contractor-interpretation-reasonable/41676 http://www.mytrivalleytax.com/blog/tax-court-ruled-employers-independent-contractor-interpretation-reasonable/41676 Tri-Valley Tax & Financial Services Inc Article Highlights: IRS Challenge  Section 530 Relief  Reasonable Basis  Court Ruling  One of the most challenging issues facing employers is whether a worker should be classified as an employee or an independent contractor. A case recently concluded in federal district court illustrates this point. An employer, Nelly Home Care, Inc., had classified a group of 35 workers as independent contractors and was charged by the IRS with owing substantial employment taxes. The agency pursues those who try to avoid having to pay FICA, FUTA and income tax withholding by mislabeling employees in this way. Upon review of the specifics of the case, the court determined that the employer did not owe these taxes and was entitled to relief under Section 530 of the Revenue Act of 1978. The case was Nelly Home Care, Inc., DC-Pa., May 10, 2016. The Case Against Nelly Home Care - Though the court's decision may mean that the IRS now pursues each independent contractor for self-employment taxes owed, for our purposes it is of interest to understand the terms of Section 530, the safe harbor rule on which the ruling was based. Section 530 spells out circumstances that allow a taxpayer to escape liability for paying employment taxes for a prior period — even if the case pursued by the IRS is correct and the workers should not have been classified as independent contractors. In order for Section 530 to apply, an employer needs to show that it has never treated the workers as employees, it has consistently filed all federal returns (including 1099s) and it has a reasonable basis for not treating the worker as an employee. Reasonable basis is present if any of the following can be shown: Having a previous judicial ruling or precedent, or technical advice, letter rulings, or a determination letter from the IRS pertaining to that business.   Having already undergone an IRS audit that made no adjustment to the way that the workers were classified.   Being able to show that a large percentage of businesses in the same industry follow the same practice and have done so for a significant amount of time.  Even when an employer fails to meet one of these tests, the employer can still get Section 530 relief by showing reasonable basis in some other reasonable manner. Section 530 indicates that this reasonable basis is to be construed liberally in favor of the taxpayer. How the Court Ruled - In this particular case, the employer was in the homecare services industry, and the 35 workers in question worked with the elderly. The employer provided them with workers' compensation insurance but did not train them or control many aspects of their work. Upon review of the circumstances, the IRS determined that they were not independent contractors, but employees. However, the district court determined otherwise. Though the court indicated that the threshold had not been met for use of the statutory safe harbor, it noted that the employer had given consideration to a number of other factors that qualified Nelly Home Care for the reasonable basis safe harbor. Those factors included the fact that others in the field categorized their workers in the same way and that the personal income tax returns of the corporation's shareholders had previously undergone an IRS audit that did not raise the issue, despite the IRS having reviewed business documents involving the workers during the audit. The court ruled that these two factors were enough for the employer to have made a reasonable assumption that the practice was correct. Though this case ended well for the employer, not all stories end so happily. Making the wrong decision can end up costing a business a significant amount of money in fines and back taxes. If you are not certain as to how to categorize your own workers, give this office a call. In some cases it may also be appropriate to seek legal advice. Tue, 21 Jun 2016 19:00:00 GMT Do You Need a Mid-Year Tax Checkup? http://www.mytrivalleytax.com/blog/do-you-need-a-mid-year-tax-checkup/33529 http://www.mytrivalleytax.com/blog/do-you-need-a-mid-year-tax-checkup/33529 Tri-Valley Tax & Financial Services Inc Article Highlights: Procrastination Can Lead to Unneeded Taxes & Penalties Events That Create Tax Problems & Opportunities Mid-Year Tax Checkup If you are inclined to procrastinate until the end of the year or, even worse, until tax-filing season to worry about your taxes, you may be missing out on opportunities to reduce your tax and avoid certain penalties. The following are some events that can affect your tax return; you may need to take steps to mitigate their impact and avoid unpleasant surprises after it is too late to address them. Did you get married, get divorced, or become widowed? Did you change jobs or has your spouse started working? Did you have a substantial increase or decrease in income? Did you have a substantial gain from the sale of stocks or bonds? Did you buy or sell a rental? Did you start, acquire, or sell a business? Did you buy or sell a home? Did you retire this year? Are you on track to withdraw the required amount from your IRA (age 70.5 or older)? Are you taking advantage of the IRA-to-charity transfers (age 70.5 or older)? Did you refinance your home or take out a second home mortgage this year? Were you the beneficiary of an inheritance this year? Did you welcome a new child into your family? Time to consider a tax-advantaged savings plan! Are you taking advantage of tax-advantaged retirement savings? Have you made any significant equipment purchases for your business? Are you planning to purchase a new business vehicle and dispose of the old one? It makes a significant difference whether you sell or trade in the old vehicle. Are your cash and non-cash charitable contributions adequately documented? Did you, or are you planning to, make energy-efficiency improvements to your main home or install a solar system for your main or second home this year? Are you paying college tuition for yourself, your spouse or dependent(s)? Are you keeping up with your estimated tax payments or do they need adjusting? Did you purchase your health insurance through a government insurance marketplace and qualify for an insurance premium subsidy? If your income subsequently increased, you may need to be prepared to repay some portion of the subsidy. Do you have substantial investment income or gains from the sale of investment assets? If so, you may be hit with the 3.8% surtax on net investment income and need to adjust your advance tax payments. Did you make any unplanned withdrawals from an IRA or pension plan? Have you stayed abreast of every new tax law change? If you anticipate or have already encountered any of the above events or conditions, it may be appropriate to schedule a mid-year tax checkup and consult with this office—preferably before any of the events listed, and definitely before the end of the year. Thu, 16 Jun 2016 19:00:00 GMT Scammers Impersonating IRS Agents Called You Yet? http://www.mytrivalleytax.com/blog/scammers-impersonating-irs-agents-called-you-yet/41668 http://www.mytrivalleytax.com/blog/scammers-impersonating-irs-agents-called-you-yet/41668 Tri-Valley Tax & Financial Services Inc Article Highlights: Scams Impersonating IRS Agents  Protecting Against Scams  Protecting Against ID Theft  What To Do If Your ID Has Been Compromised  The Treasury Inspector General for Tax Administration (TIGTA) has indicated it is making significant progress in its investigation of the IRS impersonation scams that are sweeping the nation, causing reported taxpayer losses of more than $36 million and averaging more than $5,700 per taxpayer. To date, TIGTA has logged approximately 1.2 million calls reported by taxpayers, and nearly 6,400 people have reported that IRS impersonators have fleeced them. In one instance, a taxpayer was so convinced the scammer was an IRS agent he rushed off to make a payment and was involved in a traffic accident. He was so worried about the scammer's threats of legal action that he actually left the scene of the accident so he could promptly get the funds wired to the scammer. In this case TIGTA was able to trace the victim's wire transfer and ultimately nabbed a ring of five scammers. But these stories generally don't have happy endings, so it is important for everyone to understand that the IRS never demands payment by wire, MoneyGram, debit cards or the like, and it always makes initial contact by mail. Protect Yourself and Loved Ones from Being a Scam Victim: Hang up on callers claiming to be IRS agents, IRS collection agents or state taxing authorities demanding immediate payments. They are not legitimate.   Take the time to educate your loved ones, especially those who might be vulnerable, about these scams and take steps necessary to protect them from scams.   Call this office if you need assurances or wish to confirm you do not have an outstanding balance with a tax authority.   Report scams and attempted scams on the TIGTA website.  Protect Against Identity Theft - In addition to scammers, watch out for those ID thieves out there looking for vulnerable IDs to steal. You may think it will never happen to you, but if it does, it will become a nightmare and could take years to straighten out. So you need to protect yourself against ID theft by limiting the exposure of your personal and financial information as much as possible. What do ID thieves need to create havoc for you? Your name, Social Security number and birth date! Here are some tips to limit your ID exposure: Don't carry your Social Security card - or any document that includes your Social Security number (SSN), for that matter - in your wallet, purse or briefcase. Your Social Security card combined with your driver's license provides scammers with the three pieces of information they need.  Don't give out either your SSN or your birth date without questioning the need and making sure it is a legitimate request and really necessary.   Limit the number of credit cards and credit accounts you have. Each account has your SSN, so the more accounts you have, the greater the chance you'll be caught up in a data breach and your ID will be compromised. It is far easier to deal with one credit card company than several if your ID is breached.   Be proactive and periodically change the passwords for your online accounts that include sensitive financial information. It is a pain, but it could avoid you a major headache. • Although only the last four digits of your SSN are used on most financial documents, you should still pay close attention to documents that include your full SSN or birth date. Limit their duplication and distribution and ensure they are properly disposed of when you discard them.   Never include your SSN, birthdate or other sensitive financial information in an e-mail or in documents attached to an e-mail.  Use common sense and follow the “need-to-know” rule when disclosing your financial information. Careless safeguarding of your information can lead to big problems. Think Your ID Has Been Compromised? You should immediately: File a complaint with the Federal Trade Commission at www.identitytheft.gov and complete a report. In addition to taking the report, the site will develop an ID Theft Affidavit that you can use when reporting the ID theft to creditors and others. The site will also walk you through various steps to be taken depending upon the specifics of your ID theft.   Contact one of the three major credit bureaus to place a “fraud alert” on your credit records and review your credit report for fraudulent activity: o Equifax, www.Equifax.com, 1-800-766-0008 o Experian, www.Experian.com, 1-888-397-3742 o TransUnion, www.TransUnion.com, 1-800-680-7289    Contact your financial institutions and close any financial or credit accounts opened without your permission or tampered with by identity thieves.   Report any fraud to your local police and retain a copy of the police report to use when reporting fraud to other agencies or creditors.  You should also contact this office immediately so steps can be taken to avoid fraudulent returns being filed using your SSN. Even if someone has already e-filed a return and claimed a refund under your SSN, your refund may still be safe. However, you cannot e-file and instead must file a paper return with the proper documentation; you will ultimately receive the refund you are due, but it will be severely delayed. Once the IRS recognizes that your SSN was used to file a fraudulent return, it will block your SSN from filing and assign you an alternative filing number for the subsequent year. For more information on how and what to file when someone else has filed using your SSN, please contact this office. Tue, 14 Jun 2016 19:00:00 GMT Tax Breaks for Hiring Your Children in Your Family Business http://www.mytrivalleytax.com/blog/tax-breaks-for-hiring-your-children-in-your-family-business/41664 http://www.mytrivalleytax.com/blog/tax-breaks-for-hiring-your-children-in-your-family-business/41664 Tri-Valley Tax & Financial Services Inc Article Highlights: Child Under the Age of 19 or a Student Under the Age of 24  Kiddie Tax  Tax on a Child's Earned Income  Deduction for the Business  Employment Taxes  IRAs and Retirement Plans  With school vacation time just around the corner and employees heading out for summer vacations, you might consider hiring your children to help out in your business. Financially, it makes more sense to keep the family employed rather than hiring strangers, provided, of course, that the family member is suitable for the job. Rather than helping to support your children with your after-tax dollars, you can instead hire them in your business and pay them with tax-deductible dollars. Of course, the employment must be legitimate and the pay commensurate with the hours and the job worked. The following are typical situations encountered when hiring family members. Employing a Child - A reasonable salary paid to a child reduces the self-employment income and tax of the parents (business owners) by shifting income to the child. When a child under the age of 19 or a student under the age of 24 is claimed as a dependent of the parents, the child is generally subject to the kiddie tax rules if their investment income is upward of $2,100. Under these rules, the child's investment income is taxed at the same rate as the parent's top marginal rate using a lower $1,050 standard deduction. However, earned income (income from working) is taxed at the child's marginal rate, and the earned income is reduced by the lesser of the earned income plus $350 or the regular standard deduction for the year, which is $6,300 for 2016. Assuming that a child has no other income, the child could be paid $6,300 and incur no income tax. If the child is paid more, the next $9,275 he or she earns is taxed at 10%. Example: You are in the 25% tax bracket and own an unincorporated business. You hire your child (who has no investment income) and pay the child $11,800 for the year. You reduce your income by $11,800, which saves you $2,950 of income tax (25% of $11,800), and your child has a taxable income of $5,500, $11,800 less the $6,300 standard deduction) on which the tax is $550 (10% of $5,500). If the business is unincorporated and the wages are paid to a child under age 18, he or she will not be subject to FICA - Social Security and Hospital Insurance (HI, aka Medicare) - taxes since employment for FICA tax purposes doesn't include services performed by a child under the age of 18 while employed by a parent. Thus, the child will not be required to pay the employee's share of the FICA taxes, and the business won't have to pay its half either. In addition, by paying the child and thus reducing the business's net income, the parent's self-employment tax payable on net self-employment income is also reduced. Use the same example from above. Assuming your business profits are $130,000, by paying your child $11,800, you not only reduce your self-employment income for income tax purposes, but you also reduce your self-employment tax (HI portion) by $316 (2.9% of $11,800 times the SE factor of 92.35%). But if your net profits for the year were less than the maximum SE income ($118,500 for 2016) that is subject to Social Security tax, then the savings would include the 12.4% Social Security portion in addition to the 2.9% HI portion. A similar but more liberal exemption applies for FUTA, which exempts from federal unemployment tax the earnings paid to a child under age 21 while employed by his or her parent. The FICA and FUTA exemptions also apply if a child is employed by a partnership consisting solely of his parents. However, the exemptions do not apply to businesses that are incorporated or a partnership that includes non-parent partners. Even so, there's no extra cost to your business if you're paying a child for work that you would pay someone else to do anyway. Retirement Plan Savings - Additional savings are possible if the child is paid more (or works part-time past the summer) and deposits the extra earnings into a traditional IRA. For 2016, the child can make a tax-deductible contribution of up to $5,500 to his or her own IRA. The business also may be able to provide the child with retirement plan benefits, depending on the type of plan it uses and its terms, the child's age, and the number of hours worked. By combining the standard deduction ($6,300) and the maximum deductible IRA contribution ($5,500) for 2016, a child could earn $11,800 of wages and pay no income tax. However, referring back to our original example, the child's tax to be saved by making a $5,500 traditional IRA contribution is only $550, so it might be appropriate to make a Roth IRA contribution instead, especially since the child has so many years before retirement and the future tax-free retirement benefits will far outweigh the current $550 savings. If you have questions about the information provided here and other possible tax benefits or issues related to hiring your child, please give this office a call. Thu, 09 Jun 2016 19:00:00 GMT School's Out - Who Is Going to Take Care of the Kids? http://www.mytrivalleytax.com/blog/schools-out-who-is-going-to-take-care-of-the-kids/41660 http://www.mytrivalleytax.com/blog/schools-out-who-is-going-to-take-care-of-the-kids/41660 Tri-Valley Tax & Financial Services Inc Article Highlights: Child Age Limits  Employment-Related Expense  Married Taxpayer Earnings Limits  Disabled or Full-Time-Student Spouse  Expense Limits  Summer has just arrived, and there is a tax break that working parents should know about. Many working parents must arrange for care of their children under 13 years of age (or any age if handicapped) during the school vacation period. A popular solution — with a tax benefit — is a day camp program. The cost of day camp can count as an expense toward the child and dependent care credit. But be careful; expenses for overnight camps do not qualify. For an expense to qualify for the credit, it must be an “employment-related” expense; i.e., it must enable you and your spouse, if married, to work, and it must be for the care of your child, stepchild, foster child, brother, sister or stepsibling (or a descendant of any of these) who is under 13, lives in your home for more than half the year and does not provide more than half of his or her own support for the year. Married couples must file jointly, and both spouses must work (or one spouse must be a full-time student or disabled) to claim the credit. The qualifying expenses are limited to the income you or your spouse, if married, earn from work, using the figure for whoever earns less. However, under certain conditions, when one spouse has no actual earned income and that spouse is a full-time student or disabled, that spouse is considered to have a monthly income of $250 (if the couple has one qualifying child) or $500 (two or more qualifying children). This means the income limitation is essentially removed for a spouse who is a student or disabled. The qualifying expenses can't exceed $3,000 per year if you have one qualifying child, while the limit is $6,000 per year for two or more qualifying persons. This limit does not need to be divided equally. For example, if you paid and incurred $2,500 of qualified expenses for the care of one child and $3,500 for the care of another child, you can use the total, $6,000, to figure the credit. The credit is computed as a percentage of your qualifying expenses; in most cases, 20%. (If your joint adjusted gross income [AGI] is $43,000 or less, the percentage will be higher, but it will not exceed 35%.) Example: Al and Janice both work, each with earned income in excess of $40,000 per year. Janice has a part-time job, and her work hours coincide with the school hours of their 11-year-old daughter, Susan. However, during the summer vacation period, they place Susan in a day camp program that costs $4,000. Since the expense limitation for one child is $3,000, their child credit would be $600 (20% of $3,000). The credit reduces a taxpayer's tax bill dollar for dollar. Thus, in the above example, Al and Janice pay $600 less in taxes by virtue of the credit. However, the credit can only offset income tax and alternative minimum tax liability, and any excess is not refundable. The credit cannot be used to reduce self-employment tax or the taxes imposed by the Affordable Care Act. If you have questions about how the childcare credit applies to your particular tax situation, please give this office a call. Tue, 07 Jun 2016 19:00:00 GMT June 30 - Deadline For Reporting Foreign Financial Interests http://www.mytrivalleytax.com/blog/june-30--deadline-for-reporting-foreign-financial-interests/41646 http://www.mytrivalleytax.com/blog/june-30--deadline-for-reporting-foreign-financial-interests/41646 Tri-Valley Tax & Financial Services Inc Article Summary: Foreign Account Reporting Requirement  Financial Crimes Enforcement Network  Penalties for Failure to File  Type of Accounts Affected  Form 8938 Filing Requirements  Every U.S. citizen and resident who has a financial interest in or signature or other authority over any foreign financial accounts, including bank, securities, or other types of financial accounts in a foreign country, are required to report that relationship if the aggregate value of the accounts exceeds $10,000 at any time during the year. The reporting is accomplished by filing FinCEN Form 114, frequently referred to as the foreign bank account report (FBAR) on or before June 30 of the succeeding year. Thus, for the 2015 tax year the FBAR must be filed by June 30, 2016. The filing is done electronically on the Financial Crimes Enforcement website. For the 2015 tax year, there are no extensions and civil penalties for non-willful violations, which can be as high as $10,000. The penalty for willful violations is the greater of $100,000 or 50% of the account's balance at the time of the violation. A “financial account” includes securities, brokerage, savings, checking, deposit, time deposit, or other accounts at a financial institution. Commodity futures and options accounts, mutual funds, and even non-monetary assets such as gold are also included. It becomes a “foreign financial account” if the financial institution is located in a foreign country. If you own shares of a foreign stock or a mutual fund that invests in foreign stocks and is held in an account at a financial institution or brokerage located in the U.S., this is not considered a foreign financial account, and the FBAR rules don't apply to it. An account maintained with the branch of a foreign bank physically located in the U.S. also is not a foreign financial account. You may have an FBAR requirement and not even realize it. For instance, perhaps you have relatives residing in a foreign county who have put you on their bank account in case something happens to them. If the value of the account exceeds $10,000 at any time during the year, you will need to file the FBAR. Or if you are gambling on the Internet, that online casino may be located in a foreign country, and if your account exceeds the $10,000 limit at any time during the year, you will have an FBAR-reporting requirement. You may also have an additional requirement to file Form 8938, which is similar to the FBAR requirement but applies to a wider range of foreign assets with a higher dollar threshold. If you are married and filing jointly with your spouse, you must file Form 8938 if the value of certain financial assets exceeds $100,000 at the end of the year or $150,000 at any time during the year. If you live abroad, the thresholds are $400,000 and $600,000, respectively. For other filing statuses, the thresholds are half of those amounts. The penalty for failing to file the 8938 is $10,000 per year, and if the failure continues for more than 90 days after you receive an IRS notice of failure to file, the penalty can go as high $50,000. Form 8938 should be filed with your individual tax return for the year by the due date (including extensions) of that return. If you have already filed your 2015 tax return and believe you may have an 8938 filing requirement that wasn't met on the return you filed, you should call this office immediately. As you can see, not complying with the foreign account reporting requirements can have some very nasty repercussions, and reporting can be complicated. The foregoing is an overview of the reporting requirements. Please call this office for additional details that may apply to your particular situation. Please call well in advance of the June 30 date if you need assistance in meeting your FBAR reporting obligation. Remember, there are no extensions for the FinCEN 114 filing. Thu, 02 Jun 2016 19:00:00 GMT Solar Tax Credits - Before You Take the Leap http://www.mytrivalleytax.com/blog/solar-tax-credits--before-you-take-the-leap/41635 http://www.mytrivalleytax.com/blog/solar-tax-credits--before-you-take-the-leap/41635 Tri-Valley Tax & Financial Services Inc Article Highlights: Non-Refundable Tax Credit  Qualifications  Installation Costs  Financing  When you see those TV ads for home solar power, you may get the impression that Uncle Sam is going to pick up 30% of your cost and you only have to come up with the other 70%. That is not necessarily the whole picture. True, the federal government has a 30% tax credit for the cost of a qualified solar installation (some states also have solar credits or other incentives). However, the federal credit is non-refundable and can only be used to offset your current tax liability, and any excess carries over to future years as long as the credit still applies in future years. Currently, the credit is allowed through 2021. What this means: You may not get all the credit in the first year as you might have been led to believe or assumed based upon the TV ads. For example, suppose your solar installation costs $25,000. That would qualify you for a solar tax credit of $7,500. But suppose the income tax on your tax return is only $4,000. Then, the credit would reduce your tax liability to zero, and the other $3,500 ($7,500 - $4,000) of the credit is carried over to the next year's tax return, where the credit will be limited to that year's tax amount. If your tax is again less than the amount of the credit, the excess credit carries to the following year, and so on, until the credit is used up or the credit expires. To qualify for the credit, the equipment must be installed in a home that is located in the U.S. and that you use as your residence. The credit can't be claimed for equipment that is used to heat a swimming pool or hot tub. If the equipment is used more than 20% for business purposes, only the expenses allocable to non-business use qualify for the credit. The credit covers both the cost of the hardware and the expenses of installing it, such as labor costs for on-site preparation, assembly, and installation of the equipment and for piping or wiring to connect it to your home. You claim the credit in the year in which the installation is completed. If you install the equipment in a newly constructed or reconstructed home, you claim the credit for the year when you move in. The credit can be taken for a newly constructed home if the costs of the solar power system can be separated from the home's other construction costs and the required certification documents are available. Solar installation companies offer a variety of ways to pay for their systems other than cash. You could take out a loan, and if that loan were secured by your home, generally you would be able to deduct the interest on the loan. Another option is to lease the system, in which case you would not qualify for the 30% solar credit and the lease payments would not be deductible. In addition, for the lease option, you would have to deal with transferring the lease to the new owner should you decide to sell the home or arrange to pay it off. Another option available in some communities is loans financed by local government and loan payments tacked onto the property tax bill. Generally, this option is at very high interest rates, and you should consider other payment methods first. Just because the payments are added to your property tax bill does not mean the payments are deductible as property tax. Only the interest portion of the separately stated amount is deductible as home mortgage interest. If you would like to review your options in more detail, including the tax benefits and other aspects of purchasing a solar system for your home, please give this office a call. Tue, 31 May 2016 19:00:00 GMT Surviving Spouse Estate Tax Exclusion http://www.mytrivalleytax.com/blog/surviving-spouse-estate-tax-exclusion/41609 http://www.mytrivalleytax.com/blog/surviving-spouse-estate-tax-exclusion/41609 Tri-Valley Tax & Financial Services Inc Article Highlights: Estate Tax  Estate Tax Exclusion  Adjustments to the Estate Tax Exclusion  Estate Tax Return Requirement for Election  Deciding Whether Filing an Estate Tax Return Is Worth the Cost  The estate tax is a tax on the transfer of property after an individual's death. It consists of an account of everything the decedent owned or had interest in on the date of death. This includes cash and securities, real estate, insurance, trusts, annuities, business interests, and other assets. The tax is based on the fair market value of these assets (less certain exclusions), generally as of the day the decedent died. An inflation-adjusted lifetime exclusion prevents smaller estates from being taxed. This exclusion is $5,450,000 for 2016, but it is adjusted (reduced) by the value of untaxed gifts that the decedent gave in excess of the annual gift exemption (currently $14,000) over his or her lifetime. Thus, if the value of all the decedent's property is less than the adjusted exclusion amount, there would be no estate tax and, generally, no need to file an estate tax return. However, filing an estate tax return when it otherwise wouldn't be needed may be beneficial to the surviving spouse when the decedent was married. When a decedent is survived by a spouse and the decedent's estate is worth less than the adjusted lifetime exclusion, the estate of the decedent may elect to pass any of the decedent's unused lifetime exclusion to the surviving spouse. Considering that estate tax rates currently range from 18 to 40 percent, this can be very beneficial if the estate of the surviving spouse could exceed the adjusted lifetime exclusion when he or she subsequently passes. Example - A husband with an estate valued at $2 million died in 2014, having made prior taxable gifts of $1 million. Even though there was no estate tax return filing requirement, the decedent's spouse filed one to claim the election to pass the decedent's unused lifetime exclusion to his spouse. The husband's unused exclusion amount was $2.34 million, which is the 2014 estate tax exemption of $5.34 million minus the $1 million in prior taxable gifts and the $2 million value of his estate. His spouse can then add his unused exclusion to her own. Assuming that the spouse has made no taxable gifts, if she passes in 2016, her estate's exclusion amount for 2016 would be $7.79 million (her $5.45 million basic exclusion amount plus $2.34 million of her spouse's unused exclusion amount). For the surviving spouse (or his or her estate) to claim the deceased spouse's unused exclusion amount, the estate of the first spouse to die must make an election, referred to as the portability election, by filing a timely estate tax return. The estate tax return must include a computation of the unused exclusion amount. This is true even if the value of the estate is not enough to require an estate tax return to be filed. This presents a quandary for the executor (or other representative of the estate, often the surviving spouse), who must decide whether it is worth the cost of having an estate tax return prepared and filed when there is no requirement to do so outside of making the portability election (as estate tax returns are quite complicated and expensive). When making this decision, an executor needs to carefully consider the likelihood of the surviving spouse's estate exceeding the adjusted lifetime exclusion amount. Another factor to consider is that Congress has changed both the lifetime exclusion amount and the estate tax rates in the past; as this topic seems to be a constant subject of discussion in Washington, there are no guarantees that the exemption will remain at its current level. If the executor is not the surviving spouse, he or she will ideally consult with the widow(er) on the decision, but this is not required. This could pose a problem if there is animosity between the executor and the surviving spouse. To avoid this situation, if someone other than the spouse is the executor of the estate for the first spouse to die, it is a good idea to include language in the couple's wills or trusts that will require the executor to make the portability election. If you have questions related to this election, the lifetime exclusion, the annual gift tax exemption, or estate planning in general, please give this office a call. Thu, 26 May 2016 19:00:00 GMT Roth IRA Aging Requirement http://www.mytrivalleytax.com/blog/roth-ira-aging-requirement/41595 http://www.mytrivalleytax.com/blog/roth-ira-aging-requirement/41595 Tri-Valley Tax & Financial Services Inc Article Highlights: Qualified Distributions  Age 59.5  Age Exceptions  Five-Year Aging Rule  Non-Qualified Distributions  You probably know that a Roth IRA can provide tax-free retirement income, but did you know the account must be “aged” before its earnings can be withdrawn tax-free? Unlike traditional IRA accounts, contributions to Roth IRAs provide no tax deduction when they are made, and unlike traditional IRAs, earnings from Roths are tax-free if a distribution is what the IRS refers to as a “qualified distribution.” A qualified distribution is one for which: 1. The account has satisfied a five-year aging rule AND 2. Meets one of the following conditions: The distribution is made after the IRA owner reaches the age of 59.5,  The distribution is made after the death of the IRA owner,  The distribution is made on account of the IRA owner becoming disabled, OR   The distribution (up to $10,000 lifetime, or $20,000 if filing jointly and the spouse also has a Roth IRA) is for a first-time homebuyer purchasing a home.  Figuring the five-year aging period can be tricky, and the holding period can actually be significantly less than five years. The five-year period: Begins on the earlier of: (a) The first day of the individual's tax year for which the first regular (i.e., non-rollover) contribution is made to any of the individual's Roth IRAs, or (b) The first day of the individual's tax year in which the first conversion contribution is made to any of the individual's Roth IRAs; and Ends on the last day of the individual's fifth consecutive tax year beginning with the tax year described in either (a) or (b) above. What complicates this a bit is the fact that a contribution to an IRA for a particular year can be made through the filing due date for the tax year in which the contribution applies. For example, an IRA contribution can be made as late as April 17, 2017, for the 2016 tax year. Thus, the five-year holding period would begin January 1, 2016, and end on December 31, 2020, so any distributions made January 1, 2021, and later would meet the five-year aging period. Each time a contribution is made to the Roth account, the aging period does not start over. The five-year aging requirements apply separately for traditional IRA conversions to a Roth IRA referenced in (b) above. If for some reason you decide to take a non-qualified distribution from your Roth IRA, i.e., one that does not meet the definition of a qualified distribution (discussed above), then the distributions are treated as made in the following order: (1) From funds originally contributed as Roth contributions (which have no tax consequences), (2) Then from conversions of other retirement funds to a Roth IRA (which would be subject to early withdrawal penalties), and (3) Finally from earnings (which would be both taxable and subject to early withdrawal penalties). If you are planning early retirement or planning to tap your Roth IRA account and wish to explore your options while minimizing taxes and penalties, please call this office for an appointment. Tue, 24 May 2016 19:00:00 GMT June 2016 Individual Due Dates http://www.mytrivalleytax.com/blog/june-2016-individual-due-dates/32072 http://www.mytrivalleytax.com/blog/june-2016-individual-due-dates/32072 Tri-Valley Tax & Financial Services Inc June 10 - Report Tips to Employer If you are an employee who works for tips and received more than $20 in tips during May, you are required to report them to your employer on IRS Form 4070 no later than June 10. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.June 15 - Estimated Tax Payment Due It’s time to make your second quarter estimated tax installment payment for the 2016 tax year. Our tax system is a “pay-as-you-go” system. To facilitate that concept, the government has provided several means of assisting taxpayers in meeting the “pay-as-you-go” requirement. These include: Payroll withholding for employees; Pension withholding for retirees; and Estimated tax payments for self-employed individuals and those with other sources of income not covered by withholding. When a taxpayer fails to prepay a safe harbor (minimum) amount, they can be subject to the underpayment penalty. This penalty is equal to the federal short-term rate plus 3 percentage points, and the penalty is computed on a quarter-by-quarter basis. Federal tax law does provide ways to avoid the underpayment penalty. If the underpayment is less than $1,000 (the “de minimis amount”), no penalty is assessed. In addition, the law provides "safe harbor" prepayments. There are two safe harbors: • The first safe harbor is based on the tax owed in the current year. If your payments equal or exceed 90% of what is owed in the current year, you can escape a penalty. • The second safe harbor is based on the tax owed in the immediately preceding tax year. This safe harbor is generally 100% of the prior year’s tax liability. However, for taxpayers whose AGI exceeds $150,000 ($75,000 for married taxpayers filing separately), the prior year’s safe harbor is 110%. Example: Suppose your tax for the year is $10,000 and your prepayments total $5,600. The result is that you owe an additional $4,400 on your tax return. To find out if you owe a penalty, see if you meet the first safe harbor exception. Since 90% of $10,000 is $9,000, your prepayments fell short of the mark. You can't avoid the penalty under this exception. However, in the above example, the safe harbor may still apply. Assume your prior year’s tax was $5,000. Since you prepaid $5,600, which is greater than 110% of the prior year’s tax (110% = $5,500), you qualify for this safe harbor and can escape the penalty. This example underscores the importance of making sure your prepayments are adequate, especially if you have a large increase in income. This is common when there is a large gain from the sale of stocks, sale of property, when large bonuses are paid, when a taxpayer retires, etc. Timely payment of each required estimated tax installment is also a requirement to meet the safe harbor exception to the penalty. If you have questions regarding your safe harbor estimates, please call this office as soon as possible. CAUTION: Some state de minimis amounts and safe harbor estimate rules are different than those for the Federal estimates. Please call this office for particular state safe harbor rules. June 15 - Taxpayers Living Abroad If you are a U.S. citizen or resident alien living and working (or on military duty) outside the United States and Puerto Rico, June 15 is the filing due date for your 2015 income tax return and to pay any tax due. If your return has not been completed and you need additional time to file your return, file Form 4868 to obtain 4 additional months to file. Then, file Form 1040 by October 17. However, if you are a participant in a combat zone, you may be able to further extend the filing deadline (see below). Caution: This is not an extension of time to pay your tax liability, only an extension to file the return. If you expect to owe, estimate how much and include your payment with the extension. If you owe taxes when you do file your extended tax return, you will be liable for both the late payment penalty and interest from the due date. Combat Zone - For military taxpayers in a combat zone/qualified hazardous duty area, the deadlines for taking actions with the IRS are extended. This also applies to service members involved in contingency operations, such as Operation Iraqi Freedom or Enduring Freedom. The extension is for 180 consecutive days after the later of: The last day a military taxpayer was in a combat zone/qualified hazardous duty area or served in a qualifying contingency operation, or have qualifying service outside of the combat zone/qualified hazardous duty area (or the last day the area qualifies as a combat zone or qualified hazardous duty area), or The last day of any continuous qualified hospitalization for injury from service in the combat zone/qualified hazardous duty area or contingency operation, or while performing qualifying service outside of the combat zone/qualified hazardous duty area. In addition to the 180 days, the deadline is also extended by the number of days that were left for the individual to take an action with the IRS when they entered a combat zone/qualified hazardous duty area or began serving in a contingency operation. It is not a good idea to delay filing your return because you owe taxes. The late filing penalty is 5% per month (maximum 25%) and can be a substantial penalty. It is generally better practice to file the return without payment and avoid the late filing penalty. We can also establish an installment agreement which allows you to pay your taxes over a period of up to 72 months. Please contact this office for assistance with an extension request or an installment agreement. June 30 - Taxpayers with Foreign Financial InterestsA U.S. citizen or resident, or a person doing business in the United States, who has a financial interest in or signature or other authority over any foreign financial accounts (bank, securities or other types of financial accounts), in a foreign country, is required to file Form FinCEN 114 with the Department of the Treasury (not the IRS). The form must be filed with the Treasury Department no later than June 30, 2016 for 2015. No extension of time to file is permitted. The form must be filed electronically; paper forms are not allowed. This filing requirement applies only if the aggregate value of these financial accounts exceeds $10,000 at any time during 2015. Contact our office for additional information and assistance filing the form. Mon, 23 May 2016 19:00:00 GMT June 2016 Business Due Dates http://www.mytrivalleytax.com/blog/june-2016-business-due-dates/32073 http://www.mytrivalleytax.com/blog/june-2016-business-due-dates/32073 Tri-Valley Tax & Financial Services Inc June 15 - Employer’s Monthly Deposit Due If you are an employer and the monthly deposit rules apply, June 15 is the due date for you to make your deposit of Social Security, Medicare and withheld income tax for May 2016. This is also the due date for the non-payroll withholding deposit for May 2016 if the monthly deposit rule applies.June 15 - Corporations Deposit the second installment of estimated income tax for 2016 for calendar year corporations.June 30 - Taxpayers with Foreign Financial Interests A U.S. citizen or resident, or a person doing business in the United States, who has a financial interest in or signature or other authority over any foreign financial accounts (bank, securities or other types of financial accounts), in a foreign country, is required to file Form FinCEN 114 with the Department of the Treasury (not the IRS). The form must be filed with the Treasury Department no later than June 30, 2016 for 2015. No extension of time to file is permitted. The form must be filed electronically; paper forms are not allowed. This filing requirement applies only if the aggregate value of these financial accounts exceeds $10,000 at any time during 2015. Contact our office for additional information and assistance filing the form. Mon, 23 May 2016 19:00:00 GMT Claimed Premium Tax Credit Last Year? Odds of IRS Correspondence Increased http://www.mytrivalleytax.com/blog/claimed-premium-tax-credit-last-year-odds-of-irs-correspondence-increased/41593 http://www.mytrivalleytax.com/blog/claimed-premium-tax-credit-last-year-odds-of-irs-correspondence-increased/41593 Tri-Valley Tax & Financial Services Inc Article Highlights: Premium Tax Credit Advance Premium Tax Credit Credit Reconciliation Employer Offer of Affordable Health Insurance Corrected 1095-A Watch Out for Scams Everyone hates to get letters from the IRS, and if you claimed the Premium Tax Credit (PTC) on your tax return or obtained your insurance through one of the federal or state insurance Marketplaces and had your premiums subsidized with the Advance Premium Tax Credit (APTC), your odds of receiving correspondence from the IRS will increase substantially. This is due to the complexity of the Affordable Care Act (ACA) and its maze of tax reporting requirements to ensure taxpayers correctly comply with the ACA's many provisions. One of the cornerstones of the ACA is the PTC, which is a refundable tax credit that helps lower-income families pay for their health insurance when they obtain it from a state or the federal insurance Marketplace. The amount of the PTC for a family is based on the family size and their household income as compared to the federal poverty guidelines. The insurance Marketplace allows (and actually encourage) families to claim an APTC based upon an estimate of income for the year, but then the tax-return filer must reconcile the APTC with the PTC the family is actually entitled to. This is done on the tax return for the year submitted to the IRS by the filer in the subsequent year. Individuals who might otherwise not need to file a tax return are required to file if they or someone in their family received APTC so that the reconciliation with the PTC can be done. If a return is not filed, then they will not be eligible for APTC or cost-sharing reductions to help pay for the Marketplace health insurance coverage in future years. In other words, they will be responsible for the full cost of their monthly premiums. Many taxpayers fail to complete the reconciliation on their tax return, which can result in an additional credit over and above the APTC claimed at the Marketplace, or on the flip side, they may have to repay some portion of the APTC. If the IRS computer compares the Form 1095-A from the Marketplace to what is reported on the tax return and finds the reconciliation was not completed or was completed incorrectly, or that the taxpayer failed to file a return, the taxpayer can expect to receive correspondence from the IRS. New for 2015 is the employer-reporting requirement, Form 1095-C, where employers report whether they offered employees affordable health care insurance. The rub here is that the ACA does not allow the PTC for any month when the employer offers the employee affordable health care insurance. The year 2015 is the first year for such reporting, and taxpayers who claimed the PTC when their employer offered them affordable health care insurance will soon be receiving letters from the IRS requesting repayment of any APTC they received through the Marketplace and/or the PTC they claimed on their 2015 tax returns. Another issue that could generate IRS correspondence is when a taxpayer receives a corrected 1095-A from a Marketplace with corrected premium amounts, the cost of second-lowest silver insurance, and/or the amount of APTC paid that differ from the original amounts. Unless the changes are insignificant, the corrected amounts will change the amount of the PTC the taxpayer is entitled to, and if the taxpayer has not already amended their tax return to correct the PTC, he or she will no doubt receive correspondence from the IRS. This is true even though the error in reporting is the government's (Marketplace's) fault. CAUTION: While legitimate correspondence from the IRS should not be ignored, be aware that all of these issues provide ID thieves and scammers with opportunities to develop plans to scam taxpayers. If you receive any form of communication from the IRS, always be suspicious. This is especially true of e-mails, which the IRS rarely uses and then only if contact has first been made by correspondence. Never click on any links embedded in such an e-mail, as your computer or phone may end up with a virus or embedded cookie, or you may be taken to a site disguised as an IRS site where the scammers attempt to have you divulge ID information. If you receive a phone call from an alleged IRS agent asking for immediate payment, simply hang up—it is a scam. Scam artists prey on everyone's natural fear of the IRS by using threats of property seizure and even arrest. Don't be a victim; call this office whenever you receive communications from the IRS or state taxing authorities. Thu, 19 May 2016 19:00:00 GMT Employers, Don't Miss the Work Opportunity Tax Credit http://www.mytrivalleytax.com/blog/employers-dont-miss-the-work-opportunity-tax-credit/41584 http://www.mytrivalleytax.com/blog/employers-dont-miss-the-work-opportunity-tax-credit/41584 Tri-Valley Tax & Financial Services Inc Article Highlights: Credit is Elective Credit Amount Work Hours Requirements Targeted Groups Limitations Certification Requirement Through 2019, employers who hire individuals from targeted groups are qualified to claim the work opportunity tax credit (WOTC). The credit is elective, and if claimed it reduces the employer's wage deduction dollar for dollar. The credit is a percentage of the employee's first-year wages, generally up to $6,000 per eligible employee, paid during the tax year for work performed during the one-year period beginning on the date the target group member begins work for the employer. This provides a tax credit worth as much as $2,400 for each eligible employee (and up to $4,800, $5,600 or $9,600 for certain veterans or $9,000 for “long-term family assistance recipients”). For the full credit (40%), the targeted employee must work for a minimum of 400 hours in the first year. For those that work between 120 and 399 hours, the credit percentage is reduced to 25%. Targeted groups after 2015 include qualified: Veterans - the first-year wages considered for this group vary between $12,000 and $24,000 with a maximum credit between $4,800 and $9,600 per employee, depending on the period of unemployment, whether he or she is receiving service-connected disability payments, and when he or she was discharged from active duty service. Long-term unemployed individuals (unemployed for 27 consecutive weeks) Ex-Felons Recipients of Temporary Assistance for Needy Families (TANF) program Designated community residents Vocational rehabilitation referrals Summer youth employees - Special rules apply - The credit is 40% for up to $3,000 of wages paid during any 90-day period between May 1 and Sept. 15, for a maximum credit of $1,200 ($3,000 × 40%) per employee. Supplemental nutrition assistance benefits recipients SSI recipients Long-term family assistance (TANF) recipients - The first-year wages considered for this group amount to $10,000 with a maximum credit of $4,000 per employee. In addition, this group qualifies for a second-year credit equal to 50% of up to $10,000 of the second-year wages. Before claiming the credit, an employer must obtain certification that an individual is a member of the targeted group. This is done by filing Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with the employer's respective state workforce agency (Designated Local Agency) within 28 days after the eligible worker begins work, although additional time is provided in some cases. Claiming the WOTC may also impact the availability of certain other employment-related tax credits. The credit is generally not available for employment of prior employees, certain family members, replacements for employees on strike or locked out and employees who are receiving federally funded on-the-job training. This credit is part of the general business credit and subject to its limitations and carryover provisions. Please call this office for additional information or assistance in applying for employee credit certification. Tue, 17 May 2016 19:00:00 GMT Oops, Did You Forget Something on a Tax Return? http://www.mytrivalleytax.com/blog/oops-did-you-forget-something-on-a-tax-return/41582 http://www.mytrivalleytax.com/blog/oops-did-you-forget-something-on-a-tax-return/41582 Tri-Valley Tax & Financial Services Inc Article Highlights: Overlooked Deductions and Credits Amended Tax Documents Overlooked Income Filing Statute of Limitations If you have already filed your tax return and overlooked an item of income or forgot to claim a deduction or credit, it is not too late! An amended return can be filed to correct an already filed tax return. Failing to report an item of income will most certainly generate an IRS inquiry, which typically happens a year or more after the original return was filed and after the interest and penalties have built up. Therefore, it is best to file an amended return as soon as possible to avoid the headache of IRS correspondence and to minimize the interest and penalties on any additional tax you might owe. On the flip side, if you overlooked a significant deduction or tax credit and you have a refund coming, you certainly don't want that to go by the wayside. The solution is to file an amended return as soon as the error or omission is discovered. Amended returns can also be used to claim an overlooked credit, correct the filing status or the number of dependents, report an omitted investment transaction, submit information from delayed K-1s, or anything else that should have been reported on the original return. If the overlooked item will result in a tax increase, penalties and interest can be mitigated by filing an amended return as soon as possible. Procrastination leads to further complications once the IRS determines something is missing, so it is best to take care of the issue right away. Generally, to claim a refund, an amended return must be filed within three years from the date the original return was filed or within two years from the date the tax was paid, whichever is later. If any of the above applies to your situation, please give this office a call so we can prepare an amended tax return for you. Thu, 12 May 2016 19:00:00 GMT Receiving Cash Tips? The IRS Is Watching http://www.mytrivalleytax.com/blog/receiving-cash-tips-the-irs-is-watching/41580 http://www.mytrivalleytax.com/blog/receiving-cash-tips-the-irs-is-watching/41580 Tri-Valley Tax & Financial Services Inc Article Highlights: Collecting Tips  Tip Splitting  Service Charges  Record Keeping  Employer Reporting  Allocated Tips  Anyone who collects tips must include them in their taxable income. This requirement is not limited to waiters and waitresses; it applies to anyone who collects tips, including taxicab drivers, beauticians, porters, concierges, etc. Tips are amounts freely given by a customer to a person providing a service. They are generally given as cash, but they include tips made on a credit or debit card or as part of a tip-sharing arrangement. Tips can also be in the form of non-traditional gifts such as tickets to events, wine and other items of value. If you receive $20 or more in tips in any month, you should report all of your tips to your employer, with these exceptions: Tip-splitting - Tips you give to others under a tip-splitting arrangement are not subject to the reporting requirement by you (the employee initially receiving them). You should report to your employer only the net tips you received.   Service (cover) charges - These are charges arbitrarily added by the business establishment (employer) — for example, a specific percentage of the bill for parties exceeding X in number — and are excluded from the tip-reporting requirements. If your employer collects service charges from customers, your share of these charges, as determined by your employer, is taxable to you and should already be included as part of your wages.  Keep a running daily log of tip income - Tips are a frequently audited item, and it is a good practice to keep a daily log of your tips. The IRS provides a log in Publication 1244 that includes an Employee's Daily Record of Tips and a Report to Employer for recording your tip income. Report tips to your employer - If you receive $20 or more in tips in any month, you should report all of your tips to your employer. Your employer is required to withhold federal income, Social Security, and Medicare taxes. If the tips received are less than $20 in any month, don't think you are off the hook; although they need not be reported to the employer, these tips are still taxable and must be reported on your tax return, as they are subject to income, Medicare and Social Security taxes. Employer allocation of tips - If you work for a large restaurant, you may find when you get your W-2 form that you got tips you didn't know about. Restaurants with a large serving staff report a total called "allocated tips" to the IRS. Here is what allocated tips are all about: Tip allocation applies to “large food and beverage establishments” (i.e., food service businesses where tipping is customary and that have 10 or more employees). These establishments must allocate a portion of their gross receipts as tip income to those employees who “underreport,” which happens if an employee reports tips that are less than 8% of the employee's share of the employer's gross sales. The employer must allocate to those underreported employees the difference between what the employee reported and the 8% amount. If this situation applies to you, the allocation amount will be noted in a separate box on your W-2, and these allocated tips won't be included in the total wages shown on your W-2 form. You will need to report the allocated tip amount as additional income on your tax return unless you have adequate records to show that the amount is incorrect. The IRS frequently issues inquiries where the taxpayer's W-2 shows an allocation of tips and a lesser amount is reported on the tax return.  Self-Employed Individuals - If you are self-employed, you don't have an employer to report tips to, and you simply include the tips you've received in your self-employed income on your tax return for the year you received the tips. Because they are usually paid in cash, tips are a frequent audit item. If you are receiving tips and have any questions, please give this office a call. Tue, 10 May 2016 19:00:00 GMT Most Overlooked Tax Deduction http://www.mytrivalleytax.com/blog/most-overlooked-tax-deduction/41578 http://www.mytrivalleytax.com/blog/most-overlooked-tax-deduction/41578 Tri-Valley Tax & Financial Services Inc Article Highlights: What Is IRD? Why Is There an IRD Deduction? How to Recognize If One Exists What to Do If an IRD Deduction Is Suspected One of the most overlooked tax deductions is what is referred to as the IRD deduction. IRD is the acronym for income in respect of a decedent. So what is IRD income? It is income that is taxable to the decedent's estate and also taxable to the beneficiaries of the estate. Estate tax is a tax on property transfers. Thus, when an individual dies, the value of all of his property is added up and the amount that exceeds the lifetime estate tax exclusion (currently at $5.45 million) less any prior taxable gifts is subject to estate tax. In some cases the estate includes items that are taxable both to the estate and to the beneficiaries, such as a traditional IRA, uncollected business income, and accrued bond interest. To make up for this double taxation, the beneficiaries are allowed an itemized deduction for the portion of the estate tax attributable to the double-taxed income. The problem is that the beneficiaries do not receive anything from the estate to make them aware of an IRD deduction or the amount of the deduction, if one exists. A beneficiary must recognize when there is an IRD and a possibility of a deduction and make further inquiries. The first clue is, did you as a beneficiary of the estate receive a Form 1099-R or Schedule K-1 with taxable income from the estate? If so, you need to inquire whether a Form 706 Estate Tax Return was filed, and if so, whether it resulted in tax due. If there was a tax due, then there is a good chance you are entitled to an IRD deduction. Request a copy of the 706 Estate Tax Return and provide it to this office so we can determine whether you are entitled to a deduction and if so, how much it is worth. The deduction is generally the difference in the estate tax figured with and without the double-taxed income. Please call this office if you need additional information. Thu, 05 May 2016 19:00:00 GMT Time-Share Use as a Charitable Contribution http://www.mytrivalleytax.com/blog/time-share-use-as-a-charitable-contribution/41571 http://www.mytrivalleytax.com/blog/time-share-use-as-a-charitable-contribution/41571 Tri-Valley Tax & Financial Services Inc Article Highlights: Charity Auction Time-Share Donation Use of Property as a Donation Time-Share Maintenance Fees Taxpayer-Rendered Services If you have ever attended a charity auction, it is not uncommon to see a week's use of a time-share included in the items donated for auction. The time-share owners who donate these weeks generally do so in anticipation of being able to take charitable donation deduction on their tax returns. How does one determine how much one can deduct for such a donation? The answer may come as a surprise. Per an IRS revenue ruling(1), the use of a property, or the permission to use and occupy a property, does not constitute a gift of property. In addition, the Internal Revenue Code does not allow a charitable deduction for a gift of a partial interest in a property unless this is done in trust(2). Therefore, no charitable contribution deduction is allowed for the use of a time-share property. Time-share owners are generally required to pay an annual maintenance fee that covers the pro rata upkeep of the resort itself, plus housekeeping services. The question arises: Can the time-share owner deduct the maintenance fee for the week donated? IRS regulations (3) allow deductions for expenses incurred in connection with personally rendered services to a qualified organization. However, services provided by others, even if paid for by the taxpayer, are not personally rendered to the charity and thus are not deductible. Since this includes the services provided by the time-share management company that are paid for with the taxpayer's maintenance fees, the time-share's maintenance fees for the donated period are not deductible. However, if the taxpayer incurred other expenses in connection with the donated use of the time-share, such as driving to the time-share property to let the winning bidder into the unit, a deduction for those expenses would be allowed under IRS regulations (3). This is because the time-share owner would be performing the service directly for the charitable organization; a mileage deduction at the rate of 14 cents per mile would be allowed. As a bottom line, the donation of the use of a time-share does not constitute a charitable contribution. If you have questions related to charitable contributions please give this office a call. (1) Rev Rul 70-477, I.R.B. 1970-3 (2) IRC Sec 170(f)(3)(A) (3) IRS Reg 1.170A-1(g). Tue, 03 May 2016 19:00:00 GMT Deducting More Than $250 for Teachers’ Classroom Supplies http://www.mytrivalleytax.com/blog/deducting-more-than-250-for-teachers8217-classroom-supplies/41554 http://www.mytrivalleytax.com/blog/deducting-more-than-250-for-teachers8217-classroom-supplies/41554 Tri-Valley Tax & Financial Services Inc Article Highlights: Above-the-Line Deduction Qualifications Employee Business Expenses Noncash Charitable Contribution Noncash Charitable Documentation Requirements Many devoted teachers spend a significant amount of their own money on classroom supplies. Recognizing this, several years ago, Congress created a special deduction for teachers that would allow them to annually deduct up to $250 on their tax returns for classroom supplies—even if they don’t itemize their deductions. This type of deduction is termed an “above-the-line” deduction, and it is available even for taxpayers who claim the standard deduction. Those who teach kindergarten through grade 12 are eligible for the special $250 deduction. In addition to teachers, those eligible include counselors, principals, and aides who work at least 900 hours during a school year. Because of the 900-hour requirement, many substitute teachers do not qualify for this above-the-line deduction.However, most conscientious teachers spend far more than $250 for classroom supplies every year. What are the options for teachers who spend more than the $250 on classroom supplies or for teachers and other qualified individuals who do not meet the 900-hour test or other requirements to deduct the $250 above the line? When eligible, teachers should always claim the above-the-line deduction first; then, they should consider the following possibilities for the excess amount. This advice may also help colleagues who are ineligible for the above-the-line deduction. Employee Business Expense – One option is to claim expenses for classroom supplies beyond the $250 deduction as employee business expenses, which can be used as a miscellaneous itemized deduction. To claim employee business expenses, the teacher must itemize his or her deductions, which eliminates any benefit for those who use the standard deduction instead of itemizing (usually because the standard allowance is more than the total itemized deductions). Even for those who itemize, miscellaneous itemized deductions are only deductible to the extent that they exceed 2% of the teacher’s adjusted gross income (AGI), so the deductible amount might be wiped out or substantially limited by the AGI reduction. In addition, if the teacher is subject to the alternative minimum tax, some or all of the employee business expense deduction will not be allowed. Charitable Contribution – According to the tax code, the term “charitable contribution” refers to a contribution or gift for the use of a state, the United States itself, or the District of Columbia—or any political subdivision of any of the foregoing—but only if the contribution or gift is made for exclusively public purposes. Since public schools are part of a political subdivision of a state, any contribution to a school, in either cash or goods, would be a charitable contribution. Therefore, a teacher’s classroom supplies, if the teacher properly documents them and if the school provides a written acknowledgment, would qualify as a noncash charitable contribution. Caution: Supplies or equipment that the teacher retains are not considered a completed gift, and their cost does not qualify as a charitable contribution. For example, if a science teacher purchases a microscope that students use in the classroom, but the teacher then keeps it for personal use when the school year ends, the cost of the microscope would not be deductible as a charitable contribution. To meet the requirements for noncash contributions, the teacher claiming the contribution must obtain and keep an acknowledgment from the school; the contents of this acknowledgement are based upon the value of the contribution claimed, as detailed below. The acknowledgment must be in the taxpayer’s possession before he or she files a return for the year in which the contribution was made, or before the due date (including extensions) for filing that return, whichever is earlier. Deductions of Less Than $250 – These acknowledgments must include 1. the name of the charitable organization, 2. the date and location of the charitable contribution, and 3. a reasonably detailed description of the property. Deductions of at Least $250 but Not More Than $500 – These acknowledgments must include 1. the name of the charitable organization, 2. the date and location of the charitable contribution, 3. a reasonably detailed description (but not necessarily the value) of any property contributed, and 4. whether the qualified organization gave the taxpayer any goods or services as a result of the contribution (other than certain token items and membership benefits). If the taxpayer received goods and/or services in return, the acknowledgement must also include a description and good-faith estimate of their value. (The portion of the donation attributable to the goods and services that the taxpayer received is not deductible.) Deductions Over $500 but Not Over $5,000 – A taxpayer claiming a deduction over $500 but not over $5,000 for a noncash charitable contribution must have the same acknowledgement and written records as for the contributions described in the previous section (for donations of at least $250 but not more than $500). In addition, the records must include 1. how the property was obtained (for example, by purchase, gift, bequest, inheritance, or exchange); 2. the approximate date when the property was obtained or (if created, produced, or manufactured by the taxpayer) substantially completed; and 3. the cost or other basis (and any adjustments to that basis) of property held for less than 12 months and (if available) the cost or other basis of property held for 12 months or more. Deductions Over $5,000 – There are additional requirements for noncash contributions of this size, including certified appraisals. However, the details are not included here. If you have additional questions related to deducting classroom supplies, please give this office a call. Thu, 28 Apr 2016 19:00:00 GMT Back-Door Roth IRAs http://www.mytrivalleytax.com/blog/back-door-roth-iras/41542 http://www.mytrivalleytax.com/blog/back-door-roth-iras/41542 Tri-Valley Tax & Financial Services Inc Article Highlights: Roth IRA Contribution Limitations Converting a Traditional IRA to a Roth IRA Circumventing the Limitations Back-Door Roth IRAs Pitfalls of a Back-Door Roth IRA The “All IRAs Are One” Rule Many individuals who are saving for retirement favor Roth IRAs over traditional IRAs because the former allows for both accumulation and post-retirement distributions to be tax-free. In comparison, contributions to traditional IRAs may be deductible, earnings are tax-deferred, and distributions are generally taxable. Anyone who is under age 70.5 and who has compensation can make a contribution to a traditional IRA (although the deduction may be limited). However, not everyone is allowed to make a Roth IRA contribution. High-income taxpayers are limited in the annual amount they can contribute to a Roth IRA. The maximum contribution for 2016 is $5,500 ($6,500 if age 50 or older), but the allowable 2016 contribution for joint-filing taxpayers phases out at an adjustable gross income (AGI) between $184,000 and $194,000 (or an AGI between $0 and $9,999 for married taxpayers filing separately). For unmarried taxpayers, the phase-out is between $117,000 and $132,000. However, tax law also includes a provision that allows taxpayers to convert their traditional IRA funds to Roth IRAs without any AGI restrictions. Although deductible contributions to a traditional IRA have AGI restrictions (for those who are in an employer's plan), nondeductible contributions do not. Thus, higher-income taxpayers can first make a nondeductible contribution to a traditional IRA and then convert that IRA to a Roth IRA. This is commonly referred to as a “back-door Roth IRA.” BIG PITFALL: However, there is a big pitfall to back-door IRAs, and it can produce unexpected taxable income. Taxpayers and their investment advisers often overlook this pitfall, which revolves around the following rule: For distribution purposes, all of a taxpayer's IRAs (except Roth IRAs) are considered to be one account, so distributions are considered to be taken pro rata from both the deductible and nondeductible portions of the IRA. The prorated amount of the deducted contributions is taxable. Thus, a taxpayer who is contemplating a back-door Roth IRA contribution must carefully consider and plan for the consequences of this “one IRA” rule before making the conversion. There is a possible, although complicated, solution to this problem. Rolling over IRAs into other types of qualified retirement plans, such as employer retirement plans and 401(k) plans, is permitted tax-free. However, a rollover to a qualified plan is limited to the taxable portion of the IRA. If an employer's plan permits, a taxpayer could roll the entire taxable portion of his or her IRA into the employer's plan, leaving behind only nondeductible IRA contributions, which can then be converted into a Roth IRA tax-free. Before taking any action, please call this office to discuss strategies for making Roth IRA contributions or to convert existing traditional IRAs into Roth IRAs. Tue, 26 Apr 2016 19:00:00 GMT Are You Caring for a Disabled Family Member? Read This. http://www.mytrivalleytax.com/blog/are-you-caring-for-a-disabled-family-member-read-this/41533 http://www.mytrivalleytax.com/blog/are-you-caring-for-a-disabled-family-member-read-this/41533 Tri-Valley Tax & Financial Services Inc Article Highlights: Caring for Disabled Family Members Qualified Medicaid Waiver Payments 2014 IRS Announcement Exclusion Qualifications Mandatory Exclusion Earned Income Tax Credit Many taxpayers prefer to care for ill or disabled family members in their homes as opposed to placing them in nursing homes, but doing this can be expensive, time-consuming, and exhausting. The government also recognizes home care as a means of reducing the government's costs in terms of caring for individuals who otherwise would be institutionalized (because they require the type of care that is normally provided in a hospital, nursing facility, or intermediate care facility). To promote home care and reduce the government's institutional care expenses, Medicaid (through state agencies) pays home caregivers a small wage (usually reported on Form W-2 but sometimes on Form 1099-MISC) referred to as a Medicaid waiver payment to care for an individual in the care provider's home. The IRS historically has taken the position that these payments were taxable income to the caregiver. However, in a notice issued in 2014, the IRS announced that, if the care met certain requirements, it would no longer challenge the excludability of these wages and instead would treat them in the same manner as excludable difficulty-of-care payments under the foster care payments rule. This is the case even when the caregiver and the individual being cared for are related. Therefore, the exclusion can be applied to all future years and to all prior open years if the following requirements are met: The compensation must be required due to a physical, mental, or emotional handicap with respect to which the State has determined that there is a need for additional compensation. The care must be provided in the care provider's home. The “provider's home” may be the care recipient's home if the care provider resides there and regularly performs the routines of the provider's private life, such as sharing meals and holidays with family. In contrast a care provider who sleeps at the care recipient's home several nights a week but on weekends and holidays resides with his or her own family in a separate home would not be providing the care in the care provider's home and would not qualify to exclude the Medicaid waiver payments received. The payments must be designated as compensation for qualified foster care or difficulty of care. To be excludable, the care payments are limited to a maximum of five individuals age 19 and older or ten individuals age 18 and younger. Since these payments are now treated the same as qualified foster care difficulty-of-care payments, and since compensation for qualified foster care payments is mandatorily excluded, Medicaid waiver payments are also mandatorily excluded. That is, the care provider receiving these payments may not choose to include them in income.This change is a double-edged sword, as some lower-income caregivers were previously able to qualify for the earned income tax credit (EITC) based upon this income. The EITC is a refundable federal tax credit for lower-income taxpayers with earned income. The amount of credit is based on income and increases based on the number of children that the taxpayer has (qualified children include those under age 19 and full-time students under the age of 24; there is no age limit when the child is permanently and totally disabled). Now, since these Medicaid payments are mandatorily excludable, the compensation no longer counts as earned income for the EITC. On the other hand, those with substantial other income will welcome the IRS policy change, as it reduces their income and thus their income tax. Still other care providers—those with earned income from other sources—may benefit from both the reduction of income and the EITC. The EITC phases out for higher-income individuals, so with the Medicaid waiver payment excluded, these individuals' modified adjusted gross incomes may be reduced enough to qualify for the EITC based on their other earned income. These individuals also may benefit from a lower income tax based upon the exclusion. As you can see, the impact of the exclusion can be quite different depending upon your particular circumstances. If you are receiving Medicaid waiver payments and have not yet dealt with the exclusion, please call this office to see how excluding these payments might affect you. Thu, 21 Apr 2016 19:00:00 GMT Big Business Write-Offs Available http://www.mytrivalleytax.com/blog/big-business-write-offs-available/41531 http://www.mytrivalleytax.com/blog/big-business-write-offs-available/41531 Tri-Valley Tax & Financial Services Inc Article Highlights: PATH Act Section 179 Deductions Leasehold Property Restaurant Property Retail Improvements Bonus Depreciation Auto and Small Truck First-Year Write-Offs With the enactment of the Protecting Americans from Tax Hikes (PATH) Act, Congress made two significant business-friendly changes in the tax law, extending bonus depreciation and making the Section 179 deduction's higher expensing amount permanent. This article examines these changes so that you can take full advantage of them in your trade or business. Section 179 Deduction - This provision allows a business owner or entity to immediately expense, rather than capitalize (depreciate), the cost of new or used tangible property—both personal property and certain real property—placed in service during the tax year. The maximum amount is adjusted annually for inflation and is $500,000 for 2016. However, based on Code Section 179, the maximum amount is reduced dollar-for-dollar by the cost of property placed in service during the tax year in excess of $2,010,000 (for 2016; this is also inflation-adjusted annually). The PATH Act also dealt with the option to revoke the Section 179 election without the consent of the IRS, making it permanent as well; however, once an election is made and revoked, it becomes irrevocable. In addition, the PATH Act permanently allows the ability to apply Section 179 expensing to off-the-shelf computer software and qualified real property, which is defined as qualified leasehold or restaurant property and retail improvements. In addition, the $250,000 expense limitation and the carryover limitations have been removed. Finally, air conditioning and heating units are eligible for expensing after December 31, 2015. Bonus Depreciation - Although the PATH Act did not make bonus depreciation permanent, it extended it through 2019 by slowly phasing it out by reducing the bonus percentage. Bonus depreciation allows businesses to take a depreciation deduction in the first year that the property, which must be acquired new, is placed in service. This depreciation can be for as much as 50% in the years 2012 through 2017 before phasing out in 2018 and 2019; it will no longer be available after 2019 without further Congressional action. The following are the bonus depreciation percentage rates through 2019: 50% through 2017, 40% for 2018 and 30% for 2019. Bonus depreciation generally applies to property with a class life of no more than 20 years. It also applies to: Qualified leasehold property (qualified interior improvement to nonresidential property after the building is placed in service). Certain fruit- or nut-bearing plants planted or grafted before January 1, 2020. Luxury Automobile Rates - Bonus depreciation also impacts the first-year deduction for automobiles and small trucks; in the past, this has added $8,000 to the first-year allowable deduction. Now that the bonus depreciation is being extended and phased out, so is the bonus allowance for automobiles and small trucks. Thus, the luxury auto rates will increase based on the following bonus depreciation rates: 2015 through 2017 - $8,000 2018 - $6,400 2019 - $4,800 If you need assistance regarding strategies for your business's use of the Section 179 expense deduction or bonus depreciation, please call this office. Tue, 19 Apr 2016 19:00:00 GMT May 2016 Individual Due Dates http://www.mytrivalleytax.com/blog/may-2016-individual-due-dates/31256 http://www.mytrivalleytax.com/blog/may-2016-individual-due-dates/31256 Tri-Valley Tax & Financial Services Inc May 10 - Report Tips to Employer If you are an employee who works for tips and received more than $20 in tips during April, you are required to report them to your employer on IRS Form 4070 no later than May 10. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.May 31 - Final Due Date for IRA Trustees to Issue Form 5498 Final due date for IRA trustees to issue Form 5498, providing IRA owners with the fair market value (FMV) of their IRA accounts as of December 31, 2015. The FMV of an IRA on the last day of the prior year (Dec 31, 2015) is used to determine the required minimum distribution (RMD) that must be taken from the IRA if you are age 70½ or older during 2016. If you are age 70½ or older during 2016 and need assistance determining your RMD for the year, please give this office a call. Otherwise, no other action is required and the Form 5498 can be filed away with your other tax documents for the year. Mon, 18 Apr 2016 19:00:00 GMT May 2016 Business Due Dates http://www.mytrivalleytax.com/blog/may-2016-business-due-dates/31257 http://www.mytrivalleytax.com/blog/may-2016-business-due-dates/31257 Tri-Valley Tax & Financial Services Inc May 2 - Federal Unemployment Tax Deposit the tax owed through March if it is more than $500.May 2 - Social Security, Medicare and Withheld Income Tax File Form 941 for the first quarter of 2016. Deposit or pay any undeposited tax under the accuracy of deposit rules. 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 May 10 to file the return.May 10 - Social Security, Medicare and Withheld Income Tax File Form 941 for the first quarter of 2016. This due date applies only if you deposited the tax for the quarter in full and on time.May 16 - Employer’s Monthly Deposit Due If you are an employer and the monthly deposit rules apply, May 16 is the due date for you to make your deposit of Social Security, Medicare and withheld income tax for April 2016. This is also the due date for the non-payroll withholding deposit for April 2016 if the monthly deposit rule applies. Mon, 18 Apr 2016 19:00:00 GMT Was Your Refund Too High or Did You Owe Taxes? You Probably Need to Adjust Your W-4 http://www.mytrivalleytax.com/blog/was-your-refund-too-high-or-did-you-owe-taxes-you-probably-need-to-adjust-your-w-4/41530 http://www.mytrivalleytax.com/blog/was-your-refund-too-high-or-did-you-owe-taxes-you-probably-need-to-adjust-your-w-4/41530 Tri-Valley Tax & Financial Services Inc Article Highlights: Large Refund or Tax Due Employers Withhold Based on W-4 IRS Online Withholding Calculator Self-employed Taxpayers If you are a wage earner and that is your primary source of income and you received a very large refund—or worse, if you owed money—then your employer is not withholding the correct amount of tax (but it probably isn’t your employer’s fault). Sure, you like a big refund, but you have to remember you are only getting your own money back that was over-withheld in the first place. Why not bank it and have access to it all year long instead of providing Uncle Sam with an interest-free loan? Employers withhold tax based upon the information you provide them on Form W-4, and to adjust your withholding you will need to provide your employer with an updated W-4. Although the W-4 appears to be an easy form to fill out, this is where many taxpayers go wrong because they have other income, itemize their deductions or qualify for various tax credits. You can solve this problem by using the IRS’s online W-4 calculator that helps taxpayers determine the correct amount of allowances to claim on their W-4. It takes into account a variety of issues, including itemized deductions, other income, tax credits, and tax already withheld. You will need the following available before using the IRS calculator: Your (and your spouse’s if you file jointly) most recent pay stub A copy of your most recent income tax return You will be required to estimate some values, so remember the results are only going to be as accurate as the input you provide. Click Here To Access The IRS Withholding Calculator Once you have determined the filing status and allowances to claim using the IRS calculator, download a copy of Form W-4, Employee's Withholding Allowance Certificate, fill it in and give it to your employer. Caution: If you are uncomfortable using the IRS’s online calculator, don’t understand some of the terminology, or have multiple jobs or a working spouse, you may need professional help to determine the correct number of W-4 allowances. Also the federal W-4 allowances may not translate properly for your state withholding. Tip: Once your employer has implemented the new W-4 allowance, double-check the withholding to make sure it is approximately what you had intended. It is not uncommon for errors to occur in an employer’s payroll department that could lead to unpleasant surprises at tax time. If you are self-employed, you generally pay estimated taxes instead of having payroll withholding. You may be self-employed and also have salaried employment, or your spouse may have payroll income or be self-employed. There are a multitude of possible combinations. If so, the IRS withholding calculator is not suitable for your needs, and you will probably need professional assistance in determining a combination of estimated taxes and payroll withholding. Please call this office for assistance in preparing your W-4s and determining your estimated tax payments. Thu, 14 Apr 2016 19:00:00 GMT What Are the Tax Implications of Paying or Receiving Alimony? http://www.mytrivalleytax.com/blog/what-are-the-tax-implications-of-paying-or-receiving-alimony/41529 http://www.mytrivalleytax.com/blog/what-are-the-tax-implications-of-paying-or-receiving-alimony/41529 Tri-Valley Tax & Financial Services Inc Article Highlights: Definition of Alimony When Is It Income, and When Is It Deductible? IRA Qualification Effect of Child Support Need for Estimated Payments IRS Matching Program Recently divorced individuals may pay or receive alimony. If this is your situation, here are some tips for how to correctly treat the payments on your tax return. The first consideration is the definition of alimony. There are actually two definitions of alimony—one for payments made under divorce decrees and separation agreements established before 1985 and another for agreements established since that time. For the purposes of this article, only the rules for post-1984 decrees and agreements will be discussed.For post-1984 decrees and agreements, alimony has the following requirements: The payments must be in cash paid to a spouse, ex-spouse or third party on behalf of a spouse or ex-spouse, and the payments must be made after the divorce decree is finalized. If made under a separation agreement, the payments must be made after the execution of that agreement. The payments must be required by a decree or instrument incident to divorce, a written separation agreement, or a support decree. The payments cannot be designated as child support. Child support payments are neither income for the recipient nor a deduction for the payer. Payments made while spouses or ex-spouses share the same household don't qualify as alimony. This is true even if the spouses live separately within a dwelling unit. The payments must end upon the death of the payee. The payments cannot be contingent on the status of a child. This is to prevent child support from being disguised as deductible alimony. If payments you receive from or make to a spouse or former spouse meet the definition of alimony, those payments are taxable for the recipient and deductible for the payer. There is one exception to this rule, however: A divorce decree or separation agreement can designate that alimony payments are neither deductible nor taxable. If this is the case, the payments are not reportable on either party's tax return. Here are some additional issues that should be considered. The IRS requires that a taxpayer deducting alimony include the payee's Social Security Number (SSN) on his or her tax return. Thus, the recipient must provide his or her SSN to the payer. The IRS has noted that a significant number of taxpayers incorrectly report their alimony by either understating the income or overstating the amount paid. As a result, the IRS computer compares the amounts listed on the payer's and recipient's tax returns, and it will initiate a correspondence audit where there is a discrepancy. The recipient of alimony payments may treat alimony payments as compensation even if those payments are that person's only income. This allows alimony recipients to save for their retirement by making either Traditional or Roth IRA contributions, the rules for which require the contributor to have earned income or compensation. Alimony income satisfies this requirement. If a divorce decree or other written instrument or agreement calls for both alimony and child support, and the person making the payments pays less than the total required, the payments apply first to child support. Any remaining amount is then considered alimony. There is no income tax withholding from alimony payments, so the recipient may need to consider making estimated tax payments. Other complications can occur that are not addressed here. If you have such complications or wish to discuss alimony as it applies to your circumstances, please give this office a call. Tue, 12 Apr 2016 19:00:00 GMT Tax Benefits for Members of the Clergy http://www.mytrivalleytax.com/blog/tax-benefits-for-members-of-the-clergy/41500 http://www.mytrivalleytax.com/blog/tax-benefits-for-members-of-the-clergy/41500 Tri-Valley Tax & Financial Services Inc Article Highlights: Parsonage Allowance Primary Residence Fair Market Value Limitation Designation by Employing Organization Business Expenses and Excluded Income Retired Clergy Vow of Poverty Self-Employment Tax Exemption Members of the clergy may qualify for two unique tax benefits: a tax-free parsonage allowance and exemption from self-employment tax on their ministerial earnings. Here are the details for both. Parsonage/Rental Allowance Exclusion from Income - A “minister of the gospel” can qualify for the rental allowance exclusion from income if the home or rental allowance is provided as remuneration for services that are ordinarily the duties of a minister of the gospel. The following are qualifications and details for the exclusion allowance: The allowance is excludable only to the extent that it is used for expenses related to the minister's housing—e.g. rent, mortgage payments, utilities, repairs, etc. The rental allowance is not excludable to the extent that it exceeds reasonable compensation for the minister's services. The allowance only applies to the minister's primary residence. The allowance cannot exceed the fair rental value of the home, including furnishings and appurtenances such as a garage, plus the cost of utilities. The employing organization must designate the allowance by official action in advance of the payment. In addition, for a minister employed by a local congregation, the designation must come from the local church instead of the church's national organization. The portion of the minister's business expenses attributable to tax-free income is not deductible. This rule does not apply to home mortgage interest or taxes, which are deductible in full if the minister itemizes deductions. Retired clergy can exclude the rental value of a home or a rental allowance furnished as compensation for past services and authorized under a convention of their national church organization. However, the exclusion does not extend to the widow or widower of a retired clergyperson. Minister's Exemption from Self-Employment Tax - A minister who hasn't taken a vow of poverty is subject to self-employment tax (SE tax) on income from services as a minister. (The church or other employing organization does not withhold Social Security or Medicare taxes from the minister's compensation.) Non-reimbursed business expenses are deductible in computing earnings subject to SE tax, even though the expenses are deductible only as itemized deductions for income tax computation purposes. An ordained minister may be granted an exemption from SE tax for ministerial services only. To qualify, the church employing the minister must qualify as a religious organization under Code Section 501(c)(3). Application for exemption is filed with Form 4361, Application for Exemption from Self-Employment Tax for Use by Ministers, Members of Religious Orders, and Christian Science Practitioners. To claim the exemption from SE tax, the minister must meet all of the following conditions and file Form 4361 requesting exemption from SE tax. The minister must: Be conscientiously opposed to public insurance because of his or her individual religious considerations (not because of a general conscience), or be opposed because of the principles of his or her religious denomination. File for other than economic reasons. Inform the church's or order's ordaining, commissioning, or licensing body that he or she is opposed to public insurance if a minister or a member of a religious order (other than a vow-of-poverty member). This requirement doesn't apply to Christian Science practitioners or readers. Establish that the organization that ordained, commissioned, or licensed him or her, or his or her religious order, is a tax-exempt religious organization. Establish that the organization is a church or a convention or association of churches. Not have previously elected to be covered by Social Security by filing Form 2031, Revocation of Exemption from Self-Employment Tax for Use by Ministers, Members of Religious Orders, and Christian Science Practitioners. The Form 4361 application must be filed on or before the extended due date of the return for the second tax year for which the individual has net earnings from self-employment of $400 or more (part of which is from services as a minister). A late application will be rejected. The time for applying starts over when a minister who was not opposed to accepting public insurance (i.e., Social Security benefits) re-enters a new ministry (e.g., adopts a new set of beliefs that include opposition to public insurance with a different church). However, the IRS has said that there is no second chance to apply for exemption by a minister who is ordained in a different church but whose belief regarding public insurance doesn't change (i.e., the minister opposed acceptance of public insurance in both faiths). Careful consideration should be made before applying for the exemption from SE tax since once the decision has been made, the election is irrevocable. If you have questions related to either of these issues, please give this office a call. Thu, 07 Apr 2016 19:00:00 GMT Owe Taxes and Can't Pay? http://www.mytrivalleytax.com/blog/owe-taxes-and-cant-pay/41497 http://www.mytrivalleytax.com/blog/owe-taxes-and-cant-pay/41497 Tri-Valley Tax & Financial Services Inc Article Highlights: If you can't pay Loans Credit card payments IRS Installment agreement Retirement funds Are you one of the unfortunate Americans that end up owing and cannot pay your tax liability? The IRS encourages you to pay the full amount of your tax liability on time by imposing significant penalties and interest on late payments if you don't. So if you are unable to pay the tax you owe, it is generally in your best interest to make other arrangements to obtain the funds for paying your taxes rather than be subjected to the government's penalties and interest. Here are a few options to consider. Family Loan - Obtaining a loan from a relative or friend may be the best bet because this type of loan is generally the least costly in terms of interest. Credit Card - Another option is to pay by credit card with one of the service providers that work with the IRS. However, since the IRS will not pay the credit card discount fee, you will have to pay it and pay the higher credit card interest rates. Installment Agreement - If you owe the IRS $50,000 or less, you may qualify for a streamlined installment agreement where you can make monthly payments for up to six years. You will still be subject to the late payment penalty, but it will be reduced by half. Interest will also be charged at the current rate, and there is a user fee to set up the payment plan. In making the agreement, a taxpayer agrees to keep all future years' tax obligations current. If the taxpayer does not make payments on time or has an outstanding past due amount in a future year, they will be in default of their agreement and the IRS has the option of taking enforcement actions to collect the entire amount owed. Taxpayers seeking installment agreements exceeding $50,000 will need to validate their financial condition and need for an installment agreement by providing the IRS with a Collection Information Statement (financial statements). Taxpayers may also pay down their balance due to $50,000 or less to take advantage of the streamlined option. Tap a Retirement Account - This is possibly the worst option for obtaining funds to pay your taxes because you are jeopardizing your retirement and the distributions are generally taxable at your highest bracket, which adds more taxes to your existing problem. In addition, if you are under age 59½, the withdrawal is also subject to a 10% early withdrawal penalty that compounds the problem even further. Whatever you decide, don't just ignore your tax liability because that is the worst thing you can do. Please call this office for assistance. Tue, 05 Apr 2016 19:00:00 GMT First 2016 Estimated Tax Payment Due Soon http://www.mytrivalleytax.com/blog/first-2016-estimated-tax-payment-due-soon/41489 http://www.mytrivalleytax.com/blog/first-2016-estimated-tax-payment-due-soon/41489 Tri-Valley Tax & Financial Services Inc Article Highlights: Pay-as-you-go tax system Tax law changes affecting estimates Underpayment penalties Safe harbor estimates The government wants its tax revenue up front and has a “pay-as-you-go” system, and if your pre-paid amount is not enough, you become liable for non-deductible interest penalties. To facilitate that concept, the government has provided several means of assisting taxpayers in meeting the “pay-as-you-go” requirement. The primary among these include: Payroll withholding for employees; Pension withholding for retirees; and Estimated tax payments for self-employed individuals and those with other sources of income not covered by withholding. Determining how much tax to pre-pay through withholding and estimated tax payments has always been difficult, and thanks to Congress' constant tinkering with the tax laws, ensuring there are no underpayment penalties or tax surprises when the tax return is prepared next year can be challenging. When a taxpayer fails to prepay a safe harbor (minimum) amount, he or she can be subject to the underpayment of estimated tax penalty. This penalty is the short-term federal rate plus 3 percentage points, and the penalty is computed on a quarter-by-quarter basis. So, even if you pre-pay the correct amount for the year, if the amounts are not paid evenly, you could be subject to a penalty. Interestingly enough, withholding amounts are treated as paid ratably throughout the year, so taxpayers who are underpaid in the earlier part of the year can compensate by bumping up their withholding in the later part of the year. Federal tax law does provide ways to avoid the underpayment penalty. If the underpayment is less than $1,000 (referred to as the de minimis amount), no penalty is assessed. In addition, the law provides “safe harbor” prepayments -meaning if you meet the parameters set by law, you won't be penalized, even if your underpayment is more than $1,000. There are two safe harbors: The first safe harbor is based on the tax owed in the current year. If your payments equal or exceed 90% of what is owed in the current year, you can escape a penalty. The second safe harbor is based on the tax owed in the immediately preceding tax year. This safe harbor is generally 100% of the prior year's tax liability. However, for a higher income taxpayer who has AGI exceeding $150,000 ($75,000 for married taxpayers filing separately), the prior year's safe harbor is 110%. Example: Suppose your tax for the year is $10,000 and your prepayments total $5,600. The result is that you owe an additional $4,400 on your tax return. To find out if you owe a penalty, see if you meet the first safe harbor exception. As 90% of $10,000 is $9,000, your prepayments fell short of the mark. You can't avoid the penalty under this exception. However, in the above example, the safe harbor may still apply. Assume your prior year's tax was $5,000. As you prepaid $5,600, which is greater than 110% of the prior year's tax (110% = $5,500), you qualify for this safe harbor and can escape the penalty. If your state has a state tax, the state's de minimis amount and safe-harbor percentage and amount may be different. This example underscores the importance of making sure your prepayments are adequate, especially if you have a large increase in income. This is common when there is a large gain from the sale of stocks, sale of property, when large bonuses are paid, or when a taxpayer retires. If you need to make estimated tax installments for 2016, please note that the first payment for 2016 is due April 18, 2016. If you have questions regarding your pre-payments or would like to review and adjust your W-4 payroll withholding, W-4P pension withholding, and estimated tax payments to provide the desired tax result for 2016, please give this office a call. Thu, 31 Mar 2016 19:00:00 GMT Understanding the Fine Points of Capital Gains and Losses http://www.mytrivalleytax.com/blog/understanding-the-fine-points-of-capital-gains-and-losses/41479 http://www.mytrivalleytax.com/blog/understanding-the-fine-points-of-capital-gains-and-losses/41479 Tri-Valley Tax & Financial Services Inc Article Highlights: What is a Capital Asset? Long-Term Capital Gains Rates Capital Loss Limitations Asset Basis Net Investment Income Tax Home Sales Wash Sales There is a category of income resulting from the sale of capital assets that receives special treatment for tax purposes. A capital asset is defined to include property of any kind, whether held for business or personal use. Capital assets include all kinds of property, tangible and intangible; examples include land, buildings, plants and machinery, vehicles, furniture, jewelry, goodwill, tenancy rights, patents, trademarks, stocks and securities, mutual funds and homes. Capital Gains - Generally, capital gains receive special tax rates if you have owned the capital asset for over a year, referred to as long-term capital gains. These special rates are 0%, 15% and 20% and are based on your regular tax bracket. Thus: To the extent your regular tax bracket is less than 25%, the capital gains tax is zero. To the extent your regular tax bracket is 25% but less than 39.6%, the capital gains tax is 15%. To the extent your regular tax bracket is 39.6% or greater, the capital gains tax is 20%. However, if the capital asset was held less than a year and a day, referred to as short-term capital gains, the gains are taxed at regular tax rates. Capital Losses – For capital assets used personally, such as your car, home, jewelry, household items, etc., no losses are allowed. Business and investment losses are allowed and can offset gains but can only produce a maximum net loss for the year of $3,000 ($1,500 if filing as married separate). Any losses not allowed because of the annual net loss limit are carried forward to the next year. Gains and Losses – These are determined by subtracting the capital asset’s basis from the proceeds from sale, net of selling expenses. The basis of an asset is generally what you paid for it, but there are exceptions. Gift – If the asset was a gift, your basis will be the giver’s basis at the time of the gift. Inherited – If you inherit an asset, your basis generally is the fair market value of the asset on the date of the decedent’s death. Business – The basis of a business asset is its “adjusted basis,” which is the cost adjusted for depreciation, improvements and casualty losses. In addition, there may be an element of ordinary income as a result of recaptured depreciation or reduction of basis due to cancellation of debt. Investments – Your original basis of shares of stock will need to be adjusted for events such as stock splits, spin-offs and dividend reinvestments. Personal Use – Even the basis of personal use property may be adjusted because of improvements, casualty losses and cancellation of debt. Other Issues: Net Investment Income – The Affordable Care Act included an additional tax on net investment income for higher-income taxpayers. This 3.8% tax applies to net investment income of individuals with modified adjusted gross incomes in excess of: $200,000 for unmarried taxpayers, $250,000 for married taxpayers filing jointly, $125,000 for married taxpayers filing separately. Home Sale Exclusion – Where you have a gain from a primary residence you used and owned for 2 of the 5 years preceding the sale, married couples filing jointly can generally exclude $500,000 of the gain, and others can exclude $250,000. There are numerous special rules associated with home sales; call for additional information. Wash Sales – To prevent taxpayers from selling a stock or security to produce a tax loss and then immediately buying it back, the tax code includes wash sale rules that prevent the loss from being claimed if the stock is repurchased 30 days before or after the sale resulting in the loss. There are numerous other issues not covered in this article that can come into play depending upon your particular circumstances. If you are anticipating the sale of an asset that will result in a substantial gain or loss, you are encouraged to contact this office prior to the transaction to ensure you get the maximum benefits of the tax laws. Tue, 29 Mar 2016 19:00:00 GMT Tax Filing Deadline Rapidly Approaching http://www.mytrivalleytax.com/blog/tax-filing-deadline-rapidly-approaching/38777 http://www.mytrivalleytax.com/blog/tax-filing-deadline-rapidly-approaching/38777 Tri-Valley Tax & Financial Services Inc Article Highlights: Balance due payments Contributions to a Roth or traditional IRA Estimated tax payments for the first quarter of 2016 Individual refund claims for tax year 2012 Just a reminder to those who have not yet filed their 2015 tax return that April 18, 2016 is the due date to either file your return and pay any taxes owed, or file for the automatic six-month extension and pay the tax you estimate to be due. Usually April 15 is the due date, but because Friday, April 15, is a legal holiday in the District of Columbia (where the IRS is headquartered), the filing date is advanced to the next day that isn't a weekend or holiday - Monday, April 18 - even for taxpayers not living in DC. In addition, the April 18, 2016 deadline also applies to the following: Tax year 2015 balance-due payments - Taxpayers that are filing extensions are cautioned that the filing extension is an extension to file, NOT an extension to pay a balance due. Late payment penalties and interest will be assessed on any balance due, even for returns on extension. Taxpayers anticipating a balance due will need to estimate this amount and include their payment with the extension request. Tax year 2015 contributions to a Roth or traditional IRA - April 18 is the last day contributions for 2015 can be made to either a Roth or traditional IRA, even if an extension is filed. Individual estimated tax payments for the first quarter of 2016 - Taxpayers, especially those who have filed for an extension, are cautioned that the first installment of the 2016 estimated taxes are due on April 18. If you are on extension and anticipate a refund, all or a portion of the refund can be allocated to this quarter's payment on the final return when it is filed at a later date. If the refund won't be enough to fully cover the first installment, you may need to make a payment with the April 18 voucher. Please call this office for any questions. Individual refund claims for tax year 2012 - The regular three-year statute of limitations expires on April 18 for the 2012 tax return. Thus, no refund will be granted for a 2012 original or amended return that is filed after April 18. Caution: The statute does not apply to balances due for unfiled 2012 returns. Note: The deadline for any of the above actions is increased by an additional day, to April 19, 2016, for taxpayers who live in Maine or Massachusetts because of a holiday observed on the 18th in Massachusetts which affects the IRS Service Center located in Massachusetts that serves these two states. If this office is holding up the completion of your returns because of missing information, please forward that information as quickly as possible in order to meet the April 18 deadline. Keep in mind that the last week of tax season is very hectic, and your returns may not be completed if you wait until the last minute. If it is apparent that the information will not be available in time for the April 18 deadline, then let the office know right away so that an extension request, and 2016 estimated tax vouchers if needed, may be prepared. If your returns have not yet been completed, please call right away so that we can schedule an appointment and/or file an extension if necessary. Thu, 24 Mar 2016 19:00:00 GMT Deducting Startup Costs for Your New Business at Tax Time http://www.mytrivalleytax.com/blog/deducting-startup-costs-for-your-new-business-at-tax-time/41459 http://www.mytrivalleytax.com/blog/deducting-startup-costs-for-your-new-business-at-tax-time/41459 Tri-Valley Tax & Financial Services Inc Before you earn your first dollar, before you are even open for business, your startup can incur considerable expenses. The money you spend opening your business can often be deducted; the IRS allows you to deduct many of these one-time startup costs. Speaking with an accountant in the early stages can help you decide which of these deductions to take - and may also help you discover additional ways to save money as you operate your new startup. There are several types of startup costs that may be deductible for your new business. Preparing your business The costs associated with training employees, hiring consultants, early advertising and marketing to generate interest, and even the costs associated with sourcing suppliers and locations can all be deducted. If you have to hire and train employees to work in your business, but are not yet open to customers, then you can usually deduct these costs at tax time. If you are researching the feasibility of a business, testing the market, creating prototypes or analyzing production costs, these expenditures are generally deductible as well for your startup. These costs count only if you actually begin a business. If you research or dabble and then change your mind, you usually cannot deduct these costs. Organizational costs If you are incorporating, setting up a partnership or incurring expenses as you legally set up your new business, you can likely deduct these costs as well. Incorporation fees, legal fees, accounting fees and filing fees can often be deducted from your first year costs but may also be amortized over the lifetime of your business. An accounting professional can help you learn more about your options and discover which method is best for your particular circumstances.What about equipment costs? From kitchen appliances to office equipment and even machinery, you'll likely have to spend some cash to get up and running, but your equipment purchases are not deductible as part of your startup and cannot be deducted until actually placed in business service (use). Thus the equipment you buy to use when your business becomes operational is not included in the startup costs by the IRS; these items are generally considered assets, and must be capitalized and depreciated or written off in the first year using the Sec 179 expense deduction. How much of your startup costs can be deducted? While the IRS does allow you to deduct some startup costs, there are limits to what you can deduct in your first year. For most entrepreneurs with startup costs of $50,000 or less, up to $5,000 in startup costs and $5,000 of organizational expenses can be deducted in the first year. Each of the $5,000 amounts is reduced by the amount by which the total start-up expense or organizational expense exceeds $50,000. Startups with more than $55,000 in costs won't be able to claim either $5,000 deduction in the first year. Start-up and organizational expenses not deductible in the first year of the business must be amortized over 15 years. A professional familiar with startups can help you determine which of your costs can be deducted and help you find the right path for your new business. The decisions you make as you start your business will have a long-term impact on your operating costs and bottom line for years to come; choose wisely at the outset for the best possible start for your new company. Wed, 23 Mar 2016 19:00:00 GMT April 2016 Individual Due Dates http://www.mytrivalleytax.com/blog/april-2016-individual-due-dates/36567 http://www.mytrivalleytax.com/blog/april-2016-individual-due-dates/36567 Tri-Valley Tax & Financial Services Inc April 1 - Last Day to Withdraw Required Minimum DistributionLast day to withdraw 2015’s required minimum distribution from Traditional or SEP IRAs for taxpayers who turned 70½ in 2015. Failing to make a timely withdrawal may result in a penalty equal to 50% of the amount that should have been withdrawn. Taxpayers who became 70½ before 2015 were required to make their 2015 IRA withdrawal by December 31, 2015.April 11 - Report Tips to Employer If you are an employee who works for tips and received more than $20 in tips during March, you are required to report them to your employer on IRS Form 4070 no later than April 11. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.April 18 - Individual Tax Returns Due File a 2015 income tax return (Form 1040, 1040A, or 1040EZ) and pay any tax due. If you want an automatic six-month extension of time to file the return, please call this office. Caution: The extension gives you until October 17, 2016 to file your 2015 1040 return without being liable for the late filing penalty. However, it does not avoid the late payment penalty; thus, if you owe money, the late payment penalty can be severe, so you are encouraged to file as soon as possible to minimize that penalty. Also, you will owe interest, figured from the original due date until the tax is paid. If you have a refund, there is no penalty; however, you are giving the government a free loan, since they will only pay interest starting 45 days after the return is filed. Please call this office to discuss your individual situation if you are unable to file by the April 18 due date.Note: the normal April 15 due date is a federal holiday in the District of Columbia, so for almost all individuals their 2015 Form 1040 returns aren’t due until the next business day, which is Monday, April 18 (except residents of Massachusetts and Maine, who have until April 19 to file).April 18 - Household Employer Return Due If you paid cash wages of $1,900 or more in 2015 to a household employee, you must file Schedule H. If you are required to file a federal income tax return (Form 1040), file Schedule H with the return and report any household employment taxes. Report any federal unemployment (FUTA) tax on Schedule H if you paid total cash wages of $1,000 or more in any calendar quarter of 2014 or 2015 to household employees. Also, report any income tax that was withheld for your household employees. For more information, please call this office. April 18 - Estimated Tax Payment Due (Individuals) It’s time to make your first quarter estimated tax installment payment for the 2016 tax year. Our tax system is a “pay-as-you-go” system. To facilitate that concept, the government has provided several means of assisting taxpayers in meeting the “pay-as-you-go” requirement. These include: Payroll withholding for employees; Pension withholding for retirees; and Estimated tax payments for self-employed individuals and those with other sources of income not covered by withholding. When a taxpayer fails to prepay a safe harbor (minimum) amount, they can be subject to the underpayment penalty. This penalty is equal to the federal short-term rate plus 3 percentage points, and the penalty is computed on a quarter-by-quarter basis. Federal tax law does provide ways to avoid the underpayment penalty. If the underpayment is less than $1,000 (the “de minimis amount”), no penalty is assessed. In addition, the law provides "safe harbor" prepayments. There are two safe harbors: The first safe harbor is based on the tax owed in the current year. If your payments equal or exceed 90% of what is owed in the current year, you can escape a penalty. The second safe harbor is based on the tax owed in the immediately preceding tax year. This safe harbor is generally 100% of the prior year’s tax liability. However, for taxpayers whose AGI exceeds $150,000 ($75,000 for married taxpayers filing separately), the prior year’s safe harbor is 110%. Example: Suppose your tax for the year is $10,000 and your prepayments total $5,600. The result is that you owe an additional $4,400 on your tax return. To find out if you owe a penalty, see if you meet the first safe harbor exception. Since 90% of $10,000 is $9,000, your prepayments fell short of the mark. You can't avoid the penalty under this exception. However, in the above example, the safe harbor may still apply. Assume your prior year’s tax was $5,000. Since you prepaid $5,600, which is greater than 110% of the prior year’s tax (110% = $5,500), you qualify for this safe harbor and can escape the penalty. This example underscores the importance of making sure your prepayments are adequate, especially if you have a large increase in income. This is common when there is a large gain from the sale of stocks, sale of property, when large bonuses are paid, when a taxpayer retires, etc. Timely payment of each required estimated tax installment is also a requirement to meet the safe harbor exception to the penalty. If you have questions regarding your safe harbor estimates, please call this office as soon as possible. CAUTION: Some state de minimis amounts and safe harbor estimate rules are different than those for the Federal estimates. Please call this office for particular state safe harbor rules.April 18 - Last Day to Make Contributions Last day to make contributions to Traditional and Roth IRAs for tax year 2015. Tue, 22 Mar 2016 19:00:00 GMT April 2016 Business Due Dates http://www.mytrivalleytax.com/blog/april-2016-business-due-dates/36568 http://www.mytrivalleytax.com/blog/april-2016-business-due-dates/36568 Tri-Valley Tax & Financial Services Inc April 18 - Household Employer Return Due If you paid cash wages of $1,900 or more in 2015 to a household employee, you must file Schedule H. If you are required to file a federal income tax return (Form 1040), file Schedule H with the return and report any household employment taxes. Report any federal unemployment (FUTA) tax on Schedule H if you paid total cash wages of $1,000 or more in any calendar quarter of 2014 or 2015 to household employees. Also, report any income tax that was withheld for your household employees. For more information, please call this office.April 18 - Social Security, Medicare and Withheld Income Tax If the monthly deposit rule applies, deposit the tax for payments in March. April 18 - Corporations The first installment of 2016 estimated tax of a calendar year corporation is due. April 18 - Partnerships File a 2015-calendar year return (Form 1065). Provide each partner with a copy of Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc., or a substitute Schedule K-1. If you want an automatic 5-month extension of time to file the return and provide Schedules K-1 or substitute Schedules K-1 to the partners, file Form 7004. Then, file Form 1065 and provide the K-1s to the partners by September 15. Tue, 22 Mar 2016 19:00:00 GMT Must I, or Should I, File a Tax Return? http://www.mytrivalleytax.com/blog/must-i-or-should-i-file-a-tax-return/41458 http://www.mytrivalleytax.com/blog/must-i-or-should-i-file-a-tax-return/41458 Tri-Valley Tax & Financial Services Inc Article Highlights: When You Are Required to File Self-Employed Taxpayers Filing Thresholds Consequences of Not Filing Benefits of Filing Even When Not Required to File Refundable Tax Credits This is a question many taxpayers ask during this time of year, and the question is far more complicated than people believe. To fully understand, we need to consider that there are times when individuals are REQUIRED to file a tax return, and then there are times when it is to individuals' BENEFIT to file a return even if they are not required to file. When individuals are required to file: Generally, individuals are required to file a return if their income exceeds their filing threshold, as shown in the table below. The filing thresholds are the sum of the standard deduction for individual(s) and the personal exemption for the taxpayer and spouse (if any). Taxpayers are required to file if they have net self-employment income in excess of $400, since they are required to pay self-employment taxes (the equivalent to payroll taxes for an employee) when their net self-employment income exceeds $400. Taxpayers must also file when they are required to repay a credit or benefit. For example, taxpayers who underestimated their income when signing up for health insurance on a government health insurance marketplace and received a higher advance premium tax credit than they were entitled to are required to repay part of it. Filing is also required when a taxpayer owes a penalty, even though the taxpayer's income is below the filing threshold. This can occur, for example, when a taxpayer has an IRA 10% early withdrawal penalty or the 50% penalty for not taking a required IRA distribution. 2015 - Filing Thresholds Filing Status Age Threshold Single Under Age 65Age 65 or Older $10,300$11,850 Married Filing Jointly Both Spouses Under 65One Spouse 65 or OlderBoth Spouses 65 or Older $20,600 $21,850$23,100 Married Filing Separate Any Age   $4,000 Head of Household Under 6565 or Older $13,250$14,800 Qualifying Widow(er)with Dependent Child Under 6565 or Older $16,600$17,850 Consequences of Not Filing - If you have been procrastinating about filing your 2015 tax return or have other prior year returns that have not been filed, you should consider the consequences if you are REQUIRED file. The April 18 due date for the 2015 returns is just around the corner. Failing to file a return or filing late can be costly. If taxes are owed, a delay in filing may result in penalty and interest charges that could substantially increase your tax bill. The late filing and payment penalties are a combined 5% per month (25% maximum) of the balance due. April 18, 2016 is also the last day to file a 2012 return and be able to claim any refund you are entitled to. Even if you expect to have a tax liability and cannot pay all the tax due, you should file your tax return by the due date to minimize penalties. When it is beneficial for individuals to file - There are a number of benefits available when filing a tax return that can produce refunds even for a taxpayer who is not required to file: Withholding refund - A substantial number of taxpayers fail to file their returns even when the tax they owe is less than their prepayments, such as payroll withholding, estimates, or a prior overpayment. The only way to recover the excess is to file a return. Earned Income Tax Credit (EITC) - If you worked and did not make a lot of money, you may qualify for the EITC. The EITC is a refundable tax credit, which means you could qualify for a tax refund. The refund could be as high as several thousand dollars even when you are not required to file. Additional Child Tax Credit - This refundable credit may be available to you if you have at least one qualifying child. American Opportunity Credit - The maximum credit per student is $2,500, and the first four years of postsecondary education qualify. Up to 40% of that credit is refundable when you have no tax liability and are not required to file. Premium Tax Credit - Lower-income families are entitled to a refundable tax credit to supplement the cost of health insurance purchased through a government health insurance marketplace. To the extent the credit is greater than the supplement provided by the marketplace, it is refundable even if there is no other reason to file. DON'T PROCRASTINATE! There is a three-year statute of limitations on refunds, and after it runs out, any refund due is forfeited. The statute is three years from the due date of the tax return. So the refund period expires for 2015 returns, which are due in April of 2016, on April 15, 2019. For more information about filing requirements and your eligibility to receive tax credits, please contact this office. Tue, 22 Mar 2016 19:00:00 GMT Can You Deduct Employee Expenses? http://www.mytrivalleytax.com/blog/can-you-deduct-employee-expenses/41456 http://www.mytrivalleytax.com/blog/can-you-deduct-employee-expenses/41456 Tri-Valley Tax & Financial Services Inc Article Highlights: Condition of Employment Employer Reimbursements Miscellaneous Itemized Deductions Alternative Minimum Tax Home Office Computer Uniforms and Special Work Clothes Education Impairment-Related Work Expenses Job-Search Expenses If you are an employee, you may be curious about which expenses relating to your employment are deductible on your tax return. This is a complicated area of tax law, and many expenses are deductible only if the expense is a “condition of employment” or is for the “convenience of the employer,” two phrases that are effectively the same. In addition, other factors affect an employee’s ability to deduct expenses incurred as part of employment: If an employer would have paid for or reimbursed the employee for an expense, but the employee chooses not to apply for or take advantage of that reimbursement, the employee cannot take a tax deduction for the expense. Only those employees who itemize their deductions can benefit from business expense deductions. Thus, if you are using the standard deduction, you cannot receive any tax benefit for your job-related expenses. In addition, even when itemizing, miscellaneous itemized deductions must be reduced by 2% of your adjusted gross income (AGI). Employee business expenses fall into the miscellaneous itemized deduction category. As an example: if your AGI is $80,000, the first $1,600 (2% x AGI) of your miscellaneous deductions provide no benefit. Miscellaneous deductions are not included in the itemized deductions allowed for computing the alternative minimum tax (AMT). Thus, if you are unlucky enough to be subject to the AMT, you will not benefit from your miscellaneous deductions for the extent of the AMT. The following includes a discussion of the various expenses that an employee might feel they are entitled to deduct and the IRS’s requirements for those deductions. Home Office – An employee can deduct a home office only if his or her use of the home office is for the convenience of the employer. According to the U.S. Tax Court, an employee’s use of a home office is for the convenience of his employer only if the employee must maintain the home office as a condition of employment. In an audit, the auditor will require a letter from the employer to verify that fact. Most employers are reluctant to make a home office a condition of employment due to labor laws and liability. In addition, an employee would also have to comply with the IRS’s strict usage requirements for home offices. Computer – An individual’s property, such as computers, TVs, recorders, and so on, that is used in connection with his or her employment is eligible for expense or depreciation deductions only if that property is required for the convenience of the employer and as a condition of employment. Even if the condition of employment requirement is satisfied, a computer’s usage must be prorated for personal and business use. Uniforms and Special Work Clothes - The cost and maintenance of clothing is allowed if: (1) The employee’s occupation is one that specifically requires special apparel or equipment as a condition of employment and (2) The special apparel or equipment isn’t adaptable to general or continued usage (so as to take the place of ordinary clothing). Generally, items such as safety shoes, helmets, fishermen’s boots, work gloves, oil clothes, and so on are deductible if required for a job. However, other work clothing and standard work shoes aren’t deductible—even if the worker’s union requires them. Education - To qualify as job-related, courses must maintain or improve the skills required by the employee’s trade or business (such as by helping the employee to meet professional continuing education requirements) or be required as a condition of employment. However, these courses must not be necessary to meet the minimum requirements of the job and must not qualify the employee for a new trade or promotion. If a course meets this definition, its cost is considered deductible as an ordinary and necessary business expense, and as such, it may be excluded from an employee’s income if the employer reimburses the employee for its cost. Note: Some education expenses may qualify for more beneficial education credits or an above-the-line-deduction. Impairment-Related Work Expenses – Taxpayers who have a physical or mental disability that limits their activities can deduct impairment-related work expenses. For example, an allowable expense would be the cost of attendant care at the place of the taxpayer’s work. Job-Search Expenses – Expenses related to looking for a new job in the taxpayer’s current occupation are deductible even if a new job is not obtained. To be deductible, the expenses cannot be related to seeking a first job or a job in a new occupation. If there is a substantial time gap between the taxpayer’s last job and the time when he or she looks for a new job, the expenses are not deductible. Of course, all sorts of employee situations exist, including those in which the employee works at his or her local employer’s office and those in which the employee lives and works in a remote location. The deductions available to each employee vary significantly based upon that individual’s unique situation. For more information related to employee expenses and what might be deductible in your situation, please give this office a call. Thu, 17 Mar 2016 19:00:00 GMT Clock is Ticking for Retirement Plan Contributions http://www.mytrivalleytax.com/blog/clock-is-ticking-for-retirement-plan-contributions/41447 http://www.mytrivalleytax.com/blog/clock-is-ticking-for-retirement-plan-contributions/41447 Tri-Valley Tax & Financial Services Inc Article Highlights 2015 IRA contributions can be made through April 18, 2016. 2015 SEP IRA & Solo 401(k) contributions can be made through October 17, 2016. 2015 Health Savings Account contributions can be made through April 18, 2016. 2015 Coverdell Education Account contributions can be made through April 18, 2016. Did you know that you can make tax-deductible retirement savings contributions after the close of the tax year? Well, you can, and with the April tax deadline looming, the window of opportunity to maximize retirement and other special-purpose plan contributions for 2015 is closing. Many of those contributions not only build the retirement nest egg but also deliver tax deductions for the 2015 tax return. Let's take a look at some of the ways a taxpayer can benefit. Traditional IRA - The maximum contribution to an IRA for 2015 is $5,500 ($6,500 if over 49 years old). The 2015 contribution can be made up until April 18th. If the taxpayer is covered by another retirement plan, some or all of the contribution may not be deductible. To be eligible to contribute to an IRA of any type, the taxpayer, or spouse if married filing jointly, must have earned income, such as wages or self-employment income. Roth IRA - This is a nondeductible retirement account, but the earnings are tax-free upon withdrawal, provided that the holding period and age requirements are met. Roth IRAs are a good alternative for many taxpayers who aren't eligible to deduct contributions to a traditional IRA. The maximum deductible contribution for the 2015 tax year is $5,500 ($6,500 if the taxpayer is over 49 years old). The 2015 contribution can be made up until April 18th. Caution: The combined traditional IRA and Roth IRA contributions are limited to $5,500 ($6,500 if the taxpayer is over 49 years old). Spousal IRA - A non-working spouse can open and contribute to a traditional IRA or Roth IRA based upon the working spouse's earned income, subject to the same contribution limits as the working spouse, but the combined contributions of both spouses cannot exceed the earned income of the working spouse. Contributions to spousal IRAs for 2015 must also be made by April 18th. SEP-IRA (Simplified Employee Pension) - SEP-IRAs are tax-deferred plans for sole proprietorships and small businesses. They are probably the easiest way to build retirement dollars, requiring virtually no paperwork. Maximum contributions depend on your net earnings from your business. For 2015, the maximum contribution is the lesser of 25 percent of compensation or $53,000. The 2015 contribution can be made up to the due date of the return, including extensions. Thus, unlike a traditional or Roth IRA, funding of a SEP-IRA for 2015 may occur up to October 17, 2016, when an extension has been granted. Solo 401(k) Plans - A growing number of self-employed individuals with no employees are forsaking the SEP-IRA for a newer type of retirement plan called the Solo 401(k), or Self-Employed 401(k), mostly for its higher contribution levels. For 2015, the maximum contribution to a Solo 401(k) is the sum of (A) up to 25% of compensation and (B) salary deferral up to $18,000. The total of A and B can't exceed $53,000 or 100% of compensation. Note that a Solo 401(k) account must have been established by December 31, 2015, to make 2015 contributions, which can then be made up to the extended due date of the return (October 17, 2016, for most taxpayers). If a Solo 401(k) account was not established by the end of 2015, open one now for 2016 contributions. Health Savings Accounts (HSA) - An HSA is a tax-exempt trust or custodial account established exclusively for the purpose of paying qualified medical expenses of the account beneficiary. An HSA is designed to assist individuals who have high-deductible health plans (HDHP). A taxpayer is only eligible to establish an HSA if he or she has an HDHP. For 2015, this means that the plan must have a deductible amount of $1,300 or more for self-only coverage or $2,600 for family coverage. In addition, the annual maximum out-of-pocket costs for covered expenses can't exceed $6,450 for a self-only plan or $12,900 for a family plan. The maximum 2015 contribution for eligible individuals with self-only coverage under an HDHP is $3,350, while an eligible individual with family coverage under an HDHP can contribute up to $6,650. The contribution limit is increased by $1,000 for an eligible individual who was age 55 or older at the end of 2015; however, no contribution can be made as of the month that an individual is enrolled in Medicare. Amounts contributed to an HSA belong to individuals and are completely portable. Every year, the money not spent on medical expenses stays in the account and gains interest tax-free, just like an IRA. Unused amounts remain available for later years (unlike amounts in Flexible Spending Arrangements that may be forfeited if not used by the end of the year). Contributions to an HSA for 2015 can be made through April 18, 2016. Coverdell Education Savings Account - These plans were originally called Education IRAs, but that moniker created confusion because they were really not retirement accounts. They are now called Coverdell Education Savings Accounts, named after the late Senator from Iowa. Contributions, which can be made for a beneficiary who is under 18 years of age, are not tax-deductible, but the money grows tax-free if the distributions are used to pay qualified education expenses. The maximum annual contribution is $2,000 per beneficiary, but this amount could be reduced partly or totally depending on income. Contributions do not count toward IRA annual contribution limits; they are also due by April 18, 2016, to be considered as having been made for 2015. Please note that information for each plan or account above has been abbreviated. Contact this office for specific details on how they may apply to your situation. Tue, 15 Mar 2016 19:00:00 GMT Minimizing Tax on Social Security Benefits http://www.mytrivalleytax.com/blog/minimizing-tax-on-social-security-benefits/41441 http://www.mytrivalleytax.com/blog/minimizing-tax-on-social-security-benefits/41441 Tri-Valley Tax & Financial Services Inc Article Highlights: Income as a Factor  Filing Status as a Factor  85% Maximum Taxable  Base Amounts  Deferring Income  Maximizing IRA Distributions  Whether your Social Security benefits are taxable (and, if so, how much of them are) depends on a number of issues. The following facts will help you understand the taxability of your Social Security benefits. For this discussion, the term “Social Security benefits” refers to the gross amount of benefits you receive (i.e., the amount before reduction due to payments withheld for Medicare premiums). The tax treatment of Social Security benefits is the same whether the benefits are paid due to disability, retirement or reaching the eligibility age. Supplemental Security Income (SSI) benefits are not included in the computation because they are not taxable under any circumstances.   How much of your Social Security benefits are taxable (if any) depends on your total income and marital status. o If Social Security is your only source of income, it is generally not taxable. o On the other hand, if you have other significant income, as much as 85% of your Social Security benefits can be taxable. o If you are married and filing separately, and you lived with your spouse at any time during the year, 85% of your Social Security benefits are taxable regardless of your income. This is to prevent married taxpayers who live together from filing separately, thereby reducing the income on each return and thus reducing the amount of Social Security income subject to tax.    The following quick computation can be done to determine if some of your benefits are taxable: Step 1. First, add one-half of the total Social Security benefits you received to the total of your other income, including any tax-exempt interest and other exclusions from income. Step 2. Then, compare this total to the base amount used for your filing status. If the total is more than the base amount, some of your benefits may be taxable.  The base amounts are: $32,000 for married couples filing jointly;   $25,000 for single persons, heads of household, qualifying widows/widowers with dependent children, and married individuals filing separately who did not live with their spouses at any time during the year; and   $0 for married persons filing separately who lived together during the year.  Where taxpayers can defer their “other” income from one year to another, such as by taking Individual Retirement Account (IRA) distributions, they may be able to plan their income so as to eliminate or minimize the tax on their Social Security benefits from one year to another. However, the required minimum distribution rules for IRAs and other retirement plans have to be taken into account. Individuals who have substantial IRAs—and who either aren't required to make withdrawals or are making their post age 70.5 required minimum distributions without withdrawing enough to reach the Social Security taxable threshold—may be missing an opportunity for some tax-free withdrawals. Everyone's circumstances are different, however, and what works for one may not work for another. If you have questions about how these issues affect your specific situation, or if you wish to do some tax planning, please give this office a call. Thu, 10 Mar 2016 19:00:00 GMT Employers – Important Due Date Approaching http://www.mytrivalleytax.com/blog/employers-8211-important-due-date-approaching/41440 http://www.mytrivalleytax.com/blog/employers-8211-important-due-date-approaching/41440 Tri-Valley Tax & Financial Services Inc Article Highlights: Forms 1094-C and 1095-C Applicable Large Employer Forms’ Purpose Filing Due Dates Beginning in 2015, Applicable Large Employers are required to file a new informational return – 1095-C, Employer-Provided Health Insurance Offer and Coverage. One of these informational returns must be provided to each full-time employee and filed with the IRS, along with a Form 1094-C transmittal form, by the due dates listed below. An Applicable Large Employer is an employer with 50 or more full-time employees, including full-time equivalent employees. Applicable Large Employers are required to report information to full-time employees and the IRS about the coverage they offered or did not offer to their full-time employees. It is important to understand that Applicable Large Employers are required to file the 1094-C and 1095-C forms Regardless of whether or not they offered their full-time employees insurance, even if they were exempt from the insurance mandate for 2015 because they employed fewer than 100 full-time and full-time equivalent employees. The purpose of the new form is twofold: (1) to provide the IRS with information it needs to determine if the employee is eligible for the Premium Tax Credit and (2) to provide the IRS information it needs to determine the employer’s health coverage excise tax (the penalty for not offering affordable care to its full-time employees), if any. All employers need to complete parts I and II of the 1095-C for each full-time employee. Self-insured employers must also complete part III, which is the information that would be included on a Form 1095-B issued to the employer’s employees by group health insurance companies when the employer is not self-insured. Due Dates: Form 1095-C to employees: March 31 1095-C and 1094-C filed with the IRS: o Paper filed: May 31 o E-filed: June 30 Note: If the employer files 250 or more 1095-Cs, the forms must be electronically filed. If you need additional information related to this filing requirement or assistance with filing these forms, please contact this office as soon as possible as the due date is drawing close. Tue, 08 Mar 2016 19:00:00 GMT Penalty for Not Having Health Insurance Surprises Many http://www.mytrivalleytax.com/blog/penalty-for-not-having-health-insurance-surprises-many/41431 http://www.mytrivalleytax.com/blog/penalty-for-not-having-health-insurance-surprises-many/41431 Tri-Valley Tax & Financial Services Inc Article Highlights: Penalty Being Phased in Over Three Years  Larger of Two Amounts  Flat Dollar Amount  Percentage-of-Income Amount  Penalty Applied by Month  Many taxpayers are surprised by the size of the penalty being imposed for not having health insurance in 2015. This may be a wake-up call for many who didn't realize the penalty is being phased in over a three-year period between 2014 and 2016, and the increases are substantial each year. The penalty is determined by two methods, the flat dollar amount or a percentage of the taxpayer's income, and the penalty is the GREATER of the two amounts. The flat dollar amount is the sum of fixed dollar amounts for the year that apply to each member of the taxpayer's family. However, there is a cap on the total flat dollar amount, which is equal to 3 times the adult penalty for the year. The table below shows the amount per family member and maximum flat dollar amounts for each of the three penalty phase-in years. Year    2014 2015 2016 Adult Family Member $ 95.00 $325.00 $   695.00 Member Under Age 18 $ 47.50 $162.50 $   347.50 Maximum Flat Dollar Penalty $285.00 $975.00 $2,085.00 Example: Suppose, in 2015, a family of 3 (2 married adults and 1 child) all went without insurance for the entire year. Their flat dollar amount penalty would be $812.50 ($325 + $325 + 162.50). The percentage-of-income penalty is a little more complicated, as the income used in the computation is the taxpayer's household income reduced by the taxpayer's tax return filing threshold for the year. Household income is the adjusted gross income from the tax returns for the year of all members of the taxpayer's family who must file a tax return for income tax purposes. The table below shows the percentage-of-income penalty for each of the three penalty phase-in years. Year   2014 2015 2016 Percentage of income 1.0% 2.0% 2.5% Example: Suppose the family in the previous example has a household income of $80,000 and their filing threshold is $20,600. Thus the income used in the computation would be $59,400 ($80,000 - $20,600), and the percentage-of-income penalty would be $1,188 ($59,400 x .02). In our example, the taxpayer's penalty for 2015 would be the greater of the two methods, which is $1,188. This substantially penalizes higher-income taxpayers, who can more readily afford health care insurance. Another surprise to some taxpayers is that even if only one member of the family is uninsured, the percentage-of-income penalty applies if it is larger than the flat dollar amount for that one employee. In closing, the penalties are actually computed by the month, so for example, if a taxpayer is uninsured for five months, then 5/12 of the penalty will apply. If you have questions related to the penalty for not being insured or other tax provisions of the Affordable Care Act, please give the office a call. Thu, 03 Mar 2016 19:00:00 GMT Don't Have a Retirement Plan? Maybe a SEP Is the Answer. http://www.mytrivalleytax.com/blog/dont-have-a-retirement-plan-maybe-a-sep-is-the-answer/41429 http://www.mytrivalleytax.com/blog/dont-have-a-retirement-plan-maybe-a-sep-is-the-answer/41429 Tri-Valley Tax & Financial Services Inc Article Highlights: What Is a SEP?  Contribution Limits  Employee Coverage Requirements  How to Establish a SEP  SEP Distributions  If you are like many small business owners, you probably find the year-end period to be a very busy time. You can't close your books and determine your business's profit until after the close of the year, and if this has been a good year, you may want to establish a retirement plan and make a contribution for 2015. There are a number of retirement plan options available, including Keogh plans and 401(k)s. However, a simplified employee pension plan (SEP) may be your best option. Unlike with a Keogh plan, you don't have to scramble to get a SEP established before year-end. The reason a SEP is “simplified” is that its retirement contributions are deposited into an IRA account under the control of the SEP participant, thus eliminating most of the employer's administrative duties. That is why these plans are sometimes referred to as SEP-IRAs. SEPs function much like Keogh plans, and they allow tax-deductible contributions for both employees and self-employed individuals. For an employee, the maximum contribution for 2015 is the lesser of 25% of that employee's compensation or $53,000. These contributions are excluded from the employees' wages and are not subject to withholding for income tax or FICA. A self-employed person can contribute 25% of his or her compensation after deducting the employer's contribution, which boils down to the smallest of 20% of the business' net profit or $53,000. Each year, the employer can specify a compensation amount between zero and 25% (not exceeding the maximums for the year). SEPs are a great option for startups and other small businesses that have unpredictable income and that may be leery of the long-term contribution matches required with other types of retirement plans. SEPs are also a great option for self-employed individuals with no employees, as the contributions are based upon net profits, allowing the business owner to select the maximum percentage while knowing that the required contribution will be small in low-income years. Except for when employees are covered by collective bargaining agreements, an employer that elects to make a SEP contribution for the year must contribute to an employee's retirement account if the employee is at least 21 years of age, has worked for the employer in at least three of the prior five calendar years, and has compensation for the year of at least $600. Another advantage of SEP plans is that contributions are allowed after the account owner has reached the age of 70½—the age limit for traditional, non-SEP IRA contributions. This is true even though individuals must begin the required minimum distributions (RMDs) from the SEP once age 70½ is reached. As with all traditional IRAs and qualified plans, distributions from a SEP are taxable and subject to a 10% early withdrawal penalty if withdrawn before age 59½. To set up a SEP plan, you can adopt the IRS model plan by using Form 5305-SEP. This form is completed and retained for your records (not filed with the IRS). You can also open one with a financial institution. It may be prudent to adopt whatever plan is offered by the financial institution you'll be dealing with to ensure that all plan requirements are met. If using a financial institution's plan, be sure to discuss the plan's fees. A SEP may be the best option for your business's retirement fund. Please call this office for more information on how a SEP plan might work for your particular business structure or to determine whether other options should be considered. Tue, 01 Mar 2016 19:00:00 GMT Automatic Tax Filing Extensions Available http://www.mytrivalleytax.com/blog/automatic-tax-filing-extensions-available/41405 http://www.mytrivalleytax.com/blog/automatic-tax-filing-extensions-available/41405 Tri-Valley Tax & Financial Services Inc Article Highlights: Form 4868  Late Payment Penalty  Taxpayers Residing Abroad  Retirement Contributions  Estimated Tax Payments Foreign Bank Account Reporting  A taxpayer who needs more time to complete his or her 2015 individual tax return can request an automatic six-month extension. The extension is obtained by filing IRS Form 4868 on or before the April 18, 2016 deadline. The extension gives the taxpayer until October 17, 2016 to file a return and avoid the late filing penalty. Normally these due dates fall on the 15th day of the month. However, when they fall on a holiday or a weekend, they are automatically extended to the next business day. April 15, 2016 falls on a Friday, but that is Emancipation Day, a holiday in the District of Columbia. Thus, the due date becomes Monday, April 18, even for taxpayers who don't live in D.C. October 15, 2016 falls on a weekend, so the extended due date is Monday, October 17, 2016. There are several issues you may need to consider when filing an extension: Late Payment Penalty - The extension will give you extra time to file a tax return but not extra time to pay any taxes owed. If you end up owing when you do file your tax return, you will be subject to the late payment penalty of 0.5% per month (maximum 25%), plus interest on the unpaid amount. Thus, filing an extension but delaying payment can add a substantial amount to what is owed. The 4868 extension form includes the ability to make a payment toward one's tax liability. To avoid substantial late payment penalties, it is generally a good idea to estimate your tax liability, including any shortfall in withholding or estimated tax prepayments, with Form 4868.   Taxpayers abroad - June 15, 2016 is the filing due date for U.S. citizens and resident aliens who live and work abroad, as well as for members of the military on duty outside the U.S. As a caution, note that even though these taxpayers are allowed two extra months to file a return, all their tax payments are still due on April 15. Interest will be charged from the April 18, 2016 due date until the date the tax is paid. This 2-month extension is not available to citizens and resident aliens who are merely traveling outside the country on the normal due date. Members of the military and others serving in combat zones have until 180 days after they leave those zones to file returns and pay any taxes due.  Retirement Plan Contributions - April 18, 2016 is the last day that 2015 contributions can be made to a Roth or traditional IRA, even if an extension is filed. However, 2015 contributions can be made to self-employment retirement plans through the October 17, 2016 extended due date.   Individual estimated tax payment - Taxpayers, especially those who have filed for an extension, are cautioned that the first installment of the 2016 estimated (ES) taxes is due on April 18, 2016. The first ES payment of the tax year is often overlooked by taxpayers who file extensions, which can lead to an underpayment penalty for that year.   Foreign Bank Account Reporting (FBAR) - Taxpayers with an ownership or signature authority over certain foreign accounts are required to file online with the Treasury Department on or before June 30, 2016. There are no extensions, and there are stiff penalties. Don't be confused by the recently passed legislation that changes the FBAR filing due date to the same April due date as the individual tax return. That law does not take effect until 2017, at which time a provision for a 6-month extension will be included.  This office can project your 2015 tax liability to determine if a payment should be made with the extension; it can also file the extension form and, if required, prepare the first 2016 estimated tax payment voucher. Don't procrastinate; the extension must be filed by April 18, 2016. If you have a FBAR filing requirement, this office can also assist you with that. Thu, 25 Feb 2016 19:00:00 GMT IRS Gearing Up For Home Mortgage Interest Audits http://www.mytrivalleytax.com/blog/irs-gearing-up-for-home-mortgage-interest-audits/41396 http://www.mytrivalleytax.com/blog/irs-gearing-up-for-home-mortgage-interest-audits/41396 Tri-Valley Tax & Financial Services Inc Article Highlights: Acquisition Debt  Equity Debt  Debt Limits  Form 1098 Modification  Correspondence Audits  Incorrect Interest Allocation  Many individuals who believe all of the interest reported by home mortgage lenders on the Form 1098 is automatically deductible may be in for a very unpleasant surprise when they file their 2016 tax returns. For many, all of the interest is not deductible, and Congress has mandated new reporting requirements for lenders that will help the IRS identify taxpayers who are deducting more than they are entitled to. Deductible home mortgage interest is limited to interest on acquisition debt (up to $1 million of debt) and equity debt interest on up to $100,000 of equity debt secured by the taxpayer's primary residence and a designated second residence. Acquisition debt is debt used to acquire or substantially improve the taxpayer's primary or second home. Equity debt is debt that is not used to acquire or substantially improve one of those residences (essentially cash equity taken for other purposes). In addition, equity debt interest is not deductible against the alternative minimum tax, which is frequently encountered by higher income taxpayers. To catch taxpayers deducting more home mortgage interest than they are entitled to, the IRS will be requiring lenders to report on Form 1098 the: Date the loan was initiated - a factor used to determine if the loan is a refinanced loan and the interest being deducted is potentially in excess of the acquisition and equity debt limits.   Balance of the mortgage on the first day of the tax year - also a factor in determining if the interest being deducted is in excess of the acquisition and equity debt limits.   Address of the property securing the mortgage. This information will allow the IRS to determine if the taxpayer is including interest from more than the allowed primary and one secondary residence. This can also be used to identify interest on motorhomes and boats, which can be deducted as home mortgage interest if the taxpayer uses the motorhome or boat as a primary or secondary home, but which is not deductible against the AMT.  Taxpayers whose Form 1098 data indicates a potential for non-compliance can expect to be subjected to correspondence audits and to have the home mortgage interest included as part of an office audit. Another mortgage interest issue is taxpayers who use home mortgages to finance rentals, businesses and other normally deductible uses but who may be allocating the interest between home mortgage interest and business or investment interest improperly, potentially resulting in an IRS adjustment. If you have questions regarding your compliance with the home mortgage interest deduction requirements or feel you have not been in compliance in the past, please give this office a call. Tue, 23 Feb 2016 19:00:00 GMT March 2016 Individual Due Dates http://www.mytrivalleytax.com/blog/march-2016-individual-due-dates/30367 http://www.mytrivalleytax.com/blog/march-2016-individual-due-dates/30367 Tri-Valley Tax & Financial Services Inc March 10 - Report Tips to Employer If you are an employee who works for tips and received more than $20 in tips during February, you are required to report them to your employer on IRS Form 4070 no later than March 10.Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.March 15 - Time to Call For Your Tax Appointment It is only one month until the April due date for your tax returns. If you have not made an appointment to have your taxes prepared, we encourage you do so before it becomes too late.Do not be concerned about having all your information available before making the appointment. If you do not have all your information, we will simply make a list of the missing items. When you receive those items, just forward them to us. Even if you think you might need to go on extension, it is best to prepare a preliminary return and estimate the result so you can pay the tax and minimize interest and penalties. We can then file the extension for you. We look forward to hearing from you. Thu, 18 Feb 2016 19:00:00 GMT March 2016 Business Due Dates http://www.mytrivalleytax.com/blog/march-2016-business-due-dates/30368 http://www.mytrivalleytax.com/blog/march-2016-business-due-dates/30368 Tri-Valley Tax & Financial Services Inc March 15 - S-Corporation Election File Form 2553, Election by a Small Business Corporation, to choose to be treated as an S corporation beginning with calendar year 2016. If Form 2553 is filed late, S treatment will begin with calendar year 2017. March 15 - Electing Large Partnerships Provide each partner with a copy of Schedule K-1 (Form 1065-B), Partner’s Share of Income (Loss) From an Electing Large Partnership, or a substitute Schedule K-1. This due date applies even if the partnership requests an extension of time to file the Form 1065-B by filing Form 7004.March 15 - Social Security, Medicare and Withheld Income Tax If the monthly deposit rule applies, deposit the tax for payments in February. March 15 - Non-Payroll Withholding If the monthly deposit rule applies, deposit the tax for payments in February. March 15 - Corporations File a 2015 calendar year income tax return (Form 1120 or 1120-A) and pay any tax due. If you need an automatic 6-month extension of time to file the return, file Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information and Other Returns, and deposit what you estimate you owe. Filing this extension protects you from late filing penalties but not late payment penalties, so it is important that you estimate your liability and deposit it using the instructions on Form 7004. March 31 - Electronic Filing of Forms 1098, 1099 and W-2G If you file forms 1098, 1099, or W-2G electronically with the IRS, this is the final due date. This due date applies only if you file electronically (not paper forms). Otherwise, February 29 was the due date. The due date for giving the recipient these forms was February 1.March 31 - Electronic Filing of Forms W-2 If you file forms W-2 for 2015 electronically with the IRS, this is the final due date. This due date applies only if you electronically file. Otherwise, the due date was February 29. The due date for giving the recipient these forms was February 1.March 31 - Large Food and Beverage Establishment Employers If you file forms 8027 for 2014 electronically with the IRS, this is the final due date. This due date applies only if you file electronically. Otherwise, February 29 was the due date. Thu, 18 Feb 2016 19:00:00 GMT Proving Noncash Charitable Contributions http://www.mytrivalleytax.com/blog/proving-noncash-charitable-contributions/41386 http://www.mytrivalleytax.com/blog/proving-noncash-charitable-contributions/41386 Tri-Valley Tax & Financial Services Inc Article Highlights: Noncash Charitable Contributions  Establishing Donation Value  Fair Market Value  Documentation Requirements  Appraisal Requirements  One of the most common tax-deductible charitable contributions encountered is that of household goods and used clothing. The major complication of this type of contribution is establishing the dollar value of the contribution. According to the tax code, this is the fair market value (FMV), which is defined as the value that a willing buyer would pay a willing seller for the item. FMV is not always easily determined and varies significantly based upon the condition of the item donated. For example, compare the condition of an article of clothing you purchased and only wore once to that of one that has been worn many times. The almost-new one certainly will be worth more, but if the hardly worn item had been purchased a few years ago and become grossly out of style, the more extensively used piece of clothing could actually be worth more. In either case, the clothing article is still a used item, so its value cannot be anywhere near as high as the original cost. Determining this value is not an exact science. The IRS recognizes this issue and in some cases requires the value to be established by a qualified appraiser. Remember that when establishing FMV, any value you claim can be challenged in an audit and that the burden of proof is with you (the taxpayer), not with the IRS. For substantial noncash donations, it might be appropriate for you to visit your charity's local thrift shop or even a consignment store to get an idea of the FMV of used items. The next big issue is documenting your contribution. Many taxpayers believe that the doorknob hanger left by the charity's pickup driver is sufficient proof of a donation. Unfortunately, that is not the case, as a recent United States Tax Court case (Kunkel T.C. Memo 2015-71) pointed out. In that case, the court denied the taxpayer's charitable contributions, which were based solely upon doorknob hangers left by the drivers who picked up the donated items for the charities. The court stated that “these doorknob hangers are undated; they are not specific to petitioners; they do not describe the property contributed; and they contain none of the other required information.” The IRS requires the following documentation for noncash contributions based on the total value of the donation: Deductions of Less Than $250 - A taxpayer claiming a noncash contribution with a value under $250 must keep a receipt from the charitable organization that shows: 1. The name of the charitable organization, 2. The date and location of the charitable contribution, and 3. A reasonably detailed description of the property. Note: The taxpayer is not required to have a receipt if it is impractical to get one (for example, if the property was left at a charity's unattended drop site).  Deductions of at Least $250 But Not More Than $500 - If a taxpayer claims a deduction of at least $250 but not more than $500 for a noncash charitable contribution, he or she must keep an acknowledgment of the contribution from the qualified organization. If the deduction includes more than one contribution of $250 or more, the taxpayer must have either a separate acknowledgment for each donation or a single acknowledgment that shows the total contribution. The acknowledgment(s) must be written and must include: 1. The name of the charitable organization, 2. The date and location of the charitable contribution, 3. A reasonably detailed description of any property contributed (but not necessarily its value), and 4. Whether or not the qualified organization gave the taxpayer any goods or services as a result of the contribution (other than certain token items and membership benefits). If the charitable organization provided goods and/or services to the taxpayer, the acknowledgement must include a description and a good-faith estimate of the value of those goods or services. If the only benefit received was an intangible religious benefit (such as admission to a religious ceremony) that generally is not sold in a commercial transaction outside the donative context, the acknowledgment must say so, and in this case, the acknowledgment does not need to describe or estimate the value of the benefit.   Deductions Over $500 But Not Over $5,000 - If a taxpayer claims a deduction over $500 but not over $5,000 for a noncash charitable contribution, he or she must attach a completed Form 8283 to the income tax return and must provide the same acknowledgement and written records that are required for contributions of at least $250 but not more than $500 (as described above). In addition, the records must also include: 1. How the property was obtained. (for example, purchase, gift, bequest, inheritance, or exchange), 2. The approximate date the property was obtained or—if created, produced, or manufactured by the taxpayer—the approximate date when the property was substantially completed, and 3. The cost or other basis, and any adjustments to this basis, for property held for less than 12 months and (if available) the cost or other basis for property held for 12 months or more (this requirement, however, does not apply to publicly traded securities). If the taxpayer has a reasonable case for not being able to provide information on either the date the property was obtained or the cost basis of the property, he or she can attach a statement of explanation to the return.   Deductions Over $5,000 - These donations require time-sensitive appraisals by a “qualified appraiser” in addition to other documentation. When contemplating such a donation, please call this office for further guidance about the documentation and forms that will be needed.  Caution: The value of similar items of property that are donated in the same year must be combined when determining what level of documentation is needed. Similar items of property are items of the same generic category or type, such as coin collections, paintings, books, clothing, jewelry, privately traded stock, land, and buildings. For example, say you donated $5,300 of used furniture to 3 different charitable organizations during the year (a bedroom set valued at $800, a dining set worth $1,000, and living room furniture worth $3,500). Because the value of the donations of similar property (furniture) exceeds $5,000, you would need to obtain an appraisal of the furniture to satisfy the substantiation requirements—even if you donated the furniture to different organizations and at different times during the year. The IRS has strict rules as to who is considered a qualified appraiser. To help you document some of these noncash contributions, you can download a fillable Noncash Charitable Contribution statement. The statement includes an area for the charity's agent to verify the contribution and a check box denoting whether the qualified organization provided any goods or services as a result of the contribution. Although not specifically blessed by the IRS, this statement includes everything needed for noncash contributions of up to $500—provided, of course, that you and the charitable organization's representative accurately complete the form. Do not include items of de minimis value, such as undergarments and socks, in the deductible amount of your contribution, as they specifically are not allowed. Please call this office with any questions about documenting or valuing your noncash contributions. Thu, 18 Feb 2016 19:00:00 GMT Asset Sales Versus Stock Sales: What You Need to Know http://www.mytrivalleytax.com/blog/asset-sales-versus-stock-sales-what-you-need-to-know/41389 http://www.mytrivalleytax.com/blog/asset-sales-versus-stock-sales-what-you-need-to-know/41389 Tri-Valley Tax & Financial Services Inc Selling a business is never a decision that should be made lightly. A business is something that you've likely worked hard to build from the ground up into the entity that you always hoped it could be - you don't want to sell yourself short now that you're moving onto bigger and better things. When it comes to selling a business, one of the most important decisions that you'll have to make has to do with how the sale itself will be structured. In this situation, there are two main types that you have to decide between - an asset sale and a stock sale. What is the difference between these two options? Who benefits the most from each type of scenario? Thankfully, the answers are relatively straightforward. What is an Asset Sale? When selling a business as an asset sale, the important thing to understand is that the seller actually retains possession of the legal entity that represents the business. What the buyer is purchasing are the individual assets that the company holds. Those can include things like equipment and fixtures, but also extends all the way up to trade secrets, telephone numbers of customers and business contacts, inventory items and more. An asset sale usually does not include any cash-based assets and the seller actually retains any long-term debt obligations that the business holds along with the legal entity of the business itself. However, normalized net working capital is also usually one of the assets that is handed over from seller to buyer in this type of a sale. This can include certain elements like accounts receivable, accounts payable, accrued expenses and more. What is a Stock Sale? With a stock sale, on the other hand, the buyer is really purchasing the shareholder's stock of the seller directly. Even though the assets and liabilities that are transferred as a result of this type of sale tend to be very similar to an asset sale, the seller is also getting the legal entity or stake in the business at the exact same time. In a stock sale, any particular asset or liability that the buyer doesn't expressly want will either be distributed (in the case of assets) or paid off entirely (in the case of liabilities) prior to the sale being completed. An important difference between an asset sale and a stock sale is that in a stock sale, no separate conveyance of individual assets is required for the sale itself to be completed. This is largely due to the fact that the original title of each asset rests within the corporation, meaning that both are transferred from seller to buyer at the exact same time. Who Benefits From Each Type of Sale? Once you understand a little more about the differences between an asset sale and a stock sale, you must also understand which benefits in each type of situation. As is common with most business decisions, the different parties involved will usually favor one or the other depending on which side of the fence they fall on. Buyers tend to prefer asset sales, for example, as it affords them certain tax benefits that they won't get from a stock sale. Sellers, on the other hand, tend to prefer stock sales because it often makes them less responsible for certain future liabilities that may present themselves like product liability claims, employee lawsuits and even benefit plans. Perhaps the biggest reason why an asset sale is preferred from the point of view of the buyer is because the company's depreciable basis regarding its assets is highly accelerated. An asset sale typically gives a higher value for assets that depreciate quickly. A particular piece of equipment that the business owns, for example, likely has a three- to seven-year shelf life. At the same time, lower values are given to certain assets that amortize much more slowly. Goodwill, for example, is generally considered to have a 15-year shelf life. This generates additional tax benefits on behalf of the buyer, doing a lot to reduce taxes as quickly as possible and thus improving the overall cash flow of the company during the first few years of its life. Buyers also tend to prefer asset sales because it's much, much easier to avoid any potential liabilities like contract disputes or product warranty issues as a result. This doesn't mean that asset sales are universally easier for buyers, however. Certain types of assets are inherently hard to transfer due to certain issues like legal ownership and any third party consent that may be required. Intellectual property, for example, would likely require the seller to obtain some type of consent that can slow down the process of a sale dramatically. One of the major reasons why sellers tend to prefer stock sales is because all of the proceeds they get from the sale are taxed at a much lower capital gains rate. When dealing with C-corporations, corporate level taxes are avoided entirely. Also, in a stock sale the seller is usually less responsible for any future liabilities - a products liability claim officially becomes the problem of the buyer at that point. The Popularity of Asset Sales versus Stock Sales According to research, approximately 30 percent of all business sales in the last few years were stock sales. It's important to keep in mind, though, that this number varies wildly based on the size of the company that is being sold. Larger companies have a much higher chance of being stock sales than asset sales. Regardless of whether you're a buyer or a seller, it is always important to consult with your business partners, your legal representatives and your accounting professionals throughout all points of the process to help make sure that you're making the most informed decision possible. The need to understand exactly what you're buying, how you're buying it and what it means for the future is of paramount importance, regardless of which party you belong to. Thu, 18 Feb 2016 19:00:00 GMT Foreign Account Reporting Requirements (FBAR) http://www.mytrivalleytax.com/blog/foreign-account-reporting-requirements-fbar/41384 http://www.mytrivalleytax.com/blog/foreign-account-reporting-requirements-fbar/41384 Tri-Valley Tax & Financial Services Inc Article Summary: Foreign Account Reporting Requirement  Financial Crimes Enforcement Network  Penalties for Failure to File  Type of Accounts Affected  Form 8938 Filing Requirements  Some years ago, Senate hearings revealed that many Americans were hiding millions of dollars in Swiss and other foreign banks, not reporting the income from these accounts, and not complying with foreign bank account reporting (FBAR) rules that require every U.S. citizen and resident who has a financial interest in or signature or other authority over any foreign financial accounts, including bank, securities, or other types of financial accounts in a foreign country, to report that relationship if the aggregate value of the accounts exceeds $10,000 at any time during the year. As a result, the Treasury Department began aggressively pursuing U.S. taxpayers with offshore accounts through its Financial Crimes Enforcement Network (FinCEN) and through international banking channels. New laws were enacted that allowed FinCEN to begin forcing foreign banks and financial institutions to reveal the names of Americans with accounts. Although FBAR reporting was legally required as far back as 1970, few Americans knew about it or took it seriously. This has changed in the last few years because of FinCEN's aggressive search for violators and the draconian penalties that apply to scofflaws. For non-willful violations, civil penalties up to $10,000 may be imposed; the penalty for willful violations is the greater of $100,000 or 50% of the account's balance at the time of the violation. Willful violators are also subject to criminal prosecution, which can result in fines up to $250,000 and jail time up to five years! CAUTION: Schedule B of the Form 1040 tax return asks if you have a financial interest in or signature authority over a financial account located in a foreign country. If you answer YES but don't file the FBAR, the IRS may consider your failure to file “willful,” which means it can impose the larger fines and jail time penalties. Keep in mind that “financial account” includes securities, brokerage, savings, checking, deposit, time deposit, or other accounts at a financial institution. Commodity futures and options accounts, mutual funds, and even non-monetary assets such as gold are also included. It becomes a “foreign financial account” if the financial institution is located in a foreign country. If you own shares of a foreign stock or a mutual fund that invests in foreign stocks, and the stock or fund is held in an account at a financial institution or brokerage located in the U.S., this is not considered a foreign financial account, and the FBAR rules don't apply to it. An account maintained with the branch of a foreign bank physically located in the U.S. also is not a foreign financial account. You may have an FBAR requirement and not even realize it. For instance, perhaps you have relatives residing in a foreign county and they have put you on their bank account in case something happens to them. If the value of the account exceeds $10,000 at any time during the year, you will need to file the FBAR. Or if you are gambling on the Internet, that online casino may be located in a foreign country, and if your account exceeds the $10,000 limit at any time during the year, you will have an FBAR reporting requirement. FBAR reporting is accomplished by filing FinCEN Form 114 on or before June 30 of the following year, and there are currently no extensions. However, beginning for returns due in 2017, the due date changes to April 15 and a 6-month extension will be available. You may also have an additional requirement to file Form 8938, which is similar to the FBAR requirement but applies to a wider range of foreign assets with a higher dollar threshold. If you are married filing jointly, you must file Form 8938 if the value of certain financial assets exceeds $100,000 at the end of the year or $150,000 at any time during the year. If you live abroad, the thresholds are $400,000 and $600,000, respectively. For other filing statuses the thresholds are half of those amounts. The penalty for failing to file the 8938 is $10,000 per year, and if the failure continues for more than 90 days after you receive an IRS notice of failure to file, the penalty can go as high $50,000. As you can see, not complying with the foreign account reporting requirements can have some very nasty repercussions. Please call this office with questions or if you need assistance in meeting your foreign account reporting obligations. Tue, 16 Feb 2016 19:00:00 GMT Take Advantage of the IRA-to-Charity Provision http://www.mytrivalleytax.com/blog/take-advantage-of-the-ira-to-charity-provision/41372 http://www.mytrivalleytax.com/blog/take-advantage-of-the-ira-to-charity-provision/41372 Tri-Valley Tax & Financial Services Inc Article Highlights IRA-to-Charity Transfer Provision Made Permanent  Required Minimum Distribution  How the Provision Plays Out on a Tax Return  Tax Benefits of the Provision  Individuals age 70.5 or over—who must withdraw annual required minimum distributions (RMDs) from their IRAs—will be pleased to learn that the temporary provision allowing taxpayers to transfer up to $100,000 annually from their IRAs to qualified charities has been made permanent. If you are age 70.5 or over and have an IRA, taking advantage of this provision may provide significant tax benefits, especially if you would be making a large donation to a charity anyway. Here is how this provision, if utilized, plays out on a tax return: (1) The IRA distribution is excluded from income; (2) The distribution counts towards the taxpayer's RMD for the year; and (3) The distribution does NOT count as a charitable contribution. At first glance, this may not appear to provide a tax benefit. However, by excluding the distribution, a taxpayer with itemized deductions lowers his or her adjusted gross income (AGI), which helps for other tax breaks (or punishments) that are pegged at AGI levels, such as medical expenses, passive losses, taxable Social Security income, and so on. In addition, non-itemizers essentially receive the benefit of a charitable contribution to offset the IRA distribution. If you think that this tax provision may affect you and would like to explore its possibilities, please call this office. Thu, 11 Feb 2016 19:00:00 GMT 2015 Transition Relief under the Employer Shared Responsibility Provisions http://www.mytrivalleytax.com/blog/2015-transition-relief-under-the-employer-shared-responsibility-provisions/41370 http://www.mytrivalleytax.com/blog/2015-transition-relief-under-the-employer-shared-responsibility-provisions/41370 Tri-Valley Tax & Financial Services Inc Article Highlights: Employer shared responsibility provisions Who must be offered affordable minimum essential health coverage? Full-time employees Equivalent full-time employees Transitional relief Under the Affordable Care Act, certain employers – referred to as applicable large employers (ALEs) – are subject to the employer shared responsibility provisions, which require ALEs to offer affordable minimum essential coverage healthcare coverage that provides minimum value to full-time employees and their dependents (but not their spouses). Failure to do so can result in the employer being liable for substantial penalties that the government refers to as shared responsibility payments. Note: Whether an employer is subject to employer shared responsibility provisions is based upon the number of equivalent full-time employees (EFTEs) employed by the employer, generally in the prior year. However, the rules that determine who is a full-time employee are complicated. Generally, anyone who works at least 30 hours per week (or 130 hours in a calendar month) is considered a full-time employee. Part-time employees are those who are not full-time employees. All the hours worked by part-time employees for the month are combined and divided by 120, and this result is added to the number of full-time employees. This sum is the number of EFTEs for the month. Example – Equivalent Full-Time Employees - For his business, John has 45 full-time employees and 20 part-time employees. In January 2016, his part-time employees worked 960 hours. That is the equivalent of 8 (960/120) full-time employees. Thus, John employed 53 (45 + 8) EFTEs in January. In this case, John’s business is subject to the employer shared responsibility provisions, but it is only required to offer coverage to full-time employees and their dependents. The employer shared responsibility provisions were first effective on January 1, 2015, but transition relief from certain requirements is available for 2015, including the following: ALEs with fewer than 100 EFTEs won’t be assessed an employer shared responsibility payment for 2015 provided that certain conditions were met regarding the employer’s maintenance of the workforce and preexisting health coverage. ALEs that are eligible for this relief must provide a certification of eligibility as part of the required information reporting for 2015. ALEs were not required to offer coverage to full-time employees’ dependents for the 2015 plan year, provided that they meet certain conditions – including that they take steps to arrange for such coverage to begin in the 2016 plan year and that they do not drop current dependent coverage. In general, if an ALE does not offer minimum essential coverage to at least 95 percent of its full-time employees and their dependents, it may owe an employer shared responsibility payment based on its total number of full-time employees. For 2015, 70 percent is substituted for 95 percent. However, even if an employer offers minimum essential coverage to at least 70 percent of its full-time employees and their dependents for 2015, it may still owe the separate – generally smaller in the aggregate – employer shared responsibility payment that applies for each full-time employee who receives the premium tax credit for purchasing coverage through the Health Insurance Marketplace. If an ALE is subject to the employer shared responsibility payment because it doesn’t offer minimum essential coverage to its full-time employees and their dependents, the annual payment is generally $2,000 for each full-time employee – adjusted for inflation – after excluding the first 30 full-time employees from the calculation. For 2015, if ALEs subject to this employer shared responsibility payment have 100 or more EFTEs, their payments will be calculated by reducing the number of full-time employees by 80 rather than 30. Transition relief is available for certain employers that sponsor non-calendar-year plans for the months in 2015 prior to the beginning of the 2015 plan year, if the employer and the plan meet various conditions. Rather than being required to measure their ALE status based on the number of EFTEs for all twelve months of 2014, employers may instead base their 2015 ALE status on any consecutive six-month period from 2014 – as chosen by the employers. For an employer with a non-calendar-year plan, the first four types of transition relief listed above also apply for the months in 2016 that are part of the 2015 plan year. If you have questions related to your company’s employer shared responsibility, please give this office a call. Tue, 09 Feb 2016 19:00:00 GMT Not All Home Mortgage Interest Is Deductible; The IRS is Watching http://www.mytrivalleytax.com/blog/not-all-home-mortgage-interest-is-deductible-the-irs-is-watching/41356 http://www.mytrivalleytax.com/blog/not-all-home-mortgage-interest-is-deductible-the-irs-is-watching/41356 Tri-Valley Tax & Financial Services Inc Article Highlights: Acquisition Debt  Equity Debt  Tracing Excess Debt  Unsecured Election  One of the current IRS audit initiatives is checking to see if taxpayers are deducting too much home equity debt interest. Generally, taxpayers are allowed to deduct the interest on up to $1 million of home acquisition debt (includes subsequent debt incurred to make improvements, but not repairs) and the interest on up to $100,000 of home equity debt. Equity debt is debt not incurred to acquire or improve the home. Taxpayers frequently exceed the equity debt limit and fail to adjust their interest deduction accordingly. The best way to explain this interest deduction limitation is by example. Let's assume you have never refinanced the original loan that was used to purchase your home, and the current principal balance of that acquisition debt is less than $1 million. However, you also have a line of credit on the home, and the debt on that line of credit is treated as equity debt. If the balance on that line of credit is $120,000, then you have exceeded the equity debt limitation and only 83.33% ($100,000/$120,000) of the equity line interest is deductible as home mortgage interest on Schedule A. The balance is not deductible unless you can trace the use of the excess debt to either investment or business use. If traceable to investments, the interest you pay on the amount traceable would be deductible as investment interest, which is also deducted on Schedule A but is limited to an amount equal to your net investment income (investment income less investment expenses). If the excess debt was used for business, you could deduct the interest on that excess debt on the appropriate business schedule. Alternatively, the IRS allows you to elect to treat the equity line debt as “not secured” by the home, which would allow the interest on the entire equity debt to be traced to its use and deducted on the appropriate schedule if deductible. For instance, you borrow from the equity line for a down payment on a rental. If you make the “not secured” election, the interest on the amount borrowed for the rental down payment would be deductible on the Schedule E rental income and expense schedule and not subject to the home equity debt limitations. However, one of the rules that allows home mortgage interest to be deductible is it must be secured by the home, and if the unsecured election is used, none of the interest can be traced back to the home itself. So, for example, if the equity line was used partly for the rental down payment and partially for personal reasons, the interest associated with the personal portion of the loan would not be deductible since you elected to treat it as not secured by your home. Using the unsecured election can have unexpected results in the current year and in the future. You should use that election only after consulting with this office. Generally, people not familiar with the sometimes complicated rules associated with home mortgage interest believe the interest shown on the Form 1098 issued by their lenders at the end of the year is fully deductible. In many cases when taxpayers have refinanced or have equity loans, that may be far from the truth and could result in an IRS inquiry and potential multi-year adjustments. In fact, for Forms 1098 issued after 2016 (thus effective for 2016 information), the IRS will be requiring lenders to include additional information, including the amount of the outstanding mortgage principal as of the beginning of the calendar year, the mortgage origination date and the address of the property securing the mortgage, which will provide the IRS with additional tools for audits. When in doubt about how much interest you can deduct or if you have questions about how refinancing or taking on additional home mortgage debt will impact your taxes, please call this office for assistance. Tue, 02 Feb 2016 19:00:00 GMT Ways To Deduct Health Insurance http://www.mytrivalleytax.com/blog/ways-to-deduct-health-insurance/41347 http://www.mytrivalleytax.com/blog/ways-to-deduct-health-insurance/41347 Tri-Valley Tax & Financial Services Inc Article Highlight: Itemized Deduction  AGI Limitations  What Insurance Is Deductible  Above-The-Line Deduction for the Self-Employed  Income Limitation  Subsidized Limitation  Health insurance premiums, especially in the wake of the “Affordable Care Act,” have risen dramatically and are one of the largest expenses that most individuals pay. Although the cost of health insurance is allowed as part of an individual's medical deductions when itemizing deductions, only the amount of total medical expenses that exceed 10% of the taxpayer's adjusted gross income (AGI) is deductible. The 10% limitation is reduced to 7.5% through 2016 where a taxpayer or spouse (if any) is age 65 or over as of the end of the year. Prior to the increased limitation imposed by the “Affordable Care Act,” the limitation was 7.5% for everyone. The purpose of this article is twofold: first, to remind you what insurance can be included as a medical deduction, and second, to inform you of an alternate means of deducting health insurance for certain self-employed individuals—a means that avoids the AGI limitation and allows for deduction without itemizing. Let's start by looking at what is treated as deductible health insurance. It includes the premiums you pay for coverage for yourself, your dependents, and your spouse, if applicable, for the following types of plans: Health Care and Hospitalization Insurance  Long-Term Care Insurance (but limited based upon age)  Medicare-B  Medicare-C (aka Medicare Advantage Plans)  Medicare-D  Dental Insurance  Vision Insurance  Premiums Paid through a Government Marketplace net of the Premium Tax Credit  However, premiums paid on your or your family's behalf by your employer aren't deductible because their cost is not included in your wage income. Or, if you pay premiums for coverage under your employer's insurance plan through a “cafeteria” plan, those premiums aren't deductible either because they are paid with pre-tax dollars. If you are a self-employed individual, you can deduct 100% (no AGI reduction) of the premiums without itemizing your deductions. This above-the-line deduction is limited to your net profits from self-employment. If you are a partner who performs services in the capacity of a partner and the partnership pays health insurance premiums on your behalf, those premiums are treated as guaranteed payments that are deductible by the partnership and are includible in your gross income. In turn, you may deduct the cost of the premiums as an above-the-line deduction under the rules discussed in this article. No above-the-line deduction is permitted when the self-employed individual is eligible to participate in a “subsidized” health plan maintained by an employer of the taxpayer, the taxpayer's spouse, any dependent, or any child of the taxpayer who hasn't attained age 27 as of the end of the tax year. This rule is applied separately to plans that provide coverage for long-term care services. Thus, an individual eligible for employer-subsidized health insurance may still be able to deduct long-term care insurance premiums, as long as he isn't eligible for employer-subsidized long-term care insurance. In addition, to be treated as subsidized, 50% or more of the premium must be paid by the employer. This above-the-line deduction is also available to more-than-2% S corporation shareholders. For purposes of the income limitation, the shareholder's wages from the S corporation are treated as his or her earned income. If you have any questions related to deducting health insurance premiums, either as an itemized deduction or an above-the-line deduction for self-employed individuals, please give this office a call. Thu, 28 Jan 2016 19:00:00 GMT Household Help - Employee or Contractor? http://www.mytrivalleytax.com/blog/household-help-employee-or-contractor/41335 http://www.mytrivalleytax.com/blog/household-help-employee-or-contractor/41335 Tri-Valley Tax & Financial Services Inc Article Highlights: Household Employee Definition  Employee Control Factors  Self-employed or Employee  Withholding Requirements Reporting Requirements  Frequently taxpayers will hire an individual or firm to provide services at the taxpayer's home. Because the IRS requires employers to withhold taxes for employees and issue them W-2s at the end of the year, the big question is whether or not that individual is a household employee. Whether a household worker is considered an employee depends a great deal on circumstances and the amount of control the person hiring has over the job and the hired person. Ordinarily, when someone has the last word about telling a worker what needs to be done and how the job should be done, then that worker is an employee. Having a right to discharge the worker and supplying tools and the place to perform a job are primary factors that show control. Not all those hired to work in a taxpayer's home are considered household employees. For example, an individual may hire a self-employed gardener who handles the yard work for a taxpayer and others in the taxpayer's neighborhood. The gardener supplies all tools and brings in other helpers needed to do the job. Under these circumstances, the gardener isn't an employee and the person hiring him/her isn't responsible for paying employment taxes. The same would apply to the pool guy or to contractors making repairs or improvements on the home. Contrast the following example to the self-employed gardener described above: The Smith family hired Lynn to clean their home and care for their 3-year old daughter, Lori, while they are at work. Mrs. Smith gave Lynn instructions about the job to be done, explained how the various tasks should be done, and provided the tools and supplies; Mrs. Smith, rather than Lynn, had control over the job. Under these circumstances, Lynn is a household employee, and the Smiths are responsible for withholding and paying certain employment taxes for her and issuing her a W-2 for the year. If an individual you hire is considered an employee, then you must withhold both Social Security and Medicare taxes from the household employee's cash wages if they equal or exceed the $2,000 threshold for 2016. The employer must match from his/her own funds the FICA amounts withheld from the employee's wages. Wages paid to a household employee who is under age 18 at any time during the year are exempt from Social Security and Medicare taxes unless household work is the employee's principal occupation. Although the value of food, lodging, clothing or other noncash items given to household employees is generally treated as wages, it is not subject to FICA taxes. However, cash given in place of these items is subject to such taxes. A household employer doesn't have to withhold income taxes on wages paid to a household employee, but if the employee requests such withholding, the employer can agree to it. If income taxes are to be withheld, the employer can have the employee complete Form W-4 and base the withholding amount upon the federal income tax and FICA withholding tables. The wage amount subject to income tax withholding includes salary, vacation and holiday pay, bonuses, clothing and other noncash items, meals and lodging. However, meals are not taxable, and therefore they are not subject to income tax withholding if they are furnished for the employer's convenience and on the employer's premises. The same goes for lodging if one additional requirement applies—that the employee lives on the employer's premises. In lieu of withholding the employee's share of FICA taxes from the employee's wages, some employers prefer to pay the employee's share themselves. In that case, the FICA taxes paid on behalf of the employee are treated as additional wages for income tax purposes. A household employer who pays more than $1,000 in cash wages to household employees in any calendar quarter of either the current or the prior year is also liable for unemployment tax under the Federal Unemployment Tax Act (FUTA).” Although this may seem quite complicated, the IRS provides a single form (Schedule H) that generally allows a household employer to report and pay employment taxes on household employees' wages as part of the employer's Form 1040 filing. This includes Social Security, Medicare, and income tax withholdings and FUTA taxes. If the employer runs a sole proprietorship with employees, the household employees' Social Security and Medicare taxes and income tax withholding may be included as part of the individual's business employee payroll reporting but are not deductible as a business expense. Although the federal requirements can generally be handled on an individual's 1040 tax return, there may also be state reporting requirements for your state that entail separate filings. If the individual providing household services is determined to be an independent contractor, there is currently no requirement that the person who hired the contractor file an information return such as Form 1099-MISC. This is so even if the services performed are eligible for a tax deduction or credit (such as for medical services or child care). The 1099-MISC is used only by businesses to report their payments of $600 or more to independent contractors. Most individuals who hire other individuals to provide services in or around their homes are not doing so as a business owner. Please call this office if you need assistance with your household employee reporting requirements or need information related to the reporting requirements for your state. Tue, 26 Jan 2016 19:00:00 GMT February 2016 Business Due Dates http://www.mytrivalleytax.com/blog/february-2016-business-due-dates/36129 http://www.mytrivalleytax.com/blog/february-2016-business-due-dates/36129 Tri-Valley Tax & Financial Services Inc February 1 - 1099s Due To Service Providers If you are a business or rental property owner and paid $600 or more for the services of individuals (other than employees) during 2015, you are required to provide Form 1099 to those workers by February 1. "Services" can mean everything from labor, professional fees and materials, to rents on property. In order to avoid a penalty, copies of the 1099s need to be sent to the IRS by February 29, 2016 (March 31, 2016 if filed electronically). They must be submitted on optically scannable (OCR) forms. This firm prepares 1099s in OCR format for submission to the IRS with the 1096 submittal form. This service provides both recipient and file copies for your records. Please call this office for preparation assistance. Payments that may be covered include the following: Cash payments for fish (or other aquatic life) purchased from anyone engaged in the trade or business of catching fish Compensation for workers who are not considered employees (including fishing boat proceeds to crew members) Dividends and other corporate distributions Interest Amounts paid in real estate transactions Rent Royalties Amounts paid in broker and barter exchange transactions Payments to attorneys Payments of Indian gaming profits to tribal members Profit-sharing distributions Retirement plan distributions Original issue discount Prizes and awards Medical and health care payments Debt cancellation (treated as payment to debtor) Cash payments over $10,000 February 1 - W-2 Due to All Employees All employers need to give copies of the W-2 form for 2015 to their employees. If an employee agreed to receive their W-2 form electronically, post it on a website and notify the employee of the posting.February 1 - File Form 941 and Deposit Any Undeposited Tax File Form 941 for the fourth quarter of 2015. Deposit any undeposited Social Security, Medicare and withheld income tax. (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 10 to file the return.February 1 - File Form 943 All farm employers should file Form 943 to report Social Security, Medicare taxes and withheld income tax for 2015. Deposit any undeposited tax. (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 10 to file the return. February 1 - W-2G Due from Payers of Gambling Winnings If you paid either reportable gambling winnings or withheld income tax from gambling winnings, give the winners their copies of the W-2G form for 2015.February 1 - File Form 940 - Federal Unemployment Tax File Form 940 (or 940-EZ) for 2015. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it is 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 10 to file the return. February 1 - File Form 945 File Form 945 to report income tax withheld for 2015 on all non-payroll items, including back-up withholding and withholding on pensions, annuities, IRAs, gambling winnings, and payments of Indian gaming profits to tribal members. Deposit any undeposited tax. (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 10 to file the return. February 10 - Non-Payroll Taxes File Form 945 to report income tax withheld for 2015 on all non-payroll items. This due date applies only if you deposited the tax for the year in full and on time.February 10 - Social Security, Medicare and Withheld Income Tax File Form 941 for the fourth quarter of 2015. This due date applies only if you deposited the tax for the quarter in full and on time.February 10 - Certain Small Employers File Form 944 to report Social Security and Medicare taxes and withheld income tax for 2015. This due date applies only if you deposited the tax for the year in full and on time.February 10 - Federal Unemployment Tax File Form 940 for 2015. This due date applies only if you deposited the tax for the year in full and on time.February 16 - Social Security, Medicare and Withheld Income TaxIf the monthly deposit rule applies, deposit the tax for payments in January.February 16 - Non-Payroll WithholdingIf the monthly deposit rule applies, deposit the tax for payments in January.February 29 - Payers of Gambling WinningsFile Form 1096, Annual Summary and Transmittal of U.S. Information Returns, along with Copy A of all the Forms W-2G you issued for 2015. If you file Forms W-2G electronically, your due date for filing them with the IRS will be extended to March 31. The due date for giving the recipient these forms was February 1.February 29 - Informational Returns Filing DueFile information returns (Form 1099) and transmittal Forms 1096 for certain payments you made during 2015. There are different forms for different types of payments. These are government filing copies for the 1099s issued to service providers and others (see February 1.)February 29 - All EmployersFile Form W-3, Transmittal of Wage and Tax Statements, along with Copy A of all the Forms W-2 you issued for 2015. If you file Forms W-2 electronically, your due date for filing them with the SSA will be extended to March 31. The due date for giving the recipient these forms was February 1.February 29 - Large Food and Beverage Establishment EmployersFile Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips. Use Form 8027-T, Transmittal of Employer’s Annual Information Return of Tip Income and Allocated Tips, to summarize and transmit Forms 8027 if you have more than one establishment. If you file Forms 8027 electronically, your due date for filing them with the IRS will be extended to March 31.February 29 - Farmers and FishermenFile your 2015 income tax return (Form 1040) and pay any tax due. However, you have until April 18 to file if you paid your 2015 estimated tax by January 15, 2016. Thu, 21 Jan 2016 19:00:00 GMT February 2016 Individual Due Dates http://www.mytrivalleytax.com/blog/february-2016-individual-due-dates/36130 http://www.mytrivalleytax.com/blog/february-2016-individual-due-dates/36130 Tri-Valley Tax & Financial Services Inc February 1 - Tax Appointment If you don’t already have an appointment scheduled with this office, you should call to make an appointment that is convenient for you. February 1 - File 2015 Return to Avoid Penalty for Not Making 4th Quarter Estimated Payment If you file your prior year’s return and pay any tax due by this date, you need not make the 4th Quarter Estimated Tax Payment (January calendar).February 10 - Report Tips to Employer If you are an employee who works for tips and received more than $20 in tips during January, you are required to report them to your employer on IRS Form 4070 no later than February 10. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed. February 16 - Last Date to Claim Exemption from Withholding If you claimed an exemption from income tax withholding last year on the Form W-4 you gave your employer, you must file a new Form W-4 by this date to continue your exemption for another year. Thu, 21 Jan 2016 19:00:00 GMT Affordable Care Act Reporting Relief for Employers http://www.mytrivalleytax.com/blog/affordable-care-act-reporting-relief-for-employers/41315 http://www.mytrivalleytax.com/blog/affordable-care-act-reporting-relief-for-employers/41315 Tri-Valley Tax & Financial Services Inc Article Highlights: Applicable Large Employer Form 1095-C and Form 1094-C IRS Filing Due Date Copy to Employee Due date Effect on Filing Individual Returns Beginning for the 2015 tax year, Applicable Large Employers (ALEs) are required to file Forms 1095-C and 1094-C with the IRS and provide a copy of the 1095-C to each of their employees. An ALE is generally an employer with 50 or more equivalent full time employees (EFTEs) in the prior year. Even though ALE’s with 99 or fewer EFTEs are not subject to the insurance mandate for 2015, they are subject to the 1094-C and 1095-C filing requirements for 2015. Because this is the first year for this requirement, the IRS has decided to provide first year (2015) filing relief for Forms 1095-B and 1095-C. The due dates for furnishing these forms are extended as follows: The due date for providing the 2015 Form 1095-B and the 2015 Form 1095-C to the insured and employees is extended from February 1, 2016, to March 31, 2016. The due date for health coverage providers and employers to furnish the 2015 Form 1094-B and the 2015 Form 1094-C to the IRS is extended from February 29, 2016, to May 31, 2016 if not filing electronically. The due date for health coverage providers and employers electronically filing the 2015 Form 1094-B and the 2015 Form 1094-C with the IRS is extended from March 31, 2016, to June 30, 2016. While the IRS is prepared to accept information reporting returns beginning in January 2016, employers and other coverage providers who can’t meet the original deadlines are encouraged to furnish statements and file the information returns as soon as they are ready. The information provided to individuals on their copy of Form 1095-B or 1095-C is generally used to confirm that the individual had minimum essential coverage (and thus avoid the penalty that applies when not covered for the full year). However, with the extension of the filing dates for these forms, individuals may not have the forms in hand before filing their 2015 returns. For 2015 only, individuals who rely on other information received from their coverage providers about their coverage for purposes of filing their returns need not amend their returns once they receive Form 1095-B or Form 1095-C or any corrections, according to the IRS. Likewise, individuals who, when filing their 2015 income tax returns, rely upon other information received from employers about their offers of coverage for purposes of determining eligibility for the premium tax credit need not amend their returns once they receive their Forms 1095-C or any corrected Forms 1095-C. Thu, 21 Jan 2016 19:00:00 GMT Are You Ignoring Retirement? http://www.mytrivalleytax.com/blog/are-you-ignoring-retirement/41312 http://www.mytrivalleytax.com/blog/are-you-ignoring-retirement/41312 Tri-Valley Tax & Financial Services Inc Article Highlights: Predicting Social Security Income Planning for the Future Employer Retirement Plans Tax Incentive Retirement Savings Plans Are you ignoring your future retirement needs? That tends to happen when you are younger, retirement is far in the future, and you believe you have plenty of time to save for it. Some people ignore the issue until late in life and then have to scramble at the last minute to fund their retirement. Others even ignore the issue altogether, thinking their Social Security income (assuming they qualify for it) will take care of their retirement needs. By current government standards, a single individual with $11,770 or a married couple with $15,930 of annual household income is at the 100% poverty level. If you compare those levels with potential Social Security income, you may find that expecting to retire on just Social Security income may result in a bleak retirement. You can predict your future Social Security income by visiting the Social Security Administration’s Retirement Estimator. With the Retirement Estimator, you can plug in some basic information to get an instant, personalized estimate of your future benefits. Different life choices can alter the course of your future, so try out different scenarios – such as higher and lower future earnings amounts and various retirement dates – to get a good idea of how these scenarios can change your future benefit amounts. Once you’ve done this, consider what your retirement would be like with only Social Security income. If you are fortunate enough to have an employer-, union- or government-funded retirement plan, determine how much you can expect to receive when you retire. Add that amount to any Social Security benefits you are entitled to and then consider what retirement would be like with that combined income. If this result portends an austere retirement, know that the sooner you start saving for retirement, the better off you will be. With today’s relatively low interest rates and up-and-down stock market, it is much more difficult to grow a retirement plan with earnings than it was 10 or 20 years ago. With current interest rates barely mirroring inflation rates, there is little or no effective growth. That means one must set aside more of one’s current earnings for retirement to prepare for a comfortable retirement. Because the government wants you to save and prepare for your own retirement, tax laws offer a variety of tax incentives for retirement savings plans, both for wage earners and for self-employed individuals and their employees. These plans include: Traditional IRA – This plan allows up to $5,500 (or $6,500 for individuals age 50 and over) of tax-deductible contributions each year until reaching age 70½. However, the amount that can be deducted phases out for higher-income taxpayers who also have retirement plans through their employer. Roth IRA – This plan also allows up to $5,500 (or $6,500 for individuals age 50 and over) of contributions each year. Like the Traditional IRA, the amount that can be contributed phases out for higher-income taxpayers; unlike the Traditional IRA, these amounts phase out even for those who do not have an employer-related retirement plan. myRA Accounts – This relatively new retirement vehicle is designed to be a starter retirement plan for individuals with limited financial resources and those whose employers do not offer a retirement plan. The minimum amount required to establish one of these government-administered plans is $25, with monthly contributions as little as $2. Once the total value of the account reaches $15,000 or after 30 years, the account must be converted to a commercial Roth IRA account. Employer 401(k) Plans – An employer 401(k) plan generally enables employees to contribute up to $18,000 per year, before taxes. In addition, taxpayers who are age 50 and over can contribute an extra $6,000 annually, for a total of $24,000. Many employers also match a percentage of the employee’s contribution, and this can amount to a significant sum for those who stay in the plan for many years. Health Savings Accounts – Although established to help individuals with high-deductible health insurance plans pay medical expenses, these accounts can also be used as supplemental retirement plans if an individual has already maxed out his or her contributions to other types of plans. Annual contributions for these plans can be as much as $3,350 for individuals and $6,750 for families. Tax Sheltered Annuities – These retirement accounts are for employees of public schools and certain tax-exempt organizations; they enable employees to make annual tax-deferred contributions of up to $18,000 (or $24,000 for those age 50 and over). Self-Employed Retirement Plans – These plans, also referred to as Keogh plans, allow self-employed individuals to contribute 25% of their net business profits to their retirement plans. The contributions are pre-tax (which means that they reduce the individual’s taxable net profits), so the actual amount that can be contributed is 20% of the net profits. Simplified Employee Pension (SEP) – This type of plan allows contributions in the same amounts as allowed for self-employed retirement plans, except that the retirement contributions are held in an IRA account under the control of the employee or self-employed individual. These accounts can be established after the end of the year, and contributions can be made for the prior year. Each individual’s financial resources, family obligations, health, life expectancy, and retirement expectations will vary greatly, and there is no one-size-fits-all retirement savings strategy for everyone. Purchasing a home and putting children through college are examples of events that can limit an individual’s or family’s ability to make retirement contributions; these events must be accounted for in any retirement planning. If you have questions about any of the retirement vehicles discussed above, please give this office a call. Tue, 19 Jan 2016 19:00:00 GMT Don’t Miss Out on the Earned Income Tax Credit http://www.mytrivalleytax.com/blog/don8217t-miss-out-on-the-earned-income-tax-credit/22570 http://www.mytrivalleytax.com/blog/don8217t-miss-out-on-the-earned-income-tax-credit/22570 Tri-Valley Tax & Financial Services Inc Article Highlights: Earned Income Tax Credit (EITC) Qualifications Computing the Credit Limit on Investment Income Military Combat Pay Election EITC Scams Banning EITC Filers The Earned Income Tax Credit (EITC) is a tax benefit for working people who have low to moderate income. It provides a tax credit that is treated like tax withholding: it goes to pay an individual’s tax liability, and any excess is paid to the individual in the form of a tax refund. Qualifications for the credit are based upon the amount of the filer’s earned income, the spouse’s earned income if the filer is married, and the number of qualified children on the tax return. Any child must either be under the age of 19 or be a full-time student under the age of 24 at the end of the year. Low-income earners between the ages of 25 and 64 who don’t have a qualifying child may also qualify. Earned income generally means income from working, such as W-2 wages and self-employment income. The credit increases as the taxpayer’s earned income or adjusted gross income (AGI) increases until it reaches a plateau, where it remains constant (at the maximum amount) until it reaches the AGI phase-out threshold. Once the threshold amount is exceeded, the credit is reduced by a set percentage; if income exceeds the top of the phase-out range, no credit is allowed. Computing the credit, like all things tax, is complicated, and the credit is actually determined using IRS tables that reflect the dollar amounts at which phaseout begins and ends. However, the illustration below can help approximate the credit for 2015. Example: A married couple with two children has earned income of $20,000 and a modified AGI of $21,000. If we multiply their earned income by their credit percentage ($20,000 x .40), we come up with $8,000. However, that exceeds the maximum credit of $5,548 for a married couple with two children, so their credit before any phaseout is $5,548. Since their modified AGI is less than the phaseout threshold, then their EITC is $5,548. Had their earned income been $10,000, then their credit would have been $4,000 ($10,000 x .40). If either their earned income or their modified AGI had exceeded $49,974, their EITC would have been totally phased out and they would not have gotten any credit.There is also a limit on investment income a taxpayer can have and qualify for the EITC. For 2015, that limit is $3,400. Thus if a taxpayer qualifies for EITC but has investment income in excess of $3,400, the taxpayer will not receive any EITC. Individuals that claim either the foreign earned income or foreign housing exclusion also will not qualify for the earned income credit. Members of the military can elect to treat all or none of their nontaxable combat pay as earned income for the purposes of computing the EITC. The calculation providing the larger EITC benefit can be used. Because the potential payout of this credit is so generous, it is the constant target of scammers, and in 2014 the government paid out nearly $18 billion in improper EITC payments. Besides scammers, the qualification for EITC is frequently contested between divorced parents who are both attempting to claim the same child in an effort to qualify for the EITC. The IRS is authorized to ban taxpayers from claiming the EITC for two years if it determines during an audit that they claimed the credit improperly due to reckless or intentional disregard of the rules. Last year, there were more than 67,000 two-year bans in effect. The ban lasts 10 years if credit was claimed in an earlier year due to fraud. The government wants those who are entitled to the credit to claim it, and so the IRS widely promotes the credit. However, the rules are quite complex and best addressed by a tax professional. If you have questions about how the EITC might apply to you, please call this office for additional information. Please understand that a taxpayer who might not normally be required to file a return might still benefit from filing to claim the EITC. Thu, 14 Jan 2016 19:00:00 GMT Homeowner Energy Tax Credits Get New Life http://www.mytrivalleytax.com/blog/homeowner-energy-tax-credits-get-new-life/41289 http://www.mytrivalleytax.com/blog/homeowner-energy-tax-credits-get-new-life/41289 Tri-Valley Tax & Financial Services Inc Article Highlights: Home Energy-Saving Improvements Solar and Other Types of Energy Generation Systems Things to Consider Before Signing Up Recently passed legislation has given new life to two homeowner energy credits that had expired or were about to expire, providing renewed opportunities to homeowners wanting to take advantage of these credits and reduce their energy costs. Non-business Energy Credit - The first of the two credits is what the tax code refers to as the Non-business Energy Credit. A more descriptive title would be an energy saving credit since it applies to improvements to the taxpayer’s existing primary home to make it more energy efficient. This credit was extended for two more years, allowing homeowners to claim the credit for qualifying energy improvements made in 2015 and 2016. The credit generally applies to insulation, storm windows and doors, and certain types of energy-efficient roofing materials, air-conditioning and hot water systems. The credit is 10% of the cost of the energy-saving items but does not apply to the cost of installation and is limited to a lifetime maximum of $500. So if you have taken advantage of this credit in the past and received $500 or more in credit in a prior year, you cannot claim any additional credit. In addition to the $500 overall limitation, there are also per-item limitations on the credit; for example, qualified windows and skylights - $200, qualified hot water boiler - $150 and qualified energy-efficient equipment - $300. The credit is nonrefundable and can only be used to offset income taxes (including the alternative minimum tax). Residential Energy Efficient Property Credit - The second credit to be extended is called the Residential Energy Efficient Property Credit. Better known as the home solar credit, it also provides credit for wind energy systems, geothermal systems and fuel cell systems. The credit is generally 30% of the qualified property and installation costs, subject to some limitations for fuel cell and geothermal systems. The credit, which was scheduled to expire after 2016, has been extended through 2021, but only for solar electric and solar hot water systems (excluding swimming pools). In addition, the credit percentage is phased out beginning after 2019. The following are the credit percentages allowed through 2021: 2009 through 2021: No annual limit 2009–2019: 30% 2020: rate reduced to 26% and only on solar-related systems 2021: rate reduced to 22% and only on solar-related systems There is no limit on the actual credit other than the credit percentage. It is a nonrefundable credit and can be used to offset income tax liability (including the AMT). However, if the credit is unused because it exceeds the income tax amount, it can be carried over to another year as long as the credit has not expired. Things to Consider - When considering whether or not to go to the expense of installing a solar system, you need to consider a number of issues: Is it cost effective considering your electric usage? How will you pay for it? If you finance it are the terms and interest rate reasonable for your financial situation? How will it affect your property’s value? Will you be able to benefit from the tax credits? Installing solar is a big financial commitment and should be considered carefully. Don’t let a solar system salesperson rush you into a decision. If you need assistance analyzing the financial and tax aspects of installing a solar system, please give this office a call before you sign on the dotted line. Tue, 12 Jan 2016 19:00:00 GMT 1099 Filing Date Just Around The Corner http://www.mytrivalleytax.com/blog/1099-filing-date-just-around-the-corner/41280 http://www.mytrivalleytax.com/blog/1099-filing-date-just-around-the-corner/41280 Tri-Valley Tax & Financial Services Inc Article Highlights: Independent Contractors  1099 Filing Requirement  Due Dates  Penalties  Form W-9 and 1099 Worksheet  If you operate a business and engage the services of an individual (independent contractor) other than one who meets the definition of an employee and you pay him or her $600 or more for the calendar year, you are required to issue him or her a Form 1099 at the end of the year to avoid penalties and the prospect of losing the deduction for his or her labor and expenses in an audit. The due date for mailing the recipient his or her copy of the 1099 that reports 2015 payments is February 1, 2016, while the copy that goes to the IRS is due at the end of February. It is not uncommon to have a repairman out early in the year, pay him less than $600, then use his services again later in the year and have the total for the year exceed the $599 limit. As a result, you may have overlooked getting the information from the individual needed to file the 1099s for the year. Therefore, it is good practice to always have individuals who are not incorporated complete and sign an IRS Form W-9 the first time you engage them and before you pay them. Having a properly completed and signed Form W-9 for all independent contractors and service providers eliminates any oversights and protects you against IRS penalties and conflicts. If you have been negligent in the past about having the W-9s completed, it would be a good idea to establish a procedure for getting each non-corporate independent contractor and service provider to fill out a W-9 and return it to you going forward. IRS Form W-9, Request for Taxpayer Identification Number and Certification, is provided by the government as a means for you to obtain the data required to file 1099s for your vendors. It also provides you with verification that you complied with the law in case the vendor gave you incorrect information. We highly recommend that you have a potential vendor complete a Form W-9 prior to engaging in business with them. The W-9 is for your use only and is not submitted to the IRS. The penalties for failure to file the required informational returns have been doubled this year and are $250 per informational return. The penalty is reduced to $50 if a correct but late information return is filed not later than the 30th day after the February 29, 2016, required filing date, or it is reduced to $100 for returns filed after the 30th day but no later than August 1, 2016. If you are required to file 250 or more information returns, you must file them electronically. In order to avoid a penalty, copies of the 1099s you've issued for 2015 need to be sent to the IRS by February 29, 2016. They must be submitted on magnetic media or on optically scannable forms (OCR forms). This firm prepares 1099s for submission to the IRS. This service provides recipient copies and file copies for your records. Use the 1099 worksheet to provide this office with the information needed to prepare your 1099s. Thu, 07 Jan 2016 19:00:00 GMT IRS reports a date error on the recent Identity Protection PIN letters http://www.mytrivalleytax.com/blog/irs-reports-a-date-error-on-the-recent-identity-protection-pin-letters/41279 http://www.mytrivalleytax.com/blog/irs-reports-a-date-error-on-the-recent-identity-protection-pin-letters/41279 Tri-Valley Tax & Financial Services Inc Each year the IRS issues special filing numbers that take the place of Social Security Numbers (SSN) for taxpayers whose identity has been compromised or is suspected of being compromised. The purpose is to prevent ID thieves from being able to use stolen SSNs to file fraudulent returns. The IRS blocks those SSNs from being filed, thus thwarting the ability of ID thieves to use the stolen SSN to file. Meanwhile, the taxpayer uses the special six-digit number called the “identity protection pin number” (IP PIN) to file his or her legitimate return. The IRS issues these numbers just before the beginning of tax filing season to affected taxpayers for use in filing their tax returns. The IRS just recently issued the IP PINs for filing 2015 tax year returns. However, the letter mistakenly indicated the IP PINs were for the 2014 tax year, which was a typo. The just-released numbers issued on form letter CP01A are in fact to be used to file 2015 tax returns. Wed, 06 Jan 2016 19:00:00 GMT IRS Announces 2016 Standard Mileage Rates http://www.mytrivalleytax.com/blog/irs-announces-2016-standard-mileage-rates/41270 http://www.mytrivalleytax.com/blog/irs-announces-2016-standard-mileage-rates/41270 Tri-Valley Tax & Financial Services Inc Article Highlights: 2016 standard mileage rates Business, charitable, medical and moving rates Switching between the actual expense and the standard mileage rate methods Special allowances for SUVs As it does every year, the Internal Revenue Service recently announced the inflation- adjusted 2016 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. Beginning on Jan. 1, 2016, the standard mileage rates for the use of a car (or a van, pickup or panel truck) will be: 54.0 cents per mile for business miles driven (including a 24-cent-per-mile allocation for depreciation). This is down from 57.5 cents in 2015; 19 cents per mile driven for medical or moving purposes. This is down from 23 cents in 2015; and 14 cents per mile driven in service of charitable organizations. The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. The rate for using an automobile while performing services for a charitable organization is statutorily set and has been 14 cents for over 15 years. Taxpayers always have the option of calculating the actual costs of using their vehicle for business rather than using the standard mileage rates. With the extension of the bonus depreciation though 2019, using the actual expense method may be a worthwhile consideration in the first year the vehicle is placed in service. The bonus depreciation allowance adds an additional $8,000 to the maximum first year depreciation deduction of passenger vehicles and light trucks that have an unloaded gross vehicle weight of 6,000 pounds or less. However, the standard mileage rates cannot be used if the actual method (using Sec. 179, bonus depreciation and/or MACRS depreciation) has been used in previous years. This rule is applied on a vehicle-by-vehicle basis. In addition, the business standard mileage rate cannot be used for any vehicle used for hire or for more than four vehicles used simultaneously. Employer reimbursement – Where employers reimburse employees for business-related car expenses using the standard mileage allowance method for each substantiated employment-connected business mile, the reimbursement is tax-free if the employee substantiates to the employer the time, place, mileage and purpose of employment-connected business travel. Employees whose actual employment-related business mileage expenses exceed the employer’s reimbursement can deduct the difference on their income tax return as a miscellaneous itemized deduction subject to the 2%-of-AGI floor. However, an employee who leases an auto and is reimbursed using the mileage allowance method can‘t claim a deduction based on actual expenses unless he does so consistently beginning with the first business use of the auto. Faster Write-Offs for Heavy Sport Utility Vehicles (SUVs) - Many of today’s SUV vehicles weigh more than 6,000 pounds and are therefore not subject to the luxury auto depreciation limit rules; so taxpayers with these vehicles can utilize both the §179 expense deduction (up to a maximum of $25,000) and the bonus depreciation (the §179 deduction must be applied first and then the bonus depreciation) to produce a sizable first-year tax deduction. However, the vehicle cannot exceed a gross unloaded vehicle weight of 14,000 pounds. Caution: Business autos are 5-year class life property. If the taxpayer subsequently disposes of the vehicle early, before the end of the 5-year period, as many do, a portion of the §179 expense deduction will be recaptured and must be added back to income (SE income for self-employed individuals). The future ramifications of deducting all or a significant portion of the vehicle’s cost using §179 should be considered. If you have questions related to best methods of deducting the business use of your vehicle or the documentation required, please give this office a call. Tue, 05 Jan 2016 19:00:00 GMT Deducting Auto Expenses & Luxury Auto Limits http://www.mytrivalleytax.com/blog/deducting-auto-expenses--luxury-auto-limits/123 http://www.mytrivalleytax.com/blog/deducting-auto-expenses--luxury-auto-limits/123 Tri-Valley Tax & Financial Services Inc When you use a vehicle for business purposes, you can deduct the business portion of the operating expenses as a business expense. If you use the car for both business and personal purposes, you may deduct only the cost of its business use. You can generally determine the expense for the business use of your car in one of two ways, the standard mileage rate method or the actual expense method.Standard Mileage Rate Method: The standard mileage rate takes the place of fuel, oil, insurance, repair, maintenance and depreciation (or lease) expenses. The rate varies from year to year and for 2016, the standard mileage rate is 54.0 cents per mile (down from 57.5 in 2015). In addition, the cost of business-related parking and tolls is deductible. Caution: If you don’t use the standard mileage rate in the first year the vehicle is placed in service, you cannot use it in future years for that vehicle. If, in a subsequent year, you switch to the actual method, you must use the straight-line method for depreciation. If the car is leased, you must continue to use the standard mileage rate in future years.Actual Expenses Method: To use the actual expense method, determine the entire actual cost of operating the car for the year and then determine the business portion attributable to the business miles driven. Parking fees and tolls attributable to business use are also deductible. Both methods can include interest paid on the car loan when deducted on business returns. However, the interest deduction is not allowed for employees deducting job connected car expenses as part of their itemized deductions. Unfortunately, if you deduct actual expenses for the business use of your car, you will probably find your write-offs for depreciation restricted due to so-called luxury car limitations. And most all cars (including trucks or vans) fit the IRS definition of a “luxury vehicle,” regardless of their cost. If a vehicle is four-wheeled, used mostly on public roads, and has an unloaded gross weight of no more than 6,000 pounds, the car is considered a “luxury vehicle.”The depreciation deduction for luxury vehicles has an annual limit, which is $3,160 for 2015 and if bonus depreciation is elected, the first year luxury vehicle limit will be $11,160. The first-year limit is $300 more for vans and trucks purchased in 2015. At the time this article was updated (2/16) the IRS had not yet released the 2016 rate. In an effort to rein in the practice of purchasing SUVs as a tax shelter, Congress has placed a limit of $25,000 on the §179 deduction for certain vehicles. The limit applies to sport utility vehicles rated at 14,000 pounds gross vehicle weight or less. Excluded from this limitation is any vehicle that: is designed for more than nine individuals in seating rearward of the driver’s seat; is equipped with an open cargo area, or a covered box not readily accessible from the passenger compartment, of at least six feet in interior length; or has an integral enclosure, fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver’s seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield. The following is a representative example of a heavy SUV write-off (assuming 100% business use) using the maximum Sec 179 exclusion. Heavy SUV Total Cost $50,000 Sec 179 Deduction Balance $25,000 Regular 1st Year Depreciation (20%) $5,000Total First Year Write-Off $30,000 If you are planning to buy an SUV based on this big write-off, be sure to call first to find out the status of any current legislation on this issue and how the tax benefits apply to your particular situation. Sat, 02 Jan 2016 19:00:00 GMT Jointly or Separately - How to File After Saying I Do http://www.mytrivalleytax.com/blog/jointly-or-separately-how-to-file-after-saying-i-do/41261 http://www.mytrivalleytax.com/blog/jointly-or-separately-how-to-file-after-saying-i-do/41261 Tri-Valley Tax & Financial Services Inc Article Summary: Filing Options  Married Filing Jointly  Unpleasant Consequences  Pleasant Consequences  Married Filing Separately  A taxpayer's filing status for the year is based upon his or her marital status at the close of the tax year. Thus, if you get married on the last day of the tax year, you are treated as married for the entire year. The options for married couples are to file jointly or separately. Both statuses can result in surprises for individuals who previously filed as unmarried. The surprises can be both pleasant and unpleasant. Individuals filing jointly must combine their incomes, and if both spouses are working, combining income can trigger a number of unpleasant surprises, as many tax benefits are eliminated or reduced for higher-income taxpayers. The following are some of the more frequently encountered issues created by higher incomes: Being pushed into a higher tax bracket Causing capital gains to be taxed at higher rates  Reducing the child care credit  Limiting the deductible IRA amount  Triggering a tax on net investment income that only applies to higher-income taxpayers  Causing Social Security income to be taxed.  Reducing the Earned Income Tax Credit  Reducing or eliminating medical and/or miscellaneous itemized deductions  Causing the overall itemized deductions to be phased out  Causing the personal exemption deduction to be phased out  Filing separately generally will not alleviate the aforementioned issues because the tax code includes provisions to prevent married taxpayers from circumventing the loss of tax benefits that apply to higher-income taxpayers by filing separately. On the other hand, if only one spouse has income, filing jointly will generally result in a lower tax because of the lower joint tax brackets and the additional exemption provided by the non-working spouse. In addition, some of the higher-income limitations that might have applied to an unmarried individual with the same amount of income may be reduced or eliminated on a joint return. Filing as married but separate will generally result in a higher combined income tax for married taxpayers. The tax laws are written to prevent married taxpayers from filing separately to circumvent a limitation that would apply to them if they filed jointly. For instance, if a couple files separately, the tax code requires both to itemize their deductions if either does so, meaning that if one itemizes, the other cannot take the standard deduction. Another example relates to how a married couple's Social Security (SS) benefits are taxed: on a joint return, none of the SS income is taxed until half of the SS benefits plus other income exceeds $32,000. On a married-but-separate return, the taxable threshold is reduced to zero. Aside from the amount of tax, another consideration that married couples need to be aware of when deciding on their filing status is that when married taxpayers file jointly, they become jointly and individually responsible (often referred to as “jointly and severally liable”) for the tax and interest or penalty due on their returns. This is true even if they later divorce. When using the married-but-separate filing status, each spouse is only responsible for his or her own tax liability. If you would like to evaluate the impact of marriage on your tax liability before saying “I do,” please give this office a call. Thu, 31 Dec 2015 19:00:00 GMT ABLE Accounts And Individuals With Disabilities http://www.mytrivalleytax.com/blog/able-accounts-and-individuals-with-disabilities/41247 http://www.mytrivalleytax.com/blog/able-accounts-and-individuals-with-disabilities/41247 Tri-Valley Tax & Financial Services Inc Article Highlights: Asset limitations when receiving Medicaid or federal Supplemental Security Income  $100,000 account limit  Similar to Sec 529 education savings accounts  Annual limit on contributions  Qualified expenses  Congress created Achieving Better Life Experience (ABLE) accounts in 2014. Prior to the creation of the ABLE accounts, individuals with disabilities who were eligible for Medicaid or federal Supplemental Security Income were limited to a maximum of $2,000 in assets, such as bank savings accounts. However, ABLE accounts allow disabled people to have up to $100,000 in these accounts without jeopardizing their Medicaid or Supplemental Security Income. Each state must enact its own legislation to make these accounts available in that particular state. Several have already done so or are in the process of doing so. ABLE accounts are fashioned after qualified state tuition programs, sometimes referred to as Section 529 plans. Although there is no tax benefit associated with contributions to the accounts, the earnings in the accounts accumulate tax-free and are also tax-free if used for qualified expenses such as health care, education, legal, housing and transportation expenses. As a note of caution, qualified expenses do not include food, entertainment or vacations. The accounts are available to individuals who became disabled before the age of 26. Once an account is established, anyone can contribute to it, provided that the sum of the contributions for the year does not exceed the annual gift tax exclusion, which is currently $14,000. These accounts are a less-expensive substitute for special needs trusts, which have significant administration costs. If contributions will exceed the annual gifting limit and $100,000 overall, a special needs trust will be required. While ABLE accounts do fill a need, there are some downsides, including the current $14,000 per year limit on contributions; restrictions on using the funds for food, vacations and entertainment; and the fact that if the beneficiary passes away, the remaining funds cannot be left to siblings or others. Tue, 29 Dec 2015 19:00:00 GMT January 2016 Individual Due Dates http://www.mytrivalleytax.com/blog/january-2016-individual-due-dates/35713 http://www.mytrivalleytax.com/blog/january-2016-individual-due-dates/35713 Tri-Valley Tax & Financial Services Inc January 4 - Time to Call For Your Tax Appointment - January is the beginning of tax season. If you have not made an appointment to have your taxes prepared, we encourage you do so before the calendar becomes too crowded. January 11 - Report Tips to Employer - If you are an employee who works for tips and received more than $20 in tips during December, you are required to report them to your employer on IRS Form 4070 no later than January 11.January 15 - Individual Estimated Tax Payment Due - It’s time to make your fourth quarter estimated tax installment payment for the 2015 tax year.January 15 - Farmers & Fishermen Estimated Tax Payment Due - If you are a farmer or fisherman whose gross income for 2014 or 2015 is two-thirds from farming or fishing, it is time to pay your estimated tax for 2015 using Form 1040-ES. You have until April 18, 2016 to file your 2015 income tax return (Form 1040). If you do not pay your estimated tax by January 15, you must file your 2015 return and pay any tax due by March 1, 2016 to avoid an estimated tax penalty. Sat, 26 Dec 2015 19:00:00 GMT January 2016 Business Due Dates http://www.mytrivalleytax.com/blog/january-2016-business-due-dates/35714 http://www.mytrivalleytax.com/blog/january-2016-business-due-dates/35714 Tri-Valley Tax & Financial Services Inc January 15 - Employer’s Monthly Deposit Due - If you are an employer and the monthly deposit rules apply, January 15 is the due date for you to make your deposit of Social Security, Medicare and withheld income tax for December 2015. This is also the due date for the nonpayroll withholding deposit for December 2015 if the monthly deposit rule applies. Employment tax deposits must be made electronically (no more paper coupons), except employers with a deposit liability under $2,500 for a return period may remit payments quarterly or annually with the return. Sat, 26 Dec 2015 19:00:00 GMT Holiday Charity Donation Tips http://www.mytrivalleytax.com/blog/holiday-charity-donation-tips/41230 http://www.mytrivalleytax.com/blog/holiday-charity-donation-tips/41230 Tri-Valley Tax & Financial Services Inc Article Highlights: Long-Form Itemization Required  Qualified Charities Only Cash Donations Non-cash Donations Year-End Donations During the holidays, many charities solicit gifts of money or property. This article includes tips for documenting your charitable gifts so that you can claim a deduction on your tax return and advice for how not to be scammed by criminals trying to trick you into sending charitable donations to them. To claim a charitable deduction you must itemize your deductions; if you don't, there is no need to keep any records. In addition, only contributions to qualified charities are deductible. Of course, we all know that the Red Cross, Salvation Army, and Cancer Society are legitimate, qualified charities, but what about small or local charities? To make sure a charity is qualified, use the IRS Select Check tool. You can always deduct gifts to churches, synagogues, temples, mosques, and government agencies—even if the Select Check tool does not list them in its database. The documentation requirements for cash and non-cash contributions are different. A donor may not claim a deduction for a cash, check, or other monetary gift unless the donor maintains a record of the contribution in the form of either a bank record (such as a cancelled check) or a written communication from the charity (such as a receipt or a letter) showing the name of the charity, the date of the contribution, and the amount of the contribution. In addition, if the contribution is $250 or more, the donor must also get an acknowledgment from the charity for each deductible donation. When contributions are made via payroll deductions, a pay stub, Form W-2 or other verifying document should be maintained as verification of the gift. It must show the total amount withheld for charity. In addition, be sure to retain the pledge card showing the name of the charity. Non-cash contributions are also deductible. Generally, contributions of this type must be in good condition, and they can include food, art, jewelry, clothing, furniture, furnishings, electronics, appliances, and linens. Items of minimal value (such as underwear and socks) are generally not deductible. The deductible amount is the fair-market value of the items at the time of the donation, and as with cash donations, if the value is $250 or more, you save an acknowledgment from the charity for each deductible donation. Be aware: the door hangers left by many charities after picking up a donation do not meet the acknowledgement criteria; in one court case, taxpayers were denied their charitable deduction because their acknowledgement consisted only of door hangers. When a non-cash contribution is $500 or more, the IRS requires Form 8283 to be included with the return, and when the donation is $5,000 or more, a certified appraisal is generally required. Special rules also apply to donations of used vehicles when the deduction claimed exceeds $500. The deductible amount is based upon the charity's use of the vehicle, and Form 8283 is required. A charity accepting used vehicles as donations is required to provide Form 1098-C (or an equivalent) to properly document the donation. There are also special rules for purchasing capital assets for a charity, such as travel, personal vehicle use, entertainment, and placement of students in a home. Please call for information related to these issues. Charitable contributions are deductible in the year in which you make them. If you charge a gift to a credit card before the end of the year, it will count for 2015. This is true even if you don't pay the credit card bill until 2016. In addition, a check will count for 2015 as long as you mail it in 2015. If you have questions or concerns about your 2015 charitable donations or about the documentation required to claim deductions for them, please call this office. Thu, 24 Dec 2015 19:00:00 GMT Launching a Startup: 8 Steps to Make it Happen http://www.mytrivalleytax.com/blog/launching-a-startup-8-steps-to-make-it-happen/41228 http://www.mytrivalleytax.com/blog/launching-a-startup-8-steps-to-make-it-happen/41228 Tri-Valley Tax & Financial Services Inc Every year, thousands of entrepreneurs across the nation launch their own business. If you’re ready to start your own business, here’s a step-by-step overview of what you need to do to make your vision become a reality. 1. Start with an Idea and Brainstorm Perhaps, you’ve already have zeroed in on a product or service for your new upstart. While having an idea is a good start, it’s important to get your mental muscles turning and brainstorm that idea. Is there a demand for the product or service? Who is your target market? Are there additional related services or products that can be tied into the primary offering? Keep in mind that adjunct services and products are an effective way to increase your bottom line. Thinking about potential problems and having solutions in place will also help your launch run more smoothly. The key takeaway with brainstorming is that it’s a powerful tool which will get you to think critically about your idea. 2. Draft a Business Plan A business plan is the road map of your new business. It defines and clarifies the direction of your business, products or services and a description of your customers. It’s also an effective way to plan for market changes and focuses on your future vision for company goals. When drafting your business plan, be sure to include facts, statistics and figures that support your idea. This will better help attract investors, partners, suppliers and executive level employees for your new venture. The typical business plan averages 15 to 20 pages and includes an overview of the plan, business description, development, competition analysis, management, market strategies and financial information. A business plan is required to secure funding at the start-up phase and your map to the future. 3. Fund Your Business To turn your dream idea into a viable business, it’s going to take money. There’s no magic bullet here, so you’ll have to explore your resources and determine which one is most attractive. You can opt for a credit line of credit or a bank loan. Just keep in mind that you’ll have to have a solid credit history or existing assets to put up for collateral. Another option is to join a startup incubator. Organizations like Y Combinator not only provide free resources to startups, but seed funding. Some startups find funding from local angel-investor groups. Most metropolitan areas have groups of angel investors who are interested in supporting startups and willing to fund up to millions of dollars for qualified startups. Once of the newest ways to get funding to launch a business is to start a crowdfunding campaign online. Online sites like Kickstarter gives you the opportunity to have folks make pledges for a startup. Other ways to garner monies for your new company include getting a small business grant and asking strategic partners, friends or family members. 4. Select an Accountant and Attorney Both an accountant and attorney should be on your startup team. Entrepreneurs must keep endless amounts of records for tax and legal purposes. An accountant can provide you with a wide range of services through the early stages, including business entity selection, expense tracking, business licenses, financial planning, month-end accounting, tax preparation, an accounting system, W2s and 1099s. Outsourcing an accounting firm lets you focus on your core business instead of non-core business. Accountants are also essential when it comes to raising funds, structuring deals and financial reporting. An attorney adds value to a startup in a variety of ways. Not only does an attorney assist with entity formation, they help you work with the government, third parties and other company founders. You don’t want to violate any laws, and an attorney will keep you on the right side of the law. They help you draft the proper legal documents to control risk with suppliers, protect intellectual property rights, employees and customers. Plus, they can assist multiple founders of a startup in drafting up agreements that outline the rights and duties of each. 5. Apply for Tax ID and State Sales Tax Permit You’ll need to fill out a tax identification application to get your tax ID. This number identifies your business on all types of documents and registrations. As a matter of fact, most banks will require your tax ID before you can apply for a business loan or set up a business checking account. You can apply for a tax ID at the IRS website. Just print out a copy of the SS-4 form. And if you’re selling any services or products that are subject to sales tax in your state, you must collect that tax from your customers and pay it to the state. It’s important to note that if you have more than one location for your business, you must obtain and display a Sales and Use Tax Permit in each location. 6. Obtain a Business License Your new business needs a business license in order to operate legally, even if you’re operating from home. You can find all the information to do this at the SBA website or your city’s business website. You’ll need to know your business code. Different codes require a specific application process, and each city has its own set of rules and requirements. Generally, you’ll have to provide your federal ID number, type of business, number of employees, business address, contact information and the name of the business owner. 7. Know the Labor Laws Depending on your state, workers compensation insurance may be required for your businesses. If required, you’ll need to attain workers compensation on a self-insured basis, through a commercial carrier or through the state Workers Compensation Insurance program. Employers are also required by federal and state laws to display posters in the workplace that inform employees of employer responsibilities and employee rights under labor laws. You can easily attain these posters free from state and federal labor agencies. 8. Choose a Business Location Deciding where to set up shop is a critical business decision. The real estate mantra of “location, location, location” has merit for a successful business venture. You’ll want to ensure that the area has the human resources to meet staffing needs. For example, if your startup is focused on detailed work, you most likely wouldn’t want to choose a rural community for its location. Always investigate the available labor pool in your chosen area. Determine the demographic profile of your location. You’ll need to know who your customers are and their proximity to your location. This is important if you’re a retailer or in some type of service business. If you’re customer base is local, you need to ensure that there is a sufficient percentage of the population that needs your product or services to support your business. The community of the location should also have a stable economic base. Launching a new business takes a lot of planning and effort. Follow these steps, and you’ll be in good shape to tackle the task. Contact this firm to help you with every step of the process. Wed, 23 Dec 2015 19:00:00 GMT Don’t Be a Victim to IRS Phone and E-Mail Scams http://www.mytrivalleytax.com/blog/don8217t-be-a-victim-to-irs-phone-and-e-mail-scams/41226 http://www.mytrivalleytax.com/blog/don8217t-be-a-victim-to-irs-phone-and-e-mail-scams/41226 Tri-Valley Tax & Financial Services Inc Thieves use taxpayers’ natural fear of the IRS and other government entities to ply their scams, including e-mail and phone scams, to steal your money. They also use phishing schemes to trick you into divulging your SSN, date of birth, account numbers, passwords and other personal data that allow them to scam the IRS and others using your name and destroy your credit in the process. They are clever and are always coming up with new and unique schemes to trick you. These scams have reached epidemic proportions, and this article will hopefully provide you with the knowledge to identify scams and avoid becoming a victim. The very first thing you should be aware of is that the IRS never initiates contact in any other way than by U.S. mail. So if you receive an e-mail or a phone call out of the blue with no prior contact, then it is a scam. DO NOT RESPOND to the e-mail or open any links included in the e-mail. If it is a phone call, simply HANG UP. Additionally, it is important for taxpayers to know that the IRS: Never asks for credit card, debit card, or prepaid card information over the telephone. Never insists that taxpayers use a specific payment method to pay tax obligations. Never requests immediate payment over the telephone. Will not take enforcement action immediately following a phone conversation. Taxpayers usually receive prior written notification of IRS enforcement action involving IRS tax liens or levies. Phone Scams Potential phone scam victims may be told that they owe money that must be paid immediately to the IRS or, on the flip side, that they are entitled to big refunds. When unsuccessful the first time, sometimes phone scammers call back trying a new strategy. Other characteristics of these scams include: Scammers use fake names and IRS badge numbers. They generally use common names and surnames to identify themselves. Scammers may be able to recite the last four digits of a victim’s Social Security number. Make sure you do not provide the rest of the number or your birth date. Scammers alter the IRS toll-free number that shows up on caller ID to make it appear that the IRS is calling. Scammers sometimes send bogus IRS e-mails to some victims to support their bogus calls. Victims hear background noise of other calls being conducted to mimic a call site. After threatening victims with jail time or driver’s license revocation, scammers hang up. Soon, others call back pretending to be from the local police or DMV, and the caller ID supports their claim. DON’T GET HOODWINKED. This is a scam. If you get a phone call from someone claiming to be from the IRS, DO NOT give the caller any information or money. Instead, you should immediately hang up. Call this office if you are concerned about the validity of the call. IRS E-Mail Scam Always remember, the first contact you will receive from the IRS will be by U.S. mail. If you receive e-mail or a phone call claiming to be from the IRS, consider it a scam. Do not respond or click through to any embedded links. Instead, help the government combat these scams by forwarding the e-mail to phishing@irs.gov. Unscrupulous people are out there dreaming up schemes to get your money. They become very active toward the end of the year and during tax season. They create bogus e-mails disguised as authentic e-mails from the IRS, your bank, or your credit card company, none of which ever request information that way. They are trying to trick you into divulging personal and financial information they can use to invade your bank accounts, make charges against your credit card or pretend to be you to file phony tax returns or apply for loans or credit cards. Don’t be a victim. STOP-THINK-DELETE. Scammers become very active toward the end of the year and during tax season. What they try to do is trick you into divulging your personal information, such bank account numbers, passwords, credit card numbers, Social Security numbers, etc. You need to be very careful when responding to e-mails asking you to update such things as your account information, pin number, password, etc. First and foremost, you should be aware that no legitimate company would make such a request by e-mail. If you get such e-mails, they should be deleted and ignored, just like spam e-mails. We have seen bogus e-mails that looked like they were from the IRS, well-known banks, credit card companies and other pseudo-legitimate enterprises. The intent is to trick you and have you click through to a website that also appears legitimate where they have you enter your secure information. Here are some examples: E-mails that appeared to be from the IRS indicating you have a refund coming and that IRS official need information to process the refund. The IRS never initiates communication via e-mail! Right away, you know it is bogus. If you are concerned, please feel free to call this office. E-mails from a bank indicating it is holding a wire transfer and needs your bank routing information and account number. Don’t respond; if in doubt, call your bank. E-mails saying you have a foreign inheritance and require your bank information to wire the funds. The funds that will get wired are yours going the other way. Remember, if it is too good to be true, it generally is not true. We could go on and on with examples. The key here is for you to be highly suspicious of any e-mail requesting personal or financial information. What’s In Your Wallet? What is in your wallet or purse can make a big difference if it is stolen. Besides the credit cards and whatever cash or valuables you might be carrying, you also need to be concerned about your identity being stolen, which is a far more serious problem. Thieves can use your identity to set up phony bank accounts, take out loans, file bogus tax returns and otherwise invade your finances, and all an identity thief needs to be able to do these things is your name, Social Security number, and birth date. Think about it: your driver’s license has two of the three keys to your identity. And if you also carry your Social Security card or Medicare card, bingo! An identity thief then has all the information he needs. You can always cancel stolen credit cards or close compromised bank and charge accounts, but when someone steals your identity and opens accounts you don’t know about, you can’t take any mitigating action. So if you carry your Social Security card along with your driver’s license, you may wish to rethink that habit for identity-safety purposes. What You Should NEVER Do: Never provide financial information over the phone, via the Internet or by e-mail unless you are absolutely sure of with whom you are dealing. That includes: Social Security Number – Always resist giving your Social Security number to anyone. The more firms or individuals who have it, the greater the chance it can be stolen. Birth Date – Your birth date is frequently used as a cross check with your Social Security number. A combination of birth date and Social Security number can open many doors for ID thieves. Is your birth date posted on social media? Maybe it should not be! That goes for your children, as well. Bank Account and Bank Routing Numbers – These along with your name and address will allow thieves to tap your bank accounts. To counter this threat, many banks now provide automated e-mails alerting you to account withdrawals and deposits. Credit/Debit Card Numbers – Be especially cautious with these numbers, since they provide thieves with easy access to your accounts. There are individuals whose sole intent is to steal your identity and sell it to others. Limit your exposure by minimizing the number of charges and credit card accounts you have. The more accounts have your information, the greater the chances of it being stolen. Don’t think all the big firms are safe; there have been several high-profile database breaches in the last year. Email Phishing Phishing (pronounced “fishing”) is the attempt to acquire sensitive information such as usernames, passwords, and credit card details (and sometimes, indirectly, money) by masquerading as a trustworthy entity in an electronic communication. Communications purporting to be from popular social websites, auction sites, banks, online payment processors or IT administrators are commonly used to lure the unsuspecting public. Phishing e-mails may contain links to websites that are infected with malware. Phishing is typically carried out by e-mail spoofing or instant messaging, and it often directs users to enter details into a fake website that looks and feels almost identical to a legitimate one. In the meantime, imagine trying to file your return and it gets rejected as already filed. You attempt to get a copy of the return but can’t because you don’t have the ID of the other unfortunate taxpayer who was used as the other spouse on the return. All the while, the scammers are enjoying their ill-gotten gains with impunity. Fake Charities Another fraud and ID theft scam associated with tax preparation involves charity scams. The fraudsters pop up whenever there are natural disasters, such as earthquakes or floods, trying to coax your client into making a donation that will go into the scammer’s pockets and not to help the victims of the disaster. These same crooks might also steal your client’s identity for other schemes. They use the phone, mail, e-mail, websites and social networking sites to perpetrate their crimes. When disaster strikes, you can be sure that scam artists will be close behind. It is a natural instinct to want to provide assistance right away, but potential donors should exercise caution and make sure their hard-earned dollars go for the purpose intended, not to line the pockets of scam artists. You need to make your clients aware of this type of fraud. The following are some tips to avoid fraudulent fundraisers: Donate to known and trusted charities. Be on the alert for charities that seem to have sprung up overnight in connection with current events. Ask if a caller is a paid fundraiser, who he/she works for and what percentage of the donation goes to the charity and to the fundraiser. If a clear answer is not provided, consider donating to a different organization. Don’t give out personal or financial information—including a credit card or bank account number—unless the charity is known and reputable. Never send cash. The organization may never receive the donation, and there won’t be a record for tax purposes. Never wire money to a charity. It’s like sending cash. If a donation request comes from a group claiming to help a local community agency (such as local police or firefighters), ask the people at the local agency if they have heard of the group and are getting financial support. Check out the charity with the Better Business Bureau (BBB), Wise Giving Alliance, Charity Navigator, Charity Watch, or IRS.gov. Protecting Against Identity Theft To give you an idea of just how big a problem identity theft has become for the IRS, it currently has more than 3,000 employees working on identity theft cases and has trained more than 35,000 employees who work with taxpayers to recognize identity theft and provide assistance when it occurs. When ID theft happens, it becomes a huge problem for the taxpayer and the taxpayer’s tax preparer. So, the best way to combat ID theft is to protect against it in the first place and avoid becoming one of those unfortunate individuals who have to deal with it. Here are some tips to prevent you from becoming a victim: Never carry a Social Security card or any documents that include your Social Security number (SSN) or Individual Taxpayer Identification Number (ITIN). Don’t give anyone your own or a family member’s SSN or ITIN just because they ask. Give it only when required. Protect financial information. Check your credit report every 12 months. Secure personal information at home. Protect personal computers by using firewalls and anti-spam/virus software, updating security patches and changing passwords for Internet accounts. Portable computers, tablets and smartphones can be stolen or lost. Limit the amount of personal information they contain that can be used for ID theft. Be extra vigilant against theft. Don’t give personal information over the phone, through the mail or on the Internet without validating the source. Identity & Tax Refund Theft Statistics Infographic Add this to your website by copying the following embed code.<img height="1100" width="440" src="http://client-sites.com/images/Identity_and_Tax_refund_theft_statitics.jpg"> Tue, 22 Dec 2015 19:00:00 GMT All You Need to Know about the New Tax Extender Legislation http://www.mytrivalleytax.com/blog/all-you-need-to-know-about-the-new-tax-extender-legislation/41225 http://www.mytrivalleytax.com/blog/all-you-need-to-know-about-the-new-tax-extender-legislation/41225 Tri-Valley Tax & Financial Services Inc Congress has reached a bipartisan agreement on tax extenders, aptly named "Protecting Americans from Tax Hikes Act of 2015". Much to everyone’s surprise, some were made permanent while others were only extended for a period of time. Congress also modified several provisions and added new ones to reduce tax fraud. Here is a look at some of the key provisions included in the legislation that pertain to individuals, small businesses, and certain energy-related provisions: INDIVIDUAL PROVISIONS: Child Credit – This credit was made permanent; it provides a $1,000 credit for each dependent child who is under the age of 17 at year’s end, who lived with the taxpayer for over half of the year and who meets the relationship test. The credit phases out for higher-income taxpayers, and a portion of the credit is refundable for lower-income taxpayers. The changes also include program integrity provisions that prohibit an individual from retroactively claiming the child credit by amending a return (or filing an original return if he or she failed to file) for any prior year in which the individual for whom the credit is claimed did not have an ITIN – generally a Social Security number). After 2015, when a taxpayer improperly claims the credit, the legislation includes a disallowance period when no credit is allowed. For fraud, the disallowance period is 10 years, and for reckless or intentional disregard of rules and regulations, the disallowance period is 2 years. American Opportunity Credit (AOTC) – This credit, which was due to expire after 2017, has been made permanent. This is a tax credit equal to 40% of the cost of tuition and qualifying expenses for higher education, with a maximum credit of $2,500. The credit applies to 100% of the first $2,000 and 25% of the next $2,000 of qualifying expenses. The credit offsets any tax liability, and 40% of the credit is refundable even if the taxpayer does not have any tax liability. It also phases out between $160,000 and $180,000 for married taxpayers filing jointly and between $80,000 and $90,000 for others – except for married taxpayers filing separately, who get no credit. After 2015, when a taxpayer improperly claims the credit, the legislation includes a disallowance period when no credit is allowed. For fraud, the disallowance period is 10 years, and for reckless or intentional disregard of rules and regulations, the disallowance period is 2 years. A provision was added that prohibits an individual from retroactively claiming the AOTC by amending a return or filing a late original return for any prior year when the individual or a student for whom the credit is claimed did not have an ITIN (generally a Social Security number). Earned Income Tax Credit (EITC) – The EITC is a refundable credit allowed to certain low-income workers who have W-2 wages and self-employed income. The credit is larger for taxpayers with children. The credit for taxpayers with children is based upon the number of children; those with three or more children receive the highest credit – as much as $6,269 in 2015. The higher credit for three or more children, which was a temporary provision that was set to expire after 2017, has been made permanent. The changes also include added program integrity provisions that prohibit an individual from retroactively claiming the AOTC by amending a return (or filing an original return if the individual failed to file) for any prior year in which the individual for whom the credit is claimed did not have an ITIN (generally a Social Security number). The changes also reduced the marriage penalty by increasing the income phase-out for those filing jointly. Teachers’ $250 Above-the-Line Deduction – This provision, which was available from 2002 through 2014, allows teachers and other eligible educators (levels kindergarten through grade 12) to take an above-the-line deduction of up to $250 for unreimbursed expenses incurred as part of their educational work. This deduction has been made permanent and modified by adjusting the $250 for inflation in years after 2015. In addition, professional development expenses were added to the qualified expenses allowed as part of the $250 deduction. Transit Pass & Parking Fringe Benefit Parity – From 2010 through 2014, the monthly exclusion amount for employer-paid transit passes and qualified parking were temporarily the same. The parity of these two fringe benefits has been made permanent. Thus, for 2015 they will both be $250. Optional Deduction of State and Local General Sales Taxes – Since 2004, taxpayers who itemized their deductions have had the option to deduct the Larger of (1) state and local income tax paid during the year, or (2) state and local sales tax paid during the year. This provision, which had been previously extended through 2014, provides the greatest benefit to those taxpayers who reside in a state that has no income tax (which include Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming). This election has been made permanent. Above-the-Line Deduction for Qualified Tuition and Related Expenses – This above-the-line deduction for qualified higher education tuition and related expenses had been available from 2002 through 2014. The deduction includes adjusted gross income (AGI) limitations; it is not allowed for joint filers with an AGI of $160,000 or more ($85,000 for other filing statuses). This deduction has been retroactively extended through 2016. Tax-Free IRA Distributions For Charitable Purposes – This provision was temporarily added in 2004 and originally expired in 2011; it was not extended until late in the year during the years 2012, 2013 and 2014, thus limiting its application in those three years. The provision allows taxpayers age 70.5 and over to directly transfer (not rolled over) funds from their IRA accounts to a qualified charity. The distribution is not taxable, but it does count toward the individuals’ required minimum distribution (RMD) for the year. The maximum allowable transfer is $100,000 per year. No charitable deduction is allowed, as the distribution is not taxable. This provision has been made permanent; it provides four potential tax advantages: 1. The distribution is not included in income, thus lowering the taxpayer’s AGI, which in turn helps to avoid various AGI phase-outs and limitations. 2. Keeping the AGI lower also helps to minimize the amount of Social Security income that is subject to tax for some taxpayers. 3. Taxpayers using the standard deduction cannot get a charitable deduction, but they are essentially deducting the charitable deduction from their gross income when making contributions this way. 4. The transferred distribution counts towards the taxpayer’s RMD for the year. Discharge of Qualified Principal Residence Indebtedness – When an individual loses his or her home to foreclosure, abandonment or short sale or has a portion of his or her loan forgiven under the HAMP mortgage reduction plan, that person generally will end up with cancellation of debt (COD) income. COD income is taxable unless the taxpayer can exclude it. A taxpayer can exclude the COD income in the extent that he or she is insolvent (with debts exceeding assets immediately before the event occurs) using the insolvency exclusion. Due to the housing market crash, in 2007, Congress added the qualified principal residence COD exclusion, which allowed taxpayers to exclude COD income to the extent that it was discharged acquisition debt. Acquisition debt is debt originally incurred to acquire a home or substantially improve it – not debt used for other purposes, which is called equity debt. However, equity debt is deemed to be discharged first, thus limiting the exclusion when both equity and acquisition debt are involved in the transaction. The qualified principal residence COD exclusion had been previously extended but had expired at the end of 2014. This exclusion has been retroactively extended through 2016 (a two-year extension). Mortgage Insurance Premiums – For tax years 2007 through 2014, taxpayers could deduct (as an itemized deduction) the cost of premiums for qualified mortgage insurance on a qualified personal residence (first or second home). To be deductible, the premiums must have been related to acquisition debt incurred after Dec. 31, 2006. However, this deduction phases out for higher-income taxpayers (generally those whose AGI exceeds $100,000). This provision, which had expired after 2014, has been retroactively extended through 2016, a two-year extension. BUSINESS PROVISIONS: Research Credit – Tax law provides a tax credit of up to 20% of qualified expenditures for businesses that develop, design or improve products, processes, techniques, formulas or software (and similar activities). The credit has been available off and on since 1981 without being made permanent. It had been extended several times but had expired at the end of 2014. This credit has been retroactively made permanent. In addition, it is not a tax preference for small businesses. 100% Exclusion of Gain – Certain Small Business Stock – Previously, for stock issued after September 27, 2010, and before January 1, 2015, non-corporate taxpayers could exclude 100% of any gain realized on the sale or exchange of “qualified small business stock” held for more than 5 years. In addition, there was no alternative minimum tax (AMT) preference when the exclusion percentage was 100%. Generally, the term “qualified small business” means any domestic C corporation with assets of $50 million or less. This provision has been made permanent. Differential Wage Payment Credit – Through 2014, eligible small business employers – generally those that have an average of fewer than 50 employees and that pay a individual called into active duty military service all or part of the wages that they would have otherwise received from the employer – can claim a credit. This differential wage payment credit is equal to 20% of up to $20,000 of differential pay made to an employee during the tax year. This credit has been retroactively made permanent; for years after 2015, the credit will apply to any size employer. Work Opportunity Tax Credit (WOTC) – Through 2014, employers could elect to claim a WOTC for up to 40% of employees’ first-year wages for hiring workers from targeted groups – not exceeding wages of $6,000 (a maximum credit of $2,400). First-year wages are wages paid during the tax year for work performed during the one-year period beginning on the date when the employee begins work for the employer. This credit has been retroactively extended for five years through 2019; it applies to veterans and non-veterans and adds qualified long-term unemployment recipients to the list of targeted groups for years after 2015. Section 179 Election – Since 2003, the Section 179 election has been temporarily increased from its statutory limit of $25,000 to between $100,000 and $500,000. Since 2010, the expense cap has been $500,000 (or $250,000 on a married-filing-separate tax return), and the investment limit has been $2 million. However, the last extension expired after 2014; without an extension, the cap would have returned to the statutory $25,000 limit in 2015. The statutory expensing limit of $500,000 and the $2 million investment limit have both been made permanent. The application of the Section 179 election to “off-the-shelf” computer software, qualified leasehold improvements, qualified restaurant property and qualified retail improvements has also been made permanent. Leasehold and Retail Improvements and Restaurant Property – The class life for qualified leasehold and retail Improvements and restaurant property had been temporarily included in the 15-year depreciation class life, as opposed to the 31-year category. Qualified leasehold and retail Improvements and restaurant property have been retroactively and permanently included in the 15-year MACRS class life. Bonus Depreciation – As a means of stimulating the economy, a 50 percent bonus depreciation was temporarily implemented in 2008 and subsequently extended through 2014. For the period between September 8, 2010, and before January 1, 2012, it was even boosted to 100 percent. Bonus depreciation applies to personal tangible property placed in service during the year for which the original use began with the taxpayer. The 50% bonus depreciation has been extended for 2 years (through 2016) for property placed in service before January 1, 2017. This generally applies to property with a class life of 20 years or less, to qualified leasehold improvements and to certain plants bearing fruits and nuts that are planted or grafted before January 1, 2020. Enhanced First - Year Depreciation for Autos and Trucks – This is the so-called “luxury limit” on the deprecation deduction of passenger automobiles and light trucks used for business. For such vehicles placed in service in 2015, the limits are $3,160 and $3,460, respectively. In the past, the bonus depreciation had increased the first-year luxury limits by $8,000. Under the new law, the bonus depreciation applicable to luxury vehicles will be phased out through 2019. Thus, the luxury auto rates will be increased by the following bonus depreciation rates: $8,000 for 2015 through 2017, $6,000 for 2018 and $4,800 for 2019. ENERGY PROVISIONS: Residential Energy (Efficient) Property Credit – From 2006 through 2014, a nonrefundable credit had been available for qualified improvements to make the taxpayer’s existing primary home more energy efficient. Qualified improvements generally included insulation, storm windows and doors certain types of energy-efficient roofing materials, and energy-efficient air conditioning and hot-water systems. The credit was equal to 10% of the improvement’s cost (not including installation), with a lifetime credit of $500. The credit has been retroactively extended through 2016 (two years). Credit for Fuel-Cell Vehicles – Through 2014, a taxpayer could claim a credit for vehicles fueled by chemically combining oxygen with hydrogen to create electricity. Generally, the credit was $4,000 for vehicles weighing 8,500 pounds or less (and up to $40,000 for heavier vehicles, depending on their weight). An additional $1,000 to $4,000 credit was available for cars and light trucks to the extent that their fuel economy exceeded the 2002 base fuel economy set forth in the Internal Revenue Code. This credit has been retroactively extended for two years through 2016. If you have questions related to these or other, less commonly encountered provisions of the new law (Protecting Americans from Tax Hikes Act of 2015), please give this office a call. Benefiting from these provisions for 2015 will require taking action before year’s end. Please call if you need assistance. Mon, 21 Dec 2015 19:00:00 GMT Which 1040 Is The Right One For You? http://www.mytrivalleytax.com/blog/which-1040-is-the-right-one-for-you/41218 http://www.mytrivalleytax.com/blog/which-1040-is-the-right-one-for-you/41218 Tri-Valley Tax & Financial Services Inc Article Highlights: Form 1040-EZ  Form 1040-A  Form 1040  Affordable Care Act  Using the 1040-EZ Could Be A Mistake  When Benjamin Franklin said that nothing is certain but death and taxes, he managed to name two of the things that people loathe and fear the most. One of the things that makes taxes so unpleasant is obviously the fact that you have to hand over some of your hard-earned money to the government, and the other is that it can be so difficult to figure out how to fill out the forms - and which one to use. The rule of thumb for choosing your personal income tax form is to try to go with the one that is easiest to understand, but that being said, you also need to be sure that it is the one that is correct. The government provides three forms - the 1040, the 1040A, and the 1040EZ - and all are meant to help you pay the amount that you owe. But each form has a different purpose, and if you choose the wrong one, it can end up meaning that you either pay more than you owe or end up having to pay fines for not paying enough. The simplest form is the one known as the EZ, while the long Form 1040 is the most complicated. Though it may be tempting to go for the one that takes the least amount of time to complete, if you simply jump for the fastest way through your filing responsibilities, you may end up cheating yourself of the opportunity to take some of the tax breaks to which you're entitled. That's because the more detail the form asks for, the more chances there are for you to provide information that may entitle you to a write-off. The Affordable Care Act Might Preclude the Use of the EZ - Many people who were formerly able to file Form 1040EZ may find that they are no longer eligible to use this short form. This is because those who purchase health insurance through a state or federal exchange under the Affordable Care Act have the option to receive advance payment of the premium tax credit, which helps pay some of the costs of the insurance. In order to ensure that you receive the appropriate amount of credit, the taxpayer is required to submit all appropriate information on Form 8962, which cannot be filed with the 1040EZ - it can only be submitted with Form 1040 or 1040a. Though this means that taxpayers have to do a bit more paperwork, but it ensures that the proper amount of credit is taken and also provides the opportunity for the government to reimburse you if not enough of a credit is provided. How Using The EZ May Be A Mistake - In some cases, using the 1040EZ can end up costing you money. This is because the short form, which is often the one selected by taxpayers who believe that their uncomplicated finances make it the most appropriate for them, does not provide the opportunity to take advantage of tax breaks you may be entitled to. For example, a recent college graduate who was just hired by his first employer would naturally assume that his taxes are so simple that there's no need to fuss with a longer form. But doing so eliminates the possibility of taking a write-off for any interest that he paid on a student loan. Similarly, if he was wise and started setting aside money into a traditional IRA upon learning that his new employer offered no retirement plan, then his contributions would be deductible - but the short form doesn't even ask that question. He might end up in a lower tax bracket by using the long form and would be able to pay just fifteen percent on taxes rather than 25 percent, simply based on these two deductions. Another deduction that can be taken on a 1040 or 1040A but not on a 1040EZ is the Lifetime Learning tax credit for courses taken to improve job skills - and there are many more. Form 1040EZ has the advantage of being simple, but it can end up working against you if you want to get the greatest possible deduction. Reviewing the Three Tax Returns - It can be difficult to know which of the three tax returns is the right one for you and your particular situation. Here is some basic information on each one to provide you with a better sense of which you should choose. Form 1040EZ - This simplest of all of the IRS forms is open to people who meet the following criteria: You are filing as either single or as married filing jointly  You are younger than 65. If you are filing a joint return with your spouse, then your spouse must also be younger than 65. If your 65th birthday (or your spouse's 65th birthday) falls on January 1 of the tax year, then you are considered to have turned 65 in the previous year, and will become ineligible to use the form.  Neither you nor your spouse (if filing jointly) can have been legally blind during the tax year.  You cannot have dependents and use this form.  Your interest income must be less than $1,500.  Your income (or joint income if filing with your spouse) must be less than $100,000.  Though the 1040 EZ does make things easier by being just one page long, it minimizes the amount of deductions that you are able to take. The 1040EZ limits taxpayers to taking just the earned income tax credit, and it may end up cheating you of deductions to which you are entitled. For that reason, it makes sense to consider the other forms that are available. Form 1040A - Form 1040A is available regardless of what the taxpayer's filing status is. Those who file as single, married filing either separately or jointly, head of household, or qualifying widow or widower can all use this form. In addition to having this advantage, it also provides the opportunity to claim more than just the earned income tax credit. Taxpayers are also able to take advantage of tax credits for their children, education, dependent care, retirement savings credits, and elderly or disabled care. All of these deductions are available using the 1040A, but not the 1040EZ. Additional criteria for using the 1040A include: You must have taxable income (or combined incomes) below $100,000.  You cannot itemize deductions.  You can have capital gain distributions but cannot have capital losses or gains.  There are other adjustments allowed for those using Form 1040A. These are known as above-the-line deductions, and they reduce the total gross income counted against you for tax purposes. By using these adjustments, you are able to reduce your overall tax burden. These adjustments include some IRA contributions, educator expenses, college tuition and fees, and student loan interest. Form 1040 - For those who have higher incomes, need to itemize their deductions, or have investments and income that require a more complicated tax preparation, the appropriate form is the 1040. The 1040 generally requires additional documentation and forms, but using it is often the only way to get the additional savings that are due to the taxpayer. Some of these credits include deductions for taxes paid in a foreign country, deductions for the cost of adopting a child, and a number of above-the-line deductions that are not available with the other forms. The purpose of having these other adjustments available is to provide people with the greatest opportunity to reduce their gross income, thereby reducing the overall tax burden. People who use Form 1040 are able to take deductions for self-employment taxes that have been paid, moving taxes, alimony payments, and more. There is no need to use a form Schedule A, as the available deductions are already listed on the front page of the 1040 - however, certain forms or schedules may need to be completed and attached. Although any taxpayer can use the 1040, it is most generally used by taxpayers: Who itemize their deductions,  Who are self-employed, or  Who have capital gain income from the sale of stocks or other assets.  If you are still uncertain as to which form is most appropriate for you, IRS Publication 17 provides many answers and details, including special circumstances and specific examples. It is important to remember that just because a form was appropriate for you in the past, it may not be in the future, and there is no requirement that you use it again. It may be appropriate for you to consult with a professional tax preparer to ensure you receive all the tax breaks and benefits you are entitled to. Thu, 17 Dec 2015 19:00:00 GMT Traditional to Roth IRA Conversions - Should You? Did You? Wish You Hadn't? http://www.mytrivalleytax.com/blog/traditional-to-roth-ira-conversions-should-you-did-you-wish-you-hadnt/41215 http://www.mytrivalleytax.com/blog/traditional-to-roth-ira-conversions-should-you-did-you-wish-you-hadnt/41215 Tri-Valley Tax & Financial Services Inc Article Highlights: Conversion Timing  Why Convert?  When to Convert?  Undoing a Conversion  Issues to Consider Before Making the Decision  The tax provision that allows taxpayers to convert a Traditional IRA to a Roth IRA is a great tax-planning tool when used properly, and timing is everything. To make a conversion, you must pay income taxes on the amount of the traditional IRA converted to a Roth IRA. So why would one want to do that? Well, the answer is that Roth IRAs enjoy tax-free accumulation and distributions, whereas the earnings in and contributions made to a traditional IRA are fully taxable whenever they are withdrawn. (An exception is if the contributions to the traditional IRA were treated as non-deductible. In that case, each distribution is nontaxable or partly nontaxable if only some of the contributions had not been deducted.) So, you might consider converting during a year in which your income is abnormally low or a year in which your income might even be negative due to abnormal deductions or business losses. Under such cases, you might even be able to make a conversion tax-free. Keep in mind that you do not have to convert the entire amount in the traditional IRA; rather, you can choose any amount you wish to convert to fit your circumstances, and with proper tax planning, you can substantially minimize the conversion tax and the tax on your future retirement benefits. You might also consider a conversion at a time when the IRA value is low due to a decline in the stock market, like the dip in stock values that occurred in September this year when the Dow index dropped from the low 18,000s to close to 16,000. Those examples demonstrate when timing might be right for a conversion. On the flip side, if you converted earlier in the year, you could end up paying taxes on an amount that has declined in value due to the market downturn and wish you hadn't converted. Well, the good news is that you can undo a conversion. A taxpayer who converts a traditional IRA to a Roth IRA during 2015 can back out of the conversion by recharacterizing the Roth IRA as a traditional IRA any time up to the extended due date of the 2015 return. This involves transferring the converted amount (plus earnings or minus losses) from the Roth IRA back to a traditional IRA via a direct (trustee-to-trustee) transfer. Everyone's financial circumstances are unique and other issues to consider are: Are there enough years before retirement to recoup the conversion tax dollars through tax-free accumulation?   Will you be in a lower or higher tax bracket in the future?   Where would the money to pay the conversion tax come from? Generally, it must be from separate funds. If it is taken from the IRA being converted, for individuals under age 59½, the funds withdrawn to pay the tax will also be subject to the 10% early-distribution penalty in addition to being taxed.   It might be appropriate for you to design your own custom conversion plan over a number of years rather than converting everything at once. Conversions can be tricky! If you are considering a conversion, it might be appropriate to call for an appointment so that this office can help you properly analyze your conversion options. Tue, 15 Dec 2015 19:00:00 GMT 2015 TAX DEDUCTION FINDER & PROBLEM SOLVER http://www.mytrivalleytax.com/blog/2015-tax-deduction-finder--problem-solver/41213 http://www.mytrivalleytax.com/blog/2015-tax-deduction-finder--problem-solver/41213 Tri-Valley Tax & Financial Services Inc This is an archive of the 2015 edition of our tax organizer. Use this organizer if you have not yet filed your 2015 tax return. The 2015 individual tax organizer is provided in three configurations to assist you in collecting relevant tax information needed to properly prepare your tax return. Access any of the three versions by double clicking on the underlined title links below. The organizers can be downloaded to your computer where you can fill and save the information until you have completed collecting all of your information. After you have completed it, please forward the organizer (printed or digitally) to our office for immediate service. If you have an office appointment, you can print it out and bring it with you to the meeting. A word of caution: you can fill the organizers online and print them out. However, if you close the file, your data will not be saved unless the form is saved to your computer.Once the completed organizer has been received, you will be contacted by phone, fax or e-mail with any questions, comments, or suggestions. If you e-mail our office advising us that you have sent your tax materials, we will notify you of their receipt.2015 Basic Organizer – This organizer is suitable for clients that are not itemizing their deductions and DO NOT have rental property or self-employment expenses.2015 Basic Organizer plus Itemized Deductions – This organizer is suitable for clients that are itemizing their deductions and DO NOT have rental property or self-employment expenses.2015 Full Organizer – This organizer includes the information included in the basic organizer, plus entries for itemized deductions, rental properties and self-employment expenses.2015 Business Organizer – Use this organizer for partnerships and incorporated business entities.2014 Prior Year Individual Organizer – If you are filing your 2014 return late, please use this organizer. Sun, 13 Dec 2015 19:00:00 GMT Unpaid Debt Can Take Your Refund http://www.mytrivalleytax.com/blog/unpaid-debt-can-take-your-refund/41205 http://www.mytrivalleytax.com/blog/unpaid-debt-can-take-your-refund/41205 Tri-Valley Tax & Financial Services Inc Article Highlights: Bureau of the Fiscal Service  Allowable Refund Offsets  Disputing an Offset  Injured Spouse Claim  As the 2015 tax season approaches, you may be getting excited about your potential tax refund. However, that excitement may be premature if you have outstanding federal or state debts. The Treasury Department's Bureau of the Fiscal Service (BFS) issues federal tax refunds, and Congress authorizes BFS to reduce your refund through its Treasury Offset Program (TOP) to pay: Past-due child and parent support;  Federal agency non-tax debts;  State income tax obligations; or  Certain unemployment compensation debts owed to a state.  So, if you owe a debt that's past-due, it can reduce your federal tax refund and all or part of your refund may go to pay your outstanding federal or state debt if it has been submitted for tax refund offset by an agency of the federal or state government. If you have an outstanding debt and want to be proactive, you can contact the agency with which you have a debt to determine if your debt was submitted for a tax refund offset. You may call BFS's TOP call center at 800-304-3107 or TDD 866-297-0517, Monday through Friday, 7:30 a.m. to 5 p.m. CST. If your debt was submitted for offset, BFS will reduce your refund as needed to pay off the debt and send it to the agency you owe. Any portion of your remaining refund after offset is issued in a check or is direct deposited as originally requested on the return. If you choose to wait and see what happens when you file your return, BFS will send you a notice if an offset occurs. If you wish to dispute the amount taken from your refund, you will have to contact the agency that submitted the offset claim. It will be shown on the notice you will receive from the BFS. If you filed a joint tax return, and only one spouse is responsible for the debt, the other spouse may be entitled to part of or all the refund. To request the refund of the spouse that is not responsible for the offset, you can file Form 8379, Injured Spouse Allocation. The benefits provided under the injured spouse allocation will generally not apply if you reside in a community property state. Please contact this office if have you have questions about refund offsets. Thu, 10 Dec 2015 19:00:00 GMT Are You at Risk for a Trust Fund Penalty? http://www.mytrivalleytax.com/blog/are-you-at-risk-for-a-trust-fund-penalty/41183 http://www.mytrivalleytax.com/blog/are-you-at-risk-for-a-trust-fund-penalty/41183 Tri-Valley Tax & Financial Services Inc Article Highlights: Withholding Trust Funds  Trust Fund Penalty  Responsible Persons  Misapplication of Trust Funds  When an employer withholds Social Security and income taxes from an employee, those funds are the property of the government, and the employer must hold those funds in “trust” until the funds are turned over to the government. Failure to do so could lead to the so-called trust fund penalty, which is equal to 100% of the withholding from the employees' wages. The penalty applies to any willful failure to collect, account for and pay over Social Security and income taxes required to be withheld from employee wages. A recent report issued by the Treasury Inspector General for Tax Administration has made recommendations to the IRS for timely assessing and collecting the responsible person penal-ty, and the IRS is adopting the recommendations. The government has always been very ag-gressive about collecting trust fund penalties and will pursue collecting the penalty from the “responsible person.” This is where you may be at risk. The IRS broadly defines a “responsible person” to include corporate officers, directors, and shareholders under a duty to collect and pay the tax as well as a partnership's partners, or any employee of the business under such a duty. So if you are a person with the power to see that the taxes are paid, you may be responsi-ble. Frequently more than one person is a responsible person, and each one is at risk for the entire penalty. Even though you may not be directly involved with the withholding process, if you discover that trust funds that are due to the government are instead being used to pay a business creditor, you become a “responsible person.” You always have to keep in mind that the trust fund money belongs to the government, and bowing to business pressures to pay bills or obtain supplies instead of transmitting the withheld taxes to the government will be viewed as willful (bad) behavior for purposes of the penalty. Unlike some other types of penalties, there are no acceptable excuses for failure to withhold the required payroll taxes or for borrowing withheld amounts to pay other expenses. Even if you have a payroll company collecting and paying over the withholding, and that firm should go belly up, or someone in that firm absconds with the trust finds, guess who is still respon-sible for paying the government? The responsible person at the business, of course! Don't fall victim to the penalty by allowing a partner or corporate superior to persuade you not to withhold or timely pay over the trust funds to the government. If you are interested in discussing your potential risks and exposure to this penalty, please give this office a call. Tue, 08 Dec 2015 19:00:00 GMT Are Legal Expenses Tax Deductible? http://www.mytrivalleytax.com/blog/are-legal-expenses-tax-deductible/41166 http://www.mytrivalleytax.com/blog/are-legal-expenses-tax-deductible/41166 Tri-Valley Tax & Financial Services Inc Article Highlights: Legal Fees Associated With Personal, Living, or Family Issues  Legal Fees Associated With Business and the Production of Taxable Income  Examples of Legal Fees and Their Deductibility  The Tax Benefit of Legal Fee Deductions  A frequent question that arises is whether legal expenses are deductible. The answer to that question can be both yes and no and can be complicated depending upon the nature of the legal expense. The Internal Revenue Code (IRC), which is the body of tax laws written by the United States (U.S.) Congress and approved by the president in office at the time the law is created, tells us that except as otherwise expressly provided, such as itemized deductions, no deduction shall be allowed for personal, living, or family expenses. The IRC also says that, in the case of an individual, deductions are allowed for all of the ordinary and necessary expenses paid or incurred during the taxable year: For the production or collection of taxable income;   For the management, conservation, or maintenance of property held for the production of income; or   In connection with the determination, collection, or refund of any tax.  Applying those IRC provisions will allow you to determine whether a legal expense you've incurred is deductible or not, but the application can sometimes be complicated and also must take into account the Internal Revenue Service's (IRS's) interpretation of the law through rulings and regulations as well as the courts' opinions on all of the above. The following are some frequently encountered situations and how legal expenses paid in those situations should be handled:   Divorce - Legal costs, such as attorney fees and court costs, connected with divorce, separation, or support are non-deductible personal expenses. Non-deductibility extends to legal fees incurred in disputes over money claims. However, legal and accounting fees paid for tax advice in connection with the divorce are deductible, provided the amounts for those services are delineated on the legal firm's billings.   Taxable Alimony - The part of legal fees attributable to producing taxable alimony is deductible by the recipient of the alimony. The attorney's statement or invoice should stipulate what part of the fee relates to alimony to ensure a deduction for the alimony recipient. Legal fees paid by the payer of the alimony are not deductible. Because child support payments are not taxable, fees paid to obtain those payments are not deductible.   Conduct of a Business - Legal fees incurred by a taxpayer in the course of a trade or business are generally deductible if they are ordinary and necessary expenses of the business.   Relating to Insurance Proceeds - Legal fees to collect on a claim related to a taxpayer's business are currently deductible, but legal fees related to a personal loss are not deductible. However, where a loss is associated with a capital asset, such as a taxpayer's personal home, the related expenses can be added to the home's tax basis and be used to offset any taxable gain in the future.   Producing or Collecting Taxable Income - Attorney fees, court costs, and similar expenses are deductible if incurred during the production or collection of taxable income. A reasonably close connection must exist between the legal expense and the production or collection of the taxable income.   Bankruptcy - Legal fees connected with a business bankruptcy are deductible. If personal bankruptcy is primarily caused by the failure of a business activity, the legal fees related to the bankruptcy proceedings are partially deductible as a business expense. The courts have used a proration of the fees based on the ratio of business creditor claims to total creditor claims.   Managing, Conserving, or Maintaining Income-Producing Property - Legal fees related to managing, conserving, or maintaining income-producing property are generally deductible. However, just because a taxpayer may have to sell income-producing property to satisfy a possible adverse judgment doesn't mean he/she can deduct the cost of defending the suit under this provision.  Related to Title of Property - Although legal expenses to acquire, perfect, defend, or clear title to property currently can't be deducted as business or investment expenses, they are capital expenditures whose cost may be recovered through depreciation, depletion, or cost recovery. Incurred legal expenses related to title of personal property, such as a principal residence, aren't deductible but can be added to the basis of the property.   Damage Suits - Legal fees for defending and filing damage suits in a taxpayer's business or in employment are deductible. Examples include expenses paid for defending a suit for wrongfully taking property; settling a damage suit against a business, which could help to avoid adverse publicity and controversy; getting a judgment for damages to rental real estate; and a teacher's action of sex discrimination against a university.   Damages for Personal Injury or Sickness - In some cases, damages for personal injury or sickness can be excluded from income. Thus, the legal fees paid to secure such income are not deductible if the damage award is not taxable. However, to the extent that the damage award is taxable or accrued interest is paid on the settlement funds, the legal fees are deductible. Where the funds are partially taxable and partially excludable, the legal expenses have to be prorated in the same ratio as the income is.   Will and Trust Document Preparation - The cost of legal fees for preparing a will is considered a personal expense that is not deductible. In most cases, the legal cost of creating a living trust is similarly treated as a personal, nondeductible expense. However, if the attorney who prepares the trust indicates on the billing statement the amount of the fee that is for tax planning or tax advice, the tax-related portion of the fee is deductible.   Criminal Cases - Legal fees incurred to defend against criminal charges related to a taxpayer's trade or business are deductible. This is true even if the taxpayer is convicted of the crime. However, legal defense expenses incurred by an individual charged with a crime are personal and generally not deductible.   Tax Issues - Legal fees associated with obtaining tax advice, having tax returns prepared, and defending a taxpayer being audited are all specifically included as deductible legal expenses.  Just because legal fees are deductible doesn't necessarily mean you will receive any tax benefit from the deduction. While some legal fees can be deducted on business schedules and provide the maximum benefit, others have to be deducted as a miscellaneous itemized deductions, the total of which is subject to a 2% of AGI deduction floor. In addition, miscellaneous itemized deductions are not deductible for alternative minimum tax (AMT) purposes. As you can see, determining which legal expenses are deductible is complicated, and even if allowed, a deduction may not provide any tax benefit. As every circumstance is unique, you are encouraged to call this office to determine if you will derive any tax benefit from your legal expenses. Thu, 03 Dec 2015 19:00:00 GMT Important Reminder For Purchasing Your Health Insurance Through The Government Marketplace http://www.mytrivalleytax.com/blog/important-reminder-for-purchasing-your-health-insurance-through-the-government-marketplace/41162 http://www.mytrivalleytax.com/blog/important-reminder-for-purchasing-your-health-insurance-through-the-government-marketplace/41162 Tri-Valley Tax & Financial Services Inc Article Highlights: Determining Household Income  The Advanced Premium Tax Credit  Marketplace Estimate of Income  Modified Adjusted Gross Income  Who Is Family For Health Insurance Purposes?  When applying for insurance through a state or the federal health insurance marketplace, you will be asked to provide an estimate of your household income for 2016. Your household income is a key factor in determining if you are qualified for an insurance subsidy called the premium tax credit (PTC). Any premium tax credit that you are entitled to will be computed on your 2016 tax return when it is filed in 2017. However, the insurance marketplace will allow you to reduce your insurance premiums during the year by applying this credit in advance based upon the estimate of your household income you provided when applying for the insurance. This advance is referred to as the advanced premium tax credit (APTC). It is very important to remember that the PTC is based on the actual family income when your tax return is filed in 2017—not on the estimate you provided when you enrolled—and if the APTC you received during 2016 was more than the PTC you are entitled to based upon your household income, you may be required to repay all or part of the APTC you received during 2016. Thus, it is important to correctly estimate your family's household income when applying for the insurance and to report any significant income changes during the year on the insurance marketplace. Household income includes the modified adjusted gross income (MAGI) of everyone in your family who is required to file a tax return. Your family includes you, your spouse, and everyone you are entitled to claim as a dependent on your tax return. MAGI is your family's adjusted gross income (AGI) plus nontaxable social security, nontaxable interest and excluded foreign earned income. As an example, say that you are married with one child. You have a W-2 income of $35,000 and nontaxable interest income of $150. Your spouse does not work, but your 16-year-old child works at a fast food restaurant and has a W-2 income of $4,000 for the year. Your AGI would be $35,000, which includes only your W-2 income. However, your MAGI would be $35,150 because it includes the nontaxable interest income. Since your child's W-2 income is less than $6,300 (the standard deduction for 2016), your child is not required to file a tax return, and your child's income (MAGI) is not included in the household income. Thus, your household income would be $35,150. However, if your child's W-2 income had been $7,000 (exceeding the standard deduction for the year), the child would have to file a tax return, and the child's income would have to be included when determining your household income, which in this case would be $42,150 ($35,150 + $7,000). The addition of the child's income to the household will significantly reduce the amount of PTC you are entitled to, and not including it when estimating your income will most likely result in you having to repay a significant amount of APTC on your 2016 tax return. The computation of household income can become complicated when dependent children are working and when one or more forms of nontaxable income are received by a family member. It may be appropriate to consult with this office for assistance when determining household income. Tue, 01 Dec 2015 19:00:00 GMT Coverdell and 529 Education Savings Plans http://www.mytrivalleytax.com/blog/coverdell-and-529-education-savings-plans/41151 http://www.mytrivalleytax.com/blog/coverdell-and-529-education-savings-plans/41151 Tri-Valley Tax & Financial Services Inc Article Highlights: Coverdell Education Savings Accounts  Qualified State Tuition Programs (Sec 529 plans)  Savings Contribution Limits  Gift Tax Issues  The tax code provides two primary advantageous ways of saving for your children's education. We frequently get questions about the differences between the programs and about which program is best-suited for a family's particular needs. The Coverdell Education Savings Account and the Qualified Tuition Plan (frequently referred to as a Sec 529 Plan) are similar; neither provides tax-deductible contributions, but both plans' earnings are tax-free if used for allowable expenses, such as tuition. Therefore, with either plan, the greatest benefit is derived by making contributions to the plan as soon as possible—even the day after a child is born—so as to accumulate years of investment earnings and maximize the benefits. However, that is where the similarities end, and each plan has a different set of rules. Coverdell Savings Accounts only allow a total annual maximum contribution of $2,000. The contributions can be made by anyone, including the beneficiary, so long as the contributor's adjusted gross income is not high enough to phase out the allowable contribution. (The phase-out threshold is $190,000 for married contributors filing jointly and $95,000 for others.) Unless the beneficiary of the account is a special needs student, the funds must be withdrawn prior to age 30. The funds can be used for kindergarten through post-secondary education. Allowable expenses generally include tuition; room, board, and travel expenses required to attend school; books; and other supplies. Tutoring for special needs students is also allowed. Funds can be rolled over from one beneficiary to another in the same family. Although the funds can be used starting in kindergarten, the chances are that not enough of earnings will have been accumulated by that time to provide any significant benefit. On the other hand, state-run Sec 529 plan benefits are limited to postsecondary education, but they allow significantly larger amounts to be contributed; multiple people can each contribute up to the gift tax limit each year. This limit is $14,000 for 2015, and it is periodically adjusted for inflation. A special rule allows contributors to make up to five years of contribution in advance (for a total of $70,000 in 2015). Sec. 529 Plans allow taxpayers to put away larger amounts of money, limited only by the contributor's gift tax concerns and the contribution limits of the intended plan. There are no limits on the number of contributors, and there are no income or age limitations. The maximum amount that can be contributed per beneficiary is based on the projected cost of college education and will vary between the states' plans. Some states base their maximum on an in-state four-year education, but others use the cost of the most expensive schools in the U.S., including graduate studies. Most have limits in excess of $200,000, with some topping $370,000. Generally, once an account reaches that level, additional contributions cannot be made, but that doesn't prevent the account from continuing to grow. Which plan (or combination of plans) is best for your family depends on a number of issues, including education goals, the number and ages of your children, the finances of your family and of any grandparents or other relatives willing to help, and a number of other issues. For assistance in establishing education savings plans, please give the office a call. Wed, 25 Nov 2015 19:00:00 GMT 6 Steps to Get Your Business Startup on Track For Long Term Success http://www.mytrivalleytax.com/blog/6-steps-to-get-your-business-startup-on-track-for-long-term-success/41136 http://www.mytrivalleytax.com/blog/6-steps-to-get-your-business-startup-on-track-for-long-term-success/41136 Tri-Valley Tax & Financial Services Inc It’s easy to think about startup businesses and consider the success or horror stories, but what about the average startups? The hard and bleak reality is that the majority of small business startups fail. So, to avoid being like the average startup, you need to create a plan for success. Choose the Right Entity One of the first steps to forge a solid start includes selecting the right entity for your business. This legal structure will affect the amount of paperwork you need to do and the legal ramifications you will face. The right entity will help you reduce your liability exposure and minimize your taxes. You need to ensure your business can be financed and run efficiently with a method that helps ensure the business operations will continue after the death of the owner. Along with making the startup process more organized in an official capacity for the company, the formalization process will also solidify the ownership of participants who are participating in the venture. To choose your entity, you will first need to consider what personal level of risk you face from liabilities that could arise from your business. You will then need to consider what the best angle is for taxation, finding ways to avoid layers of taxation that can increase unnecessary expenses. Then, you will have to consider what kind of ability you have to attract investors and what ownership opportunities will need to be offered to key stakeholders. Finally, you will have to consider the overall costs of operating and maintaining whatever business entity you choose. There isn’t necessarily only one entity that can fit your business. The key in this process is looking at how each entity will alter your business’s future to select the one that is right for you. You might choose a sole proprietor, corporation or limited liability company if you are a single owner. If your business is going to be owned by two or more individuals, then you might choose a corporation, limited liability, limited partnership, general partnership or a limited liability partnership. Sole Proprietorship: The most common entity type where a single owner is personally liable for financial obligations. This is the easiest type of business entity to form and offers complete control to you as the managerial owner. Partnership: When two or more people want to share the profits and losses of a business, they can benefit in a shared entity that does not pass along the tax burdens of their profits or benefits of the losses. In this entity form, however, both partners are personally liable for the financial obligations of the business. Corporation: A corporation is an entity that is separated from the founders and handles the responsibilities of the organization for which it bears responsibility. The corporation can be taxed and held legally liable for its actions, just like a person. The corporate status allows you to avoid personal liability, but you will have to provide the funds to form a corporation and keep extensive records to keep the corporation status. Double taxation can also be seen as a downside to the corporate status, but a Subchapter corporation can avoid this situation by using individual tax returns to show profits and losses. Limited Liability Company (LLC): This is a hybrid form of a partnership entity that allows owner to benefit from aspects of the corporation and partnership forms of the business. Both profits and losses can be passed to the owners without taxing the business and while shielding owners from the personal liability factor. Plan for Growth Even though the number one reason startups fail is due to the production of a product no one wants, you can’t just stop with a great product. As an entrepreneur, you have to know about every aspect of your business. Even if you are not an expert in the process of business and aspects of your company, failure in those areas can still cost you your success. You have to know enough to catch key problems in your company’s startup process. Too segmented, and your company will struggle with gaps and overlap. If the CEO believes it is his or her job to lead, but not to market, then he or she may miss an important connection between target audience and company direction. If the marketer believes it is his or her job to market, but not to develop the website, then he or she might find the website design does not appeal to the right audience. Each individual needs to be both responsible and organic in their approach to helping the company move in the right direction. While you want growth, you need to be prepared to sustain it. In order to get your venture capital secured, you need accelerated growth; grow too slow and you won’t be eligible for the funds you need to keep growing. Yet, your company will have to be equipped for that growth. The shifting size will alter your ability to work as an agile startup, will force you to reconsider a variety of your tools and may even make you update your physical headquarters. This is just one more reason your current company leaders and employees need to be flexible in the nature of their coverage and thorough in the application of their talents. The second major reason that companies fail is due to a shortage of funds. These companies run out of cash because their growth stalls. Stalling growth can kill a startup by making them lose to the competition, lose customers, lose employees and lose passion. Growth Hack Once you’ve gotten your business prepared for substantial growth at a very rapid pace, you will need to focus your attention on increasing that growth. A relatively new term, growth-hackers are professionals that are specifically focused on the rapid growth of startups. Since the second largest reason startups fail is directly related to money shortages (and indirectly related to growth), you will want to focus a lot of your initial attention on increasing growth in creative ways. The growth hacker job is usually done by a professional who stands in the place of a marketer. The growth hacker has to understand your startup’s audience and how to appeal to them for faster growth. The growth hacker will also break your large end goal (increased growth at a rapid rate) into smaller, actionable and achievable tasks, like doubling your content creation, to reach that end goal. Watch the Money In order to help manage the funds that you do have, you will want to establish financial controls to provide your startup with a solid foundation. The internal controls will include accounting, auditing, damage control planning and cash flow. You will need to have disciplined controls to ensure solid growth and help you never run out of cash. You will want to adjust and re-adjust your projections for cash flow, never allowing the cash to run dry. This also means you need to set maximum limits of purchasing authority to keep partners or employees from overspending. You will need to require all payments to be recorded on invoices to support audits and keep spending on track. Additionally, you will want to use an inventory control system and use an edit log to track changes made to your website. Don’t overlook your suppliers as sources of financing or assume that all shipments are accurate or in good condition. Ask for term discounts, pay on time and always create purchasing contracts to ensure your goods are delivered. Measure Your Achievements Key Performance Indicators (KPIs) are ways to measure the company’s success in achieving key business goals. You will want to establish KPIs on multiple levels in order to monitor your efforts on meeting your objectives. You will want to use SMART KPIs that are Specific, Measurable, Attainable, Relevant and Timely. Goals that are too general, don’t have an end date and aren’t within your control are goals doomed to fail. To help your startup succeed, you need to discover the core objectives that will really improve your company status. Work With Us Finally, you need to spend more time growing your business than accounting for it. Remember, a misplacement of funds and lack of cash is the second biggest reason why startups fail.Once you have a product that is worth taking to market and a plan in place to cultivate funding, you will be in a good place with your startup. Don’t let any of these points cause you to lose control of your business with a blind side hit that you could have prepared for. Mon, 23 Nov 2015 19:00:00 GMT Action May Be Needed Before Year-End http://www.mytrivalleytax.com/blog/action-may-be-needed-before-year-end/41104 http://www.mytrivalleytax.com/blog/action-may-be-needed-before-year-end/41104 Tri-Valley Tax & Financial Services Inc Article Summary: New regulations Adopting a de minimis policy Deadline for adopting a policy for 2016 Limitations without a de minimis policy Prior to the release of the new regulations dealing with capitalization and repairs, the Internal Revenue Code and regulations provided no specific de minimis amount that could be expensed for business purchases of items with a useful life of greater than one year, although the IRS generally didn’t quibble over the expensing of items costing $100 to $200 or less. This is without regard to the Section 179 expensing provision. The new regulations now define a de minimis amount, but it is not a specific amount nor is it automatic. To utilize the de minimis safe harbor, business taxpayers must have an accounting procedure in place before the beginning of the tax year that specifies the de minimis safe harbor amount adopted by the business. If your business has not previously adopted an accounting policy, it may be appropriate to do so before the beginning of your business’s next tax year, which would be January 1, 2016, for calendar year businesses. In general, a small business, one without an Applicable Financial Statement, can adopt a de minimis safe harbor up to $2500. Without an accounting procedure adopting a de minimis safe harbor, a small business can only expense the cost of items with a life of one year or less and would be required to capitalize (depreciate) all other items regardless of cost (however, these items may be eligible for Section 179 expensing). If you have questions related to adopting a policy for 2016, please contact this office before year’s end. Fri, 20 Nov 2015 19:00:00 GMT It's Time for Year-End Tax Planning http://www.mytrivalleytax.com/blog/its-time-for-year-end-tax-planning/41098 http://www.mytrivalleytax.com/blog/its-time-for-year-end-tax-planning/41098 Tri-Valley Tax & Financial Services Inc Article Highlights: Capital Gains and Losses Roth IRA Conversions Recharacterizing a Roth Conversion Minimum Required Distribution Annual Gift Tax Exemption Expensing Allowance (Sec 179 Deduction) Self-employed Retirement Plans Increase Basis For the past few years, year-end tax planning has been challenging due to the lateness of action by Congress. This year is no different because of uncertainty over whether Congress will extend any of the many expired or expiring tax provisions. However, regardless of what Congress does later this year, solid tax savings can still be realized by taking advantage of tax breaks that are still on the books for 2015. For individuals and small businesses, these include: Capital Gains and Losses – You can employ several strategies to suit your particular tax circumstances. If your income is low this year and your tax bracket is 15% or lower, you can take advantage of the zero percent capital gains bracket benefit, resulting in no tax for part or all of your long-term gains. Others, affected by the market downturn earlier this year, should review their portfolio with an eye to offsetting gains with losses and take advantage of the $3,000 ($1,500 for married taxpayers filing separately) allowable annual capital loss allowance. Any losses in excess of those amounts are carried forward to future years. Roth IRA Conversions – If your income is unusually low this year, you may wish to consider converting your traditional IRA into a Roth IRA. Even if your income is at your normal level, with the recent decline in the stock markets, the current value of your Traditional IRA may be low, which provides you an opportunity to convert it into a Roth IRA at a lower tax amount. Thereafter, future increases in value would be tax-free when you retire. Recharacterizing a Roth Conversion – If you converted assets in a traditional IRA to a Roth IRA earlier in the year, the value of those assets may have declined due to this summer's market drop; and, as a result, you will end up paying more taxes than necessary on the higher conversion-date valuation. However, you may undo that conversion by recharacterizing it, which is accomplished by transferring the converted amount (plus earnings, or minus losses) from the Roth IRA back to a traditional IRA. This must be done via a trustee-to-trustee transfer. You can later (generally after 30 days) reconvert to a Roth IRA. Don't Forget Your Minimum Required Distribution – If you have reached age 70 1/2, you must make required minimum distributions (RMDs) from your IRA, 401(k) plan and other employer-sponsored retirement plans. Failure to take a required withdrawal can result in a penalty of 50% of the amount of the RMD not withdrawn. Take Advantage of the Annual Gift Tax Exemption – Although gifts do not currently provide a tax deduction, you can give up to $14,000 in 2015 to each of an unlimited number of individuals without incurring any gift tax. There's no carryover from this year to next year of unused exemptions. Expensing Allowance (Sec 179 Deduction) – Businesses should consider making expenditures that qualify for the business property expensing option. For tax years beginning in 2015, the expensing limit is $25,000. That means that businesses that make timely purchases will be able to currently deduct most, if not all, of the outlays for machinery and equipment. Note: There is a good chance the Congress will increase that limit before year's end and after this newsletter has gone to press, so watch for further developments. Self-employed Retirement Plans – If you are self-employed and haven't done so yet, you may wish to establish a self-employed retirement plan. Certain types of plans must be established before the end of the year to make you eligible to deduct contributions made to the plan for 2015, even if the contributions aren't made until 2016. You may also qualify for the pension start-up credit. Increase Basis – If you own an interest in a partnership or S corporation that is going to show a loss in 2015, you may want to increase your investment in the entity so you can deduct the loss, which is limited to your basis in the entity. Also keep in mind when considering year-end tax strategies that many of the tax breaks allowed for calculating regular taxes are disallowed for alternative minimum tax (AMT) purposes. These include deduction for property taxes on your residence, state income taxes, miscellaneous itemized deductions, and personal exemption deductions. Other deductions, such as for mortgage interest, are calculated in a more restrictive way for AMT purposes than for regular tax purposes. As a result, accelerating payment of these expenses that would normally be made in early 2016 to 2015 should – in some cases – not be done. Thu, 19 Nov 2015 19:00:00 GMT Tax Benefits of a Home Solar Power System http://www.mytrivalleytax.com/blog/tax-benefits-of-a-home-solar-power-system/41093 http://www.mytrivalleytax.com/blog/tax-benefits-of-a-home-solar-power-system/41093 Tri-Valley Tax & Financial Services Inc Article Highlights: Non-Refundable Tax Credit  Other Incentives  Credit Qualifications  Credit Limitations  Acquisition Options  If you are considering installing a solar electric system or solar hot water system for your home, there are tax issues you should consider when making your decision. First of all, there is a very lucrative non-refundable federal tax credit for 30% of the cost of the system with no maximum. So for example, if the solar electric system cost you $20,000, your tax credit would be $6,000. A non-refundable tax credit offsets your tax liability, regular and alternative minimum, dollar for dollar, and any excess is added to any credit allowable in the subsequent year. For example, if your 2015 credit was $6,000 and your 2015 tax liability was $4,000, then $4,000 of the credit would go to pay off your 2015 tax liability and the remaining $2,000 would be added to your 2016 solar credit, if any, and used to reduce your 2016 tax liability. This credit, unless it is extended by Congress, will expire after 2016. Many state and local governments and public utilities also offer incentives, such as rebates and tax credits, for investment in renewable energy property. When deciding whether to make a purchase, you should consider the available incentives and your cost savings for operating the system. To qualify for the credit, the equipment must be installed in a home that is located in the U.S. and that you use as your residence. The credit can't be claimed for equipment that is used to heat a swimming pool or hot tub. If the equipment is used more than 20% for business purposes, only the expenses allocable to non-business use qualify for the credit. The credit covers both the cost of the hardware and the expenses of installing it, such as labor costs for on-site preparation, assembly, and installation of the equipment and for piping or wiring to connect it to your home. You claim the credit in the year in which the installation is completed. If you install the equipment in a newly constructed or reconstructed home, you claim the credit when you move in. The credit can be taken for a newly constructed home if the costs of the solar power system can be separated from the home construction costs and the required certification documents are available. Solar installation companies offer a variety of ways to pay for their systems other than cash. You could take out a loan, and if that loan were secured by your home, generally you would be able to deduct the interest on the loan. Another option is to lease the system, in which case you would not qualify for the 30% solar credit and the lease payments would not be deductible. In addition, for the lease option, you would have to deal with transferring the lease to the new owner should you decide to sell the home. (This may entail you paying off the lease or the buyer assuming the debt before the sale can be finalized. Some buyers may not want to take on the additional obligation.) Another option is to allow the solar company to install the solar power system and then purchase the electricity from them. You would not be entitled to the solar credit under the latter arrangement. If you would like to review your options in more detail, including the tax and other aspects of purchasing a solar system for your home, please give this office a call. Tue, 17 Nov 2015 19:00:00 GMT Don't Be Scammed By Fake Charities http://www.mytrivalleytax.com/blog/dont-be-scammed-by-fake-charities/39691 http://www.mytrivalleytax.com/blog/dont-be-scammed-by-fake-charities/39691 Tri-Valley Tax & Financial Services Inc Article Highlights: Scammers and charitable contributions How to check on legitimate charities Disaster scammers As the end of the year approaches, you will probably be besieged by requests from charitable organizations for contributions. The holiday season is the favorite time of the year for charities to solicit donations. But you should be aware that it is also the time of year when scammers show up in force, pretending to be legitimate charities in hopes of deceiving you into giving them your hard-earned money. When making a donation, you should take a few extra minutes to ensure your gifts are going to legitimate charities. IRS.gov has a search feature, Exempt Organizations Select Check, which allows people to find legitimate, qualified charities to which donations may be tax-deductible. Here are some tips to make sure your contributions are going to legitimate charities. Be wary of charities with names that are similar to familiar or nationally known organizations. Some phony charities use names or websites that sound or look like those of respected, legitimate organizations. Don't give out personal financial information, such as Social Security numbers or passwords, to anyone who solicits a contribution from you. Scam artists may use this information to steal your identity and money. Using a credit card to make legitimate donations is quite common, but please be very careful when you are speaking with someone who called you; don't give out your credit card number unless you are certain the caller represents a legal charity. Don't give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the gift. Another long-standing type of abuse or fraud involves scams that occur in the wake of significant natural disasters. In the aftermath of major disasters, it's common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers. Scam artists can use a variety of tactics. Some scammers operating bogus charities may contact people by telephone or email to solicit money or financial information and may set up phony websites that claim to solicit funds on behalf disaster victims. Unscrupulous individuals may even directly contact disaster victims and claim to be working for or on behalf of the IRS to help the victims file casualty loss claims to get tax refunds. Scammers may also attempt to get personal financial information or Social Security numbers that can be used to steal the victims' identities or financial resources. Disaster victims with specific questions about tax relief or disaster-related tax issues may call a special IRS toll-free disaster assistance telephone number (1-866-562-5227) for information. Don't be scammed; make sure you are donating to recognized charities. Deductions to charities that are not legitimate are not tax deductible. If you have questions, please give this office a call. Thu, 12 Nov 2015 19:00:00 GMT When to Claim a Disaster Loss http://www.mytrivalleytax.com/blog/when-to-claim-a-disaster-loss/41084 http://www.mytrivalleytax.com/blog/when-to-claim-a-disaster-loss/41084 Tri-Valley Tax & Financial Services Inc Article Highlights: Disaster Losses  Elections  Net Operating Loss  AGI Limitations  Possible Gain  With the wild fires and draught in the West and flooding on the East Coast, we have had a number of presidentially declared disaster areas this year. If you were an unlucky victim and suffered a loss as a result of a casualty, you may be able to recoup a portion of that loss through a tax deduction. If the casualty occurred within a federally declared disaster area, you can elect to claim the loss in one of two years: the tax year in which the loss occurred or the immediately preceding year. By taking the deduction for a 2015 disaster area loss on the prior year (2014) return, you may be able to get a refund from the IRS before you even file your tax return for 2015, the loss year. You have until the unextended due date of the 2015 return to file an amended 2014 return to claim the disaster loss. Before making the decision to claim the loss in 2014, you should consider which year's return would produce the greater tax benefit, as opposed to your desire for a quicker refund. If you elect to claim the loss on either your 2014 original or amended return, you can generally expect to receive the refund within a matter of weeks, which can help to pay some of your repair costs. If the casualty loss, net of insurance reimbursement, is extensive enough to offset all of the income on the return, whether the loss is claimed on the 2014 or 2015 return, and results in negative income, you may have what is referred to as a net operating loss (NOL). When there is an NOL, the unused loss can be carried back two years and then carried forward until it is all used up (but not more 20 years), or you can elect to only carry the unused loss forward. Determining the more beneficial year in which to claim the loss requires a careful evaluation of your entire tax picture for both years, including filing status, amount of income and other deductions, and the applicable tax rates. The analysis should also consider the effect of a potential NOL. Ordinarily, casualty losses are deductible only to the extent they exceed $100 plus 10% of your adjusted gross income (AGI). Thus, a year with a larger amount of AGI will cut into your allowable loss deduction and can be a factor when choosing which year to claim the loss. For verification purposes, keep copies of local newspaper articles and/or photos that will help prove that your loss was caused by the specific disaster. As strange as it may seem, a casualty might actually result in a gain. This sometimes occurs when insurance proceeds exceed the tax basis of the destroyed property. When a gain materializes, there are ways to exclude or postpone the tax on the gain. If you need further information on casualty and disaster losses, your particular options for claiming the loss, or if you wish to amend your 2014 return to claim your 2015 loss, please give this office a call. Tue, 10 Nov 2015 19:00:00 GMT Have You Taken Your Required Minimum IRA Distribution? http://www.mytrivalleytax.com/blog/have-you-taken-your-required-minimum-ira-distribution/41066 http://www.mytrivalleytax.com/blog/have-you-taken-your-required-minimum-ira-distribution/41066 Tri-Valley Tax & Financial Services Inc Article Highlights: Required Minimum Distributions When the Distributions Must Begin RMD Distribution Tables Figuring the Amount of the Distribution IRA-to-Charity Transfers As year-end approaches, this is a good time to make sure you have taken your required minimum distribution (RMD) for 2015. What is an RMD, you ask? The tax code does not allow IRA owners to keep funds in a traditional IRA indefinitely. Eventually, assets must be distributed and taxes paid. If there are no distributions, or if the distributions are not large enough, the IRA owner may have to pay a 50% penalty on the amount not distributed as required. Generally, required distribution begins in the year the IRA owner attains the age of 70½. If 2015 is the year you reached 70½, you can avoid a penalty by taking that distribution no later than April 1, 2016. However, delaying the first distribution means you must take two distributions in 2016, one for 2015, when you reached age 70½, and one for 2016. If an IRA owner dies after reaching age 70½ but before April 1st of the next year, no minimum distribution is required because death occurred before the required beginning date. If you became 70½ in an earlier year, you are required to take a distribution no later than December 31 of each year. The amount you are required to withdraw is based upon the value of the IRA account on December 31 of the prior year divided by your life expectancy from the Uniform Lifetime Table illustrated below. If you have more than one IRA, the RMD for each one is figured separately, but you may add up all the RMDs and take the total amount required for the year from any one or a combination of the IRAs. Not illustrated, because of the size, are the Joint and Last Survivor Table, which is used to determine RMDs when the sole beneficiary is a spouse who is more than 10 years younger than the IRA owner, and the Single Life Table, used for certain beneficiary RMD determinations. For table values not illustrated, please call this office. Example: The IRA account owner is age 75 in 2015, and the value of his IRA account on December 31, 2014, was $120,000. His 73-year-old wife is the sole beneficiary of the IRA. From the table, we determine the owner’s life expectancy to be 22.9. Thus his RMD for 2015 is $5,240 ($120,000/22.9) and must be withdrawn no later than December 31, 2015. If in the preceding example the taxpayer had not withdrawn the $5,240, he would be subject to a 50% penalty (additional tax) of $2,620 ($5,240 x 50%). Under certain circumstances, the IRS will waive the penalty if the taxpayer can demonstrate reasonable cause and makes up the withdrawal soon after discovering there was a shortfall in the distribution. However, the hassle and extra paperwork involved in asking the IRS to waive the penalty makes it something you want to avoid by taking the correct amount of distribution timely. Some states also penalize under-distributions. There is no maximum limit on distributions from a Traditional IRA, and as much can be withdrawn as the owner wishes. However, if more than the required distribution is taken in a particular year, the excess cannot be applied toward the minimum required amounts for future years. Prior to 2015, there was a provision of the tax code that allowed a taxpayer to use up to $100,000 of IRA funds to contribute to a charity by directly transferring the IRA funds to the charity via a trustee-to-charity transfer. In doing so, (1) the transfer counted toward the RMD requirement, (2) the amount transferred did not have to be reported as income, and (3) no charity deduction was claimed. The advantages of that provision allowed a taxpayer to take the standard deduction and still benefit from the charitable donation. It also kept the IRA distribution from being included in the taxpayer’s AGI, potentially causing less of their Social Security income to be taxed and reducing the effect of higher AGI phaseouts. NOTE: There is a chance that the provision will be extended, so to achieve any tax benefit from it, you would need to act now as if it were in effect. Even though an IRA owner whose total income is less than the return filing threshold is not required to file a tax return, he or she is still subject to the minimum required distribution rules and could be liable for the under-distribution penalty even if no income tax would have been due on the under-distribution. In many cases, advance planning can minimize or even avoid taxes on Traditional IRA distributions. Often, situations will arise in which a taxpayer’s income is abnormally low due to losses, extraordinary deductions, etc., where taking more than the minimum in a year might be beneficial. This is true even for those who may not need to file a tax return but can increase their distributions and still avoid any tax. If you need help with planning, please call this office for assistance. Thu, 05 Nov 2015 19:00:00 GMT What's In Your Wallet? http://www.mytrivalleytax.com/blog/whats-in-your-wallet/41060 http://www.mytrivalleytax.com/blog/whats-in-your-wallet/41060 Tri-Valley Tax & Financial Services Inc Article Highlights: What ID Thieves Need  Driver's License & Social Security Card  Potential Financial Issues  What is in your wallet or purse can make a big difference if it is stolen. Besides the credit cards and whatever cash or valuables you might be carrying, you also need to be concerned about your identity being stolen, which is a far more serious problem. Thieves can use your identity to set up phony bank accounts, take out loans, file bogus tax returns and otherwise invade your finances, and all an identity thief needs to be able to do these things is your name, Social Security number, and birth date. Think about it: your driver's license has 2 of the 3 keys to your identity. And if you also carry your Social Security card or Medicare Card, bingo! An identity thief then has all the information he needs. You can always cancel stolen credit cards or close a compromised bank and charge accounts, but when someone steals your identity and opens accounts you don't know about, you can't take any mitigating action. So if you carry your Social Security card along with your driver's license, you may wish to rethink that habit for identity safety purposes. Tue, 03 Nov 2015 19:00:00 GMT IRS Releases Pension Limits For 2016 http://www.mytrivalleytax.com/blog/irs-releases-pension-limits-for-2016/41015 http://www.mytrivalleytax.com/blog/irs-releases-pension-limits-for-2016/41015 Tri-Valley Tax & Financial Services Inc Article Highlights: 2016 Retirement Plan Limits  401(k) Plans  Tax Sheltered Annuities  Traditional & Roth IRAs  Self-Employment Plans (SEPs)  Keogh Profit Sharing Plans  Simple Plans  Saving for retirement is one of the most important things you should do. Even though retirement may seem far away now, that time will eventually arrive and you will want to be prepared for it with adequate savings. Contributing to tax-advantaged retirement plans while you are working is one of the best ways to build up a nest egg for your retirement years. That said, the tax law doesn't allow unlimited annual contributions to these plans. If you have been wondering how much you can contribute to your retirement plans in 2016, the IRS has released the inflation-adjusted limits for next year's contributions. Since inflation has been low this past year (at least according to the government's calculation), most limits won't increase over what they were in 2015, but some of the AGI phaseout thresholds that work to reduce allowable contributions will change. Here's a review of the 2016 numbers: For 401(k) plans, the maximum contribution will be $18,000 again. If you are age 50 or over, that limit is increased by a so-called “catch-up” contribution to a maximum of $24,000, the same as in '15. These limits also apply to 403(b) tax sheltered annuities and 457 deferred compensation plans of state and local governments and tax-exempt organizations. Traditional IRA and Roth IRA contributions are limited to a combined total of $5,500 ($6,500 if you are age 50 or over), also unchanged from 2015. However, both types of IRAs have certain income (AGI) limitations. When you are an “active participant” in another qualified plan, the traditional IRA contributions are only deductible by lower-income individuals, and the deductibility phases out for unmarried tax filers with AGIs between $61,000 and $70,999. For married joint filers the phaseout range is between $98,000 and $117,999. The phaseout of traditional IRA contributions starts at $0 AGI for married individuals filing separately and tops out at $10,000—essentially, MFS filers rarely qualify to contribute to an IRA if they or their spouses also participate in an employer's plan. For married couples in which one spouse is an active participant and the other is not, the phaseout AGI limitation for the non-active participant spouse has gone up by $1,000 and is between $184,000 and $193,999. Roth IRA contributions are never tax deductible, although they do enjoy tax-free accumulation. However, the contribution limits are phased out for unmarried taxpayers with AGIs between $117,000 and $131,999. For married joint filers the phaseout range is between $184,000 and $193,999. Each of these amounts reflects a $1,000 increase for 2016. Married individuals filing separately are not allowed Roth IRA contributions if their AGI is $10,000 or more. The AGI phaseouts will limit the contributions you can make to a Roth IRA even if you do not participate in an employer's plan or other qualified plan. Unlike traditional IRAs, contributions to which cannot be made after you reach age 70½, contributions can be made to a Roth IRA as long as you have earned income of an equal amount. If you are self-employed and have a self-employed retirement plan (SEP), the maximum contribution is the lessor of $53,000 (the same limit as for 2015) or 20% of the net earnings from self-employment; contributions are allowed regardless of age. If your retirement plan is a profit-sharing Keogh plan, the limitations are the same. For defined benefit plans the amount contributed can't create an annual benefit in excess of the greater of $210,000 or 100% of your average compensation for the highest 3 years. Simple IRA or Simple 401(k) plan contribution limits will be $12,500 or $15,500 for those ages 50 or over. These amounts are unchanged from 2015. If have questions or would like to discuss your retirement contribution options, please call. Thu, 29 Oct 2015 19:00:00 GMT Will Your Favorite Tax Benefit Expire? http://www.mytrivalleytax.com/blog/will-your-favorite-tax-benefit-expire/41005 http://www.mytrivalleytax.com/blog/will-your-favorite-tax-benefit-expire/41005 Tri-Valley Tax & Financial Services Inc Article Summary: Expiring Tax Provisions  Personal Provisions  Business Provisions  Will Congress Act?  More than 50 tax provisions that Congress routinely extends on a yearly basis expired at the end of 2014. The big problem is, each year they are extending the provisions later and later in the year, creating uncertainty for taxpayers on whether they can depend on these tax incentives or not. This makes tax planning unclear and leaves taxpayers wondering about their projected tax liability. For 2014, Congress waited almost to the end of the year to apply many of the provisions to the 2014 tax year. This was not only a problem for taxpayers but also for the IRS, which needed to adjust its forms and tax filing software at the last minute and actually had to delay the start of the tax season. Although there were serious discussions among some members of Congress in the spring related to passing an extender bill, those discussions withered away with the summer heat and little has been discussed recently about either making some of the provisions permanent or extending some or all of them for another year. So whether we will have extender legislation and, if we do, what will be included in that legislation is up in the air. So you may wish to review the expiring provisions to see how you will be affected if they are not extended. Each of these tax benefits expired at the end of 2014 and will not apply in 2015 unless Congress acts. Although more than 50 provisions are expiring, the list below only includes those that most likely will impact individuals and small businesses: Teachers' Above-the-Line Expense Deduction - Elementary and secondary teachers have been allowed to deduct up to $250 for classroom supplies without itemizing their deductions. As an alternative, these teachers can deduct these expenses as a charitable itemized deduction if they work for a public school or charitable organization and obtain the required documentation verifying the expenses.   Principal Residence Acquisition Debt Forgiveness Exclusion - When a lender forgives debt, the amount of the debt forgiven is income to the borrower; and, although the law allows a taxpayer to exclude that debt relief income to the extent the taxpayer is insolvent, many taxpayers saddled with this problem were not insolvent. To alleviate that situation, Congress passed a law allowing debt relief income from the discharge of qualified principal residence acquisition debt to also be excluded from one's income. This exclusion does not apply to forgiven equity debt income.   Excludable Commuter Transportation and Transit Passes - The tax law allows an employer to reimburse, tax-free, an employee for qualified parking, certain commuter transportation and transit passes. For several years now, the monthly maximum has been the same for all three ($250 in 2014). However, the nontaxable amount of commuter transportation and transit passes will drop to $130 in 2015 if the higher deduction is not extended.   Mortgage Insurance Premiums - A temporary provision has been allowing lower-income taxpayers to deduct mortgage insurance premiums on contracts in connection with acquisition indebtedness on the taxpayer's principal residence.   General Sales Tax Deduction - This temporary provision allows taxpayers to take a deduction for state and local general sales and use taxes in lieu of a deduction for state and local income taxes. The big losers here will be residents of states that do not have a state income tax; these taxpayers will end up without either deduction if the provision is not extended.   Qualified Conservation Contributions - This special rule for contributions of capital gain real property made for conservation purposes allowed qualified conservation contributions to be deducted up to 50% of a taxpayer's AGI (100% for qualified farmers and ranchers). Without an extension, the allowable contribution will be limited to 30% of the taxpayer's AGI. The portion of the contribution that exceeds the AGI limitation is carried over for up to five future years.   Above-the-line Tuition Deduction - This deduction allows moderate and low-income taxpayers to take an above-the-line deduction (maximum $4,000) for qualified higher education tuition and related expenses. As an alternative, most taxpayers will qualify for the American Opportunity Tax Credit.   IRA to Charity Contribution - A temporary provision allowed taxpayers age 70½ or older to directly transfer up to $100,000 from an IRA to a qualified charity without including the distribution in income, and it would also count towards their required minimum distribution. Although no charitable deduction is allowed, the benefit is the same as (or even better than) taking a taxable distribution and then getting a charitable deduction. It also keeps the donor's AGI lower for purposes of all the AGI limitations built into the tax laws. It is especially helpful for those with Social Security income that becomes taxable because of an IRA distribution. As a hedge, in case this provision is extended, act as if it has been.   Bonus Depreciation - For the past several years, as an incentive for businesses to invest in equipment and boost the economy, this provision allowed businesses to take bonus depreciation in the first year the property is placed in service. At one time it was 100%, but was 50% in 2014. The impact here, if the provision is not extended, is that equipment will have to be depreciated over the equipment's useful life, generally 5 or 7 years. Where applicable, the Sec 179 expense deduction can be used, but it too is reduced drastically without extension (see below).   Sec 179 Expense Deduction - As part of the economic recovery efforts of the last few years, Congress temporarily increased the Sec. 179 expensing limit from $25,000 per year to $500,000, which it has been since 2010. The property cost limit phaseout threshold was also increased to $2 million. Without extension the maximum deduction will return to $25,000 with a $200,000 cost limit phaseout.   Qualified Real Property Sec 179 Deduction - For years 2010 through 2014, the definition of qualified property for purposes of the Sec 179 deduction was temporarily amended, with some limitations, to include: o Qualified leasehold improvement property, o Qualified restaurant property, and o Qualified retail improvement property  Thus, without an extension, these properties will no longer qualify for the Sec 179 expense deduction.   15-year Life - A temporary provision allows 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements. Without an extension, these items will have to be depreciated over a 31-year life.  Where Congress left off this summer was with a Senate bill that would extend the provisions for 2015 and 2016 and House legislation that would only extend a few of the provisions for 2015 only. With the partisan battles going on in Congress, the distraction of the upcoming elections and the holiday recesses just around the corner, what will happen to the extender legislation is anyone's guess at this point. If history is an indicator, passage will come very late in the year. If you have any questions, please call. Tue, 27 Oct 2015 19:00:00 GMT Show Me the Money - Six Best Practices in Billings and Collections http://www.mytrivalleytax.com/blog/show-me-the-money-six-best-practices-in-billings-and-collections/40979 http://www.mytrivalleytax.com/blog/show-me-the-money-six-best-practices-in-billings-and-collections/40979 Tri-Valley Tax & Financial Services Inc One area where most small-business owners can improve their cash flow is in billings and collections. A thorough credit check before you offer payment terms is not enough. Here are six best practices that can make a real difference in your cash balance at the end of every month. 1. Get it right. One legitimate reason for nonpayment is a confusing or inaccurate invoice. Make sure your invoices spell out in clear, plain English what was purchased, the price, the payment terms (or when payment is due), the customer's PO number, when it was shipped, to where it was shipped, and any tracking number. You may also want to tighten your sales process. Don't start work without a formal PO from your business customers-many companies won't pay against a verbal PO. When you receive a PO, make sure that it matches your quotation. Companies often put their payment terms on their paperwork, so if your customer tries to play this game, resolve any discrepancies before you start work. Finally, make certain every shipment and invoice is 100% correct. Set up processes to assure the customer gets exactly what was ordered and that invoices are equally accurate. 2. Get it out. See that four-day-old pile of shipping papers waiting to be invoiced? That's a pile of cash you can't collect. Set a goal to issue all invoices within one working day of the ship date or completion of work. If your team struggles to meet this, give them the tools and/or manpower to make it happen. And if an invoice gets held up internally, make sure your supervision is immediately notified so the problem can be quickly resolved. To further speed payments, try to invoice your customers by email. Some won't accept emailed invoices, but getting even a portion of your billing done electronically will help overall cash flow. 3. Get it to the right person. How many times has one of your employees called about a past-due payment and been told “we didn't receive your invoice” or “that needs to be approved by the department manager”? It's another game, one that can take weeks to play out. As part of getting an accurate customer PO, make sure your sales staff gets a valid address for invoicing. Large sales deserve special attention. Where applicable, have your salesperson get the contact information for the customer employee that will approve payment. This might be a department or plant manager and maybe even the business owner. Also get the contact information for the customer's finance-side people (accounting manager, accounts payable clerk), who will cut and approve the check. When your invoice goes out, make sure they all get a copy. 4. Get it sooner. Offer a discount for early payment-for example, 2% off for payment within 10 days. Not all of your customers will take advantage of this, but it's a great way to pull cash in. 5. Get friendly. The best way to get paid on time is to build a positive working relationship with your customer before the money is due. Have your salesperson call his or her customer contacts shortly after the invoice goes out. Confirm the product has been received or affirm that your assignment is now complete. Ask them if they're satisfied with your work, what you can do better to improve, and if they've received your invoice. This communicates (in a nice way) that it's time to start the payment process. If these calls uncover problems, it's an opportunity to address them on the spot as opposed to when payment is past due. Your employee responsible for collections should also make a call-in this case, to the customer's finance-side people. Your employee should confirm the receipt of your invoice, remind them of any discounts for early payment, and check whether there are any administrative problems with the document. They should not ask for a payment date. If possible, they should also try to get to know their counterparts. A simple “How's the weather where you are?” is a great opening that can lead to a long conversations about, well, everything. Your customer's payables team can be your best friend later in the collections process, but it won't happen if you have not built a working relationship. There's one other person who needs to get friendly: you, the business owner or general manager. As your company develops large customers make sure you get to know your customer counterparts. A phone call from you asking “How's my team doing?” is a great way to initiate a conversation and assure customer satisfaction. For very large projects, make a face-to-face visit. It will pay off later. If the time comes when a payment problem needs to be escalated, you will have an established relationship on which to call. 6. Make it fun. Some companies take the “get friendly” notion to the next level. From putting silly “Thank You!” notes on their invoices, to handing out promotional swag, to sending little stuffed animals for on-time payment, it's amazing how these goofy gimmicks can change the atmosphere around the collection process. You want your customer to smile and shake his head as he signs the check to pay your bill. And if the day comes when your customer needs to decide whom to pay and whom to put off, chances are he will pay you first. In Closing What about the actual collections process? Good companies contact their customers if a payment is more than five working days late. You should do the same. What's different is that you've laid the foundation for a successful endgame. Any excuses for non-payment have been addressed. Your people know whom to call, and you have working contacts who will give you straight answers. Above all, you've strengthened the relationship with your customer and have built a basis for future business. Fri, 23 Oct 2015 19:00:00 GMT Was Your No-Health-Insurance Penalty A Surprise? http://www.mytrivalleytax.com/blog/was-your-no-health-insurance-penalty-a-surprise/40978 http://www.mytrivalleytax.com/blog/was-your-no-health-insurance-penalty-a-surprise/40978 Tri-Valley Tax & Financial Services Inc Article Highlights: 2014 Uninsured Penalty Notices Flat Dollar Amount Penalty Percentage of Income Penalty Penalties Increase in 2015 and 2016 A tweet from an Indiana resident by the name of Benjamin Miller, including a picture of the IRS notice he received advising him that he owes $2,344 as a penalty for not having health insurance, has gone viral and ignited a firestorm. Mr. Miller stated in his post that he didn’t buy health insurance because his premiums jumped by over $1,000 to $1,400 per month. Of course the increase in Mr. Miller’s insurance premiums were most likely due to the mandatory provisions included in the health plan that were needed to meet the minimum essential coverage requirements of the Affordable Care Act (ACA). Mr. Miller, like many uninsured taxpayers, probably didn’t fully read the penalty provisions or didn’t fully grasp them, which is understandable since they were written by attorneys. What Mr. Miller, and probably thousands of other taxpayers, overlooked when making the decision whether to buy insurance was the fact the penalty was the HIGHER of two computations, the flat dollar amount and the percentage of income amount. The flat dollar amount for 2014 was $95 per adult and $47.50 for a child, with a maximum of $285 per family. This is where lots of people stopped reading and erroneously concluded that the penalty wouldn’t be so bad when compared to the high premiums they were quoted, especially if they were relatively healthy and didn’t feel a great need for insurance coverage. These taxpayers failed to consider the percentage of income penalty amount, which for 2014 is 1% of the taxpayer’s household income after deducting his filing threshold (the sum of the filer’s standard deduction and exemption amount for the filer and spouse, if any). So even though the penalty was much higher than expected, Mr. Miller did save the difference ($14,456) between the insurance premiums he would have paid and the penalty. Having been shown the penalty amount, we know that Mr. Miller’s income is in excess of $234,400 since the penalty is 1% of his income, and it likely won't break Mr. Miller’s bank account to pay it. If his penalty had been for 2015, Mr. Miller would be looking at a penalty about double the 2014 amount. The penalty is being phased in over a three-year period, and for 2015 the flat dollar amount is $325 per adult and $162.50 per child, with a maximum of $975, while the percentage of income penalty jumps to 2%. Then in 2016 the flat dollar amount will jump to $695 per adult and $347.50 per child (maximum $2,085) with the percentage of income penalty rate at 2.5%. So if you are considering skipping health insurance coverage and paying the penalty, remember it amounts to the HIGHER of the flat dollar amount or the percentage of income. Thu, 22 Oct 2015 19:00:00 GMT Facing a Huge Gain from a Realty Sale? http://www.mytrivalleytax.com/blog/facing-a-huge-gain-from-a-realty-sale/40972 http://www.mytrivalleytax.com/blog/facing-a-huge-gain-from-a-realty-sale/40972 Tri-Valley Tax & Financial Services Inc Article Highlights: Adjusted Basis Acquisition Value Passive Loss Carryovers Installment Sale Tax-Deferred Exchange Tax on Net Investment Income If you are contemplating selling real-estate property, there are a number of issues that could impact the taxes that you might owe, and there are steps you can take to minimize the gain, defer the gain, or spread it over a number of years. The first and possibly most important issue is adjusted basis. When computing the gain or loss from the sale of property, your gain or loss is measured from your adjusted basis in the property. Thus, your gain or loss would be the sales price minus the sales expenses and adjusted basis. So what is adjusted basis? Determining adjusted basis can sometimes be complicated, but in a simplified overview, it is a dollar amount that starts with your acquisition value and is then adjusted up for improvements to the property, down for depreciation taken on the property, and down for any casualty losses claimed on the property. The acquisition value could be the price you paid for the property, the fair market value of an inheritance at the date of the decedent’s death, or, in the case of a gift, the donor’s adjusted basis at the time of making the gift. As you can see, it is extremely important that you keep track of your basis, since it is a key factor in determining gain or loss upon the sale of the property. Failure to keep a record and substantiating documentation could cost you dearly in income tax. If the property was a rental and the rental operated at a loss, there is a chance that the losses were not fully deductible in the year of the loss because of the passive loss limitation rules; in this case, you will have a passive loss carryover that can be used to offset the gain. In addition, passive loss carryovers you may have from other properties can also be used to offset any gain from selling a rental property. Next, you have to decide whether you want to take (i.e., report on your tax return) all the income in one year or whether to attempt to spread the income over a period of years with an installment sale (by carrying back a loan) or defer the income into a replacement property through a tax-deferred exchange. In an installment sale, the seller acts as the lender to the buyer. That can entail holding the first trust deed or taking back a second trust deed for only a portion of the loan amount. However, second trust deeds are as the name implies: They are second in line to be paid if the buyer defaults on the loan and thus are riskier. When set up as an installment sale, part of the gain is reported for each year that payments are received, generally as capital-gain income. In addition, the interest that the buyer pays the seller is taxable as ordinary income to the seller. Installment sales can be structured as short- or long-term loans, but remember, the buyer can always pay off the loan early or refinance. Either of these actions would make the balance of the profit from the sale taxable at that time. Another option if the property is held for investment or used in a trade or business is to defer the gain down the road. This is accomplished by using the rules of IRS Code Section 1031, which allows the taxpayer to acquire like-kind property and defer the gain into the replacement property, which also must be used for business or be held for investment. However, the rules for like-kind exchanges are complicated, have strict timing issues, and require advance planning with a professional familiar with Section 1031 rules. Adding complications to the sale-planning issue is the surtax on net investment income. This 3.8% additional tax kicks in when a taxpayer’s modified adjusted gross income (MAGI) exceeds $200,000 ($250,000 for married joint filers and $125,000 for married individuals filing separately). Gain from the realty sale is included in the MAGI and could cause the MAGI threshold to be exceeded, resulting in this surtax applying to some or all of the realty gain. However, it may be minimized, or possibly eliminated, by using an installment sale and spreading the gain over a number of years or deferring down the road with a tax-deferred exchange. If the real estate is your home (primary residence), there are special rules. Generally, if you own and occupy the home in two out of the five years prior to the sale, you will be able to exclude a substantial portion of your gain. The tax-deferred exchange rules do not apply to personal-residence sales. As you can see, the result of selling real-estate property can include a number of tax issues, and minimizing current taxes requires some careful planning. Please give this office a call for assistance in planning your real-estate transactions. Tue, 20 Oct 2015 19:00:00 GMT Increase Your Withholding to Avoid Underpayment Penalties http://www.mytrivalleytax.com/blog/increase-your-withholding-to-avoid-underpayment-penalties/21915 http://www.mytrivalleytax.com/blog/increase-your-withholding-to-avoid-underpayment-penalties/21915 Tri-Valley Tax & Financial Services Inc Article Highlights: Withholding Estimated Tax Payments Underpayment Penalties Safe Harbor Payments Withholding Strategy Uncle Sam considers our tax system a "pay-as-you-go" system and expects taxpayers to prepay taxes on income as they receive it throughout the year. Taxes are prepaid through withholding and by estimated tax payments. Since withholding is not an exact science and estimated tax payments are—just as the title suggests—estimates, the IRS, and most states, provide safe harbor payments that a taxpayer can make through a combination of withholding and estimated payments that will ensure no underpayment penalties are assessed. There are two federal safe harbor amounts that apply when the payments are made evenly throughout the year. The first safe harbor is based on the tax owed in the current year. If your payments equal or exceed 90% of your current year’s tax liability, you can escape a penalty. The second safe harbor—and the one taxpayers rely on most often—is based on your tax in the immediately preceding tax year. If your current year’s payments equal or exceed 100% of the amount of your prior year’s tax, you can escape a penalty. If your prior year’s adjusted gross income was more than $150,000 ($75,000 if you file married separate status), then your payments for the current year must be 110% of the prior year’s tax to meet the safe harbor amount. But what if you don't meet one of the safe harbors? Then the IRS will assess a penalty based upon amounts due on a quarterly basis (although for this purpose all quarters aren’t made up of the same number of months). So if you didn’t meet the safe harbor requirements in the earlier part of the year, trying to make up for it with estimated tax payments in the later quarters will not lessen the penalties in the earlier periods, for which the penalties are generally higher because you held on to Uncle Sam’s money for a longer period of time. But there is a little-known strategy that can help solve that problem. Withholding is treated as made ratably (equally) throughout the year, regardless of when it was withheld. So, for example, if you shortchanged Uncle Sam in the first three quarters, you can make up for it through increased payroll withholding in the last quarter of the year. If you want to implement this strategy, don’t put it off too long, since the longer you wait the fewer pay periods you’ll have in which to make up the shortfall before the end of the year—and the smaller your take-home pay will be. Although payroll income is the most common source of withholding, there are also pension, Social Security, and brokerage account income withholding, just to name a few other potential sources. If you had an increase in income this year and are facing a substantial tax liability at the end of the year, it may be appropriate to contact this office for a year-end planning appointment to discuss how to maximize tax deductions and credits for the year and minimize any underpayment penalties. Please call this office for an appointment. Thu, 15 Oct 2015 19:00:00 GMT Married to a Nonresident Spouse? http://www.mytrivalleytax.com/blog/married-to-a-nonresident-spouse/40964 http://www.mytrivalleytax.com/blog/married-to-a-nonresident-spouse/40964 Tri-Valley Tax & Financial Services Inc Article Highlights: Married to a Non-resident Spouse  Election to Treat Non-resident Spouse as a Resident  Filing Status Options  Worldwide Income  Tax Implications  In this day and age, with businesses going global and worldwide travel being so easy, it is becoming more and more common to see marriages occurring between a U.S. citizen/U.S. resident alien and a resident of another country. These marriages trigger significant tax consequences. U.S. resident aliens are individuals who have become permanent U.S. residents but are not U.S. citizens. To be classified as a U.S. resident alien, the individual must be a “green card” holder or meet a “substantial presence test” that is based on time spent in the U.S in the current and prior two years. For U.S. income tax purposes, a resident alien is treated the same as a U.S. citizen and is taxed on worldwide income. However, being married to a nonresident alien complicates the selection of a filing status for U.S. tax return purposes and requires the couple to make one of two possible elections: Married Filing Jointly -For a citizen/resident to file a joint return with a nonresident spouse, the taxpayers must include and pay U.S. taxes on the worldwide income of both spouses on their joint U.S. tax return, or   Married Filing Separately - If they choose not to file jointly, then the citizen/resident spouse files a married separate return without the income of the non-resident spouse and pays U.S. taxes on only his or her worldwide income. If the non-resident spouse has U.S. source income, the non-resident spouse may also have to file a U.S. income tax return using the married filing separate status on that return.  The choice of filing status has significant tax implications. If filing jointly, the taxpayers enjoy the lower tax rates of the married filing jointly filing status, have a higher standard deduction ($12,600 for 2015, as opposed to $6,300 for married individuals filing separately), and are able to claim the $4,000 personal exemption for both spouses. On the other hand, if the non-resident spouse has significant income, especially non-U.S. source income, it may be a better choice for the U.S. citizen/resident to file married filing separately without the non-resident spouse's income. Higher income taxpayers with investment income are subject to a 3.8% surtax on net investment income; this surtax has an income threshold of $250,000 for married taxpayers filing jointly and $125,000 for those filing as married filing separately. However, individuals filing as non-resident aliens are not subject to this surtax. Therefore, when weighing the pros and cons of making the election to treat a non-resident alien spouse as a U.S. resident, the effect of the 3.8% tax on the couple's total tax picture must be analyzed. Another issue to consider is that when one spouse is a non-resident alien, the earned income tax credit can only be claimed on a joint return. To make the election to file jointly, both parties must make the election by attaching the required statement, signed by both spouses, to the joint return for the first tax year for which the choice applies. Generally this will require obtaining an individual taxpayer identification number (ITIN) for the non-resident spouse because the non-resident spouse generally will not qualify for a Social Security number. Determining your best course of action for tax purposes when married to a non-resident alien can be complicated. If you need assistance in making the decision of whether or not to treat your non-resident spouse as a resident and/or obtaining an ITIN for your spouse, please give this office a call.  Tue, 13 Oct 2015 19:00:00 GMT Does Uncle Sam Have a Birthday Gift for You This Year? http://www.mytrivalleytax.com/blog/does-uncle-sam-have-a-birthday-gift-for-you-this-year/40963 http://www.mytrivalleytax.com/blog/does-uncle-sam-have-a-birthday-gift-for-you-this-year/40963 Tri-Valley Tax & Financial Services Inc Article Highlights: Definition of Birthday Exemption Allowances Child-based Credits Earned Income Credit Retirement Plan Distributions Social Security Taxation Tax Benefits for Seniors For your birthday this year, you may have received a special gift from a loved one or favorite friend. Depending on the number of candles on this year's birthday cake, you may also be getting a gift from Uncle Sam when you file your tax return next tax season. In some situations the gift may not be because you reached a certain age, but will be the result of the age your dependent(s) or spouse turned this year. Unfortunately, not all of Uncle Sam's gifts will be welcomed, because some birthdays mark the end of eligibility for certain credits or exclusions of income and others signal the start of needing to include retirement benefits in income. Under common law, a person attains a given age on the day before his or her birthday, which can impact the taxpayer's return for certain age-related tax issues. For example, a taxpayer whose 65th birthday is on January 1 is considered to be age 65 as of December 31 of the prior year, and eligible for an additional standard deduction amount for the prior year. However per an IRS ruling on several tax provisions—which are discussed in this article—involving children, the child attains a given age on the actual date the child was born, instead of the day before. If you or someone in your tax family attains one of the following ages this year, here's how your tax return may be impacted: Age 0 – Well, OK, zero isn't really an age; but, if your dependent is born in 2015, you can claim a $4,000 exemption allowance for the child. Exemptions are subtracted from your gross income to determine your taxable income, and your taxable income determines your marginal tax bracket. So, for example, if you are in the 25% tax bracket, each exemption allowance reduces your tax by $1,000. Age 13 – If you qualify to claim a credit for child care expenses that you pay so that you (or if married filing a joint return, you and your spouse) can work or look for work, and the qualifying child who is your dependent turns 13 years old in 2015, only the expenses for care up to the date of the child's 13th birthday will be eligible for the credit. Similarly, if you receive dependent care benefits from your employer, the value of those benefits is excludable from your income only for care before the child turns 13. An exception to the age limit applies if the dependent child is not physically or mentally able to care for himself or herself. Age 17 – One of the requirements for the child tax credit is that the qualifying child be younger than 17 at the end of the tax year. Thus, if your child turns 17 during 2015, you will not be allowed to claim the child tax credit for this child for 2015 or any future year. The amount of the credit is $1,000 per eligible child, subject to a phase-out based on your adjusted gross income (AGI). Age 18 – To claim an adoption credit for expenses you paid to adopt a child, the child must have been younger than 18 at the time you paid or incurred the expenses. A child turning 18 during the year is an eligible child for the part of the year he or she was younger than 18. The age limitation does not apply if the person you adopted is physically or mentally unable to take care of himself or herself. Age 19 – To be a qualifying child for dependency purposes, the child must be younger than 19 as of the end of the year (or younger than 24 if a full-time student). So, if your child's 19th birthday was in 2015 and he or she is not a full-time student for some part of at least 5 months during the year, you can't claim the child as a dependent under the definition of a qualifying child. (Once again, the age limitation does not apply for a child who is unable to physically or mentally provide self-care.) Depending upon both the child's income and who provided the majority of the child's support, you may be able to use a different definition to claim the dependency. Age 24 – If you've been claiming your older-than-18 child as a dependent based on the child being a full-time student who doesn't provide more than half of his or her own support, you won't be able to claim the child's dependency under that rule starting in the year the child has his or her 24th birthday. Depending on the child's gross income and other factors, you may still be entitled to the dependency exemption, but under the "other" dependent rules and not the "qualifying child" rules. Age 25 – If you are a lower-income taxpayer who is at least 25 years old before the end of the year, and you do not have a qualifying child, you may be eligible for the earned income credit. If you are married, and file a joint return, either you or your spouse must meet the age requirement. This age requirement for the earned income credit does not apply if you have a qualifying child. Age 27 – There are various provisions of the Patient Protection and Affordable Care Act that apply to a child younger than 27 (i.e., one who has not had his or her 27th birthday) as of the end of the year. For example, your younger-than-27 child may be included on your health insurance plan, even if the child is not your dependent. If you are self-employed, the premiums you paid for the health insurance coverage of a child younger than 27 can be included as part of the above-the-line deduction of health insurance costs you may be able to deduct. Age 50 – If you are a qualified public safety employee, such as a police officer or fireman who separates from service after age 50 and takes a distribution from your government employer's defined benefit pension plan, the 10% early withdrawal penalty will not apply. Age 55 – If you take a distribution from your employer's qualified retirement plan after separation from service in or after the year you reach age 55, the distribution is not subject to the 10% penalty that usually applies when distributions are taken before age 59 1/2. To qualify for this exception to the penalty, you must be age 55 or older, and then separate from employment. This provision does not apply to IRAs. Age 59 1/2 – Once you've reached age 59 1/2, distributions from your qualified retirement plans and traditional IRAs are no longer considered to be early distributions and, therefore, are not subject to the 10% early withdrawal penalty. However, in most cases, all of the distribution amount is includible in your income and will be taxed. Age 62 – Many individuals opt to start receiving their Social Security benefits – albeit at a reduced amount than if they had waited until they reached full retirement age – when they first become eligible to receive the payments, generally at age 62. If this is your first year for collecting SS benefits (whether at age 62 or another age), you may be surprised to learn that part of the benefits may be taxable. Depending on your other income and filing status, 50% to 85% of the benefits may be taxable. Age 65 – As mentioned above, starting with the year you reach age 65, you are eligible for an additional standard deduction amount. For 2015, the extra amount is $1,550 for a taxpayer filing as single or head of household or $1,250 for those filing married joint, married separate or a qualifying widow(er). There is no extra deduction if you itemize your deductions. If you file a joint return, you and your spouse, if he or she is also age 65 or older, are each allowed the additional amount. Through 2016, if you itemize deductions and either you or your spouse – if filing a joint return – is age 65 by the end of the year, you need to reduce your medical expenses by only 7.5% of AGI instead of the 10% reduction rate that applies to other taxpayers. If you are subject to the alternative minimum tax, only medical expenses exceeding 10% of your regular AGI are deductible for the AMT computation. If you've been claiming the earned income credit without having a dependent child, you will no longer be eligible for the credit starting in the year you turn 65. Contributions to a health savings account (HSA) are not permitted once you are entitled to benefits under Medicare, meaning you are eligible for and have enrolled in Medicare. Most individuals become Medicare eligible and enroll at age 65. Contributions to the HSA may continue until the month you are actually enrolled in Medicare. Age 70 1/2 – If you turned 70 1/2 in 2015, distributions from your traditional IRA must begin by April 1, 2016; otherwise, a minimum distribution penalty can apply. You must continue to take distributions annually. Not only must you take distributions after turning 70 1/2, the law specifies how the minimum distribution is to be calculated. You may take a larger distribution, but the amount in excess of the required minimum distribution amount cannot be used to reduce future required distributions. You are considered age 70 1/2 on the date that is 6 calendar months after the 70th anniversary of your birth. In general, if you are or were an employee whose employer has a qualified plan, distributions from the qualified plan must begin no later than April 1 of the year following the year in which you attain age 70 1/2 or (except if you are a 5 percent owner), if later, you retire. This "retirement, if later" exception does not apply to IRAs. If you were required to take your first distribution in 2015 but delay the withdrawal until April 1 of 2016, you will then have two distributions to include in your 2016 income, since the regular 2016 distribution must be taken by December 31 of that year. You cannot make a contribution to a traditional IRA for the year in which you reach age 70 1/2 or for any later year. Contributions to Roth IRAs, however, are allowed regardless of age provided you have wages, self-employment income or alimony income. If you or a member of your tax family celebrated a milestone birthday (or half-birthday) this year and you have questions as to how the tax implications of that event will affect your return, please give this office a call. Thu, 08 Oct 2015 19:00:00 GMT Tax Benefits for People With Disabilities http://www.mytrivalleytax.com/blog/tax-benefits-for-people-with-disabilities/40962 http://www.mytrivalleytax.com/blog/tax-benefits-for-people-with-disabilities/40962 Tri-Valley Tax & Financial Services Inc Article Highlights: Able Accounts Disabled Spouse or Dependent Care Credit Medical Deductions Home Modifications Special Schooling Nursing Services The code includes a number of benefits for individuals with disabilities, but you can't take advantage of these benefits unless you know about them and understand how they might benefit you and your special circumstances. Many of the benefits also apply to the parents of children with disabilities. Here is a rundown: ABLE Accounts - Under tax law, states can offer specially designed, tax-favored ABLE accounts to people with disabilities who became disabled before age 26. Recognizing the special financial burdens faced by families raising children with disabilities, ABLE accounts are designed to enable people with disabilities, who became disabled before age 26, and their families to save for and pay for disability-related expenses. They are state run programs authorized by the federal tax statute, and must be established by your state. States that have established ABLE accounts can offer its residents the option of setting up one of these accounts, or if it chooses, contract with another state that offers such accounts. Contributions totaling up to the annual gift tax exclusion amount, currently $14,000, can be made to an ABLE account each year, and distributions are tax-free if used to pay qualified disability expenses. Disabled Spouse or Dependent Care Credit - A tax credit is available to individuals that incur child-care expenses for children who are under the age of 13 at the time the care is provided. This credit is also available for the care of the taxpayer’s spouse or dependent that is physically or mentally not able to care for himself or herself and lived with the taxpayer for more than half the year. This also true for individuals that would have been dependents except for the fact that they earned $4,000 or more (2015) or filed a joint return with their spouse. The credit ranges from 20 to 35%, with lower income taxpayers, benefiting from the higher percentage and those with AGI’s of $43,000 or more receiving only 20%. The care expenses qualifying for the credit are limited to $3,000 for one and $6,000 for two or more qualifying individuals. Medical Expense Deductions - In addition, to the “normal” medical expenses there other unusual deductible expenses that are incurred by individuals with disabilities. However, to gain a tax benefit, an eligible taxpayer must itemize their deductions on Schedule A, and their total medical expenses must exceed 10 percent of their adjusted gross income (7.5 percent for taxpayers who are at least age 65). Eligible expenses include: Prosthesis, Vision Aids - contact lenses and eyeglasses, Hearing Aids - and cost and repair of special telephone equipment for people who are deaf or hard of hearing, Wheelchair - cost and maintenance, Service Dog - cost and care of a guide dog or service animal, Transportation – Modifications or special equipment added to vehicles to accommodate a disability. Impairment-Related Capital Expenses - Amounts paid for special equipment installed in the home, or for improvements may be included in medical expenses, if their main purpose is medical care for the taxpayer, the spouse, or a dependent. The cost of permanent improvements that increase the value of the property may be partly included as a medical expense. The cost of the improvement is reduced by the increase in the value of the property. The difference is a medical expense. If the value of the property is not increased by the improvement, the entire cost is included as a medical expense. Certain improvements made to accommodate a home to a taxpayer’s disabled condition, or that of the spouse or dependents who live with the taxpayer, do not usually increase the value of the home and the cost can be included in full as medical expenses. Learning Disability - Tuition fees paid to a special school for a child who has severe learning disabilities caused by mental or physical impairments, including nervous system disorders can be included in medical expenses. A doctor must recommend that the child attend the school. Tutoring fees recommended by a doctor for the child’s tutoring by a teacher who is specially trained and qualified to work with children who have severe learning disabilities may also be included. Special Schooling - Medical care includes the cost of attending a special school designed to compensate for or overcome a physical handicap, in order to qualify the individual for future normal education or for normal living. This includes a school for the teaching of Braille or lip reading. The principal reason for attending must be the special resources for alleviating the handicap. The cost of tuition for ordinary education that is incidental to the special services provided at the school, and the cost of meals and lodging supplied by the school also is included as a medical expense. Nursing Services - Wages and other amounts paid for nursing services can be included in medical expenses. Services need not be performed by a nurse as long as the services are of a kind generally performed by a nurse. This includes services connected with caring for the patient's condition, such as giving medication or changing dressings, as well as bathing and grooming the patient. These services can be provided in the home or another care facility. Generally, only the amount spent for nursing services is a medical expense. If the attendant also provides personal and household services, these amounts must be divided between the time spent performing household and personal services and the time spent for nursing services. If you have questions related to any of the tax benefits listed above or have questions related to potential medical expenses not discussed above, please give this office a call. Tue, 06 Oct 2015 19:00:00 GMT Marketplace Insurance Checkup http://www.mytrivalleytax.com/blog/marketplace-insurance-checkup/40954 http://www.mytrivalleytax.com/blog/marketplace-insurance-checkup/40954 Tri-Valley Tax & Financial Services Inc Article Highlights: Advance Premium Tax Credit  Family Income  Family Size  Reporting Changes to the Marketplace  Repayment of Credit  Married Filing Separately  If you are one of the many individuals or families who purchase their health insurance through the federal or a state government health insurance marketplace and are receiving an advance premium tax credit (subsidy of premium available to those with low to moderate income) to help you pay the cost of that insurance, you should make sure you report changes in family income and family size, as they occur, to the marketplace through which you purchased your insurance. Changes in either family income or family size can have a significant impact on the amount of the advance premium tax credit (APTC) to which you are entitled. Reporting the changes as they occur allows the marketplace to adjust the APTC to the amount to which you are entitled. Here are some changes in circumstances that you should report to the marketplace: An increase or decrease in your income  Marriage or divorce  The birth or adoption of a child  Starting a job that provides you with or access to health insurance  Gaining or losing your eligibility for other health care coverage Changing your residence  You can estimate (using the IRS estimator) the effect that changes in your family circumstances and income may have upon the amount of premium tax credit that you can claim. Reporting these changes to the marketplace will help you avoid getting too much or too little advance payment of the premium tax credit. Getting too much APTC means you may owe additional money or get a smaller refund when you file your taxes for this year. Getting too little APTC could mean missing out on premium assistance to reduce your monthly premiums. Repayments of excess premium assistance may be limited to an amount between $300 and $2,500, depending on your income and filing status. However, if advance payments of the premium tax credit were made, but your income for the year turns out to be too high to receive any amount of premium tax credit, you will have to repay all of the premium subsidies that were made on your behalf—with no limitation. Therefore, it is important that you report changes in circumstances that may have occurred since you signed up for your plan. You should also be aware that married individuals filing separate returns are generally not allowed a premium tax credit and that any advance credit will have to be fully repaid. There are exceptions for abused or abandoned spouses and for those who meet the requirements to file as head of household. If you have questions related to the APTC or how it may affect your particular circumstances, please give this office a call. Thu, 01 Oct 2015 19:00:00 GMT Should You Itemize Your Deductions for Taxes? http://www.mytrivalleytax.com/blog/should-you-itemize-your-deductions-for-taxes/40941 http://www.mytrivalleytax.com/blog/should-you-itemize-your-deductions-for-taxes/40941 Tri-Valley Tax & Financial Services Inc Article Highlights: Who Qualifies for the Standard Deduction  Who Is Not Allowed to Use the Standard Deduction  Income Limitations for Itemized Deductions  Phase-out of Itemized Deductions  Looking ahead to the filing season for this year's tax returns, a frequent question is whether you should keep track of tax-deductible expenditures or simply settle for the standard deduction amount. Whether you can itemize deductions on your tax return depends on how much you spent on certain expenses during the year. Money paid for medical care, mortgage interest, taxes, charitable contributions, casualty losses and miscellaneous deductions (usually job or investment related) can reduce your taxes. If the total amount spent on those categories is more than the standard deduction, you can usually benefit by itemizing. The standard deduction amounts are based on your filing status, your age and whether or not you or your spouse is blind. The standard amounts are adjusted for inflation annually and for 2015 are: Single $ 6,300 Married filing jointly(1) $12,600 Head of household $ 9,250 Married filing separately $ 6,300  Additional amounts if age 65 or older and for those who are blind (2) (each taxpayer): Married taxpayers filing jointly $ 1,250 Others $ 1,550 (1) Also applies to qualifying widows and widowers (have a dependent child and spouse died in 2013 or 2014) (2) If a taxpayer (or spouse) is both age 65 or over and blind the taxpayer (or spouse) gets two extra amounts. The extra allowance is not available for dependents. But, as with most aspects of taxes, it's not that simple. There are certain taxpayers who are precluded from taking the standard amount because of special circumstances, and they include: Taxpayers subject to the alternative minimum tax (AMT) - The standard deduction is only used when computing your tax in the normal manner. You receive no benefit from the standard deduction to the extent you are taxed by the AMT.  Married taxpayers filing separately - There is a rule that prevents one spouse from filing separately and claiming all of the couple's deductions while the other takes the standard deduction. Simply stated, if one spouse itemizes deductions, the other spouse must also itemize and cannot claim the standard deduction.   Taxpayers ineligible for the standard deduction - Certain taxpayers, by law, are not eligible for the standard deduction. They include nonresident aliens, dual-status aliens and individuals who file returns for periods of less than 12 months.  When it comes to itemizing your deductions there are still more complications. First of all, not all of your deductions will be included in the final total that you compare against the standard deduction to decide whether you itemize or not. Certain ones are adjusted as follows: Medical deductions - They are only included to the extent that they exceed 10% (7.5% for taxpayers age 65 and over) of your adjusted gross income (AGI).   Taxes - Deductions for state income or sales taxes and real property tax are not limited by income, but they are not deductible at all for AMT purposes. Thus large tax deductions can result in the addition of an alternative minimum tax.   Interest - Deductible interest includes home mortgage interest and investment interest. However, home mortgage interest is limited just to the interest on up to $1 million of acquisition debt and $100,000 of equity debt. For AMT purposes, only acquisition debt interest is deductible, so the interest paid on equity debt to buy a motor home, boat, car, etc., is not deductible for the AMT.   Charitable contribution deductions - They are the same for both regular tax and AMT, and the total in any year is generally limited to 50% of your income (AGI). There are lower income limits for certain non-cash contributions.   Miscellaneous deductions - They are where most employee business and investment expenses are deducted. Generally these deductions are only deductible to the extent that they exceed 2% your income (AGI).  As if those complications were not enough, some of the itemized deductions for higher-income taxpayers are further limited by a formula if adjusted gross income is more than $309,900 for a married couple filing jointly or qualifying widow(er), $258,250 for single taxpayers, $284,050 for taxpayers filing as head of household, and $154,950 for married-filing-separate taxpayers. This limit applies to all itemized deductions except medical and dental expenses, casualty and theft losses, gambling losses, and investment interest. As you can see, the choice of whether to itemize or claim the standard deduction is not always clear, and that is essentially why it is necessary to save the documentation for itemized deductions throughout the year so the two options can be compared and the better one selected. If you took the standard deduction last year and think you might have been able to itemize your deductions, an amended tax return can be prepared for a refund. Please call this office for assistance. Tue, 29 Sep 2015 19:00:00 GMT Retirement Plan Distribution Pitfalls http://www.mytrivalleytax.com/blog/retirement-plan-distribution-pitfalls/40901 http://www.mytrivalleytax.com/blog/retirement-plan-distribution-pitfalls/40901 Tri-Valley Tax & Financial Services Inc Article Highlights: Distribution Hazards Trustee-to-Trustee Transfers Rollovers Taxability Withholding Requirements Early Withdrawal Penalty When an individual retires or leaves an employer's service, the individual will be required to take a distribution from the employer's retirement plan (if the employer had a plan). Depending on the employee's age and the plan's terms, a distribution may not be required immediately, but when it's time to take the distribution there are a number of tax pitfalls that can create some very big tax headaches for the employee. This article will explore those hazards and discuss how to avoid them. First and foremost, if the employee does not transfer or roll the distribution over into another employer's qualified plan or an IRA, the entire taxable amount of the distribution will be included in the employee's taxed income for the year of the distribution. In addition, if the employee is under 59-1/2 years of age at the time of the distribution, the employee may also be subject to a 10% early withdrawal penalty on the taxable portion of the distribution. There is also a major distinction between rolling over the distribution and having it directly transferred to another qualified plan or IRA account. A rollover is when the individual actually takes possession of the funds and then, within the statutory 60-day limit, deposits the funds into another qualified plan or IRA. As the name implies, a direct transfer is when the administrator (trustee) of the employer's plan transfers the funds directly to another qualified plan or an IRA in a trustee-to-trustee transfer for the departing employee. Taking possession of the funds and subsequently rolling them over to another plan exposes the employee to a couple of substantial hazards. The first potential problem occurs when the employee fails to get the funds deposited into a new plan within the 60-day limit. In that case, the entire distribution will be taxable (except for the amount equal to the employee's after-tax contributions, if any) and the taxable amount may also be subject to the 10% early distribution penalty. The second hazard occurs because the employer is required by law to withhold 20% of the distribution for federal income taxes. Thus, when it comes time to roll the funds into another plan, the employee only has 80% of the funds needed to complete a tax-free rollover. If the employee does not have other funds to make up for the 20% withheld, 20% of the distribution will become taxable. Of course, the amount that was withheld is claimed as federal income tax withholding when the employee files his tax return for the year. However, depending on the employee's overall taxable income and tax bracket, the amount withheld from the retirement distribution may not be sufficient to cover all the tax liability on the non-rolled distribution, especially if the 10% penalty also applies. On the other hand, when funds from the retirement plan are transferred trustee-to-trustee to another qualified plan or IRA, there is no withholding requirement, the employer can transfer the entire amount to the new plan, and the employee pays no tax on the transferred amount until it is withdrawn at some later date. Pulling money from a retirement plan prior to retirement is never a good financial or tax move. Sometimes, however, a current financial need will make it necessary. The distribution will always be taxable (or partly taxable if the employee made post-tax contributions to the plan), but there are exceptions that may allow you to avoid all or part of the penalty. Please call for further details. If you have already taken or anticipate taking a distribution in the near future and wish to discuss the tax issues that are related to the distribution, please give this office a call. Thu, 24 Sep 2015 19:00:00 GMT October 15 - Last Chance to Take Advantage of Retroactive Business Expensing http://www.mytrivalleytax.com/blog/october-15-last-chance-to-take-advantage-of-retroactive-business-expensing/40923 http://www.mytrivalleytax.com/blog/october-15-last-chance-to-take-advantage-of-retroactive-business-expensing/40923 Tri-Valley Tax & Financial Services Inc Article Highlights Adopting Capitalization and Repair Regulations Retroactively  October 15 Deadline  Retroactive Expensing  Partial Dispositions  If you are a small business owner, October 15, 2015, is your last chance to retroactively adopt the new tangible property regulations that took effect in 2014. Why is adopting these new regulations important? They give you the opportunity to expense items that you had capitalized (depreciated) in years for which the three-year statute of limitations has not yet expired. As an example, say you are a landlord, and you replaced the roof on your rental at a cost $6,000 in 2012. Prior to the new regulations, that expense would have been treated as a capital expense, and you would have had to depreciate it (deduct it slowly), over 27½ or 39 years. However, under the new regulations, the expense of replacing the roofing membrane is fully deductible in the year the cost was incurred. Another benefit of adopting the regulations retroactively is the treatment of what is termed a partial disposition. This refers to the replacement of a portion of an existing capital asset, such as the roof in the prior example. In the past, the remaining undepreciated value of the replaced roof would have continued to be depreciated along with the rest of the building for the remainder of the building's life. Under the new regulations, the undepreciated value of the existing roof can be expensed in the replacement year under the partial disposition rules. Although we used a building and roof to illustrate these new provisions, these rules don't just apply to buildings; they apply to all tangible business assets. However, adopting the regulations retroactively requires affirmative action on your part by the extended due date of your 2014 return, which is October 15, 2015. Failing to adopt the regulations by the October date is not the end of the world; it just means that you default to adopting the regulation prospectively and cannot take advantage of any retroactive adjustments. To adopt the regulation retroactively, you must file an appropriately completed IRS Form 3115 with your 2014 return. If you believe you can benefit from adopting the regulations retroactively, please give this office a call as soon as possible so that there will still be time to adopt the regulations on your extended 2014 tax return (or on an amended return if you have already filed your 2014 return). Thu, 24 Sep 2015 19:00:00 GMT Key Performance Indicators (KPIs) Are Valuable Tools for Small Business Owners http://www.mytrivalleytax.com/blog/key-performance-indicators-kpis-are-valuable-tools-for-small-business-owners/40892 http://www.mytrivalleytax.com/blog/key-performance-indicators-kpis-are-valuable-tools-for-small-business-owners/40892 Tri-Valley Tax & Financial Services Inc If you’re a small business owner, then you know that gauging the performance of your business is one of the most difficult tasks you face. The indicators and measures that you work with on a day-to-day level are not necessarily reflected in the criteria and metrics that are provided on paper, and it’s hard to know what to trust and which information is best to use. It is essential that business owners have a reliable, understandable way to tell whether things are going well or need improvement, and that’s why using and understanding your Key Performance Indicators (KPIs) is so vitally important. The value of Key Performance Indicators cannot be overstated. They are objective, black and white measures of all of your business processes and performance, and provide you with a clear and straightforward way of seeing what is working and what needs more work. Many business owners find the idea of implementing the use of Key Performance Indicators a bit intimidating – they don’t understand exactly what they mean or how to use them – but with a small investment of time, you will quickly find them extremely accessible and useful. Key Performance Indicators will likely become your go-to method of “taking your business’ temperature” and determining whether it is healthy or not. Though at first glance your Key Performance Indicators may seem like a lot of numbers without meaning, once you have learned what each one means and how it relates to your business’ performance you will find that reviewing them will give you a much greater sense of control over your short-term and long-term outlook. Every single number that your business generates has some value, and once you begin using them and understanding you will quickly be able to determine which are most important for your individual purposes. You will be able to use Key Performance Indicators not only to compare current performance to past performance or goals, but also to look at how you fare when compared to others within your industry. You will quickly be able to see what may have been previously hidden, such as that a specific area of your business is doing particularly well, or that another area is lagging. Looking at Key Performance Indicators can provide you with a clear path to improvement. Every business relies upon different Key Performance Indicators, so it is important for you to familiarize yourself with each in order to determine which have the most value for you. The KPIs that are most frequently used by small businesses include: Length of Average Employee Tenure Value of Average Customer Purchase Order Cash Conversion Cycle Lifetime Value of Individual Customers Return on Investment Gross Profit Margin Net Profit Net Profit Margin Debt-to-Equity Ratio Operating Expense Ratio Price Earnings Ratio Operating Profit Margin Average Order Fulfillment Time Working Capital Ratio Time to Market Return on Assets Return on Capital Employed Return on Equity EBITDA Revenue Growth Rate Individual Sales Rep Revenue Total Shareholder Return Wed, 23 Sep 2015 19:00:00 GMT October 15 Extension Due Date Rapidly Approaching http://www.mytrivalleytax.com/blog/october-15-extension-due-date-rapidly-approaching/37797 http://www.mytrivalleytax.com/blog/october-15-extension-due-date-rapidly-approaching/37797 Tri-Valley Tax & Financial Services Inc Article Highlights: October 15 is the extended due date for filing 2014 federal individual tax returns. Late-filing penalty for individual federal returns is 5% of the tax due for each month, or part of a month, for which a return is not filed, up to a maximum of 25% of the tax due. A separate penalty applies for filing a state return late. Interest on tax due. Final opportunity for business or rental property owners to adopt the new repair and improvement regulations retroactively. If you could not complete your 2014 tax return by the normal April filing due date, and are now on extension, that extension expires on October 15, 2015, and there are no additional extensions. Failure to file before the extension period runs out can subject you to late-filing penalties. There are no additional extensions, so if you still do not or will not have all of the information needed to complete your return by the extended due date, please call the office so that we can explore your options for meeting your October 15 filing deadline. If you are waiting for a K-1 from a partnership, S-corporation, or fiduciary return, the extended deadline for those returns was September 15. So, if you have not received that information yet, you should probably make inquiries. Late-filed individual federal returns are subject to a penalty of 5% of the tax due for each month, or part of a month, for which a return is not filed, up to a maximum of 25% of the tax due. If you are required to file a state return and do not do so, the state will also charge a late-file penalty. The filing extension deadline for individual returns for most states is also October 15. If you operate a business or have rental properties, October 15 is also the final deadline for adopting new capitalization and repair regulations retroactively by filing IRS Form 3115, Application for Change in Accounting Method, which will allow you to expense items on your 2014 return that were capitalized (depreciated) in prior open years that are now allowed to be expensed under the new regulations. If you've already filed your 2014 return, it can be amended to adopt the new capitalization and repair regulations, but the amended 2014 return will need to be filed by October 15. If the new regulations are not adopted retroactively, they will only apply prospectively. If this office is waiting for some missing information to complete your return, we will need that information at least a week before the October 15 due date. Please call this office immediately if you anticipate complications related to providing the needed information, so that a course of action may be determined for avoiding the potential penalties. Tue, 22 Sep 2015 19:00:00 GMT Sole Proprietorship - Is The Risk Worth It? http://www.mytrivalleytax.com/blog/sole-proprietorship-is-the-risk-worth-it/40881 http://www.mytrivalleytax.com/blog/sole-proprietorship-is-the-risk-worth-it/40881 Tri-Valley Tax & Financial Services Inc Article Highlights: Reporting Sole Proprietorships On Your 1040  Business Checking Account Local Business Licenses  Resale Permits & Payroll Reporting  Personal Liability  If you are considering starting a business, the simplest and least expensive form of business is a sole proprietorship. A sole proprietorship is a one-person business that reports its income directly on the individual's personal tax return (Form 1040) using a Schedule C. There is no need to file a separate tax return as is required by a partnership or corporation (if the business is set up as an LLC with just one member, filing is still done on Schedule C, although an LLC return may also be required by the state). Generally, there are very few bureaucratic hoops to jump through to get started. However, we strongly recommend that you open a checking account that is used solely for depositing business income and paying business expenses. You will also need to check and see if there is a need to register for a local government business license and permit (if required for your business). If you are conducting a retail business, you will need to obtain a resale permit and collect and remit local and state sales taxes. If you hire employees, you will need to set up payroll withholding and remit payroll taxes to the government. Before you can do that, however, you'll need to apply to the IRS for an employer identification number (EIN) because you can't just use your Social Security number for payroll tax purposes. An EIN can be obtained online at the IRS web site or by completing a paper Form SS-4 and submitting it to the IRS. As a sole proprietor, you can also very simply set aside tax-deductible contributions for your retirement. Example: Paul has been working for a computer firm as an installation specialist but has decided to go out on his own. Unless he sets up a partnership, LLC or corporation, Paul is automatically classified as a sole proprietor. He does not need to file any legal paperwork. His business is automatically classified and treated as a sole proprietorship in the eyes of the IRS and his state government. However, there is a big downside to conducting business as a sole proprietor, and that drawback is liability. Sole proprietors are 100% personally liable for all business debts and legal claims. As an example, in the case that a customer or vendor has an accident and is injured on your business property and then sues, you the owner are responsible for paying any resulting court award. Thus, all your assets, both business and personal, can be taken by a court order and sold to repay business debts and judgments. That would include your car, home, bank accounts and other personal assets. Other forms of business, such as LLCs and corporations, can protect your personal assets from business liabilities. If you feel that your business is susceptible to lawsuits and would like to explore alternative forms of business, please give this office a call so we can discuss the tax ramifications of the various business entities with you. If you decide on something other than a sole proprietorship, you'll need legal assistance to formally set up your new business.  Thu, 17 Sep 2015 19:00:00 GMT Is the IRS Withholding Some or All of Your Refund? http://www.mytrivalleytax.com/blog/is-the-irs-withholding-some-or-all-of-your-refund/31155 http://www.mytrivalleytax.com/blog/is-the-irs-withholding-some-or-all-of-your-refund/31155 Tri-Valley Tax & Financial Services Inc Article Highlights: Tax Refund Offsets Child Support, Student Loan Debt ACA Shared Responsibility Payment Back Taxes Form 8379, Injured Spouse Claim Community Property If the IRS kept all or a portion of the federal refund you were expecting, it may be because you owe money for certain delinquent debts. If that is true, the IRS or the Department of Treasury's Bureau of the Fiscal Service (BFS), which issues IRS tax refunds, can offset or reduce your federal tax refund or withhold the entire amount to satisfy the debt. Here are some important facts you should know about tax refund offsets: If you owe federal or state income taxes your refund will be offset to pay those tax liabilities. If you had other debt such as child support or student loan debt that was submitted for offset, BFS will take as much of your refund as is needed to pay off the debt, and send it to the agency authorized to collect the debt. Any portion of your refund remaining after an offset will be refunded to you. The law prohibits the IRS from using liens or levies to collect any Affordable Care Act individual shared responsibility payment (the tax for not having required minimum essential health care coverage). However, if you owe a shared responsibility payment, the IRS may offset that liability against any tax refund that may be due to you. You will receive a notice if an offset occurs. The notice will reflect the original refund amount, your offset amount, the agency receiving the payment, and the address and telephone number of the agency. You should contact the agency shown on the notice if you believe you do not owe the debt or you are disputing the amount taken from your refund. If you filed a joint return and you are the spouse who is not responsible for the debt, but are entitled to a portion of the refund, you may request your portion of the refund by filing IRS Form 8379, Injured Spouse Allocation If you know that your spouse has outstanding debts and anticipates an offset, you can attach Form 8379 to your original Form 1040, Form 1040A, or Form 1040EZ. Or it can be filed by itself after you are notified of an offset. If you file a Form 8379 with your return, write "INJURED SPOUSE" at the top left corner of the Form 1040, 1040A, or 1040EZ. IRS will process your allocation request before an offset occurs. If you are filing Form 8379 by itself, it must show both spouses' social security numbers in the same order as they appeared on your income tax return. You, the "injured" spouse, must sign the form. Do not attach the previously filed Form 1040 to the Form 8379. Send Form 8379 to the Service Center where you filed your original return. If you reside in a community property state, overpayments (refunds) are considered to be joint property and are generally applied (offset) to legally owed past-due obligations of either spouse. There are exceptions, so please call for additional details if this rule affects you. The IRS will compute the injured spouse's share of the joint return for you. Contact the IRS only if your original refund amount shown on the BFS offset notice differs from the refund amount shown on your tax return. For assistance with IRS withheld refunds or completing Form 8379, please give this office a call. Tue, 15 Sep 2015 19:00:00 GMT Family Courts Don’t Always Pay Attention to Federal Tax Law http://www.mytrivalleytax.com/blog/family-courts-don8217t-always-pay-attention-to-federal-tax-law/40869 http://www.mytrivalleytax.com/blog/family-courts-don8217t-always-pay-attention-to-federal-tax-law/40869 Tri-Valley Tax & Financial Services Inc Article Highlights: Family Court Errors Property Settlements Children Alimony Conflicts of Interest All too often, family law courts make rulings that are contradictory to federal tax law, causing confusion and inequity in divorce actions since family court rulings cannot trump federal tax law. An issue for divorced parents is who gets to claim the children for tax purposes. Federal tax law provides that the parent with physical custody claims the child unless that parent releases the exemption to the other parent. Frequently, family courts award physical custody to one parent and the tax exemption to the other. To make matters worse, the courts assume that the exemption deduction will provide a financial benefit to the non-custodial parent. Then the court adjusts child support accordingly, leaving the non-custodial parent with two unpleasant surprises when filing his or her tax return: the child support is not deductible and the child cannot be claimed as a dependent without a release from the custodial parent. Who is to blame? At first glance, one would tend to blame the court. However, it is not the job of the court, but the duty of the attorney to bring the judge’s attention to federal tax law so that he or she is aware of what applies in order to make a correct judgment. Few family law judges know tax law. Avoid mistakes - Consult with your tax advisor. Go over the proposed settlement and determine what the tax implications will be before the divorce is finalized. Here are some of the tax issues that need to be considered as part of a divorce: Property settlements - When property is divided in a divorce, the spouse who keeps the property assumes the community basis. This, in effect, means that spouse assumes any tax liability when the property is sold. Example: A couple has a home worth $450,000 and a mortgage of $50,000, which provides a net equity of $400,000. They also have a bank savings account worth $400,000. They divorce, and agree that the wife will keep the home and the husband will keep the bank account. On the surface, this sounds equitable, but, after taxes are considered, it may not be. Let’s assume the couple purchased the home for $100,000 several years ago. The wife assumes the community basis of $100,000. If the wife sells it for $450,000, she will net only $373,000 from the sale after paying the selling costs of approximately $27,000 and paying off the $50,000 loan. In addition, she has a taxable profit from the sale that is computed as follows: Sales Price: $450,000 Community Basis: Sales Costs: < 27,000> Home Sale Exclusion Taxable Gain $ 73,000 Federal Tax @ 15% 10,950 (there may also be a state tax, and Federal tax could be as high as 20%) So, in our example, the wife nets $362,050 ($373,000 less taxes of $10,950), while her spouse nets a full $400,000 from the savings account. Not exactly even after taking into account the tax liability. Issues involving Children - There are substantial tax issues related to the children. Here are some of them: Dependency – Federal tax law gives the dependency to the custodial parent unless the custodial parent releases, in writing, the dependency to the non-custodial parent. There is a tax deduction of $4,000 (2015) for each dependency exemption. Child Credit – The 2015 child tax credit, $1,000 for each child under age 17, goes to the parent who claims the child as a dependent. Joint Custody – Some courts award joint custody to the parents. In this situation, the IRS does not split the benefits of claiming the child as a dependent. Instead, the parent with physical custody the greater part of the year receives all of the benefits. Education Credits – The education tax credits for college tuition expenses go to the one who claims the exemption for the child, regardless of who paid the tuition. Child Care Credit – The parent who claims the child’s exemption is the only one who can claim a tax credit for child care expenses. This can cause issues where both parents work and share custody. Child Support – is not deductible by the parent who pays the support and is not taxable to the one who receives it. Alimony - is deductible by the spouse who pays it and includable in income by the spouse who receives it. To be treated as alimony, payments must be in cash, required by the divorce instrument, and end upon the death of the payee. In addition, alimony payments cannot be contingent on the status of a child and are valid only while the taxpayers live apart. Conflict of Interest – Rules of Practice do not allow a tax practitioner to represent clients where there is a conflict of interest. This is an issue for divorcing couples since the divorce creates a conflict of interest and a practitioner may not be able to provide services to both clients and, in some cases, may not be allowed to provide services to either. As you can see, there are a number of complications related to divorce and the status of the children of divorced parents. If you have questions, please give this office a call. Thu, 10 Sep 2015 19:00:00 GMT Gifting Money or Property Can Have Serious Tax Consequences http://www.mytrivalleytax.com/blog/gifting-money-or-property-can-have-serious-tax-consequences/40863 http://www.mytrivalleytax.com/blog/gifting-money-or-property-can-have-serious-tax-consequences/40863 Tri-Valley Tax & Financial Services Inc Article Highlights: Gift and Inheritance Tax Lifetime Exclusion Annual Exclusion Gift and Inheritance Basis Issues Additional Tuition & Medical Exclusion Gift and inheritance taxes were created long ago to prevent an individual's assets from being passed on to future generations free of tax. Congress has frequently tinkered with these taxes, and currently the gift and inheritance taxes are unified with a top tax rate of 40%. However, the law does provide the following two exclusions from the tax: Lifetime exclusion - For 2015, $5.43 million per person is excluded from gift and inheritance tax. This amount is annually adjusted for inflation and applies separately to each spouse of a married couple. Where one of the couple dies and does not use the entire exclusion amount, the unused portion of the exclusion can be passed on to the surviving spouse by filing an estate tax return for the decedent, even if one is otherwise not required. Annual exclusion - The exclusion amount is periodically adjusted for inflation. For 2015 the annual gift exclusion is $14,000 per recipient. Thus, an individual can give up to $14,000 to as many recipients as he or she would like without creating a requirement to file a gift tax return. The $14,000 applies to each individual giver, so each spouse of a married couple can give $14,000, for a total per couple of $28,000 to any one person. If a person gives more than $14,000 for the year to any single individual, then a gift tax return is required, and the excess of the gifts over $14,000 reduces the lifetime exclusion. Once the annual limit and the lifetime limit have been exceeded, the excess becomes taxable. Gifts can take the form of cash or property. When property is given, the dollar value placed on the gift for gift tax purposes is the property's fair market value (FMV) at the time of the gift. However, the gift recipient assumes the giver's tax basis in the property, which means that if the giver's property had built-in gains, the recipient becomes responsible for those gains when the recipient subsequently disposes of the property in a taxable event. Example: Earl gives his son, Jack, stock worth $14,000 that originally cost Earl $5,000. Later, Jack sells the stock for $16,000. Jack's taxable gain from selling the stock will be $11,000 ($16,000 - $5,000).  However, if Jack had inherited the stock from his father, Jack's basis would have been the FMV of the stock at the date of his father's death instead of what Earl had paid for the stock. Assuming the FMV was $14,000 at the time of Earl's death and Jack subsequently sold the stock for $16,000, he would only have a taxable gain of $2,000 ($16,000 - $14,000). This example points to a mistake often made by elderly taxpayers. They will frequently sign over their assets, most commonly their home, to their heirs while they are still alive rather than waiting and allowing the heirs to inherit the property. By doing this, they create a large tax liability for the heirs since the basis of the gift is the giver's basis, thus the heirs become responsible for the giver's built-in gain rather than inheriting the property with the basis equal to the FMV at the time of the decedent's death. Example: Mary signs over her home worth $500,000 to her son, John. Mary originally paid $100,000 for the home. If John immediately sells the home for $500,000 after Mary's passing, he will have a taxable gain of $400,000. However, if John had inherited the property after Mary's passing, his basis would be the FMV at date of death, or $500,000, and if he sold it for $500,000, he would have no taxable gain at all. Additional Exclusions For Gift Tax - In addition, certain medical and education expenses are also excludable over and above the $14,000 annual exclusion cap. Tuition Expenses - Tuition expenses paid directly to the qualifying educational institution are permitted without gift tax consequences. For example, a grandparent who wants to help out a college-bound grandchild can pay the student's tuition directly to the college. Even if the amount is over $14,000, no gift tax reporting is required, and the grandparent's annual gift exclusion with respect to the child and his or her lifetime exclusion are not affected. Medical Expenses - Medical expenses paid directly to the qualifying medical institution or individual providing the care or to the insurance company providing the medical coverage are also exempt from the gift tax and don't affect the gift tax exclusions. The payments cannot go through the hands of the individual who incurred the medical expenses, but must go directly to the medical provider or insurance company. As you can see, gifting can be complicated and requires advance planning to fully take advantage of tax benefits. Please call this office if you need assistance planning your gifts. Tue, 08 Sep 2015 19:00:00 GMT Are Charity Auction Purchases Deductible Contributions? http://www.mytrivalleytax.com/blog/are-charity-auction-purchases-deductible-contributions/22710 http://www.mytrivalleytax.com/blog/are-charity-auction-purchases-deductible-contributions/22710 Tri-Valley Tax & Financial Services Inc Article Highlights: Purchase of Items At Charity Auction Auction Donor Appreciated Property Fair Market Value (FMV) Unrelated Use It is common practice for charities to hold auction events where attendees will bid upon and purchase items. The question often arises whether the money spent on the items purchased constitutes a charitable donation. The answer to that question is some, but not all, of what’s paid for the item may be deductible. So if you purchase items at a charity auction, you may claim a charitable contribution deduction for the excess of the purchase price paid for the item over its fair market value. You must be able to show, however, that you knew that the value of the item was less than the amount you paid for it. For example, a charity may publish a catalog, given to each person who attends an auction, providing a good faith estimate of items that will be available for bidding. Assuming you have no reason to doubt the accuracy of the published estimate, if you pay more than the published value, the difference between the amount you paid and the published value may constitute a charitable contribution deduction. In addition, if you provide goods for charities to sell at an auction, you may wonder if you are entitled to claim a fair market value charitable deduction for your contribution of appreciated property to the charity that will later be sold. Under these circumstances, the law limits your charitable deduction to your tax basis in the contributed property and does not permit you to claim a fair market value charitable deduction for the contribution. Specifically, the Treasury Regulations (Sec 170) provide that if a donor contributes tangible personal property to a charity that is put to an unrelated use, the donor's contribution is limited to the donor's tax basis in the contributed property. The term unrelated use means a use that is unrelated to the charity's exempt purposes or function. The sale of an item is considered unrelated, even if the sale raises money for the charity to use in its programs. Please contact this office for additional information. Thu, 03 Sep 2015 19:00:00 GMT Get Credit for Generating Your Own Home Power http://www.mytrivalleytax.com/blog/get-credit-for-generating-your-own-home-power/37190 http://www.mytrivalleytax.com/blog/get-credit-for-generating-your-own-home-power/37190 Tri-Valley Tax & Financial Services Inc Article Highlights Solar Heating System Solar Electric System Fuel Cell Plant Wind Energy Geothermal Heat Pump Through 2016, taxpayers can get a tax credit on their federal tax return equal to 30% of the costs for installing certain power-generating systems on their homes. The credit is non-refundable, which means it can only be used to offset a taxpayer’s current tax liability, but any excess can be carried forward to offset tax through 2016. Systems that qualify for the credit include the following: Solar water heating system - Qualifies if used in a dwelling unit used by the taxpayer as a main or second residence where at least half of the energy used by the property for such purposes is derived from the sun. Heating water for swimming pools or hot tubs does not qualify for the credit. The property must be certified for performance by the Solar Rating Certification Corporation or a comparable entity endorsed by the state government where the property is installed. Solar electric system - This is a qualified system that uses solar energy to generate electricity for use in a dwelling unit located in the U.S. and used as a main or second residence by the taxpayer. Fuel cell plant - A fuel cell power plant is a system installed in the taxpayer’s principal residence that converts a fuel into electricity using electrochemical means. It must have an electricity-only generation efficiency of greater than 30% and generate at least 0.5 kilowatt of electricity. The credit is 30% of qualified fuel cell expenditures but is limited to $500 for each 0.5 kilowatt of the fuel cell property’s capacity to produce electricity. Qualified small wind energy - A wind turbine used to generate electricity for use in connection with a dwelling unit used as a main or second residence by the taxpayer is eligible for the credit. Qualified geothermal heat pump - This is a system in which a pump uses the ground or ground water as a thermal energy source to heat the dwelling unit used as a main or second residence by the taxpayer or as a thermal energy sink to cool the dwelling unit. The system must meet the Energy Star program requirements in effect when the expenditure is made. Other aspects of the credit include the following: Limited carryover - The credit is a non-refundable personal credit that limits the credit to the taxpayer’s tax liability for the year. However, the portion of the credit that is not allowed because of this limitation may be carried to the next tax year and added to the credit allowable for that year. Installation costs - Expenditures for labor costs allocable to onsite preparation, assembly, or original installation of property eligible for the credit, and for piping or wiring connecting the property to the residence, are expenditures that qualify for the credit. Swimming pool - Expenditures that are for heating a swimming pool or hot tub are not taken into account for purposes of the credit. Newly constructed homes - The credit can be taken for newly constructed homes if the costs of the residential energy efficient property can be separated from the other home construction expenses and the required certification documents are available. Certification - A taxpayer may rely on a manufacturer’s certification that a product is Qualified Energy Property. A taxpayer is not required to attach the certification statement to the return on which the credit is claimed. However, taxpayers are required to retain the certification statement as part of their records. The certification statement provided by the manufacturer may be a written copy of the statement with the packaging of the product, in printable form on the manufacturer’s website, or in any other manner that will permit the taxpayer to retain the certification statement for tax recordkeeping purposes. Installation costs - Costs for labor allocable to onsite preparation, assembly, or original installation of the qualified residential energy property may be included. If you have questions about how you can benefit from this credit, please give this office a call. Tue, 01 Sep 2015 19:00:00 GMT Back-to-School Tax Tips for Students and Parents http://www.mytrivalleytax.com/blog/back-to-school-tax-tips-for-students-and-parents/37713 http://www.mytrivalleytax.com/blog/back-to-school-tax-tips-for-students-and-parents/37713 Tri-Valley Tax & Financial Services Inc Article Highlights: Sec. 529 plans Coverdell Education Savings Accounts. The Lifetime Learning credit Qualified Education Loan Interest. Going to college, and figuring out how to pay for it, can be stressful for students and parents. In recent years, Congress has provided a variety of tax incentives to help defray the cost of education. Some require long-term planning to become beneficial, while others provide current tax deductions or credits. The benefits may even cover vocational schools. If your child is below college age, there are tax-advantaged plans that allow you to save for the cost of college. Although providing no tax benefit for contributions to the plans, they do provide tax-free accumulation; so the earlier they are established, the more you benefit from them. Section 529 Plans - Section 529 Plans (named after the section of the IRS Code that created them) are plans established to help families save and pay for college in a tax-advantaged way and are available to everyone, regardless of income. These state-sponsored plans allow you to gift large sums of money for a family member’s college education while maintaining control of the funds. The earnings from these accounts grow tax-deferred and are tax-free, if used to pay for qualified higher education expenses. They can be used as an estate-planning tool as well, providing a means to transfer large amounts of money without gift tax. With all these tax benefits, 529 Plans are an excellent vehicle for college funding. Section 529 Plans come in two types, allowing you to either save funds in a tax-free account to be used later for higher education costs, or to prepay tuition for qualified universities. For 2015, you can contribute $14,000 without gift tax implications (or $28,000 for married couples who agree to split their gift). The annual amount is subject to inflation-adjustment. There is also a special gift provision allowing the donor to prepay five years of Sec 529 gifts up front without gift tax. Coverdell Education Savings Account - These accounts are actually education trusts that allow nondeductible contributions to be invested for a child’s education. Tax on earnings from these accounts is deferred until the funds are withdrawn, and if used for qualified education purposes, the entire withdrawal can be tax-free. Qualified use of these funds includes elementary and secondary education expenses in addition to post-secondary schools (colleges). This is the only one of the educational tax benefits that allows tax-free use of the funds for below college-level expenses. A total of $2,000 per year can be contributed for each beneficiary under the age of 18. The ability to contribute to these plans phases out when the modified adjusted gross income is between $190,000 and $220,000 for married taxpayers filing jointly, and between $95,000 and $110,000 for all others. Education Tax Credits - Two tax credits, the American Opportunity Credit (partially refundable) and the Lifetime Learning Credit (nonrefundable), are available for qualified post-secondary education expenses for a taxpayer, spouse, and eligible dependents. Both credits will reduce one’s tax liability dollar for dollar until the tax reaches zero. The credit is not allowed for taxpayers who file Married Separate returns. o The American Opportunity Credit - is a credit of up to $2,500 per student per year, covering the first four years of qualified post-secondary education. The credit is 100% of the first $2,000 of qualifying expenses plus 25% of the next $2,000 for a student attending college on at least a half-time basis. Forty percent of the American Opportunity credit is refundable (if the tax liability is reduced to zero). This credit phases out for joint filing taxpayers with modified adjusted gross income between $160,000 and $180,000, and between $80,000 and $90,000 for others. o The Lifetime Learning Credit - is a credit of up to 20% of the first $10,000 of qualifying higher education expenses. Unlike the American Opportunity Credit, which is on a per-student basis, this credit is per taxpayer. In addition to post-secondary education, the Lifetime Credit applies to any course of instruction at an eligible institution taken to acquire or improve job skills. For 2015 this credit phases out for joint filing taxpayers with modified adjusted gross income between $110,000 and $130,000, and between $55,000 and $65,000 for others. The credit is not allowed for taxpayers who file Married Separate returns. Qualifying expenses for these credits are generally limited to tuition. However, student activity fees and fees for course-related books, supplies, and equipment qualify if they must be paid directly to the educational institution for the enrollment or attendance of the student. You may qualify for this credit even if you did not pay the tuition. If a third party (someone other than the taxpayer or a claimed dependent) makes a payment directly to an eligible educational institution for a student’s qualified tuition and related expenses, the student would be treated as having received the payment from the third party, and, in turn, pay the qualified tuition and related expenses. Furthermore, qualified tuition and related expenses paid by a student would be treated as paid by the taxpayer if the student is a claimed dependent of the taxpayer. Education Loan Interest - You can deduct qualified interest of $2,500 per year in computing AGI. This is not limited to government student loans and this could include home equity loans, credit card debt, etc., if the debt was incurred solely to pay for qualified higher education expenses. For 2015, this deduction phases out for married taxpayers with an AGI between $130,000 and $160,000 and for unmarried taxpayers between $65,000 and $80,000. This deduction is not allowed for taxpayers who file married separate returns. We all know that a child’s success in life has a great deal to do with the education they receive. You cannot start the planning process too early. Please call this office if you would like assistance in planning for your children’s future education. Thu, 27 Aug 2015 19:00:00 GMT Partnership, S-Corp and Trust Extensions End September 15 http://www.mytrivalleytax.com/blog/partnership-s-corp-and-trust-extensions-end-september-15/40814 http://www.mytrivalleytax.com/blog/partnership-s-corp-and-trust-extensions-end-september-15/40814 Tri-Valley Tax & Financial Services Inc Article Highlights: September 15 is the extended due date for partnership, S-corporation, and trust tax returns. Late-filing penalty for partnerships and S-corporations Late-filing penalty for trust returns If you have a calendar year 2014 partnership, S-corporation, or trust return on extension, don't forget the extension for filing those returns ends on September 15, 2015. Pass-through entities such as Partnerships, S-corporations, and fiduciaries (trusts, estates) pass their income, deductions, credits, etc., through to their investors, partners, or beneficiaries, who in turn report the various items on their individual tax returns. Partnerships file Form 1065, S-corps file Form 1120-S, and Fiduciaries file Form 1041, with each partner, shareholder, or beneficiary receiving a Schedule K-1 from the entity that shows their share of the reportable items. If all of the aforementioned entities could obtain an automatic extension to file their returns on the same extended date as allowed to individuals, it would be difficult for individuals to meet the filing deadline without estimating the pass-through information and then later filing an amended return when the actual data was received. To overcome this problem, the automatic extension period for partnerships and trusts is set at 5 months, thus providing individual taxpayers with a month's grace period to complete their individual 1040 returns. The original due date for calendar year S-corporation returns was March 15, and they are allowed a 6-month extension period, making the due date for these returns also September 15. Thus, individual S-corp shareholders also have a month to finish up their individual returns. An S-corporation or partnership which fails to file on time is liable for a monthly penalty equal to $195 times the number of persons who were partners, or shareholders for S corps, during any part of the taxable year, for each month or fraction of a month for which the failure continues. In addition, a $100 penalty may be imposed on the partnership or S-corp for each Schedule K-1 that it fails to timely provide to partners or S-corp members (maximum penalty per year is $1.5 million). These penalties can be substantial. Trusts are subject to a penalty of 5% of the tax due for each month, or part of a month, for which a return is not filed up to a maximum of 25% of the tax due. A $100 per beneficiary penalty may also apply for failure to timely provide a Schedule K-1. Each beneficiary, who receives a distribution of property or an allocation of an item of the estate, is required to be provided a Schedule K-1. If this office is waiting for some missing information to complete your pass-through return, we will need that information at least a week before the September 15 due date. The late-filing penalties are substantial, so please call this office immediately if there are anticipated complications related to providing the needed information so a course of action can be determined to avoid the potential penalties. Tue, 25 Aug 2015 19:00:00 GMT What Small Business Owners Need To Know About Balance Sheets http://www.mytrivalleytax.com/blog/what-small-business-owners-need-to-know-about-balance-sheets/40800 http://www.mytrivalleytax.com/blog/what-small-business-owners-need-to-know-about-balance-sheets/40800 Tri-Valley Tax & Financial Services Inc The most effective way for small business owners to be sure that they are aware of their company's financial status is to have an accurate balance sheet that reflects the most current information available. By keeping this information up to date every quarter, you can help yourself avoid a lot of problems and surprises down the road. A balance sheet provides you with an at-a-glance summary of your company's financial health as of a specific day. It is broken down into what the business's assets are, what the business's liabilities are, and the amount of owner or shareholder equity. The balance sheet gets its name from the fact that the assets must be balanced by and equal to the liabilities plus the equity. Some business owners have found current balance sheets so helpful that they update them every month. Understanding the Asset Portion of the Balance Sheet When entering assets onto the balance sheet, the business owner needs to include everything that is owned by the business, whether current or liquid assets, fixed assets, or some other type of asset. Current or liquid assets include: Cash that is immediately available  Money that is owed to you (Accounts Receivable)  Products currently in stock (Inventory)  Expenses paid in advance, such as insurance premiums  Money-market accounts, investments and other securities  Additional monies owed to you  Fixed assets are items that can't be easily sold or moved, including equipment and furnishings, buildings, land and vehicles. In most cases these assets depreciate, or decrease in value. Beyond current and fixed assets, items that are intangible, such as goodwill, copyrights and patents, are also considered assets on a balance sheet. It is important to note that money that is owed to you that you expect will not be paid is classified as a Reserve for Bad Debts, which decreases the amount of the Accounts Receivable on the balance sheet. Understanding the Liability Portion of the Balance Sheet When entering liabilities onto the balance sheet, the business owner needs to include all of the business's debts, both current and long term. Current liabilities include accounts payable, sales and payroll taxes, payments on short-term business loans such as a line of credit, and income taxes. Long-term liabilities are those that are paid over a longer period of time, generally over more than a year. These include mortgages and leases, future employee benefits, deferred taxes and long-term loans. Understanding the Equity Portion of the Balance Sheet When entering information onto the equity portion of the balance sheet, you should include the value of any capital stock that has been issued, any additional payments or capital from investors beyond the par value of the stock, and the net income that has been kept by the business rather than distributed to owners and shareholders. In order to be sure that all of the information on the balance sheet is correct, you can double-check your numbers by subtracting assets from liabilities - the result should equal the equity amount. For more information on how to structure a balance sheet, check out this website: sample balance sheet. The Value of a Balance Sheet At first glance a balance sheet may look like an incomprehensible collection of numbers, but once you understand all of the various components and how they relate to one another, they will provide you with the opportunity to detect trends and spot issues before they become problems. Your balance sheet can alert you to: Times when inventory is outpacing revenue, thus alerting you to a need for better management of your inventory and production process  Cash flow problems and a shortage of cash reserves  Inadequacies in your cash reserves that are making it difficult to invest in continued growth  Problems with collecting accounts receivables  The most essential tools that are available to you as a small business owner for gauging your operation's financial health are the balance sheet, the income statement and the cash flow statement. If you are uncomfortable with preparing these documents for yourself or don't have the time, then let a qualified professional take over and give yourself the information that you need. Wed, 19 Aug 2015 19:00:00 GMT Keep Track of Your Investment Basis http://www.mytrivalleytax.com/blog/keep-track-of-your-investment-basis/32698 http://www.mytrivalleytax.com/blog/keep-track-of-your-investment-basis/32698 Tri-Valley Tax & Financial Services Inc Article Highlights: What is Basis? Cost Basis Gift Basis Inherited Basis Events That Adjust Basis First-in, First Out In taxes, there is a saying: “Those who keep records win.” If you are an investor, you may have a variety of securities, including stocks, bonds, mutual funds, etc. When you sell those securities, naturally you want to minimize your gains or maximize your losses for tax purposes. Gain or loss is measured from your tax basis in the investment (asset), which makes it important to keep track of the basis in all your investments. What is Basis? Generally, your basis in an investment begins with the price that was paid to purchase the investment. However, that will not be the case if the investment was acquired by gift or inheritance. For inherited assets, the basis generally begins with the FMV of the asset on the decedent’s date of death or an alternative valuation date, if chosen by the executor of the estate. Assets acquired by gift actually have a basis for gain - the donor’s basis - and a basis for loss - the fair market value of the asset on the date of the gift. When an asset is acquired through a division of property in a divorce, the asset retains the basis it had when it was owned jointly by the couple. Basis is not a fixed value; it can change during the time the asset is owned and is adjusted by certain events. For an investment asset, these events include: Reinvested cash dividends, Stock splits and reverse splits, Stock dividends, Return of capital, Additional investments, Broker’s commissions, Interest previously taken into income under an election under the accrued market discount rules, Interest taken into income under the original issue discount rules, Attorney fees, Acquisition costs, Depletion, Casualty losses, etc. These events can increase or decrease the tax basis in the investment, which makes adequate recordkeeping so important. Another issue associated with basis is when a portion of the investment is sold. Let’s say 100 shares of a particular stock were purchased in 2011 at $10 a share and another 100 shares in 2013 at $20 a share. The investor plans on selling 100 shares of the stock at $30 a share. Using the general rule of “first in - first out,” there would be a $20 per share gain. However, if the investor can identify each specific block of stock sold, such as the 100 share block bought in 2013, there would only be a $10 per share profit. This is known as the “specific identification” method. The following is a discussion of the more commonly encountered basis adjustments where recordkeeping is essential: Reinvested cash dividends – Investors are frequently given the opportunity to reinvest their dividends instead of taking them in cash. By participating in these plans, they are actually purchasing additional sales with their taxable dividends. Unless records are kept, the investor can’t prove how much he or she paid for the shares or establish the amount of gain that is subject to tax (or the amount of loss that can be deducted) when it is sold. Stock dividends – It is possible to receive both taxable and nontaxable stock dividends. Stock dividends that are taxable provide the investor with additional stock with a basis equal to the taxable stock dividend. If the dividends are nontaxable, the number of shares that are owned increases, but the basis remains unchanged. If the investor can associate the dividends with a specific block of stock, then the basis of that block can be adjusted accordingly. If not, the adjustment will apply to the entire holdings in that particular stock. Return of capital – A return of capital is a nontaxable return of a portion of the investment. Thus, a return of capital will reduce the investor’s basis in security. Suppose an investor has 100 shares of XYZ Corporation that cost $1,000 ($10 per share), and the corporation distributes to him a $100 nontaxable return capital. His basis in the stock is reduced to $900 ($1,000 - $100) or $9.00 per share. If, over a period of time, the return of capital exceeds his basis in the investment, then the excess becomes taxable because he cannot have a negative basis. Stock splits – Stock splits can be confusing if they are not tracked as they occur. Let’s assume that an investor owns 100 shares of XYZ Corporation for which he paid $2,000 ($20 a share). Later on, the corporation splits the stock 2 for 1. The result is that he now owns 200 shares, but his basis in each has been reduced to $10 per share (200 shares times $10 equals $2,000 – what was paid for the original shares). This generally occurs when the “per share value of stocks” becomes too high for small investors to purchase 100 share blocks. Also watch for reverse splits, which have the opposite effect. Stock spin-off – Occasionally, corporations will spin-off additional companies. The most classic example is the break up of AT&T some years ago into regional phone companies, who themselves later split into additional companies or merged with others. Each time one of these transactions takes place, the corporation will provide documentation on how to split the prior basis between the resulting companies. Tracking these events as they happen is very important, as it may be difficult to reconstruct the information several years down the road. Broker fees – Although broker fees are a deductible expense, they are generally already accounted for in most stock and bond transactions. The purchase price of a block of stock generally includes the broker fees, and the sales price reported to the IRS (gross proceeds of sale) is the net of the sales costs. Depending upon the investment vehicle, tracking the basis in an investment can be quite complicated. If you have questions, please contact this office. Tue, 18 Aug 2015 19:00:00 GMT Don't Lose Your Insurance Subsidy in 2016 Because You Haven't Filed Your 2014 Return! http://www.mytrivalleytax.com/blog/dont-lose-your-insurance-subsidy-in-2016-because-you-havent-filed-your-2014-return/40789 http://www.mytrivalleytax.com/blog/dont-lose-your-insurance-subsidy-in-2016-because-you-havent-filed-your-2014-return/40789 Tri-Valley Tax & Financial Services Inc Article Highlights: Insurance Subsidy  Advance Premium Tax Credit  Non-filers  2016 Consequences of Not Filing  If you are one of the over 1 million individuals who received an Obamacare health insurance premium subsidy last year and have yet to file your 2014 tax return, you are risking your opportunity to receive a subsidy in 2016. The subsidy, which is paid by the government to your insurer to reduce the premiums you owe, is actually an advance payment of the premium tax credit (PTC) based upon your “estimated” income for the year. Your actual PTC is based on your “actual” income as determined on your tax return. If the advance PTC (subsidy) was less than the actual PTC as determined on your tax return, you are entitled to the difference. On the other hand, if your actual PTC is less than the advance amount, you may owe Uncle Sam some or all of the difference. Whether you are entitled to additional PTC or owe some back cannot be determined without filing your return. The IRS estimates that 710,000 individuals who received an advance PTC have yet to file a 2014 return or did not file an extension. Add that to the approximately 360,000 taxpayers who received an advance PTC and have filed an extension, and there are over 1 million individuals who need to reconcile their 2014 PTC who have not yet filed. Because the Marketplace will determine eligibility for advance PTC for the 2016 coverage year during the fall of 2015, if you haven't filed your 2014 return yet, you can substantially increase your chances of avoiding a gap in receiving this help if you file your 2014 tax return as soon as possible, even if you have an extension until October 15th. Navigating the complicated Obamacare forms developed by the IRS is difficult for many taxpayers, and most seek professional assistance. The IRS is currently sending letters to individuals who received advance PTC subsidies and have yet to file. The letter encourages taxpayers to file within 30 days of the date of the letter in order to avoid a gap in receiving advance payments of the PTC in 2016. It is never a good idea not to file, even if you owe and can't pay. The IRS just gets more aggressive as time goes on. So whether you don't feel you can do your own return, are afraid you may owe some of the PTC back, or think you may be subject to penalties for failing to have health insurance coverage, we encourage you to give this office a call. There are penalty exceptions for being uninsured, or if you owe a PTC repayment there's a possibility it can be reduced, and it may all work out OK. Procrastinating isn't going to change the outcome and could put your 2016 advance PTC at risk. Who knows, you may even be entitled to more PTC and a refund. Thu, 13 Aug 2015 19:00:00 GMT Only One IRA Rollover Every 12 Months - Period! http://www.mytrivalleytax.com/blog/only-one-ira-rollover-every-12-months-period/40780 http://www.mytrivalleytax.com/blog/only-one-ira-rollover-every-12-months-period/40780 Tri-Valley Tax & Financial Services Inc Article Highlights: One rollover per 12-month period  Tax consequences  Difference between a rollover and a transfer  Relief  Although this subject has been brought up before-and, yes, we are harping on the subject because of the profound tax consequences-this is a reminder that, beginning this year, individuals are only allowed one IRA rollover in any 12-month period (this includes SEP and Simple accounts, traditional and Roth IRAs). That is, 12 months must have elapsed from the date a rollover is completed before another rollover can be made. Failure to abide by this rule can be expensive. And the rule applies no matter how many IRAs an individual owns. Example - Joe makes an IRA rollover on March 1, 2015. He cannot roll over another IRA distribution, without penalties, until March 2, 2016. If Joe, in the example, were to make another IRA rollover before March 2, 2016, that entire distribution would be treated as a taxable distribution and would also be subject to the 10% early distribution penalty if Joe is under the age of 59.5 at the time of the distribution. Additionally, if Joe deposited the distributed amount into another IRA, or redeposited the funds into the same IRA, those funds are treated as an excess contribution and are subject to a 6% penalty per year for as long as they remain in the IRA. That doesn't mean you can't transfer funds between IRA trustees multiple times during the year. In a rollover, a taxpayer takes possession of the funds and then must redeposit them within 60 days to avoid being taxed on the distribution. In contrast, a transfer moves the funds directly from one trustee to another with the taxpayer never taking possession of the funds. Unlimited direct transfers are allowed, including moving traditional IRA funds to a Roth IRA (called a conversion). If, through no fault of yours, a trustee does not follow your instructions to make a transfer and instead distributes the funds to you, procedures are available to obtain relief. If you are planning an IRA rollover, before taking the distribution, please check with your IRA trustee or call this office to ensure you are not violating the 12-month rule. Tue, 11 Aug 2015 19:00:00 GMT Tax Tips for Disabled Taxpayers http://www.mytrivalleytax.com/blog/tax-tips-for-disabled-taxpayers/25490 http://www.mytrivalleytax.com/blog/tax-tips-for-disabled-taxpayers/25490 Tri-Valley Tax & Financial Services Inc Article Highlight: Increased Standard Deduction Tax Exempt Income Impairment-Related Work Expenses Earned Income Tax Credit Credit for the Elderly or Disabled Child or Dependent Care Credit Special Medical Deductions Qualified Medicaid Waiver Payments ABLE Accounts Taxpayers with disabilities may qualify for a number of tax credits and benefits. Parents of children with disabilities may also qualify. Listed below are several tax credits and other benefits that are available if you or someone else listed on your federal tax return is disabled. Increased Standard Deduction – If a tax return filer and/or spouse are legally blind, they are entitled to a higher standard deduction on their tax return. Exclusions from Gross Income - Certain disability-related payments, Veterans Administration disability benefits, and Supplemental Security Income are excluded from gross income. Impairment-Related Work Expenses - Employees, who have a physical or mental disability limiting their employment, may be able to claim business expenses in connection with their workplace. The expenses must be necessary for the taxpayer to work. Credit for the Elderly or Disabled - This credit is generally available to certain taxpayers who are 65 and older, as well as to certain disabled taxpayers who are younger than 65 and are retired on permanent and total disability. Earned Income Tax Credit - EITC is available to disabled taxpayers as well as to the parents of a child with a disability. If you retired on disability, taxable benefits that were received under your employer’s disability retirement plan are considered earned income until a minimum retirement age is reached. The EITC is a tax credit that not only reduces a taxpayer’s tax liability but may also result in a refund. Many working individuals with a disability who have no qualifying children, but are older than 25 and younger than 65, may qualify for EITC. Additionally, if the taxpayer’s child is disabled, the age limitation for the EITC is waived. The EITC has no effect on certain public benefits. Any refund that is received because of the EITC will not be considered income when determining whether a taxpayer is eligible for benefit programs, such as Supplemental Security Income and Medicaid. Child or Dependent Care Credit - Taxpayers who pay someone to come to their home and care for their dependent or disabled spouse may be entitled to claim this credit. For children this credit is usually limited to the care expenses paid only until age 13, but there is no age limit if the child is unable to care for him- or herself. Special Medical Deductions – In addition to conventional medical deductions, the tax code provides special medical deductions related to disabled taxpayers and dependents. They include: • Impairment-Related Expenses - Amounts paid for special equipment installed in the home, or for improvements, may be included in medical expenses, if their main purpose is medical care for the taxpayer, the spouse, or a dependent. The cost of permanent improvements that increase the value of the property may only be partly included as a medical expense.• Learning Disability - Tuition fees paid to a special school for a child who has severe learning disabilities caused by mental or physical impairments, including nervous system disorders can be included in medical expenses. A doctor must recommend that the child attend the school. Tutoring fees recommended by a doctor for the child’s tutoring by a teacher who is specially trained and qualified to work with children who have severe learning disabilities might also be included. • Drug Addiction - Amounts paid by a taxpayer to maintain a dependent in a therapeutic center for drug addicts, including the cost of the dependent's meals and lodging, are included in medical expenses. Exclusion Of Qualified Medicaid Waiver Payments – Payments made to care providers caring for related individuals in the provider’s home are excluded from the care provider’s income. Qualified foster care payments are amounts paid under the foster care program of a state (or political subdivision of a state or a qualified foster care placement agency). For more information please call. ABLE Accounts - Qualified ABLE programs provide the means for individuals and families to contribute and save for the purpose of supporting individuals with disabilities in maintaining their health, independence, and quality of life. Federal law enacted in 2014 authorizes the States to establish and operate an ABLE program. Under the ABLE program, an ABLE account may be set up for any eligible state resident, which would generally be the only person who could take distributions from the account. ABLE accounts are very similar in function to Sec 529 plans. However, they should not be considered as estate planning devices, as is sometimes the case with 529 plans; the main purpose of ABLE accounts is to shelter assets from means testing required by government benefit programs. Individuals can contribute to ABLE accounts subject to Gift Tax limitations. Distributions to the disabled individual are tax free if the funds are used for qualified expenses of the disabled individual. These accounts are new and must be established at the state level before taxpayers can start making contributions to them. Call the office for more information. For more information on tax credits and benefits available to disabled taxpayers, please consult this office. Thu, 06 Aug 2015 19:00:00 GMT Don’t Forget Your Retirement! http://www.mytrivalleytax.com/blog/don8217t-forget-your-retirement/26954 http://www.mytrivalleytax.com/blog/don8217t-forget-your-retirement/26954 Tri-Valley Tax & Financial Services Inc Article Highlights: Simplified Employee Pension Plans (SEP) Qualified Plan (Keogh) Savings Incentive Match Plan for Employees (SIMPLE Plan) Individual 401(k) Plan Small Employer Pension Startup Credit Even though retirement may be years away, and it may not be the most pressing issue on your mind these days, don’t forget your retirement contributions, especially with generous government incentives involved. There are a variety of retirement plans available to small businesses that allow the employer and employee a tax-favored way to save for retirement. Contributions made by the owner on his or her own behalf and for employees can be tax-deductible. Furthermore, the earnings on the contributions grow tax-free until the money is distributed from the plan. Here are some retirement plan options: Simplified Employee Pension Plan (SEP). This plan was designed to avoid the complications of a qualified plan. Contributions to the plan are held in the beneficiaries’ IRA accounts; hence, the title “simplified.” Deductible contributions for 2015 are limited to the lesser of 25% of the participant’s compensation (up to $265,000) or $53,000. A SEP can be established and funded after the close of the year. Qualified Plan (Keogh). Generally, the rules surrounding a Keogh are more complex. This type of plan may include a discretionary contribution profit sharing plan or a mandatory contribution money purchase plan, or a combination of these. SEP plans are favored over Keogh plans by most self-employed individuals. For 2015, deductible contributions are limited to the lesser of 25% of the participant’s compensation (up to $265,000) or $53,000. These plans must be established before the end of the tax year, but contributions can be made afterwards. Savings Incentive Match Plan for Employees (SIMPLE Plan). Under this plan, the business owner takes a deduction, and employees receive a salary deferral. For 2015, the contribution limit is $12,500 (per employer or employee), with an additional catch-up contribution limit of $3,000 for participants aged 50 or older. The employer can match the contribution up to 3% of compensation or make a non-elective contribution of 2% of compensation. Individual 401(k) Plan. The individual 401(k) plan is similar to the traditional 401(k) plan with added benefits for the small business owner. For 2015, the owner can contribute and deduct up to 25% of compensation plus an additional $18,000 salary deferral, up to a $53,000 maximum $59,000 for those who are age 50 and over). For employees, the contribution and salary deferral limit is $18,000, with an additional $6,000 catch-up contribution available to those aged 50 or over. Employers can match employee contributions. If you do establish a new qualified pension plan for your business, you may be entitled to the “small employer pension startup credit.” The credit is equal to 50% of administrative and retirement-related education expenses for the plan for each of the first three plan years, with a maximum credit of $500 for each year. Plan-related expenses in excess of the amount of the credit claimed are generally deductible as ordinary expenses of the business. The first credit year is the tax year that includes the date the plan becomes effective, or, electively, the preceding tax year. Examples of qualifying expenses include the costs related to changing the employer’s payroll system, consulting fees, and set-up fees for investment vehicles. If you would like assistance in selecting a retirement plan for your business or to explore the tax benefits relevant to your particular circumstances, please give this office a call. Tue, 04 Aug 2015 19:00:00 GMT Eldercare Can Be a Medical Deduction http://www.mytrivalleytax.com/blog/eldercare-can-be-a-medical-deduction/36545 http://www.mytrivalleytax.com/blog/eldercare-can-be-a-medical-deduction/36545 Tri-Valley Tax & Financial Services Inc Article Highlights: Nursing Homes Meals and Lodging Home care Nursing Services Household Employees With people living longer, many find themselves becoming the care provider for elderly parents, spouses and others who can no longer live independently. When this happens, questions always come up regarding the tax ramifications associated with the cost of nursing homes or in-home care. Generally, the entire cost of nursing homes, homes for the aged, and assisted living facilities are deductible as a medical expense, if the primary reason for the individual being there is for medical care or the individual is incapable of self-care. This would include the entire cost of meals and lodging at the facility. On the other hand, if the individual is in the facility primarily for personal reasons, then only the expenses directly related to medical care would be deductible and the meals and lodging would not be a deductible medical expense. As an alternative to nursing homes, many elderly individuals or their care providers are hiring day help or live-in employees to provide the needed care at home. When this is the case, the services provided by the employees must be allocated between household chores and deductible nursing services. To be deductible, the nursing services need not be provided by a nurse so long as the services are the same services that would normally be provided by a nurse, such as administering medication, bathing, feeding, dressing, etc. If the employee also provides general housekeeping services, then the portion of the employee's pay attributable to household chores would not be a deductible medical expense. Household employees, like other employees, are subject to Social Security and Medicare taxes, and it is the responsibility of the employer to withhold the employee's share of these taxes and to pay the employer's payroll taxes. Special rules for household employees greatly simplify these payroll withholding and reporting requirements and allow the federal payroll taxes to be paid annually in conjunction with the employer's individual 1040 tax return. Federal income tax withholding is not required unless both the employer and the household employee agree to withhold income tax. However, the employer is still required to issue a W-2 to the employee and file the form with the federal government. A federal employer ID number (FEIN) and a state ID number must be obtained for reporting purposes. Most states have special provisions for reporting and paying state payroll taxes on an annual basis that are similar to the federal reporting requirements. The employer’s portion of the employment taxes (Social Security, Medicare, and federal and state unemployment taxes) that relate to the employer’s deductible medical expenses are also allowed as a medical expense. If you need assistance in setting up a household payroll, please contact this office for additional details and filing requirements. Thu, 30 Jul 2015 19:00:00 GMT Reverse Mortgages - A Cash Flow Solution for Seniors http://www.mytrivalleytax.com/blog/reverse-mortgages-a-cash-flow-solution-for-seniors/34711 http://www.mytrivalleytax.com/blog/reverse-mortgages-a-cash-flow-solution-for-seniors/34711 Tri-Valley Tax & Financial Services Inc Article Highlights: Reverse Mortgages Reverse Mortgage Terms Who deducts the Interest? When is the Interest Deductible? Some retirees are faced with mounting debt and inadequate income. What options do these seniors have, especially if they have a mortgage on their home and their retirement income is too low to cover the mortgage payments and have enough left over to have some enjoyment in their golden years? One option that you see promoted on television is the “reverse mortgage” which allows a homeowner to borrow against the equity they have built up in their home over the years. The loan is not due until the homeowner passes away or moves out of the home. If the homeowner dies, the heirs can pay off the debt by selling the house and any remaining equity goes to them. If at that time the loan balance is equal to or more than the value of the home, the repayment amount is limited to the home’s worth. In order to be eligible for this loan, the borrower must be at least 62 years of age and have equity in the home. The reverse mortgage must be a first trust deed. Thus any existing loans would have to be paid off with separate funds or with the proceeds from the reverse mortgage. The amount that can be borrowed is based upon age, and the older the borrower, the greater amount that can be borrowed and the lower the interest rate. The loan amount will also depend on the value of the home, interest rates and the amount of equity built up. The borrower has the option of taking the loan as a lump sum, a line of credit, or as fixed monthly payments. In addition, the money generally can be used for any purpose, without restrictions imposed. One question that always comes up when discussing reverse mortgages is, when will the interest be deductible? When determining whether reverse mortgage interest is deductible, when it is deductible and by whom, these are factors to consider: Interest (regardless of type) is not deductible until paid. A reverse mortgage loan is not required to be repaid as long as the borrower lives in the home. Therefore, the interest on a reverse mortgage is not deductible by anyone until the loan is paid off. Generally reverse mortgages are classified as equity loans and the deductible interest would be limited to the interest accrued on the first $100,000 of debt. There are exceptions where the reverse mortgage paid off an existing acquisition debt loan. Equity debt interest is not deductible by taxpayers subject to the alternative minimum tax (AMT). So who deducts the interest when the loan is paid off? Debtor - If the debtor pays off the loan while still living, the debtor is the one that deducts the sum of the interest they would have been entitled to deduct each year had it been paid, subject to the limitations discussed in 1 & 2 above. Estate – If the estate pays off the mortgage after the debtor has passed away, the estate would deduct the interest it on its income tax return. The amount deductible would be the sum of the interest the debtor would have been entitled to deduct each year had they paid it, subject to the limitations discussed in 1 & 2 above. Beneficiary – If the beneficiary, or beneficiaries, who inherit the home, pays off the mortgage, the interest would be deductible as an itemized deduction on their personal 1040 income tax return(s). The amount deductible would be the sum of the interest the debtor would have been entitled to deduct each year had they paid it, subject to the limitations discussed in 1 & 2 above. Reverse mortgages have brought financial security to many seniors so that they can live a comfortable life. If you are a senior who is struggling with your finances, carefully explore your options, including the possibility of a reverse mortgage. Keep in mind, however, that some reverse mortgages may be more expensive than traditional home loans, and the upfront costs can be high, especially if you don’t plan to be in your home for a long time or only need to borrow a small amount.If you have questions about reverse mortgages and the mortgage interest deduction, please give this office a call. Tue, 28 Jul 2015 19:00:00 GMT Bunching Your Deductions Can Provide Big Tax Benefits http://www.mytrivalleytax.com/blog/bunching-your-deductions-can-provide-big-tax-benefits/33400 http://www.mytrivalleytax.com/blog/bunching-your-deductions-can-provide-big-tax-benefits/33400 Tri-Valley Tax & Financial Services Inc Article Highlights: Itemized Versus Standard Deductions Medical Expenses Taxes Charitable Contributions If your tax deductions normally fall short of itemizing your deductions or even if you are able to itemize, but only marginally, you may benefit from using the “bunching” strategy. The tax code allows most taxpayers to utilize the standard deduction or itemize their deductions if that provides a greater benefit. As a rule, most taxpayers just wait until tax time to add everything up and then use the higher of the standard deduction or their itemized deductions. If you want to be more proactive, you can time the payments of tax-deductible items to maximize your itemized deductions in one year and take the standard deduction in the next. For the most part, itemized deductions include medical expenses, property taxes, state and local income (or sales) taxes, home mortgage and investment interest, charitable deductions, unreimbursed job-related expenses, and casualty losses. The “bunching strategy” is more commonly associated with medical expenses, tax payments and charitable deductions, although there are circumstances in which the other deductions might come into play. There are many opportunities to bunch deductions, and the following are examples of the bunching strategies most commonly used: Medical Expenses - You contract with a dentist for your child’s braces. The dentist may offer you an up-front, lump sum payment or a payment plan. By making the lump sum payment, the entire cost is credited in the year paid, thereby dramatically increasing your medical expenses for that year. If you do not have the cash available for the up-front payment, then you can pay by credit card, which is treated as a lump-sum payment for tax purposes. If you use a credit card, you must realize that the credit card interest is not deductible, and you need to determine if incurring the interest is worth the increased tax deduction. Another important issue with medical deductions is that only the amount of the total medical expenses that exceeds 10% of your adjusted gross income (AGI) is actually deductible. If you are 65 or over the medical deduction floor is 7.5% through 2016, unless you are caught by the Alternative Minimum Tax (AMT). Then only the amount that exceeds 10% of your AGI is actually deductible. So, there is no tax benefit in bunching medical deductions unless the expenses exceed these limitations. If the current year is an abnormally high-income year, you may, where possible, wish to put off making medical expense payments until the subsequent year when the 10% (7.5% threshold is less. Taxes - Property taxes on real estate are generally billed annually at mid-year, and most locales allow the tax bill to be paid in semi-annual or quarterly installments. Thus, you have the option of paying it all at once or paying in installments. This provides the opportunity to bunch the tax payments by paying one semi-annual installment or two quarterly installments and a full year’s tax liability in one year and only paying one semi-annual installment or two quarterly installments in the other year. In doing so, you are able to deduct 1-½ year’s taxes in one year and 50% of a year’s taxes in the other. If you are thinking of making the property tax payments late as a way to accomplish bunching, you should be cautious. The late payment penalty will probably wipe out any potential tax savings. If you reside in a state that has state income tax, the state income tax paid or withheld during the year is deductible as a federal itemized deduction. So, for instance, if you are paying state estimated tax in quarterly installments, the fourth-quarter estimate is generally due in January of the subsequent year. This gives you the opportunity to either make that payment before December 31st, and be able to deduct the payment on the current year’s return, or pay it in January before the January due date and use it as a deduction in the subsequent year. A word of caution about the itemized deduction for taxes! Taxes are only deductible for regular tax purposes. So, to the extent you are taxed by the AMT, you derive no benefits from the itemized deduction for taxes. Charitable Contributions - Charitable contributions are a nice fit for “bunching” because they are entirely payable at the taxpayer’s discretion. For example, if you normally tithe at your church, you could make your normal contributions during the year and then prepay the entire subsequent year’s tithing in a lump sum in December of the current year, thereby doubling up on the church contribution one year and having no charity deduction for church in the other year. Normally, charities are very active with their solicitations during the holiday season, giving you the opportunity to make the contributions at the end of the current year or simply wait a short time and make them after the end of the year. Be sure you get a receipt or acknowledgment letter from the organization that clearly shows in which year the contribution was made. If you think a “bunching” strategy might benefit you, please call this office to discuss the issue and set up an appointment for some in-depth strategizing. Thu, 23 Jul 2015 19:00:00 GMT 3 Ways to Improve Your Budgeting and Forecasting http://www.mytrivalleytax.com/blog/3-ways-to-improve-your-budgeting-and-forecasting/40696 http://www.mytrivalleytax.com/blog/3-ways-to-improve-your-budgeting-and-forecasting/40696 Tri-Valley Tax & Financial Services Inc Budgeting and forecasting are two of the most important financial exercises performed by businesses, regardless of their size. Unfortunately, they are also two exercises that many businesses fail to perform accurately or efficiently. The biggest common problem is that most budgets and forecasts are created without any room for flexibility. Managers are told at the end of the year to make projections for revenue and spending for the next year, but these often end up being optimistic best guesses that are manipulated for the financial benefit of their department. Here are 3 steps to help you improve your company's budgeting and forecasting processes: Build flexibility into your budgeting and forecasting. This is the most important step to better budgeting and forecasting. Static and inflexible budgets and forecasts can lead to many different financial problems. Traditional annual forecasts and projections made by managers are often inaccurate and obsolete by the end of the first quarter. However, managers are still expected to meet them and important business decisions are made based upon them. This leads to frustrated employees who are held accountable for hitting unrealistic numbers - and worse, faulty decisions and plans that can end up being very expensive. Instead, your processes should include a review of your budget and forecasts at the end of each quarter, if not each month. Doing so will allow you to make necessary adjustments that will improve overall accuracy and lead to better business decision-making.   Create rolling forecasts and budgets. This is a flexible alternative to the traditional static annual budgeting and forecasting process that most companies follow. It enables you to regularly update your forecasts and budgets based on actual current business results, not what managers guessed might be happening many months ago. The rolling process involves using actual quarterly financial data to update your forecasts, which typically extend out for five or six quarters. Each quarter, you will update your forecasts for the next quarter based on the most recent quarter's results. You will then adjust your budget so that it reflects these new, updated forecasts. With this process, detailed monthly forecasting at the category level is only done for the next quarter, not the entire year. Subsequent quarters' forecasts are broader, since they will likely be updated in the future. Rolling forecasting and budgeting will enable you to better align your budget with your strategic plan while also improving the accuracy of your forecasts and budgets.   Budget to your plan, instead of planning to your budget. This is a fairly simple but often overlooked concept because it requires discipline on the part of ownership and management. It requires that spending decisions be made based on actual revenue, rather than on opportunities that such spending might (or might not) lead to. Budgeting to plan considers the true impact that spending decisions will have on the company's finances. For example, a business might have an opportunity to grow by acquiring a competitor or taking on a large new client. However, doing so will require assuming significant debt in order to finance the acquisition or buy new equipment or additional inventory. Budgeting to your plan will consider how these costs will impact the budget in both the short and long term and then plan accordingly. Conversely, planning to your budget will just move forward with the debt and figure out later what the impact on the budget will be.  Budgeting and forecasting are too important to leave open to inaccuracies and inefficiency. By following these 3 steps, you will go a long way toward improving your budgeting and forecasting processes. If your small business needs help in setting and managing your budget, feel free to give us a call. Wed, 22 Jul 2015 19:00:00 GMT Receiving Social Security Can Be Taxing http://www.mytrivalleytax.com/blog/receiving-social-security-can-be-taxing/40683 http://www.mytrivalleytax.com/blog/receiving-social-security-can-be-taxing/40683 Tri-Valley Tax & Financial Services Inc Article Highlights: Social Security Taxability Taxability Thresholds Working and Drawing Social Security Pension Distributions and Social Security Taxability Planning Pension Distributions Generally, your Social Security (SS) benefits are not taxable until your modified adjusted gross income (MAGI) is more than the base amount for your filing status. MAGI is your regular AGI (without Social Security income) plus 50% of your Social Security income plus tax-exempt interest income plus certain other infrequently encountered modifications. The base amounts (threshold where the SS benefits become taxable) are: $25,000 if you are single, a head of household, a qualifying widow or widower with a dependent child, or married filing separately and did not live with your spouse at any time during the year; $32,000 if you are married and file a joint return; Zero if you are married filing separately and lived with your spouse at any time during the year. Thus, if your only income were SS benefits, you would likely not be subject to income tax on those benefits. However, if you are filing a joint tax return and your MAGI exceeds $32,000, then some portion of the SS benefits will become taxable. The amount that is added to taxable income ranges from 50% to 85% of the SS benefits in excess of the threshold. If you are drawing SS benefits and working, you may find that the added income from working will cause you to be subject to dual taxation. How can this be, you ask? Since your SS taxation is based upon your income, the additional income from working may cause some or a good portion of your SS benefits to be taxable. For example, take a married couple that has a small pension, some investment income, and SS income. Retirement Income Total Without Work Income With Work Income Interest & Dividends 2,500 2,500 2,500 Pension & IRA Income 25,000 25,000 25,000 Social Security Benefits 12,000 750 9,825 Work Income 15,000 Total Income Subject to Tax 28,250 52,325 -----------------> <28,250> Net Increase in Income Subject to Tax 24,075 In the example above, the $15,000 income from working caused an additional $9,075 ($9,825 - 750) of Social Security to become taxable, in effect causing the couple to be taxed on $1.61 for every $1 earned by working. A similar issue can occur when withdrawing from an IRA or other retirement plan. Additional IRA withdrawals can have the same effect as working. For example: you decide you need a new car and take a larger than necessary withdrawal from your IRA account to pay for the vehicle. That extra IRA distribution could create an unpleasant surprise by causing more of your SS benefits to be taxable. This also brings up another important fact. If you have an IRA account and your income is such that you are not required to file or are in an unusually low tax bracket, you might want to consider withdrawing as much as possible from your IRA without triggering any tax, causing any additional SS benefits to be taxable, or hitting the next tax bracket, even if you don’t need the funds. Keep in mind that whether you are currently working and are about to receive Social Security benefits, already receiving SS benefits and planning on returning to work, or are planning to take an abnormally large IRA distribution, the tax implications can be substantial and require your timely attention. Please contact this office for assistance in planning for the additional tax liability created from working, drawing Social Security, and taking IRA distributions. Tue, 21 Jul 2015 19:00:00 GMT Preventing Tax Problems When Employees Travel http://www.mytrivalleytax.com/blog/preventing-tax-problems-when-employees-travel/40665 http://www.mytrivalleytax.com/blog/preventing-tax-problems-when-employees-travel/40665 Tri-Valley Tax & Financial Services Inc Article Highlights: Employer Deduction for Travel Expenses  How an Employee Treats Travel Expenses  Employer Accountable Plans  Lodging When Attending Local Employer Events  Tax Home  Temporary Work Location  Sending employees on business trips is essential for countless companies and can result in tax headaches for both the employer and the employee if the tax regulations are not adhered to. If the rules are followed, the cost of the employee's travel will be fully deductible to the employer, with the exception of meals, which are only 50% deductible, and tax-free reimbursement to the employee. In addition, the reimbursement is not subject to FICA or payroll withholding. On the other hand, if the rules are not followed, the expenses are still deductible by the employer, but the reimbursement must be added to the employee's taxable wages, subject to both FICA and payroll withholding. An employer is able to deduct ordinary and necessary business expenses, including an employee's job-related travel and lodging expenses that are not lavish or extravagant, and under the rules of working condition fringe benefits, any such item that is deductible by the employer is not includible in the employee's salary. In addition, an advance or reimbursement made to an employee under an “accountable plan,” which requires the employee to adequately account for the expenses and return any excess advances, is deductible by the employer and not subject to FICA or income tax withholding. Reimbursements not made under an accountable plan are fully taxable to the employee, and the only way for the employee to deduct the expenses is as a miscellaneous itemized deduction on his or her 1040. To do that, the employee must itemize his or her deductions on Schedule A, as opposed to taking the standard deduction. The employee business expense category on Schedule A is subject to a 2% of AGI nondeductible threshold, and this frequently results in the employee not being able to deduct any or only a portion of the expenses. With the exception noted below, to deduct the cost of lodging and meals, the taxpayer must be away from home overnight. Any trip that is of such a length as to require sleep or rest to enable the taxpayer to continue working is considered “overnight.” Under an exception to the away-from-home rule, the cost of local lodging is deductible if the lodging is necessary for the individual to participate fully in or be available for a bona fide business meeting, conference, training activity, or other business function and the duration does not exceed five calendar days and does not recur more frequently than once per calendar quarter. For an employee, the employer must require the employee to remain at the activity or function overnight, the lodging must not be lavish or extravagant, and there can be no significant element of personal pleasure, recreation, or benefit. A taxpayer's home, for purposes of determining if he or she is away from home and can deduct lodging and meals, is generally where the taxpayer normally lives and works, although that fact is sometimes difficult to determine, in which case the IRS has numerous special rules that apply. Where an away-from-home assignment, at a single location, lasts for one year or less, it is “temporary,” and the travel expenses are deductible. If the assignment is longer, there is a good chance the expenses will not be deductible based upon some complex rules. The rules for the tax treatment of travel expenses and temporary away-from-home assignments can be complex. Please give this office a call for further details or assistance. Thu, 16 Jul 2015 19:00:00 GMT Receiving Tips Can Be Taxing http://www.mytrivalleytax.com/blog/receiving-tips-can-be-taxing/30377 http://www.mytrivalleytax.com/blog/receiving-tips-can-be-taxing/30377 Tri-Valley Tax & Financial Services Inc Article Highlights: Tips are taxable and must be included on your tax return Tip splitting and cover charges Tip reporting to employer Employer tip allocation Daily log for tip record keeping If you work in an occupation where tips are part of your total compensation, you need to be aware of several facts relating to your federal income taxes: Tips are taxable - Tips are subject to federal income, social security, and Medicare taxes. The value of non-cash tips, such as tickets, passes, or other items of value, is also income and subject to taxation. Include tips on your tax return - You must include in gross income all cash tips received directly from customers, tips added to credit cards, and your share of any tips received under a tip-splitting arrangement with fellow employees. Report tips to your employer - If you receive $20 or more in tips in that month, you should report all of your tips to your employer. Your employer is required to withhold federal income, social security, and Medicare taxes. If the tips received are less than $20 in any month, they need not be reported to the employer. However, these tips are still taxable and must be reported on your tax return, as they are subject to income and social security taxes. Tip-splitting and cover charges - Tips you give to others under a tip-splitting arrangement are not subject to the reporting requirement, so you should report to your employer only the net tips you receive. Service (cover) charges, which are arbitrarily added by the business establishment, are excluded from the tip reporting requirements. The employer should add each employee’s share of service charges to each employee’s wages. Employer allocation of tips - Tip allocation is applicable to “large food and beverage establishments” (i.e., food service businesses where tipping is customary and that have 10 or more employees). These establishments must allocate a portion of their gross receipts as tip income to those employees who “underreport.” Underreporting occurs if an employee reports tips that are less than 8% of the employee’s applicable share of the employer’s gross sales. The employer must allocate to those underreported employees the difference between what the employee reported and the 8%. If you are in this situation, your allocation amount will be noted on your W-2 form. These allocated tips will not have been included in the total wages box on your W-2, so they must be accounted for as additional wage income on your return, unless you have adequate records to show that the amount is incorrect. Because social security, Medicare, and Additional Medicare taxes were not withheld from the allocated tips, to the extent these tips are included in your income, you must report those taxes as additional tax on your return. The IRS frequently issues inquiries when the taxpayer’s W-2 shows an allocation of tips and a lesser amount is reported on the tax return. Keep a running daily log of tip income - Tips are a frequently audited item and it is a good practice to keep a daily log of your tips. The IRS provides a log in Publication 1244 that includes an Employee's Daily Record of Tips and a Report to Employer for recording your tip income. If you are receiving tips and have any questions about their taxation, please give this office a call. Tue, 14 Jul 2015 19:00:00 GMT Plan for the Potential IRA-to-Charity Provision Extension http://www.mytrivalleytax.com/blog/plan-for-the-potential-ira-to-charity-provision-extension/40662 http://www.mytrivalleytax.com/blog/plan-for-the-potential-ira-to-charity-provision-extension/40662 Tri-Valley Tax & Financial Services Inc Article Highlights IRA-to-Charity Transfer Provision  Required Minimum Distribution  Expired in 2014  May Be Extended to 2015  What Should Be Done Now In Case It Is Extended  If you are 70.5 or over, have not taken all or any of your 2015 required minimum distribution (RMD) from your IRA, and plan to but have not yet made a significant charitable contribution, here is a tip that could save some tax dollars. In previous years, there has been a tax provision allowing an individual age 70.5 or older to make a direct transfer of money, up to $100,000, from his or her IRA account to a qualified charity. That provision expired on December 31, 2014. However, Congress has extended that provision in the past, and there is a good chance it may be extended again. In fact, the Senate Finance Committee working group on individual tax reform, just recently, recommended extending the provision. If Congress does not extend it, you will have still satisfied your minimum distribution requirement, and the amount transferred to the charity will still count as a charitable contribution. If Congress does extend it, you can take advantage of the tax benefits described later in this article. If you wait to see whether the provision will be extended, and Congress waits until the last minute, like it did last year, you may not have time to take action, as was the case for most taxpayers last year, or you may have already taken your RMD or made that charitable contribution. If the provision is extended, here is how it will play out on a tax return: The distribution is excluded from income;  The distribution counts towards the taxpayer's Required Minimum Distribution for the year; and  The distribution does NOT count as a charitable contribution.  At first glance, this may not appear to provide tax benefits. However, by excluding the distribution, a taxpayer lowers his or her income (AGI) for other tax breaks pegged at AGI levels such as medical expenses, passive losses, taxable Social Security, etc. Non-itemizers essentially receive the benefit of a charitable contribution to offset the IRA distribution. If you think that this tax provision may affect you and you would like to explore the possibilities with some tax planning, please call this office. Thu, 09 Jul 2015 19:00:00 GMT Tips To Reduce Payroll Stress http://www.mytrivalleytax.com/blog/tips-to-reduce-payroll-stress/40660 http://www.mytrivalleytax.com/blog/tips-to-reduce-payroll-stress/40660 Tri-Valley Tax & Financial Services Inc When you hire your first employee, you create an entire new task of complying with employment and labor laws and issuing a payroll. Payroll taxes create more administrative burden for small businesses than any other tax, according to the 2015 Small Business Taxation Survey from the National Business Association. Plus, compliance with payroll laws is a challenge for many businesses. The IRS levied more than $6.9 million in penalties related to employment taxes for the fiscal year ended September 30, 2014, according to the 2014 Internal Revenue Service Data Book. The Stress of Payroll Your payroll responsibilities include making tax payments to appropriate government agencies and filing all the associated paperwork on time. It's not just for the IRS; you have to follow all state rules and laws. If you have employees in more than one state, you have to follow the rules for each state, which vary widely in regards to filing frequencies, deadlines, how you must file, and how you determine taxes. Payroll stress stems not only from taxes but also from the accounting involved in calculating hours and accrued vacation and sick day pay and tracking other employee benefits. You can reduce payroll stress by setting up a system. Here are four steps to take. Get the Initial Paperwork Filled Out. All new employees must complete a Form W-4, Employee's Withholding Allowance Certificate, which you must submit to the IRS. The exemptions claimed on the form determine the amount of tax you withhold from an employee's pay. Check whether your state requires the completion of any forms. Document How You Process Payroll. How often do you pay employees? Some states have specific requirements about pay periods. Are you paying hourly or on salary? How do you track employee hours? What about overtime: Does your state define overtime as working more than eight hours a day or more than 40 hours a week? How do you handle paid time off (vacation and sick leave)? How do you manage items such as health plan premiums and retirement contributions that you deduct from employee paychecks and pay to the appropriate organizations? Set Up a Tracking System. Set up a system to track everything. It could be a manual system using pen and paper or a spreadsheet. You could use accounting and/or payroll software. You or an employee could do the tracking, or you could hire an accountant. Pay Taxes and File Paperwork On Time. You must pay payroll taxes to the IRS within a specific number of days after you pay employees, though you have eight different payroll periods and two deposit schedules to select from. IRS forms you must file include: • Employer’s quarterly payroll tax return (Form 941) • Annual Return of Withheld Federal Income Tax (Form 945) • Annual Federal Unemployment Tax (FUTA) Return (Form 940 or 940EZ) • Wage and Tax Statements (Form W-2) For more information, see the IRS Employer's Tax Guide. You also need to learn your state's requirements for paying and filing paperwork. You can take much of the stress out of payroll by working with a small business professional who understands your business to handle the details. A knowledgeable professional will save you a lot of time and greatly reduce the risk of errors that can lead to penalties. This type of help leaves you to focus on the purpose of your business. Wed, 08 Jul 2015 19:00:00 GMT Beware of Draconian Penalties for Health Reimbursement Plans http://www.mytrivalleytax.com/blog/beware-of-draconian-penalties-for-health-reimbursement-plans/40655 http://www.mytrivalleytax.com/blog/beware-of-draconian-penalties-for-health-reimbursement-plans/40655 Tri-Valley Tax & Financial Services Inc Article Highlights: Employer health insurance requirements Reimbursement plans and Obamacare Temporary penalty relief through June 30, 2015 Penalty Beginning in 2015, large employers (those with 100 or more full-time equivalent employees) must begin offering health insurance coverage to their employees. Then, in 2016, employers with 50 or more equivalent full-time employees must do the same or face penalties, called the “large employer health coverage excise tax.” Employers with fewer than 50 full-time equivalent employees are never required to offer their employees an insurance plan, but qualified small employers who do provide coverage may qualify for the small business health insurance credit. In the past, many smaller employers have simply reimbursed their employees for the cost of insurance. They found it less expensive and had fewer administrative costs than having a group insurance plan. However, under the Affordable Care Act (ACA, or Obamacare for short), a group health plan that reimburses employees for the employees’ substantiated individual insurance policy premiums must satisfy the market reforms for group health plans. However, most commentators believe an employer payment plan will fail to comply with the ACA annual dollar limit prohibition because an employer payment plan is considered to impose an annual limit up to the cost of the individual market coverage purchased through the arrangement, and an employer payment plan cannot be integrated with any individual health insurance policy purchased under the arrangement. Thus, reimbursement plans may be subject to a very draconian penalty. Back in February, the IRS issued Notice 2015-17, which provides small employers limited relief from the stiff $100 per day, per participant, penalties under IRC §4980D for health insurance reimbursement plans that had been addressed in Notice 2013-54. In particular, that notice provided: Transitional relief for employers that do not meet the definition of large employers (i.e., employers with 50 or more employees). This relief is granted for all of 2014 and for January 1 through June 30, 2015; and Relief for S corporations that pay for or reimburse premiums for individual health insurance coverage for 2% shareholders, as previously addressed in Notice 2008-1. The relief period is indefinite, and the IRS states that taxpayers may continue to rely on Notice 2008-1 “unless and until additional guidance” is provided. Well, June 30, 2015 has come and gone … and so has the small employer relief. Therefore, employers who still reimburse employees for their medical expenses are in danger of being subject to the $100 per day ($36,500 a year) per employee penalty. Compared to the annual $2,000 penalty that large employers face for not providing insurance to their full-time employees, the penalties on small employers are substantial enough to bankrupt them. So, the large employer who fails to provide any insurance pays a penalty of only $2,000 per year per employee while the employer who helps employees by reimbursing them for the cost of insurance gets hit with an up to $36,500-per-employee penalty. This is true even if the employer is a small employer (50 or fewer equivalent full-time employees) who is under no legal obligation to provide health insurance plans for its employees, but makes reimbursements simply to help the employees. Does this seem fair? We will let you form your own opinion. Will Congress step in to alleviate the problem? Maybe yes and maybe no, and employers must decide if it is worth the risk to depend on Congress to act. There is one firm, Zane Benefits, which claims to have solved the problem with a reimbursement plan that complies with the code, while others argue that it does not. Bottom line: understand your risks if your business has a medical reimbursement plan and perhaps consider other options. Please give this office a call if you have questions. Tue, 07 Jul 2015 19:00:00 GMT Now That Same-Sex Marriage Is Legal In All States, What Are The Tax Implications? http://www.mytrivalleytax.com/blog/now-that-same-sex-marriage-is-legal-in-all-states-what-are-the-tax-implications/40642 http://www.mytrivalleytax.com/blog/now-that-same-sex-marriage-is-legal-in-all-states-what-are-the-tax-implications/40642 Tri-Valley Tax & Financial Services Inc Article Highlights: All states are required to recognize and allow same-sex marriage  Married tax filing requirements  Potential tax benefits  Negative tax aspects  On June 26, the Supreme Court ruled that the Fourteenth Amendment to the Constitution requires all states to license marriages between two people of the same sex and to recognize same-sex marriages performed in other states. This comes approximately two years after the Supreme Court overturned the Defense of Marriage Act (DOMA) enacted by Congress and signed by then President Bill Clinton. DOMA defined marriage as "legal union between one man and one woman as husband and wife." This has wide-ranging implications for married individuals who reside in states that until now have not recognized same-sex marriage and for those who can now marry in their state, including employer-provided employee and spousal benefits, retirement issues, Social Security benefits, and of course tax issues. Since DOMA was overturned, legally married same-sex couples have been required to file their federal returns as “married,” but they have had to file their state returns as single or head of household status if their state did not recognize their marriage as legal. That will now change, and they will be filing using the married status for their state returns as well. Being married for tax purposes is not always beneficial, depending on a number of circumstances. The following are some of the tax breaks available to legally married same-sex couples: The right to file a joint return, which can produce a lower combined tax than the total tax paid by same-sex spouses filing as single persons (but this can also produce a higher tax, especially if both spouses are relatively high earners or one or both previously qualified to file as head of household);   The opportunity to get tax-free employer-paid health coverage for the same-sex spouse;   The opportunity for either spouse to utilize the marital deduction to transfer unlimited amounts during life to the other spouse, free of gift tax;   The opportunity for the estate of the spouse who dies first to receive a marital deduction for amounts transferred to the surviving spouse;   The opportunity for the estate of the spouse who dies first to transfer the deceased spouse's unused exclusion amount to the surviving spouse;   The opportunity to consent to make "split" gifts (i.e., gifts to others treated as if made one-half by each); and   The opportunity for a surviving spouse to stretch out distributions from a qualified retirement plan or IRA after the death of the first spouse under more favorable rules than apply for nonspousal beneficiaries.  There is a negative side as well. Many same-sex married couples, especially higher-income ones, may find that filing as married has unpleasant income tax ramifications. Divorcing before the end of the year can rectify that. However, before employing that strategy, a couple needs to consider the other financial benefits of being married. The following issues are commonly encountered by same-sex married couples. A taxpayer who is married and living with his or her spouse cannot file using head of household filing status. So a same-sex spouse (or both) who previously qualified for and filed a federal return using the head of household status will no longer file as head of household. Instead, the same-sex couple will file as married using the joint or separate status, which will generally result in higher taxes.   When filing as unmarried, one individual can take the standard deduction and the other can itemize. As married individuals, they must choose between the two, which could substantially reduce their overall deductions. If a same-sex couple files married separate returns and one spouse claims itemized deductions, the other spouse cannot use the standard deduction.   As unmarried individuals, same-sex partners were able to adopt each other's children and claim the adoption credit. As married individuals they can no longer do that.  For those who are registered domestic partners (RDPs) in California, the Supreme Court's recent ruling does not address the IRS's position that these individuals are not legally married and therefore not eligible to file as married. Unless IRS changes its interpretation, RDPs will still not be able to file as married for federal purposes. If you are contemplating a same-sex union or live in a state that previously did not recognize same-sex marriages and wish to explore the tax consequences of now filing as married individuals, please give this office a call. Thu, 02 Jul 2015 19:00:00 GMT Planning Your RMD and IRA Distributions For 2015 http://www.mytrivalleytax.com/blog/planning-your-rmd-and-ira-distributions-for-2015/33622 http://www.mytrivalleytax.com/blog/planning-your-rmd-and-ira-distributions-for-2015/33622 Tri-Valley Tax & Financial Services Inc Article Highlights: Under Age 59.5 Penalty Age 70.5 Mandatory Distribution Age Impact on Social Security Income Required Minimum Distributions Under-Distribution Penalty Penalty Waiver Other Pension Plans We spend most of our lives saving for retirement by putting funds away in tax-advantaged ways. But many of us forget about planning the withdrawals so that they are tax advantaged as well. Although there are exceptions, retirement funds generally cannot be withdrawn until we are age 59.5. If taken out sooner there is a 10% penalty that applies in most cases (in addition there may be a state penalty). A large number of taxpayers do not take distributions until they are forced to at age 70.5, not realizing they might benefit tax wise by taking money out sooner. For example, if you are in a low or zero tax-bracket this year, you can take a certain amount out with no or minimal tax cost. That is where planning your distributions can save a significant amount of tax dollars. Even if you are under 59.5, if your income for the year is such that it is below the taxable income limit, you can withdraw an amount that brings you up just short of the taxable income threshold and only pay the penalty. If you receive Social Security benefits, keep in mind that Social Security income is tax-free for lower income retirees but becomes taxable as their income increases. IRA distributions can sometimes be planned in order to minimize the taxability of the Social Security income. Once you reach age 70.5 you are required to begin taking the prescribed minimum distributions from your Traditional IRA and other qualified pension plans. But that does not mean you can’t withdraw more than the required amount. If your income is low, it may be appropriate to take more than the minimum to save taxes in the future. Unfortunately all too many people simply take the IRS specified minimum amount without considering the tax planning aspects of the distribution. The penalty for not taking the required minimum distribution (RMD) after reaching age 70.5 is an additional tax of 50% of the amount that should have been taken that year, based upon the RMD rules. The good news is that the IRS will generally, upon request, waive the penalty, provided that you show a corrective distribution was made in the subsequent year. So if you have missed an RMD for the prior year you should seek professional assistance right away with regard to taking corrective action. The RMD is determined by taking the IRA balance on December 31 of the prior year and dividing that total by your remaining life expectancy from the IRS table. If you have more than one IRA, figure the RMD for each one and then combine them to get the total required distribution for the year. (An owner of a Roth IRA is not required to take distributions at any age.) For purposes of determining the minimum distribution, all Traditional IRA accounts, including SEP-IRAs, owned by an individual are treated as one, but the actual minimum distribution can be taken from any combination of the accounts. If the owner chooses not to take the minimum distribution from each account, it is not uncommon for IRA trustees to require written certification that the owner took the minimum distribution from other accounts. If you have other qualified plans besides Traditional IRA accounts, the RMD for those must be figured separately for each type and withdrawn from those plans and cannot be combined with the distributions from IRAs or other qualified plans to reach the RMD. A taxpayer who fails to take a distribution in the year age 70.5 is reached can avoid a penalty by taking that distribution no later than April 1st of the following year. However, that means the IRA owner must take two distributions in the following year, one for the year in which age 70.5 is attained and one for the current year. If an IRA owner dies after reaching age 70.5, but before April 1st of the next year, no minimum distribution is required because death occurred before the required beginning date. Special Note: The provision allowing a direct transfer from an IRA to a qualified charity to be counted towards the RMD for the year and to be excluded from income expired at the end of 2014. However, it has been previously extended twice late in the year. Taxpayers age 70.5 and older with IRA accounts making a sizable charity donation may wish to make the donation via a direct transfer to the charity from their IRA account in case Congress extends this provision for yet another year. As you can see, there is more to the required minimum distribution than meets the eye, and there are some significant planning opportunities. Give this office a call if you have questions or would like to schedule a planning appointment. Tue, 30 Jun 2015 19:00:00 GMT Supreme Court, in a 6-3 decision, upholds Affordable Care Act (Obamacare) subsidies. http://www.mytrivalleytax.com/blog/supreme-court-in-a-6-3-decision-upholds-affordable-care-act-obamacare-subsidies/40616 http://www.mytrivalleytax.com/blog/supreme-court-in-a-6-3-decision-upholds-affordable-care-act-obamacare-subsidies/40616 Tri-Valley Tax & Financial Services Inc Breaking: Supreme Court, in a 6-3 decision, upholds Affordable Care Act (Obamacare) subsidies. The ruling allows federal tax credits to be issued to people who buy health plans through a federally run ACA exchange. Thu, 25 Jun 2015 19:00:00 GMT Tax Tips for Students with a Summer Job http://www.mytrivalleytax.com/blog/tax-tips-for-students-with-a-summer-job/39106 http://www.mytrivalleytax.com/blog/tax-tips-for-students-with-a-summer-job/39106 Tri-Valley Tax & Financial Services Inc Article Highlights: W-4 Tips Working For Cash Self-employment Tax Working in a Family Business ROTC Members Newspaper Carriers Many students hold a summer job during their time off from school. Here are some tax issues that should be considered when working a summer job. Completing Form W-4 When Starting a New Job – This form is used by employers to determine the income taxes that will be withheld from your paycheck. Taxpayers with multiple summer jobs will want to make sure all of their employers are withholding an adequate amount of taxes to cover their total income tax liability. Generally, a student who is claimed as a dependent of another with income only from summer and part-time employment can earn as much as $6,300 (the standard deduction amount) without being liable for income tax. However, if the student is a dependent and has investment income, the tax determination becomes more complicated and subject to special rules. Tips – If the student works as a waiter, camp counselor, or some other common summer jobs, the student may receive tips as part of the summer income. All tip income received is taxable income and is therefore subject to federal income tax. Employees are required to report tips of $20 or more received while working with any one employer in any given month. The reporting should be made in writing to the employer by the tenth day of the month following the receipt of tips. The IRS provides publication 1244 that can be used to record tips for a month on a daily basis. The employer withholds FICA (Social Security and Medicare) and income taxes on these reported tips and then includes the tips and wages on the employee’s W-2. Cash Jobs – Many students do odd jobs over the summer and are paid in cash. Just because the job is paid in cash does not mean that it is tax-free. Unfortunately, the income is taxable and may be subject to self-employment taxes (see below). These earnings include income from odd jobs like babysitting and lawn mowing. Self-Employment Tax – When an individual works for an employer, the employer withholds Social Security and Medicare taxes from the employee’s pay, matches the amount dollar for dollar, and remits the combined amount to the government. Self-employed workers are required to pay the combined employee and employer amounts themselves (referred to as self-employment tax) if their net earnings are $400 or more. This tax pays for their future benefits under the Social Security system. Even if a worker is not liable for income tax, this 15.3% tax may apply. Even though skirting the law, some employers prefer to treat their workers as “independent contractors” who receive their pay with no taxes withheld, because the employers avoid paying their share of the employment taxes. While the employees may like getting a larger check each pay day, they may find themselves owing income tax and possibly the self-employment tax on their earnings when they file their tax returns for the year. If the worker is offered a job on an independent contractor basis, and that job would normally be filled by an employee, the worker should seriously consider if this arrangement is suitable under the circumstances. Employed in a Family business - If the family business is unincorporated, and pays wages to a child under age 18, the child is not subject to payroll taxes (FICA) since they do not apply to a child under the age of 18 while employed by a parent. Thus, the child will not be required to pay the employee’s share of the FICA taxes, and the parent’s business will not have to pay its half either. In addition, paying the child, and thus reducing the business’s net income, can reduce the parent’s self-employment tax. However, the wages must be reasonable for the services performed. ROTC Students – Subsistence allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay—such as pay received during summer advanced camp—is taxable. Newspaper Carrier or Distributor – Special rules apply to services performed as a newspaper carrier or distributor. An individual is a direct seller and treated as self-employed for federal tax purposes under the following conditions: • The person is in the business of delivering newspapers; • All of the pay for these services directly relates to sales rather than to the number of hours worked; and • A written contract controls the delivery services and states that the distributor will not be treated as an employee for federal tax purposes. Newspaper Carriers or Distributors Under Age 18 – Generally, newspaper carriers or distributors under age 18 are not subject to self-employment tax. Please call this office if you have additional questions related to a child’s employment. Tue, 23 Jun 2015 19:00:00 GMT Tax Tips for Recently Married Taxpayers http://www.mytrivalleytax.com/blog/tax-tips-for-recently-married-taxpayers/38516 http://www.mytrivalleytax.com/blog/tax-tips-for-recently-married-taxpayers/38516 Tri-Valley Tax & Financial Services Inc Article Summary: Social Security Administration Internal Revenue Service U.S. Postal Service Withholding & Estimated Tax Payments Health Insurance Marketplace This is the time of year for many couples to tie the knot. If you marry during 2015, here are some post-marriage tips to help you avoid stress at tax time. Notify the Social Security Administration - Report any name change to the Social Security Administration so that your name and SSN will match when filing your next tax return. Informing the SSA of a name change is quite simple. File a Form SS-5, Application for a Social Security Card at your local SSA office. The form is available on SSA’s Web site, by calling 800-772-1213, or at local offices. Your income tax refund may be delayed if it is discovered your name and SSN don’t match at the time your return is filed. Notify the IRS - If you have a new address, you should notify the IRS by sending Form 8822, Change of Address. Notify the U.S. Postal Service - You should also notify the U.S. Postal Service when you move so that any IRS or state tax agency correspondence can be forwarded. Review Your Withholding and Estimated Tax Payments - If both you and your new spouse work, your combined income may place you in a higher tax bracket, and you may have an unpleasant surprise when we prepare your return for 2015. On the other hand, if only one of you works, filing jointly with your new spouse can provide a significant tax benefit, enabling you to reduce your withholding or estimated payments. In either case, it may be appropriate to review your withholding (W-4 status) and estimated tax payments, if any, for 2015 to make sure that you are not going to be under-withheld and that you don’t set yourself up to receive bad news for the next filing season. Notify the Marketplace - If you or your spouse has health insurance through a government Marketplace (Exchange), you must notify the Marketplace of your change in marital status. If you were included on a parent’s health insurance policy through a Marketplace, then the parent must notify the Marketplace. Failure to notify the Marketplace can create tax filing problems. Blog: If you have any questions about the impact of your new marital status on your taxes, please give this office a call. If you have any questions about the impact of your new marital status on your taxes, please give this office a call. Thu, 18 Jun 2015 19:00:00 GMT Forgot Something on Your Tax Return? It’s Not Too Late to Amend the Return http://www.mytrivalleytax.com/blog/forgot-something-on-your-tax-return-it8217s-not-too-late-to-amend-the-return/31733 http://www.mytrivalleytax.com/blog/forgot-something-on-your-tax-return-it8217s-not-too-late-to-amend-the-return/31733 Tri-Valley Tax & Financial Services Inc Article Highlights: Frequently Overlooked Income and Deductions Three-Year Refund Statute of Limitations State returns Interest & Penalties Filing Instructions and Suggestions If you discover that you forgot something on your tax return, you can amend that return after it has been filed. The need to amend can be because of: Receiving an unexpected or amended K-1 from a trust, estate, partnership, or S-corporation. Overlooking an item of income or receiving a corrected 1099. Failing to claim the correct advanced premium credit because of an incorrect 1095-A. Forgetting about a deducible expense. Forgetting about an expense that would qualify for a tax credit. These are among the many reasons individuals need to amend their returns, whether it is for the just-filed 2014 return or prior year returns. Here are some key points when considering whether to file an amended federal (Form 1040X) or state income tax return. If you are amending for a refund, you should be aware that refunds generally won’t be paid for returns if the three-year statute of limitations from the filing due date has expired. Thus, with the exception of amending a return to carry back a business net operating loss (NOL), the IRS will pay refunds only on returns from 2012 through 2014. Some states have a longer statute. The last day to file an amended 2012 return for a refund is April 15, 2016. Generally, you do not need to file an amended return to correct math errors you made on the return. The IRS or state agency will automatically make those corrections. Also, do not file an amended return because you forgot to attach tax forms such as W-2s or schedules. The IRS or state agency will send a request asking for the missing forms. If you are filing to claim an additional refund, wait until you have received your original refund before filing Form 1040X. You may cash that check while waiting for any additional refund. If you amend returns and owe additional tax, you will be subject interest and penalty charges. Interest is charged on any tax not paid by the due date of the original return, without regard to extensions. When amending multiple returns, send them in separate envelopes. Sometimes when filed together, they are mistaken for a single return, and the additional returns filed in the same envelope are not processed. If the changes involve another schedule or form, it must be completed and included with the amended return. In addition, it may be appropriate to include documentation to avoid subsequent correspondence from the IRS or state agency. A detailed explanation of the changes must also be attached. This is required to explain to the processing staff the reason for the amendment. An insufficient explanation can lead to additional correspondence and delays. 8. Depending on why you file an amended federal return, you may be required to amend your state return. However, if the federal amendment is filed to claim or correct a tax credit that the state does not have, no state amended return will likely need to be filed. In most other circumstances, you will need to amend the state return as well as the federal. An amended return can be more complicated than the original, so please contact this office for assistance in preparing your amended returns. Tue, 16 Jun 2015 19:00:00 GMT Don’t Panic if You Receive an IRS Notice http://www.mytrivalleytax.com/blog/don8217t-panic-if-you-receive-an-irs-notice/38969 http://www.mytrivalleytax.com/blog/don8217t-panic-if-you-receive-an-irs-notice/38969 Tri-Valley Tax & Financial Services Inc Article Highlights: Letter May Be In Error Let Your Tax Professional Respond Procrastination Leads to Bigger Problems Change of Address Complications If it is not your refund check in the mailbox, that letter from the IRS will probably increase your heart rate a little. Don’t panic; many of these letters can be dealt with simply and painlessly. Each year, the IRS sends millions of letters and notices to taxpayers to request payment of taxes, notify them of a change to their account, or to request additional information. The notice you receive normally covers a very specific issue about your account or tax return. Each letter and notice offers specific instructions on what needs to be done to satisfy the inquiry. However, the letters also must advise you of your rights and other information required by law. Thus, these letters can become overly lengthy and sometimes difficult to understand. That is why it is important to either call this office immediately or forward a copy of the letter or notice so it can be reviewed and handled accordingly. Do not procrastinate or throw the letter in a drawer hoping the issue will go away. Most of these letters are computer generated and, after a certain period of time, another letter will automatically be produced. And, as you might expect, each succeeding letter will become more aggressive and more difficult to deal with. Most importantly, don’t automatically pay an amount the IRS is requesting unless you are positive it is correct. Quite often, you really do not owe the amount being billed, and it will be difficult and time consuming to get your payment back. It is good practice to have this office review the notice prior to making any payment. Unfortunately, many taxpayers are issued these letters and don’t know it because they have moved and left no forwarding address. Even though the IRS will register your address change when you file your annual tax return, that may not be timely enough, especially if your return is on extension or you are behind in your filings. It is always better to notify the IRS, and your state if applicable, that you have a new address, just as you would your family and financial and business affiliations. You may not want to receive correspondence from the IRS, but it is easier to deal with the first notice. The complications can only increase as the notices go unanswered. The IRS provides Form 8822 – Change of Address for taxpayers who have relocated between tax filings. It is important for any IRS correspondence to be dealt with promptly and correctly. This office can handle these matters for you; so please call for assistance. Thu, 11 Jun 2015 19:00:00 GMT Five-Year Anniversary of Healthcare Reform: 5 Things You Should Know in '15 About the ACA http://www.mytrivalleytax.com/blog/five-year-anniversary-of-healthcare-reform-5-things-you-should-know-in-15-about-the-aca/40579 http://www.mytrivalleytax.com/blog/five-year-anniversary-of-healthcare-reform-5-things-you-should-know-in-15-about-the-aca/40579 Tri-Valley Tax & Financial Services Inc It has been five years since the Patient Protection and Affordable Care Act (the ACA) was signed into law. Healthcare reform has certainly been controversial, but this controversy does not absolve some businesses of certain responsibilities when it comes to offering minimum essential healthcare coverage to their employees. In recognition of the five-year anniversary of healthcare reform, here are 5 things you should know about some of the key ACA requirements for businesses in 2015: The shared responsibility provision of healthcare reform is effective either this year or next year, depending on how many employees you have. Also known as the employer mandate or “play or pay,” this provision requires companies with at least 50 full-time equivalent employees to offer minimum essential healthcare coverage to their full-time employees and their dependents. Or, such businesses - which are referred to by the law as applicable large employers (ALEs) - can pay a substantial non-deductible penalty if they prefer. Companies with 100 or more full-time employees (or full-time equivalents) must begin complying with the shared responsibility provision this year. Specifically, they must offer qualifying healthcare coverage to 70 percent or more of their full-time employees and their dependents this year and 95 percent of them in 2016. Meanwhile, companies with between 50 and 99 full-time employees or equivalents must begin complying with the shared responsibility provision next year.   Depending on the size of your business, you might not be subject to the shared responsibility provision at all. There's good news in the ACA for many small businesses. Companies with fewer than 50 full-time employees or equivalents are not subject to the shared responsibility this year or next year. However, if these businesses want to offer healthcare coverage to their employees, they can buy coverage on the Small Business Health Options Marketplace, or SHOP. This marketplace could lower small firms' health insurance costs by giving them more buying power.   The healthcare coverage your business provides employees under the ACA must meet certain criteria. Specifically, this coverage must be affordable and it must provide minimum value. Healthcare reform considers coverage to be “affordable” if employees' share of their premiums doesn't exceed 9.56 percent of their annual household income in 2015. And it considers “minimum value” to be a policy that covers at least 60 percent of the cost of healthcare services.   Your business might qualify for a tax credit for contributions you make toward employees' premiums. Small businesses with up to 25 full-time equivalent employees could receive a tax credit of up to 50 percent toward their contributions to employees' healthcare premiums. To qualify, your business must pay at least half of the premiums and employees' average annual wages in 2015 cannot be more than $51,600 (adjusted each year for inflation going forward). Also, this tax credit will be reduced if you had more than 10 full-time equivalent employees last year and/or employees' average annual wages last year were more than $25,400 (also adjusted each year for inflation going forward).   The ACA includes requirements to report coverage information to the IRS. ALEs are required to certify that they offered full-time employees and their dependents the opportunity to enroll in minimum essential healthcare coverage by filing Form 1094-C with the IRS. In addition, they must also issue a Form 1095-C employee statement to each full-time employee. These information-reporting requirements were voluntary this year for coverage provided in 2014, but they will be required next year for coverage provided in 2015.  Be sure to contact us with any questions about your company's specific responsibilities under the ACA this year. Wed, 10 Jun 2015 19:00:00 GMT Have a Financial Interest in or Signature Authority over a Foreign Financial Account? Better Read This! http://www.mytrivalleytax.com/blog/have-a-financial-interest-in-or-signature-authority-over-a-foreign-financial-account-better-read-this/36946 http://www.mytrivalleytax.com/blog/have-a-financial-interest-in-or-signature-authority-over-a-foreign-financial-account-better-read-this/36946 Tri-Valley Tax & Financial Services Inc Article Highlights: Reporting Threshold FBAR Filing Due Date Penalties Overlooked Accounts Each U.S. person who has a financial interest in or signature or other authority over any foreign financial accounts (including bank, securities, or other types of financial accounts in a foreign country) must report that relationship to the U.S. government each calendar year if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year. The government uses this reporting mechanism as a means of uncovering hidden foreign accounts and ensuring that investment income earned in foreign countries by U.S. taxpayers is included on their U.S. tax returns. The Treasury Department has placed a new emphasis on foreign accounts, and taxpayers with a financial connection to a foreign country should determine whether or not they have a reporting requirement. Reporting is accomplished by electronically filing Form FinCEN 114 commonly referred to as FBAR (for Foreign Bank Account Report), which is due on or before June 30 of the succeeding year. No extensions are available for filing this form. Penalties for failing to comply can be draconian. For non-willful violations, civil penalties up to $10,000 may be imposed. The penalty for willful violations is the greater of $100,000 or 50% of the account’s balance at the time of the violation. A reasonable cause exception to the penalty is available for non-willful violations but not for willful violations. Overlooked Accounts - Many taxpayers overlook the fact that they have a reporting requirement in such situations as: Family Accounts - Recent immigrants to the U.S. may still have parents or other family members residing in the “old” country, and those relatives may have included them on an account in a foreign country. This practice is common for some ethnic groups. The taxpayer may not really consider the account to be his or hers; nevertheless, it falls under the reporting requirement if he or she has signature or other authority over the account and its value exceeds $10,000. Inherited Accounts - Accounts in a foreign country and inherited accounts fall under the FBAR reporting requirement, even if the funds are subsequently transferred to the U.S. The FBAR rules state that reporting is required if at any time during the year the foreign account exceeds $10,000. Business Accounts - A corporate officer or Board member may have signature authority over a business account in a foreign country and may overlook the need to meet the FBAR reporting requirements. Foreign Financial Accounts - These financial accounts are maintained by foreign financial institutions and include other investment assets not held in accounts maintained by financial institutions. However, no reporting is required for interests that are held in a custodial account with a U.S. financial institution. If you have questions regarding this reporting requirement or need assistance with the reporting, please contact this office. Tue, 09 Jun 2015 19:00:00 GMT Higher-Income Taxpayers Subject to Exemption & Itemized Deductions Phase-outs http://www.mytrivalleytax.com/blog/higher-income-taxpayers-subject-to-exemption--itemized-deductions-phase-outs/40562 http://www.mytrivalleytax.com/blog/higher-income-taxpayers-subject-to-exemption--itemized-deductions-phase-outs/40562 Tri-Valley Tax & Financial Services Inc Article Highlights: Phase-out Thresholds  Personal Exemption Phase-outs  Itemized Deduction Phase-outs  Generally, taxpayers are allowed to deduct personal exemption allowances of $4,000 (2015) each for themselves, their spouses and their dependents. In addition, taxpayers are allowed a standard deduction or, if their deductions are large enough, itemized deductions. However, both the personal exemption allowances and itemized deductions are being phased out for higher-income taxpayers. The phase-out begins when a taxpayer's adjusted gross income (AGI) reaches a phase-out threshold amount that is annually adjusted for inflation. The phase-out threshold amounts for 2015 are based on taxpayers' filing statuses, and they are: $258,250 for single filers, $284,050 for individuals filing as heads of households, $309,900 for married couples filing jointly and $154,950 for married individuals filing separately. Here is how the phase-outs work: Personal and Dependent Exemptions - The otherwise allowable exemption amounts are reduced by 2% for each $2,500 or part of $2,500 ($1,250 for a married taxpayer filing separately) that the taxpayer's AGI exceeds the threshold amount for the taxpayer's filing status. Example: Ralph and Louise have an AGI of $422,400 for 2015 and two children, for a total of four exemptions worth $16,000 (4 × $4,000). The threshold for a married couple is $309,900; thus, their income exceeds the threshold by $112,500. Each $2,500 part of this amount reduces the exemption by 2%; there are 45 parts of this amount ($112,500 ÷ $2,500 = 45). Thus, 90% (45 × 2%) of their $16,000 exemption allowance is phased out, leaving them with a reduced exemption deduction of $1,600 ([100%-90%] × $16,000). Assuming Ralph and Louise are in the 33% federal tax bracket, the phase-out costs them an additional $5,643 ($16,000 × 90% × 33%). Divorced or separated parents subject to the phase-out should consider relinquishing the exemption of a dependent child to the other parent. When a taxpayer is a party to a multiple support agreement, the taxpayer may want to allow another contributing member of the agreement who is not affected by the phase-out to claim the dependent's exemption.   Itemized Deductions - The total amount of itemized deductions is reduced by 3% of the amount by which the taxpayer's AGI exceeds the threshold amount. The reduction is not to exceed 80% of the otherwise allowable itemized deductions. Not all itemized deductions are subject to the phase-out. The following deductions escape the phase-out: o Medical and dental expenses o Investment interest expenses o Casualty and theft losses from personal-use property o Casualty and theft losses from income-producing property o Gambling losses Thus, a taxpayer who is subject to the full phase-out still gets to deduct 20% of the deductions subject to the phase-out—and 100% of the deductions listed above. Example: Ralph and Louise from the previous example, who had an AGI of $422,400 for 2015, exceed the threshold for a married couple by $112,500. Thus, they must reduce their itemized deductions subject to the phase-out by $3,375 (3% of $112,500), but the reduction must not exceed 80% of the deductions subject to the phase-out. For 2015, Ralph and Louise had the following itemized deductions: Subject to Phase-out    Not Subject to Phase-out Home mortgage interest: $10,000 Taxes: $8,000  Charitable contributions: $6,000 Casualty loss: $12,000  Total:  $24,000 $12,000  The phase-out is the lesser of $3,375 or $19,200 (80% of $24,000) which is $19,200. Thus, Ralph and Louise's itemized deductions for 2015 will be $32,625 ($24,000 - $3,375 + $12,000). Assuming Ralph and Louise are in the 33% federal tax bracket, the phase-out will cost them an additional $1,114 ($3,375 × 33%).  Conventional thinking is to maximize deductions. However, taxpayers who normally are not subject to a phase-out may have a high-income year because of unusual income. In these cases, it may be appropriate, if possible, to defer paying deductible expenses to the year following the high-income year or perhaps to deduct the expenses in the preceding year. The standard deduction is not subject to the phase-out. If you have questions about how these phase-outs will impact your specific situation, if you want to adjust your withholding or estimated taxes, or if you want to make a tax planning appointment, please give this office a call. Thu, 04 Jun 2015 19:00:00 GMT Parents Can Get Credit for Sending Kids to Day Camp http://www.mytrivalleytax.com/blog/parents-can-get-credit-for-sending-kids-to-day-camp/22357 http://www.mytrivalleytax.com/blog/parents-can-get-credit-for-sending-kids-to-day-camp/22357 Tri-Valley Tax & Financial Services Inc Article Highlights: Child Age Limits  Employment-related Expense  Married Taxpayer Earnings Limits  Disabled or Full-time Student Spouse  Expense Limits  With summer just around the corner, there is a tax break that working parents should know about. Many working parents must arrange for care of their children under 13 years of age (or any age if handicapped) during the school vacation period. A popular solution - with a tax benefit - is a day camp program. The cost of day camp can count as an expense towards the child and dependent care credit. But be careful; expenses for overnight camps do not qualify. For an expense to qualify for the credit, it must be an “employment-related” expense; i.e., it must enable you and your spouse, if married, to work, and it must be for the care of your child, stepchild, or foster child, or your brother or sister or stepsibling (or a descendant of any of these) who is under 13, lives in your home for more than half the year and does not provide more than half of his or her own support for the year. Married couples must file jointly and both spouses must work (or one spouse must be a full-time student or disabled) to claim the credit. The qualifying expenses are limited to the income you or your spouse, if married, earns from work, using the figure for whomever of you earns less. However, under certain conditions, when one spouse has no actual earned income and that spouse is a full-time student or disabled, that spouse is considered to have a monthly income of $250 (if the couple has one qualifying child) or $500 (two or more qualifying children). This means the income limitation is essentially removed for a spouse who is a student or disabled. The qualifying expenses can't exceed $3,000 per year if you have one qualifying child, while the limit is $6,000 per year for two or more qualifying persons. This limit does not need to be divided equally. For example, if you paid and incurred $2,500 of qualified expenses for the care of one child and $3,500 for the care of another child, you can use the total, $6,000, to figure the credit. The credit is computed as a percentage of your qualifying expenses; in most cases, 20%. (If your joint adjusted gross income [AGI] is $43,000 or less, the percentage will be higher, but will not exceed 35%.) Example: Al and Janice both work, each with earned income in excess of $40,000 per year. Janice's job is a part-time job, which coincides with their 11-year-old daughter, Susan's, school hours. However, during the school summer vacation period, they place Susan in a day camp program that costs $4,000. Since the expense limitation for one child is $3,000, their child credit would be $600 (20% of $3,000). The credit reduces a taxpayer's tax bill dollar for dollar. Thus, in the above example, Al and Janice pay $600 less in taxes by virtue of the credit. However, the credit can only offset income tax and alternative minimum tax liability and any excess is not refundable. The credit cannot be used to reduce self-employment tax or the taxes imposed by the Affordable Care Act. If you have questions about how the childcare credit applies to your particular tax situation, please give this office a call. Tue, 02 Jun 2015 19:00:00 GMT 7 Ways to Boost AR Collections and Improve Cash Flow http://www.mytrivalleytax.com/blog/7-ways-to-boost-ar-collections-and-improve-cash-flow/40556 http://www.mytrivalleytax.com/blog/7-ways-to-boost-ar-collections-and-improve-cash-flow/40556 Tri-Valley Tax & Financial Services Inc “A sale isn’t a sale until you’ve collected payment - it’s just a loan,” a wise businessman once said. If you’ve been in business for any length of time, you know how true this is. Many small businesses that were profitable on paper have gone bankrupt waiting for payment from their customers to arrive. This makes accounts receivable (AR) collections one of the most important tasks for small business owners. Unfortunately, it’s also one of the most neglected. Here are 7 strategies you can implement to help boost your AR collections and improve your cash flow: Make sure your invoices are clear and accurate. If invoices are vague, ambiguous or flat-out wrong, this is sure to delay customer payments as they call to try to get things straightened out. In short, you don’t want to give customers a reason not to pay your invoices quickly. Create an AR aging report. This report will track and list the current payment status of all your client accounts (e.g., 0-30 days, 30-60 days, 60-90 days, 90+ days). This will tell you which clients are current in their payments and which clients are past due so you know where to focus your collection efforts. Give a bookkeeping employee responsibility for AR collections. If collecting accounts receivable isn’t the main responsibility of one specific employee, it will probably fall by the wayside as other tasks crowd it out. Therefore, make one of your bookkeeping employees primarily responsible for this task. Move quickly on past-due accounts. Don’t delay taking action once a client’s account reaches the past-due stage. Studies have revealed that the likelihood of collecting past-due receivables drops drastically the longer they go uncollected. Your designated bookkeeping employee should start making collections efforts the day after an account becomes past due. Plan your collections strategy carefully. Decide ahead of time how you will approach late-paying clients. For example, a friendly reminder call and/or email from your designated bookkeeping employee is probably a good first collection step. If this doesn’t get results, you can proceed to more aggressive steps such as sending past due notices and dunning letters. Consider offering a payment plan. Sometimes, customers have legitimate reasons why they can’t pay their invoices on time. Maybe the customer is having temporary cash flow problems and wants to pay you but simply can’t right now. In this scenario, you might consider working out a payment plan that allows the customer to pay the balance due over a period of time. The agreement should be made in writing and signed by both parties. Hire a collection agency. If all of these steps fail to resolve a collection problem, you might have to turn to a collection agency as a last resort. However, this is a serious step that should not be taken lightly, since it will probably jeopardize your relationship with the customer. Decide whether or not collecting the past-due amount is worth possibly losing the customer. Also keep in mind that the collection agency will keep a large percentage of the amount collected. Very few small businesses can afford not to make AR collections a top priority. Following these 7 steps will help you improve your collections - and these improvements will boost both your cash flow and your bottom line. Tue, 02 Jun 2015 19:00:00 GMT Planning Your IRA Withdrawal? http://www.mytrivalleytax.com/blog/planning-your-ira-withdrawal/40537 http://www.mytrivalleytax.com/blog/planning-your-ira-withdrawal/40537 Tri-Valley Tax & Financial Services Inc Article Highlights: Early Distributions  Distributions After Age 59.5  Minimum Required Distributions After Age 70.5  Excess Accumulation Penalty  Estate Tax Issues  Advance planning can, in many cases, minimize or even avoid taxes on IRA distributions and other qualified plan distributions. When contemplating future retirement and when to begin tapping taxable IRA and other qualified retirement accounts, taxpayers need to consider a number of important issues. Early Distributions (before 59.5) - If funds are withdrawn before reaching age 59 ½, the taxpayer is also subject to a 10% early withdrawal penalty (and state penalties if applicable) in addition to the income tax on the IRA distribution, unless what is referred to as the substantially equal payment exemption is utilized. Under this exception, an early retiree can begin taking substantially equal payments at least once a year over the owner's life or joint lives of the owner and designated beneficiary. The payments must not cease before the end of the five-year period beginning with the date of the first payment, BUT after the taxpayer reaches age 59.5. Age 59.5 to age 70.5 Distributions - After attaining age 59.5, an individual can take out of their IRA as much or as little as he or she wishes in any year until reaching age 70.5. This withdrawal liberty leaves the retiree to plan his or her distributions to minimize taxes. Techniques involve matching distributions with no- or low-income years. Age 70 ½ and Older - Once a taxpayer reaches age 70 ½, he or she must withdraw at least a minimum amount from their Traditional IRA each year. A taxpayer who fails to take a distribution in the year age 70 ½ is reached, can avoid a penalty by taking that distribution no later than April 1st of the following year. However, that means the IRA owner must take two distributions in the following year, one for the year in which they reached age 70 ½ and one for the current year. Distributions that are less than the required minimum distribution for the year are subject to a 50% excise tax (excess accumulation penalty) for that year on the amount not distributed as required. The excess accumulation penalty can generally be abated by following IRS abatement procedures. Quite frequently, taxpayers have multiple IRA accounts in addition to one or more types of other retirement plans. This gives rise to a commonly asked question, "Must I take a distribution from each individual account?" For purposes of the annual required minimum distribution, a separate distribution must be taken from each type of plan. However, a taxpayer may have multiple accounts for each type of plan, which for tax purposes are treated as one plan. For example, if you have three IRA accounts, the three separate accounts are treated as one for tax purposes, and the distribution can be taken from any combination of the accounts. Generally, the minimum amount that must be withdrawn in a particular year, after reaching age 70 ½, is the total value of all IRA accounts (as determined on December 31st of the prior year) divided by a factor based on the owner's age from the table below, illustrated for ages 70 - 87 only (the complete table goes to age 115 and over). Minimum Distribution Table Age Factor Age Factor 70 27.4 80 18.7 71 26.5 81 17.9 72 25.6 82 17.1 73 24.7 83 16.3 74 23.8 84 15.5 75 22.9 85 14.8 76 22.0 86 14.1 77 21.2 87 13.4 78 20.3 79 19.5 Estate and Beneficiary Considerations - When planning your distributions, keep in mind that the value of your undistributed IRA account will be included in your gross estate when you pass on, and depending upon the size of your estate, it may be subject to inheritance taxes. In addition, the inherited IRA distributions will be taxable to the individual who inherits the IRA. Therefore, it could be appropriate to utilize the IRA funds first and then dip into other assets after the IRA funds have been depleted. On the other hand, funds left in an IRA do continue to accumulate tax-free which might be better in certain circumstances. If you would like assistance with your tax planning needs or to develop an IRA distribution plan, please call this office for an appointment. Thu, 28 May 2015 19:00:00 GMT Will the IRS Tax Return Data Breach Impact You? http://www.mytrivalleytax.com/blog/will-the-irs-tax-return-data-breach-impact-you/40539 http://www.mytrivalleytax.com/blog/will-the-irs-tax-return-data-breach-impact-you/40539 Tri-Valley Tax & Financial Services Inc As you no doubt have heard on the news, the IRS recently announced that cyber thieves have gained access to over 100,000 taxpayers’ tax return information. According to a number of news sources, that breach has been traced to Russia. The criminals did not actually gain access to IRS secure databases by hacking into the IRS computer system. Instead, they simply used an online tool provided by the IRS through which taxpayers are able to obtain transcripts of their previously filed tax returns. That service, called “Get Transcript,” is available to anyone who, with the correct information, can access an individual’s transcripts. The problem is this: the information needed to access “Get Transcript” is readily available from other online sources, which made it easy for the criminals to access a large number of taxpayer accounts. More than 100,000 taxpayer accounts were breached, while another 100,000 attempts failed, compared to 23 million legitimate taxpayers who were able to successfully download their tax history. It is assumed the criminals’ purpose is to obtain taxpayer information needed to file fraudulent tax returns and thus obtain illegitimate refunds. The IRS has already taken steps to mitigate the damage. The “Get Transcript” service provides two ways to receive a transcript, one online and the other by mail. The online version has been shut down for now and transcripts can only be acquired by mail, which takes up to 10 days. All taxpayers whose accounts were accessed, and the additional 100,000 accounts to which access was attempted but failed, will be notified very soon. The IRS is offering free credit monitoring and repair services to those who were affected. All 200,000+ accounts will also be flagged so that fraudulent tax returns cannot be filed. Meanwhile, according to several news services, the Treasury Inspector General, Homeland Security and the FBI have all launched investigations. Moreover, the Senate Finance Committee, which oversees the IRS, will hold a hearing on the data theft. Is there a lesson to be learned here? Absolutely: limit what information you make available on the Internet and to whom you provide it. Once personal data is online, it is very difficult to remove it. Question everyone’s need for any personal information. This is especially true for your SSN, date of birth, bank account numbers, passwords, credit card numbers, etc. Even such things as your mother’s maiden name, where you were born and what high school you attended are frequently used to identify you when accessing accounts. Don’t post any sensitive data on social media sites and educate your children about the information they post on their social profiles. If you believe you are at risk due to a lost or stolen purse or wallet, questionable credit card activity or credit report, you should contact the IRS Identity Protection Specialized Unit at 800-908-4490, extension 245 (Monday - Friday, 7 a.m. - 7 p.m. local time; Alaska and Hawaii follow Pacific time). You should also complete and file Form 14039 – IRS Identity Theft Affidavit. In addition to reporting a theft or possible theft to the IRS, the following actions are recommended: Report incidents of identity theft to the Federal Trade Commission at www.consumer.ftc.gov or the FTC Identity Theft hotline at 877-438-4338. File a report with the local police. Contact the fraud departments of the three major credit bureaus: Equifax – www.equifax.com, 800-525-6285 Experian – www.experian.com, 888-397-3742 TransUnion – www.transunion.com, 800-680-7289 Close any accounts that have been tampered with or opened fraudulently. If you believe your tax information has been compromised, call this office immediately for assistance. Thu, 28 May 2015 19:00:00 GMT Saver’s Credit Can Help You Save for Retirement http://www.mytrivalleytax.com/blog/saver8217s-credit-can-help-you-save-for-retirement/36602 http://www.mytrivalleytax.com/blog/saver8217s-credit-can-help-you-save-for-retirement/36602 Tri-Valley Tax & Financial Services Inc Low- and moderate-income workers can take steps to save for retirement and earn a special tax credit.The saver’s credit, also called the retirement savings credit, helps offset part of the first $2,000 workers voluntarily contribute to traditional or Roth Individual Retirement Arrangements (IRAs), SIMPLE-IRAs, SEPs, 401(k) plans, 403(b) plans for employees of public schools and certain tax-exempt organizations, 457 plans for state or local government employees, and the Thrift Savings Plan for federal employees. Also known as the retirement savings contributions credit, the saver’s credit is available in addition to any other tax savings that apply as a result of contributing to retirement plans. The credit for 2015 is determined from the table illustrated below and is based upon both filing status and income (AGI). * Modified AGI - Is determined without regard to the foreign or possessions earned income exclusion and foreign housing exclusion or deduction. Like other tax credits, the saver’s credit can increase a taxpayer’s refund or reduce the tax owed. Though the maximum saver’s credit is $1,000 ($2,000 for married couples if both spouses contribute to a plan), taxpayers are cautioned that it is often much less and, due in part to the impact of other deductions and credits, may in fact be zero for some taxpayers.The amount of a taxpayer’s saver’s credit is based on his or her filing status, adjusted gross income, tax liability, and amount contributed to qualifying retirement programs. Example – Eric and Heather are married and file a joint return. Eric contributed $3,000 through his 401(k) plan at work, and Heather contributed $500 to her IRA account. Their modified AGI for the year was $37,000. The credit is computed as follows: Eric’s 401(k) contribution was $3,000, but only the first $2,000 can be used 2,000 Heather’s IRA contribution was $500, so it can all be used 500 Total Qualifying contributions 2,500 Credit percentage for a joint return with AGI of $37,000 from the table X.20 Saver’s credit $500 This example illustrates how the credit phases out for higher-AGI taxpayers. In this example, the couple’s AGI of $37,000 only allowed them a credit of 20% times their qualifying contributions. Had their AGI been $36,500 or less, their credit percentage would have been 50% of their qualified contributions, for a credit of $1,250. The saver’s credit supplements other tax benefits available to people who set money aside for retirement. Generally, except for Roth IRA contributions, workers’ contributions to retirement plans are tax deductible, either in the form of a deduction on their tax return (traditional IRAs and certain self-employed retirement plans) or through a reduction of wages that would otherwise be taxable (such as pre-tax contributions to a 401(k), 403(b), etc.). So in addition to the saver’s credit, contributions to retirement plans provide a tax deduction for traditional IRAs or income reductions for certain other plans, which will lower an individual’s tax before the credit is applied. The credit itself can only be used to reduce the tax (income and alternative minimum taxes only) to zero, and any amount in excess of a taxpayer’s tax liability is lost. Other special rules that apply to the saver’s credit include the following: Eligible taxpayers must be at least 18 years of age. Anyone claimed as a dependent on someone else’s return cannot take the credit. A full-time student cannot take the credit. A person enrolled as a full-time student during any part of five calendar months during the year is considered a full-time student. The credit is provided to encourage taxpayers to save for their retirement. To prevent taxpayers from taking distributions from existing retirement savings and re-depositing them to claim the credit, the qualifying retirement contributions used to figure the credit are reduced by any retirement plan distributions taken during a “testing period.” The testing period includes the prior two tax years, the current year, and the subsequent tax year before the due date (including extensions) for filing the taxpayer's return for the tax year of the credit. As you can see, qualifying for and being able to use this credit involves a complicated set of rules. If you have questions about how this tax benefit might apply in your situation, please give this office a call. Tue, 26 May 2015 19:00:00 GMT Important Date For Taxpayers Living Abroad http://www.mytrivalleytax.com/blog/important-date-for-taxpayers-living-abroad/39040 http://www.mytrivalleytax.com/blog/important-date-for-taxpayers-living-abroad/39040 Tri-Valley Tax & Financial Services Inc Article Highlights: June 15th filing due date Additional extension to October 15 available Extension does not relieve late payment penalties Combat zone If you are a U.S. citizen or resident alien living and working (or on military duty) outside the United States and Puerto Rico, June 15, 2015 is the filing due date for your 2014 income tax return and to pay any tax due. If your return has not been completed and you need additional time to file your return, file Form 4868 to obtain 4 additional months to file. Then, file Form 1040 by October 15, 2015. However, if you are a participant in a combat zone, you may be able to further extend the filing deadline (see below). Caution: This is not an extension of time to pay your tax liability, only an extension to file the return. If you expect to owe, estimate how much and include your payment with the extension. If you owe taxes when you do file your extended tax return, you will be liable for both the late payment penalty and interest from the due date. Combat Zone - For military taxpayers in a combat zone/qualified hazardous duty area, the deadlines for taking actions with the IRS are extended. This also applies to service members involved in contingency operations, such as Operation Iraqi Freedom or Enduring Freedom. The extension is for 180 consecutive days after the later of: The last day a military taxpayer was in a combat zone/qualified hazardous duty area or served in a qualifying contingency operation, or have qualifying service outside of the combat zone/qualified hazardous duty area (or the last day the area qualifies as a combat zone or qualified hazardous duty area), or The last day of any continuous qualified hospitalization for injury from service in the combat zone/qualified hazardous duty area or contingency operation, or while performing qualifying service outside of the combat zone/qualified hazardous duty area. In addition to the 180 days, the deadline is also extended by the number of days that were left for the individual to take an action with the IRS when they entered a combat zone/qualified hazardous duty area or began serving in a contingency operation. It is not a good idea to delay filing your return because you owe taxes. The late filing penalty is 5% per month (maximum 25%) and can be a substantial penalty. It is generally better practice to file the return without payment and avoid the late filing penalty. We can also establish an installment agreement that allows you to pay your taxes over a period of up to 72 months. Please contact this office for assistance with an extension request or an installment agreement. Thu, 21 May 2015 19:00:00 GMT Are You Missing Out On The Earned Income Tax Credit? http://www.mytrivalleytax.com/blog/are-you-missing-out-on-the-earned-income-tax-credit/40516 http://www.mytrivalleytax.com/blog/are-you-missing-out-on-the-earned-income-tax-credit/40516 Tri-Valley Tax & Financial Services Inc Article Highlights: Earned Income Tax Credit  Refundable Tax Credit  Qualifications  Special Rule for Military  The EITC is for people who work but have lower incomes. If you qualify, it could be worth up to $6,242 in 2015. So you could pay less federal tax or even get a refund. The credit is a refundable credit, so you can receive the benefits of the credit even if you do not owe any taxes. That's money you can use to make a difference in your life. Even though this credit can be worth thousands of dollars to a low-income family, the IRS estimates as many as 25 percent of people who qualify for the credit do not claim it simply because they don't understand the criteria. If you qualify for but failed to claim the credit on your return for 2012, 2013 and/or 2014, you can still claim it for those years by filing an amended return or an original return if you have not previously filed. The EITC is based on the amount of your earned income and whether there are qualifying children in your household. If you have children, they must meet relationship, age and residency requirements. Additionally, you must file a tax return to claim the credit. The EITC income qualifications are annually inflation adjusted. The qualifications shown below are for 2015. Please call for those that apply for prior years. If you were employed for at least part of 2015, you may be eligible for the EITC based on these general requirements: You earned less than $14,820 ($20,330 if married filing jointly) and did not have any qualifying children.   You earned less than $39,131 ($44,651 if married filing jointly) and have one qualifying child.   You earned less than $44,454 ($49,974 if married filing jointly) and have two qualifying children.   You earned less than $47,747 ($53,267 if married filing jointly) and have more than two qualifying children.  In addition you must meet a few basic rules:  You must have a valid Social Security Number.   You must have earned income from employment or from self-employment.  Your filing status cannot be married, filing separately.   You must have been a U.S. citizen or resident alien all year, or a nonresident alien married to a U.S. citizen or resident alien and filing a joint return.   You cannot be a qualifying child of another person.   Your investment income for the year cannot exceed $3,400 (call for other years).   If you do not have a qualifying child, you must: o Be age 25 but under 65 at the end of the year, o Live in the United States for more than half the year, and o Not be a qualifying child of another person.    You cannot file Form 2555 or 2555-EZ (excluding foreign earned income)  Members of the military can elect to include their nontaxable combat pay in earned income for the earned income credit. If that election is made, the military member must include in earned income all nontaxable combat pay received. If spouses are filing a joint return and both spouses received nontaxable combat pay, then each one can make a separate election. If you have questions about your qualifications for this credit or need help amending or filing a prior year return to claim the credit, please give this office a call. Tue, 19 May 2015 19:00:00 GMT 5 Accounting Tips That Will Make Managing Your Small Business a Breeze http://www.mytrivalleytax.com/blog/5-accounting-tips-that-will-make-managing-your-small-business-a-breeze/40517 http://www.mytrivalleytax.com/blog/5-accounting-tips-that-will-make-managing-your-small-business-a-breeze/40517 Tri-Valley Tax & Financial Services Inc If you are the owner of a small business, you are endlessly busy. Between keeping track of the day-to-day requirements and monitoring growth and profit, it's easy to get overwhelmed and that means you might neglect important recordkeeping that will help you in the long term. Here are five helpful hints that will make accounting easier and make sure that you don't miss any milestones or deadlines. 1. Business and personal expenses should be kept separate. It's easy to make the mistake of using your business credit card for personal expenses and vice versa, and those errors can always be amended through reimbursements and revised record-keeping, but you'll save yourself a lot of time, trouble and aggravation if you keep the two types of expenses completely segregated from the start. 2. Don't underestimate the difficulty of your taxes - hire a tax professional. If you're smart enough to run your own business, it's natural to assume that you can save yourself the expense of hiring a tax professional to file your taxes. The truth is that there's a lot more to accounting then filling in forms, and a tax professional will be familiar with deductions you don't realize you're entitled to take, or inform you of an underpayment that might lead to trouble down the road. 3. Be realistic about upcoming expenses. When things are moving along swimmingly, it's natural to assume that the status quo will remain, but you need to be realistic and anticipate that office equipment will wear down or need to be upgraded, staffing needs will change, and overhead costs are unlikely to remain the same. By planning for future major expenses and setting aside funding for those eventualities, you will save yourselves many headaches in the future. 4. Don't forget your employees when calculating expenses. A lot of business owners will sit down to forecast their expenses or try to figure out where their money is going, but forget to give proper weight to the amount that they are spending on staffing expenses such as insurance, health care and payroll taxes. Your employees are generally one of your biggest assets, so it's important that when you're calculating costs, you make sure that you haven't forgotten about all of the expenses involved with keeping them, as well as with expanding. 5. Don't lose sight of your Accounts Receivables. If you were an employee of a business that failed to give you a paycheck, you'd be more than just upset - you'd take action to make sure that you get paid. Yet many owners of small businesses get so enmeshed in the minutia and big decisions of their day-to-day operations that they lose track of whether clients are paying promptly and what percentage of invoices remain open. Getting behind on your record keeping regarding accounts receivables lets things get so far behind that it becomes costly and difficult to collect, and you may end up not getting paid or creating negative feelings. Track payments as they come in, note how far behind payments due are, and take note of which clients are presenting you with collection problems. These tips are straightforward and simple, and following them can make a significant difference in your ability to keep your business on track, to keep your forecasts accurate, and to allow you to take action when it's needed. For more information on other steps you can take, contact this firm to make an appointment for a consultation. Tue, 19 May 2015 19:00:00 GMT Using the Home Sale Gain Exclusion for More than Just Your Home http://www.mytrivalleytax.com/blog/using-the-home-sale-gain-exclusion-for-more-than-just-your-home/40512 http://www.mytrivalleytax.com/blog/using-the-home-sale-gain-exclusion-for-more-than-just-your-home/40512 Tri-Valley Tax & Financial Services Inc Article Summary: Home Sale Exclusion Primary Residence Second Home Fixer-upper Rental With careful planning, and provided the rules are followed, the tax code allows the home sale gain exclusion every two years. Let’s assume you own a home, perhaps a second (vacation) home, or maybe are even thinking about buying a fixer-upper and flipping it. With careful planning, it is possible to apply the full home sale exclusion to all three of the properties. Here is how it works. The tax code allows you to exclude up to $250,000 ($500,000 for married couples) of gain from the sale of your primary residence if you have lived in it and owned it for two of the five years immediately preceding the sale and you have not previously taken a home sale exclusion within the two years immediately preceding the sale. In addition, there is no limit on the number of times you can use the exclusion, as long as the requirements are met. It makes sense to start off by selling the home you currently live in because you probably already meet the two-out-of-five-years ownership and use tests. The next step, if you have a second home, would be to move into it and make it your primary residence. After you have lived there for two full years and it has been more than two years since the previous home was sold, you can sell the property and take the home sale exclusion again. If you are handy, and find the right property, the next possible step would be to purchase and occupy a fixer-upper while you make repairs and improvements in preparation for its eventual sale after the two-year ownership and occupancy rules have been met. When that time is up, you can sell the fixer-upper and take the third exclusion. This makes it possible for a married couple to exclude as much as $1,500,000 of home sale profit in just over four years if they follow the rules carefully and time the sales correctly. If you own a rental property, and you occupy the rental for two years prior to its sale, you will be able to exclude a portion of the gain for that property as well. Because so many rental owners were occupying their rentals before selling them and taking a home sale exclusion, Congress enacted a law barring the exclusion of gain attributable to rental periods after 2008. Thus, the home sale exclusion can only be used to exclude gain attributable to periods before 2009 and periods after 2008 in which the home was used as a primary residence. Example: You purchased and began renting a residence on July 1, 2005. On July 1, 2013, you occupied the property as your primary residence; and, on August 1, 2015, you sell the property for a gain of $230,000. You had owned the property for a total of 121 months, of which 67 were before 2009 or during which you occupied the property as your primary residence after 2008. Thus .5537 (67/121) of the gain is subject to the exclusion. As a result, $127,351 (.5537 x $230,000) of the gain qualifies for the exclusion. In the preceding example, had the gain exceeded the exclusion limits, $250,000 for single taxpayers and $500,000 married taxpayers, the exclusion would have been capped at the exclusion limits. There is one final issue to consider. If any of the residences were acquired though a tax-deferred (Sec 1031) exchange from another property, then the residence must be owned for a period of five years prior to its sale to qualify for the exclusion. Since situations may differ, we highly recommend that you consult with this office prior to initiating such a plan. Thu, 14 May 2015 19:00:00 GMT Home Mortgage Interest and Unmarried Couples http://www.mytrivalleytax.com/blog/home-mortgage-interest-and-unmarried-couples/40497 http://www.mytrivalleytax.com/blog/home-mortgage-interest-and-unmarried-couples/40497 Tri-Valley Tax & Financial Services Inc Article Highlights: Home mortgage interest can generally be deducted only by a person who is legally obligated to pay the mortgage.   An exception to the preceding general rule applies for interest paid on a real estate mortgage when a person is a legal or equitable owner of the real estate but is not directly liable for the debt.   If the person making the mortgage payment is not liable or is not an equitable owner, then that individual is not allowed the interest deduction, nor is the individual who is liable on the debt.   It is becoming increasingly common for couples to live together and remain unmarried, which can lead to potential tax problems when they share the expenses of a home but only one of them is liable for the debt on that home. Home mortgage interest can generally be deducted only by a person who is legally obligated to pay the mortgage (in other words, a person who is named as an obligor on the mortgage document). However, there is an exception to the preceding general rule for interest paid on a real estate mortgage when a person is a legal or equitable owner of the real estate but is not directly liable for the debt. For example, if the one who is not liable on the mortgage makes the payment, that individual is not allowed to deduct the interest portion of the payment, nor is the other person, because he or she did not pay it. This can lead to some complications when one person in a couple earns significantly more income and would benefit tax-wise from an interest deduction, but the other person is the liable party on the loan. It is not uncommon for couples who both work to share mortgage payments in the mistaken belief that they can each deduct their share of the mortgage interest on their individual tax returns. Although state law governs what constitutes equitable ownership, equitable ownership can generally be established if both parties are on title to the property, even if only one is liable on the loan. The premise behind equitable ownership is that an individual is protecting his or her ownership in the home by making some or all of the mortgage payments. This position was upheld in a Tax Court decision when the court denied a taxpayer's home mortgage interest deduction that she paid until she became co-owner of the property with her boyfriend and was legally obligated to make the mortgage payments. If you are in a similar situation and have questions related to sharing potentially tax-deductible expenses, please give this office a call. Tue, 12 May 2015 19:00:00 GMT Safe-Harbor Home Office Deduction Is It Better For You? http://www.mytrivalleytax.com/blog/safe-harbor-home-office-deduction-is-it-better-for-you/40446 http://www.mytrivalleytax.com/blog/safe-harbor-home-office-deduction-is-it-better-for-you/40446 Tri-Valley Tax & Financial Services Inc Article Highlights: Annual Election  Depreciation  Additional Office Expenses  Limitations & Carryover  Qualifications  Employee Issues  Usage Issues  Taxpayers can elect to take a simplified deduction for the business use of the taxpayer's home. The deduction is $5 per square foot, with a maximum square footage of 300. Thus, the maximum deduction is $1,500 per year. Here are the details of this simplified method: Annual Election - A taxpayer may elect to take the safe-harbor method or the regular method on an annual basis. Thus, a taxpayer may freely switch between the methods each year. The election is made by choosing the method on a timely filed original return and is irrevocable for that year.   Depreciation - When the taxpayer elects the safe-harbor method, no depreciation deduction for the home is allowed, and the depreciation for the year is deemed to be zero.   Additional Office Expenses - Additional office expenses such as utilities, insurance, office maintenance, etc., are not allowed when the safe-harbor method is used.   Home Interest and Taxes - Prorated home interest and taxes are not allowed as an office expense when using the safe-harbor method. Instead, 100% of the home interest and taxes are deductible as usual on Schedule A.   Deduction Limited by Business Income - As is the case with the regular method, under the safe-harbor method the home office deduction is limited by the business income. For the safe harbor, the deduction cannot exceed the gross income derived from the qualified business use of the home for the taxable year reduced by the business deductions (deductions unrelated to the qualified business use of a home). However, unlike the regular method, any amount in excess of this gross income limitation is disallowed and may not be carried over and claimed as a deduction in any other taxable year.   Home Office Carryover - This cannot be used in a year in which the safe-harbor method is used. The carryover continues to future years and can only be used when the regular method is used.   Qualifications - A taxpayer must still meet the regular qualifications to use the safe-harbor method.   Reimbursed Employee - The safe-harbor method cannot be used by an employee who receives advances, allowances, or reimbursements for expenses related to qualified business use of his or her home under a reimbursement or other expense allowance arrangement with the employer.   Determining Square Footage - To determine the average square footage of the business, use these guidelines: o Square Feet Maximum - Never use more than 300 square feet for any month, even if the taxpayer has multiple businesses. Where there are multiple businesses, use a reasonable method to allocate between businesses. o Determining Average Square Feet for the Year - Use zero for months when there was no business use or when the business was not for a full year. o 15-Day Minimum - Don't count any month in which the business use is less than 15 days. As an example, a taxpayer begins using 400 square feet of her home for business on July 20, 2015, and continues using the space as a home office through the end of the year. Her average monthly allowable square footage for 2015 is 125 square feet (300 x 5 months = 1500/12 = 125).   Multiple Businesses - Where there are multiple businesses, only one method may be used for the year—either the regular or safe harbor.   Mixed-Use Property - A taxpayer who has a qualified business use of a home and a rental use for purposes of § 280A(c)(3) of the same home cannot use the safe-harbor method for the rental use.   Taxpayers Sharing a Home - Taxpayers sharing a home (for example, roommates or spouses, regardless of filing status), if otherwise eligible, may each use the safe-harbor method but not for a qualified business use of the same portion of the home. As an example, a husband and wife, if otherwise eligible and regardless of filing status, may each use the safe-harbor method for a qualified business use of the same home for up to 300 square feet of different portions of the home.    Depreciation Rate When Switching Methods - When the safe-harbor method is used and the taxpayer subsequently switches back to the regular method, use the depreciation factor from the appropriate optional depreciation table as if the property had been depreciated all along. When choosing between the methods, the following factors should be considered: o There is no reduction in basis for depreciation or depreciation recapture when using the safe-harbor method. o When using the regular method, the income limitation takes into account home interest, taxes, and other expenses before allowing the depreciation portion of the deduction. That is not true for the safe-harbor method as the interest, taxes, and other business-use-area expenses are not considered.  If you have questions related to this simplified method of claiming a deduction for the business use of your home, please give this office a call. Thu, 07 May 2015 19:00:00 GMT Tips for Taxpayers Starting a New Business http://www.mytrivalleytax.com/blog/tips-for-taxpayers-starting-a-new-business/40429 http://www.mytrivalleytax.com/blog/tips-for-taxpayers-starting-a-new-business/40429 Tri-Valley Tax & Financial Services Inc Article Highlights: Business Entity Type Types of Business Taxes Keeping Good Records Accounting Methods Anyone starting a new business should be aware of his or her federal tax responsibilities. Here are several things you should know if you plan on opening a new business this year. First, you must decide what type of business entity you are going to establish. The type of business you open will determine which tax form has to be filed. The most common types of business are the sole proprietorship, partnership, corporation, and S corporation. The type of business you operate will determine what taxes must be paid and how you pay them. The four general types of business tax are income tax, self-employment tax, employment tax, and sales or excise tax. An employer identification number is used to identify a business entity. Most businesses need an EIN, and your business will definitely need one if you hire employees, regardless of the type of business entity selected. Please call this office to determine whether your business needs an EIN and get assistance in obtaining one if it does. Good records will help ensure the successful operation of your new business. You may choose any record-keeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law does not require any special kinds of records. However, the business you are in will affect the types of records that will have to be kept for federal tax purposes. If you need assistance or guidance in setting up your business records, please give this office a call. Every business taxpayer must figure taxable income on an annual accounting period called a tax year. The calendar year and the fiscal year are the most common tax years used. Each taxpayer must also use a consistent accounting method, which is a set of rules for determining when to report income and expenses. The most commonly used accounting methods are the cash method and accrual method. Under the cash method, income is generally reported in the tax year it is received, and expenses are deducted in the tax year they are paid. Under an accrual method, income is generally reported in the tax year it was earned, if not yet received, and expenses are deducted in the tax year they are incurred, even though they are not yet paid. If you are contemplating starting a business or if you already have one, please call this office if you need assistance with your accounting, bookkeeping, payroll or sales tax reporting, or other federal or state compliance issues..embed-container { position: relative; padding-bottom: 56.25%; height: 0; overflow: hidden; max-width: 100%; } .embed-container iframe, .embed-container object, .embed-container embed { position: absolute; top: 0; left: 0; width: 100%; height: 100%; } Tue, 05 May 2015 19:00:00 GMT How Long Are You on the Hook for a Tax Assessment? http://www.mytrivalleytax.com/blog/how-long-are-you-on-the-hook-for-a-tax-assessment/40404 http://www.mytrivalleytax.com/blog/how-long-are-you-on-the-hook-for-a-tax-assessment/40404 Tri-Valley Tax & Financial Services Inc Article Highlights: Statute of Limitations  Filing Before April Due Date  Filing After April Due Date  Extension  Amended Returns  Three-year Statute Understatement Exceeds 25%  Ten-year Collection Period  Tax Records  A frequent question from taxpayers is: how long does the IRS have to question and assess additional tax on my tax returns? For most taxpayers who reported all their income, the IRS has three years from the date of filing the returns to examine them. This period is termed the statute of limitations. But wait - as in all things taxes, it is not that clean cut. Here are some complications: You file before the April due date - If you file before the April due date, the three-year statute of limitations still begins on the April due date. So filing early does not start an earlier running of the statute of limitations. For example, whether you filed your 2014 return on February 15, 2015 or April 15, 2015, the statute did not start running until April 15, 2015. You file after the April due date - The assessment period for a late-filed return starts on the day after the actual filing, whether the lateness is due to a taxpayer's delinquency, or under a filing extension granted by IRS. For example, say your 2014 return is on extension until October 15, 2015, and you actually file on September 1, 2015. The statute of limitations for further assessments by the IRS will end on September 2, 2018. So the earlier you file those extension returns, the sooner you start the running of the statute of limitations. If you want to be cautious you may wish to retain verification of when the return was filed. For electronically filed returns, you can retain the confirmation from the IRS accepting the electronically filed return. If you file a paper return, proof of mailing can be obtained from the post office at the time you mail the return. You file an amended tax return - If after filing an original tax return you subsequently discover you made an error, an amended return is used to make the correction to the original. The filing of the amended tax return does not extend the statute of limitation unless the amended return is filed within 60 days before the limitations period expires. If that occurs, the IRS generally has 60 days from the receipt of the return to assess additional tax. You understated your income by more that 25% - When a taxpayer underreports his or her gross income by more than 25%, the three-year statute of limitations is increased to six years. In determining if more than 25% has been omitted, capital gains and losses aren't netted; only gains are taken into account. These “omissions” don't include amounts for which adequate information is given on the return or attached statements. For this purpose, gross income, as it relates to a trade or business, means the total of the amounts received or accrued from the sale of goods or services, without reduction for the cost of those goods or services. You file three years late - Suppose you procrastinate and you file your return three years or more after the April due date for that return. If you owe money, you will have to pay what you owe plus interest and late filing and late payment penalties. If you have a refund due, you will forfeit that refund and perhaps get stuck with a $135 minimum late filing penalty. No refunds are issued three years after the filing due date. 10-year collection period - Once an assessment of tax has been made within the statutory period, the IRS may collect the tax by levy or court proceeding started within 10 years after the assessment or within any period for collection agreed upon by the taxpayer and the IRS before the expiration of the 10-year period. Remember not to discard your tax records until after the statute has run its course. When disposing of old tax records, be careful not to discard records that prove the cost of items that have not been sold. For example, you may have placed home improvement records in with your annual receipts for the year the improvement was made. You don't want to discard those records until the statute runs out for the year you sold the home. The same applies to purchase records for stocks, bonds, reinvested dividends, business assets, or anything you will sell in the future and need to prove the cost. If you are behind on filing your returns and would like to get caught up, please give this office a call. If you discovered you omitted something from your original return and would like to file an amended return, we can help with that as well. Thu, 30 Apr 2015 19:00:00 GMT Read This Before Tossing Old Tax Records http://www.mytrivalleytax.com/blog/read-this-before-tossing-old-tax-records/36706 http://www.mytrivalleytax.com/blog/read-this-before-tossing-old-tax-records/36706 Tri-Valley Tax & Financial Services Inc Article Highlights: Reasons to Keep Records Statute of Limitations Maintaining Record of Asset Basis Now that your taxes have been completed for 2014, you are probably wondering what old records can be discarded. If you are like most taxpayers, you have records from years ago that you are afraid to throw away. It would be helpful to understand why the records must be kept in the first place. Generally, we keep tax records for two basic reasons: (1) in case the IRS or a state agency decides to question the information reported on our tax returns, and (2) to keep track of the tax basis of our capital assets so that the tax liability can be minimized when we dispose of them. With certain exceptions, the statute for assessing additional taxes is three years from the return due date or the date the return was filed, whichever is later. However, the statute of limitations for many states is one year longer than the federal law. In addition to lengthened state statutes clouding the recordkeeping issue, the federal three-year assessment period is extended to six years if a taxpayer omits from gross income an amount that is more than 25 percent of the income reported on a tax return. And, of course, the statutes don’t begin running until a return has been filed. There is no limit where a taxpayer files a false or fraudulent return to evade taxes. If an exception does not apply to you, for federal purposes, most of your tax records that are more than three years old can probably be discarded; add a year or so to that if you live in a state with a longer statute. Examples - Sue filed her 2011 tax return before the due date of April 15, 2012. She will be able to dispose of most of the 2011 records safely after April 15, 2015. On the other hand, Don files his 2011 return on June 2, 2012. He needs to keep his records at least until June 2, 2015. In both cases, the taxpayers may opt to keep their records a year or two longer if their states have a statute of limitations longer than three years. Note: If a due date falls on a Saturday, Sunday or holiday, the due date becomes the next business day. The big problem! The problem with the carte blanche discarding of records for a particular year because the statute of limitations has expired is that many taxpayers combine their normal tax records and the records needed to substantiate the basis of capital assets. These need to be separated and the basis records should not be discarded before the statute expires for the year in which the asset is disposed. Thus, it makes more sense to keep those records separated by asset. The following are examples of records that fall into that category: Stock acquisition data - If you own stock in a corporation, keep the purchase records for at least four years after the year the stock is sold. This data will be needed to prove the amount of profit (or loss) you had on the sale. Stock and mutual fund statements (If you reinvest dividends) - Many taxpayers use the dividends they receive from stocks or mutual funds to buy more shares of the same stock or fund. The reinvested amounts add to the basis in the property and reduce gain when it is finally sold. Keep statements at least four years after the final sale. Tangible property purchase and improvement records - Keep records of home, investment, rental property, or business property acquisitions AND related capital improvements for at least four years after the underlying property is sold. For example, when the large $250,000 and $500,000 home exclusion was passed into law several years back, homeowners became lax in maintaining home improvement records, thinking the large exclusions would cover any potential appreciation in the home’s value. Now that exclusion may not always be enough to cover sale gains, particularly in markets where property values have steadily risen, so records of home improvements are vital. Records can be important, so please use caution when discarding them. What about the tax returns themselves? While disposing of the back-up documents used to prepare the returns can usually be done after the statutory period has expired, you may want to consider keeping a copy of your tax returns (the 1040 and attached schedules/statements plus your state return) indefinitely. If you just don’t have room to keep a copy of the paper returns, digitizing them is an option. If you have questions about whether or not to retain certain records, give this office a call first; it is better to make sure, before discarding something that might be needed down the road. Tue, 28 Apr 2015 19:00:00 GMT Tax Penalty For Not Having Insurance Ratchets Up In 2015 http://www.mytrivalleytax.com/blog/tax-penalty-for-not-having-insurance-ratchets-up-in-2015/40367 http://www.mytrivalleytax.com/blog/tax-penalty-for-not-having-insurance-ratchets-up-in-2015/40367 Tri-Valley Tax & Financial Services Inc Article Highlights: Flat dollar amount penalty Percentage of income penalty Household income Modified adjusted gross income Tax filing threshold The penalty for not having minimum essential health insurance for yourself and other members of your tax family takes a substantial jump in 2015. For 2014, the penalty was the greater of the flat dollar amount ($95 for each adult plus $47.50 for each child under age 18, but no more than $285) or 1% of your household income minus your tax-filing threshold amount. For 2015, those amounts take a substantial jump to $325 for each adult and $162.50 for each child (but no more than $975) or 2% of household income minus the amount of your tax-filing threshold. Household income - Estimating the penalty requires you to project your household income for 2015. Household income includes the modified adjusted gross income (MAGI) for all members of your household for whom you claim a dependent exemption and who are required to file a tax return. As an example, say a parent has a teenage child who has a part-time job and earns $7,000 for the year. This $7,000 exceeds the child’s filing threshold (standard deduction for a single individual plus exemption allowance, but since the parents are claiming the child as a dependent, the child cannot claim his or her own exemption). So the child would be required to file a tax return, and the parents would be required to include the child’s MAGI when computing household income. Modified adjusted gross income – MAGI is your regular adjusted gross income with untaxed Social Security benefits, non-taxable interest and dividends, and the foreign earned income exclusion added back. Tax Filing Threshold – A taxpayer’s tax-filing threshold is the sum of the standard deduction and personal exemptions for the filer and spouse. Figuring the penalty – Take for example a family of three, including Dad, Mom and their teenage child. The household income for the family is $65,000, including the child’s earnings of $7,000, and they are subject to the penalty for the entire year of 2015. The flat dollar amount (per person) penalty is: $812.50 ($325 + $325 + $162.50) The percentage of income amount is household income less their filing threshold times 2%. In this example the tax-filing threshold for 2015 would be $20,600, which is the total of $12,600 (standard deduction for married joint) plus $4,000 each for the filer and spouse (personal exemptions). Note that although the dependent child’s income is included in household income (because the child is required to file a return), the child’s standard deduction and exemption allowance are not included in the filing threshold amount used in the calculation of the penalty. The percentage of income amount is $888 (($65,000 - $20,600) x 2%) Thus, in this example, the annual penalty for not being insured for the entire year is $888, the greater of the flat dollar amount or the percentage of income. When a family is uninsured for less than a full year, the penalty would be applied on a monthly basis, which for the example would be $74 per month. If you have questions related to how the penalty might apply to your family, please give this office a call. Thu, 23 Apr 2015 19:00:00 GMT Accounting Terms: Understanding the accounting term EBITDA and how to use it. http://www.mytrivalleytax.com/blog/accounting-terms-understanding-the-accounting-term-ebitda-and-how-to-use-it/40369 http://www.mytrivalleytax.com/blog/accounting-terms-understanding-the-accounting-term-ebitda-and-how-to-use-it/40369 Tri-Valley Tax & Financial Services Inc Article Highlights Definition of EBITDA  Use EBITDA to compare businesses  One gauge of a business's financial health  The accounting term EBITDA is an acronym that is widely used. It stands for Earnings Before Interest, Taxation, Depreciation, and Amortization, and it is an extremely helpful tool for understanding how one business or industry is faring based on comparing it to others that are doing the same thing. EBITDA's value lies in the fact that it gives a very quick assessment of a business's earnings potential; but, because it is not part of generally accepted accounting principles, or GAAP, it is frequently excluded from a business's official financial statement. Still, when a business owner is looking to attract additional investment or a potential buyer, EBITDA is often what is provided because it gives an easily understandable glimpse at earnings potential using existing information. With EBITDA, those who are assessing different businesses for possible investment are able to get an at-a-glance look at how the company is performing and use it to compare the business against companies that may be capitalized or accounting differently. The calculation is a simple formula, but requires access to the following information about a business: Income  Expenses (excluding tax, interest, depreciation and amortization)  Interest  Taxes  Depreciation of operational assets, such as equipment  Amortization of intangible assets, such as patents  With those numbers in hand, the formula is: EBITDA = Revenue - Expenses (excluding tax, interest, depreciation and amortization) Or, more simply, EBITDA equals net income plus interest, taxes, depreciation and amortization. Whichever way you approach it, it is important to know that, as useful as EBITDA can be, it is only one way to gauge an organization's financial health and potential. Making the decision to invest in or purchase a business requires a comprehensive view that ensures that you are well informed. If you need additional assistance calculating a small business EBITDA or other accounting ratios, contact this office today to set up a consultation. Wed, 22 Apr 2015 19:00:00 GMT Is Your Refund Too High or Do You Owe Taxes? You Probably Need to Adjust Your W-4 http://www.mytrivalleytax.com/blog/is-your-refund-too-high-or-do-you-owe-taxes-you-probably-need-to-adjust-your-w-4/40359 http://www.mytrivalleytax.com/blog/is-your-refund-too-high-or-do-you-owe-taxes-you-probably-need-to-adjust-your-w-4/40359 Tri-Valley Tax & Financial Services Inc Article Highlights: Large Refund or Tax Due Employers Withhold Based on W-4 IRS Online Withholding Calculator Self-employed Taxpayers If your income is primarily from wages and you received a very large refund—or worse, if you owed money—then your employer is not withholding the correct amount of tax (but it probably isn’t your employer’s fault). Sure, you like a big refund, but you have to remember you are only getting your own money back that was over-withheld in the first place. Why not bank it and have access to it all year long instead of providing Uncle Sam with an interest-free loan? Employers withhold tax based upon the information you provide them on Form W-4, and to adjust your withholding you will need to provide your employer with an updated W-4. Although the W-4 appears to be an easy form to fill out, this is where many taxpayers go wrong because they have other income, itemize their deductions or qualify for various tax credits. You can solve this problem by using the IRS’s online W-4 calculator that helps taxpayers determine the correct amount of allowances to claim on their W-4. It takes into account a multitude of issues, including itemized deductions, other income, tax credits, and tax already withheld. You will need the following available before using the IRS calculator: Your (and your spouse’s if you file jointly) most recent pay stub A copy of your most recent income tax return You will be required to estimate some values, so remember the results are only going to be as accurate as the input you provide. Click Here To Access The IRS Withholding Calculator Once you have determined the filing status and allowances to claim using the IRS calculator, download a copy of Form W-4, Employee's Withholding Allowance Certificate, fill it in and give it to your employer. Caution: If you are uncomfortable using the IRS’s online calculator, don’t understand some of the terminology, or have multiple jobs or a working spouse, you may need professional help to determine the correct number of W-4 allowances. Also the federal W-4 allowances may not translate properly for your state withholding. Tip: Once your employer has implemented the new W-4 allowance, double-check the withholding to make sure it is approximately what you had intended. It is not uncommon for errors to occur in an employer’s payroll department that could lead to unpleasant surprises at tax time. If you are self-employed, you generally pay estimated taxes instead of having payroll withholding. You may be self-employed and also have salaried employment, or your spouse may have payroll income or be self-employed. There are a multitude of possible combinations. If so, the IRS withholding calculator is not suitable for your needs, and you will probably need professional assistance in determining a combination of estimated taxes and payroll withholding. Please call this office for assistance in preparing your W-4s and determining your estimated tax payments. Tue, 21 Apr 2015 19:00:00 GMT Should You Keep Home Improvement Records? http://www.mytrivalleytax.com/blog/should-you-keep-home-improvement-records/40355 http://www.mytrivalleytax.com/blog/should-you-keep-home-improvement-records/40355 Tri-Valley Tax & Financial Services Inc Article Highlights: Keeping home improvement records Home gain exclusion amounts Records may be required to avoid tax Many taxpayers don’t feel the need to keep home improvement records, thinking the potential gain will never exceed the amount of the exclusion for home gains ($250,000 or $500,000 if both filer and spouse qualify) if they meet the 2-out-of-5-year use and ownership tests. Here are some situations when having home improvement records could save taxes: (1) The home is owned for a long period of time, and the combination of appreciation in value due to inflation and improvements exceeds the exclusion amount. (2) The home is converted to a rental property, and the cost and improvements of the home are needed to establish the depreciable basis of the property. (3) The home is converted to a second residence, and the exclusion might not apply to the sale. (4) You suffer a casualty loss and retain the home after making repairs. (5) The home is sold before meeting the 2-year use and ownership requirements. (6) The home only qualifies for a reduced exclusion because the home is sold before meeting the 2-year use and ownership requirements. (7) One spouse retains the home after a divorce and is only entitled to a $250,000 exclusion instead of the $500,000 exclusion available to married couples. (8) There are future tax law changes that could affect the exclusion amounts. Everyone hates to keep records, but consider the consequences if you have a gain and a portion of it cannot be excluded. You will be hit with capital gains (CG), and there is a good chance the CG tax rate will be higher than normal simply because the gain pushed you into a higher CG tax bracket. Before deciding not to keep records, carefully consider the potential of having a gain in excess of the exclusion amount. If you have questions related to the home gain exclusion or questions about how keeping home improvement records might directly affect you, please give this office a call. Thu, 16 Apr 2015 19:00:00 GMT Is Your Hobby a For-Profit Endeavor? http://www.mytrivalleytax.com/blog/is-your-hobby-a-for-profit-endeavor/34881 http://www.mytrivalleytax.com/blog/is-your-hobby-a-for-profit-endeavor/34881 Tri-Valley Tax & Financial Services Inc Article Highlights: Hobby Versus For-Profit Endeavor Factors Used To Determine For-Profit Three out of Five Rule Hobby Deductions Whether an activity is a hobby or a business may not be apparent to the customers of the endeavor, but distinguishing the difference is necessary for tax purposes because the tax treatments are substantially different. The IRS provides appropriate guidelines when determining whether an activity is engaged in for profit, such as a business or investment activity, or if it is engaged in as a hobby. Internal Revenue Code Section 183 (Activities Not Engaged in for Profit) limits deductions that can be claimed when an activity is not engaged in for profit. IRC 183 is sometimes referred to as the “hobby loss rule.” This article provides information that is helpful in determining if an activity qualifies as an activity engaged in for profit and what limitations apply if the activity was not engaged in for profit. Is your hobby really an activity engaged in for profit? In general, taxpayers may deduct ordinary and necessary expenses for conducting a trade or business or for the production of income. Trade or business activities and activities engaged in for the production of income are activities engaged in for profit. The following factors, although not all-inclusive, may help you determine whether your activity is an activity engaged in for profit or a hobby: Does the time and effort put into the activity indicate an intention to make a profit? Do you depend on income from the activity? If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business? Have you changed methods of operation to improve profitability? Do you have the knowledge needed to carry on the activity as a successful business? Have you made a profit in similar activities in the past? Does the activity make a profit in some years? Do you expect to make a profit in the future from the appreciation of assets used in the activity? An activity is presumed to be engaged in for profit if it makes a profit in at least three of the last five tax years, including the current year (or at least two of the last seven years for activities that consist primarily of breeding, showing, training, or racing horses). If an activity is not for profit, losses from that activity may not be used to offset other income. An activity produces a loss when related expenses exceed income. The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. It does not apply to corporations other than S corporations. Hobby deductions If it is determined that your activity is not for profit, allowable deductions cannot exceed the gross receipts for the activity. Deductions for hobby activities are claimed as itemized deductions on Schedule A and must be taken in the following order and only to the extent stated in each of the three categories: Expenses that a taxpayer would otherwise be allowed to deduct, such as home mortgage interest and taxes, may be taken in full. Deductions that don’t result in an adjustment to the basis of property, such as advertising, insurance premiums, and wages, may be taken next, to the extent that gross income for the activity is more than the deductions from the first category. Deductions that reduce the basis of property, such as depreciation and amortization, are taken last, but only to the extent that gross income for the activity is more than the deductions taken in the first two categories. If you have questions related to your specific business or hobby circumstances, please give this office a call. Tue, 14 Apr 2015 19:00:00 GMT Do I Have to File a Tax Return? http://www.mytrivalleytax.com/blog/do-i-have-to-file-a-tax-return/40338 http://www.mytrivalleytax.com/blog/do-i-have-to-file-a-tax-return/40338 Tri-Valley Tax & Financial Services Inc Article Highlights: When You Are Required to File Self-Employed Taxpayers Filing Thresholds Benefits of Filing Even When Not Required to File Refundable Tax Credits This is a question many taxpayers ask during this time of year, and the question is far more complicated than people believe. To fully understand, we need to consider that there are times when individuals are REQUIRED to file a tax return, and then there are times when it is to individuals’ BENEFIT to file a return even if they are not required to file. When individuals are required to file: Generally, individuals are required to file a return if their income exceeds their filing threshold, as shown in the table below. The filing thresholds are the sum of the standard deduction for individual(s) and the personal exemption for the taxpayer and spouse (if any). Taxpayers are required to file if they have net self-employed income in excess of $400, since they are required to file self-employment taxes (the equivalent to payroll taxes for an employee) when their net self-employed income exceeds $400. Taxpayers are also required to file when they are required to repay a credit or benefit. For example, taxpayers who underestimated their income when signing up for insurance on the marketplace and received a higher advanced premium tax credit than they were entitled to are required to repay part of it. Filing is also required when a taxpayer owes a penalty, even though the taxpayer’s income is below the filing threshold. This can occur, for example, when a taxpayer has an IRA 6% early withdrawal penalty or the 50% penalty for not taking a required IRA distribution. 2014 – Filing Thresholds Filing Status Age Threshold Single Under Age 65 Age 65 or Older $10,15011,700 Married Filing Jointly Both Spouses Under 65One Spouse 65 or OlderBoth Spouses 65 or Older $20,30021,500 22,700 Married Filing Separately Any Age 3,950 Head of Household Under 6565 or Older $13,05014,600 Qualifying Widow(er)with Dependent Child Under 6565 or Older $16,35017,550 When it is beneficial for individuals to file: There are a number of benefits available when filing a tax return that can produce refunds even for a taxpayer who is not required to file: Withholding refund – A substantial number of taxpayers fail to file their return even when the tax they owe is less than their prepayments, such as payroll withholding, estimates, or a prior overpayment. The only way to recover the excess is to file a return. Earned Income Tax Credit (EITC) – If you worked and did not make a lot of money, you may qualify for the EITC. The EITC is a refundable tax credit, which means you could qualify for a tax refund. The refund could be as high as several thousand dollars even when you are not required to file. Additional Child Tax Credit – This refundable credit may be available to you if you have at least one qualifying child. American Opportunity Credit – The maximum credit per student is $2,500, and the first four years of postsecondary education qualify. Up to 40% of that credit is refundable when you have no tax liability and are not required to file. Premium Tax Credit – Lower-income families are entitled to a refundable tax credit to supplement the cost of health insurance purchased through a marketplace. To extent the credit is greater than the supplement provided by the marketplace, it is refundable even if there is no other reason to file. DON’T PROCRASTINATE! There is a three-year statute of limitations on refunds, and after it runs out, any refund due is forfeited. The statute is three years from the due date of the tax return. So the refund period expires for 2014 returns, which were due in April of 2015, on April 16, 2018.For more information about filing requirements and your eligibility to receive tax credits, please contact this office. Thu, 09 Apr 2015 19:00:00 GMT Individual Estimated Tax Payments for 2015 Start Soon http://www.mytrivalleytax.com/blog/individual-estimated-tax-payments-for-2015-start-soon/38793 http://www.mytrivalleytax.com/blog/individual-estimated-tax-payments-for-2015-start-soon/38793 Tri-Valley Tax & Financial Services Inc Highlights: Pay-as-you-go tax system Tax law changes affecting estimates Underpayment penalties Safe harbor estimates Our tax system is a “pay-as-you-go” system, and if your pre-paid amount is not enough, you become liable for non-deductible interest penalties. To facilitate that concept, the government has provided several means of assisting taxpayers in meeting the “pay-as-you-go” requirement. The primary among these include: Payroll withholding for employees; Pension withholding for retirees; and Estimated tax payments for self-employed individuals and those with other sources of income not covered by withholding. Determining how much tax to pre-pay through withholding and estimated tax payments has always been difficult, and thanks to Congress’ constant tinkering with the tax laws, ensuring there are no underpayment penalties or tax surprises when the tax return is prepared next year can be challenging. Recently, several new tax laws and changes took effect that add complexity to estimating one’s tax liability, including: higher ordinary tax rates, higher capital gains tax rates, the phase out of exemptions and itemized deductions for higher income taxpayers, the 3.8% tax on net investment income, and .9% increase in self-employment tax for upper-income self-employed individuals, not to mention a myriad of sun setting tax provisions. When a taxpayer fails to prepay a safe harbor (minimum) amount, he or she can be subject to the underpayment of estimated tax penalty. This penalty is the short-term federal rate plus 3 percentage points, and the penalty is computed on a quarter-by-quarter basis. So, even if you pre-pay the correct amount for the year, if the amounts are not paid evenly, you could be subject to a penalty. Interestingly enough, withholding amounts are treated as paid ratably throughout the year, so taxpayers who are underpaid in the earlier part of the year can compensate by bumping up their withholding in the later part of the year. Federal tax law does provide ways to avoid the underpayment penalty. If the underpayment is less than $1,000 (referred to as the de minimis amount), no penalty is assessed. In addition, the law provides “safe harbor” prepayments. There are two safe harbors: The first safe harbor is based on the tax owed in the current year. If your payments equal or exceed 90% of what is owed in the current year, you can escape a penalty. The second safe harbor is based on the tax owed in the immediately preceding tax year. This safe harbor is generally 100% of the prior year’s tax liability. However, for a higher income taxpayer who has AGI exceeding $150,000 ($75,000 for married taxpayers filing separately), the prior year’s safe harbor is 110%. Example: Suppose your tax for the year is $10,000 and your prepayments total $5,600. The result is that you owe an additional $4,400 on your tax return. To find out if you owe a penalty, see if you meet the first safe harbor exception. As 90% of $10,000 is $9,000, your prepayments fell short of the mark. You can’t avoid the penalty under this exception. However, in the above example, the safe harbor may still apply. Assume your prior year’s tax was $5,000. As you prepaid $5,600, which is greater than 110% of the prior year’s tax (110% = $5,500), you qualify for this safe harbor and can escape the penalty. If your state has a state tax, the state’s de minimis amount and safe-harbor percentage and amount may be different. This example underscores the importance of making sure your prepayments are adequate, especially if you have a large increase in income. This is common when there is a large gain from the sale of stocks, sale of property, when large bonuses are paid, or when a taxpayer retires. If you have questions regarding your pre-payments or would like to review and adjust your W-4 payroll withholding, W-4P pension withholding, and estimated tax payments to provide the desired tax result for 2014, please give this office a call. Tue, 07 Apr 2015 19:00:00 GMT Are You Leaving Tax Money On The Table? http://www.mytrivalleytax.com/blog/are-you-leaving-tax-money-on-the-table/40330 http://www.mytrivalleytax.com/blog/are-you-leaving-tax-money-on-the-table/40330 Tri-Valley Tax & Financial Services Inc Article Highlights: Unclaimed Refunds Over-Withholding Earned Income Tax Credit Child Tax Credit American Opportunity Credit (AOTC) Premium Tax Credit (PTC) Refund Statute of Limitations Each year the IRS reports about $1 billion in unclaimed refunds for individuals who did not file a tax return. The IRS estimates that approximately half of the unclaimed refunds are for amounts greater than $600. You may not have filed, thinking that because you don’t itemize and your employer is withholding tax that you don’t need to file. But there is a good chance you are leaving money on the table by not filing. Consider the following: Over-Withholding - Your employer may have withheld more than you owe, as withholding is not an exact science. But you have to file to get the excess back. Earned Income Tax Credit (EITC) – An EITC is a credit for lower-income taxpayers. If you worked and earned less than $52,427 last year, you could receive the EITC as a refund if you qualify with or without a child. The credit can be as much $6,143 and is fully refundable. This is a very lucrative credit, but you have to file to benefit from it. Child Tax Credit – If you have at least one child under the age of 17 you probably qualify for the Child Tax Credit. Generally this credit is non-refundable (can only be used to reduce taxes owed). However, if you work, your income is low to moderate and you don’t use the full credit amount to offset taxes, a portion of the $1,000 per child credit may be refundable. American Opportunity Tax Credit (AOTC) - The AOTC is available for four years of post-secondary education expenses and can result in a credit of up to $2,500 per eligible student enrolled at least half time for at least one academic period during the year. Up to 40% of the credit is refundable, so even if you don’t owe any taxes, you may still qualify for the credit. But to claim the credit you must file a return. Premium Tax Credit (PTC) – If you acquired your health insurance last year through a government marketplace, you probably qualify for an insurance subsidy in the form of the PTC. But you have to file to get the credit. If you received the PTC in advance to reduce your premiums, as did most individuals who used a health insurance marketplace, you must file a tax return and reconcile the advance PTC against the actual PTC. If you have not filed in the past, the statute of limitations for a refund is 3 years from the unextended due date of the return, so if you have a refund coming for past years you should file before the statute expires. For example, to claim a refund for a 2012 return you will need to file the 2012 return no later than Wednesday, April 15, 2016, or the refund is gone forever. This firm has expertise in preparing tax returns for all years, including past years, so please contact this office for assistance so you can get the refunds you are entitled to. Thu, 02 Apr 2015 19:00:00 GMT Refund Statute Expiring http://www.mytrivalleytax.com/blog/refund-statute-expiring/38758 http://www.mytrivalleytax.com/blog/refund-statute-expiring/38758 Tri-Valley Tax & Financial Services Inc Article Highlights: 2011 refunds are in jeopardy Filing deadline Lost benefits Mailing instructions If you have not yet filed your 2011 federal tax return and have a refund coming, time is running out! The IRS estimates that there are in excess of 1.1 million taxpayers who have not filed their 2011 tax returns and that there is in excess of $1.1 billion dollars of unclaimed refunds available for those taxpayers. If you fall in this category, you need to act quickly because the return must be filed by April 15, 2015 to claim a refund for 2011. Otherwise, the money becomes the property of the U.S. Treasury. By failing to file a return, people stand to lose more than a refund of taxes withheld or paid during 2011. Many low- and moderate-income workers may not have claimed the Earned Income Tax Credit (EITC). The EITC helps individuals and families with incomes below certain thresholds, which for unmarried individuals in 2011 were $40,964 for those with two or more children, $36,052 for people with one child, and $13,660 for those with no children. Each amount is $5,080 more for married joint filers. In addition, parents eligible to claim the refundable portion of the child tax credit will forfeit that benefit if they don’t file a return. When filing a 2011 return, the law requires that the return be properly addressed, mailed and postmarked by the April 15th date. There is no penalty for filing a late return qualifying for a refund. As a reminder, taxpayers seeking a 2011 refund should know that their checks will be held if they have not filed tax returns for 2009 and 2010. In addition, the refund will be applied to any amounts still owed to the IRS, and may be used to offset unpaid child support or past-due federal debts such as student loans. If this office can be of assistance in bringing you current with your tax filing obligations, please call. Tue, 31 Mar 2015 19:00:00 GMT Can't Pay Your Taxes by the April Due Date? http://www.mytrivalleytax.com/blog/cant-pay-your-taxes-by-the-april-due-date/40276 http://www.mytrivalleytax.com/blog/cant-pay-your-taxes-by-the-april-due-date/40276 Tri-Valley Tax & Financial Services Inc Article Highlights: If you can't pay  Loans  Credit card payments  IRS Installment agreement  Retirement funds  The vast majority of Americans get a tax refund from the IRS each spring, but what if you are one of those who end ends up owing? The IRS encourages you to pay the full amount of your tax liability on time by imposing significant penalties and interest on late payments if you don't. So if you are unable to pay the tax you owe, it is generally in your best interest to make other arrangements to obtain the funds for paying your taxes rather than be subjected to the government's penalties and interest. Here are a few options to consider. Family Loan - Obtaining a loan from a relative or friend may be the best bet because this type of loan is generally the least costly in terms of interest.   Credit Card - Another option is to pay by credit card with one of the service providers that work with the IRS. However, since the IRS will not pay the credit card discount fee, you will have to pay it and pay the higher credit card interest rates.  Installment Agreement - If you owe the IRS $50,000 or less, you may qualify for a streamlined installment agreement where you can make monthly payments for up to six years. You will still be subject to the late payment penalty, but it will be reduced by half. Interest will also be charged at the current rate, and there is a user fee to set up the payment plan. In making the agreement, a taxpayer agrees to keep all future years' tax obligations current. If the taxpayer does not make payments on time or has an outstanding past due amount in a future year, they will be in default of their agreement and the IRS has the option of taking enforcement actions to collect the entire amount owed. Taxpayers seeking installment agreements exceeding $50,000 will need to validate their financial condition and need for an installment agreement by providing the IRS with a Collection Information Statement (financial statements). Taxpayers may also pay down their balance due to $50,000 or less to take advantage of the streamlined option.   Tap a Retirement Account - This is possibly the worst option for obtaining funds to pay your taxes because you are jeopardizing your retirement and the distributions are generally taxable at your highest bracket, which adds more taxes to your existing problem. In addition, if you are under age 59½, the withdrawal is also subject to a 10% early withdrawal penalty that compounds the problem even further.  Whatever you decide, don't just ignore your tax liability because that is the worst thing you can do. Please call this office for assistance. Thu, 26 Mar 2015 19:00:00 GMT Writing Off Your Start-Up Expenses http://www.mytrivalleytax.com/blog/writing-off-your-start-up-expenses/39785 http://www.mytrivalleytax.com/blog/writing-off-your-start-up-expenses/39785 Tri-Valley Tax & Financial Services Inc Article Highlights: $5,000 first-year start-up expense write-off Start-up expense write-off limitations Timely filing requirements Qualifying start-up expenses Business owners – especially those operating small businesses – may be helped by a tax law allowing them to deduct up to $5,000 of the start-up expenses in the first year of the business’s operation. This is in lieu of amortizing the expenses over 180 months (15 years). Generally, start-up expenses include all expenses incurred to investigate the formation or acquisition of a business or to engage in a for-profit activity in anticipation of that activity becoming an active business. To be eligible for the election, an expense must also be one that would be deductible if it were incurred after the business actually began. An example of a start-up expense is the cost of analyzing the potential market for a new product. As with most tax benefits, there is always a catch. Congress put a cap on the amount of start-up expenses that can be claimed as a deduction under this special election. Here’s how to determine the deduction: If the expenses are $50,000 or less, you can elect to deduct up to $5,000 in the first year, plus you can amortize the balance over 180 months. If the expenses are more than $50,000, then the $5,000 first-year write-off is reduced dollar-for-dollar for every dollar in start-up expenses that exceed $50,000. For example, if start-up costs were $54,000, the first-year write-off would be limited to $1,000 ($5,000 – ($54,000 – $50,000)). The election to deduct start-up costs is made by claiming the deduction on the return for the year in which the active trade or business begins, and the return must be filed by the extended due date. Qualifying Start-Up Costs - A qualifying start-up cost is one that would be deductible if it were paid or incurred to operate an existing active business in the same field as the new business and the cost is paid or incurred before the day the active trade or business begins. Not includible are taxes, interest, and research and experimental costs. Examples of qualified start-up costs include: Surveys/analyses of potential markets, labor supply, products, transportation facilities, etc.; Wages paid to employees and their instructors while they are being trained; Advertisements related to opening the business; Fees and salaries paid to consultants or others for professional services; and Travel and other related costs to secure prospective customers, distributors, and suppliers. For the purchase of an active trade or business, only investigative costs incurred while conducting a general search for or preliminary investigation of the business (i.e., costs that help the taxpayer decide whether to purchase a new business and which one to purchase) are qualified start-up costs. Costs incurred attempting to buy a specific business are capital expenses that aren’t treated as start-up costs. If you have a question related to start-up expenses, please give this office a call. Tue, 24 Mar 2015 19:00:00 GMT How QuickBooks' Custom Fields Can Provide Better Business Insight http://www.mytrivalleytax.com/blog/how-quickbooks-custom-fields-can-provide-better-business-insight/40253 http://www.mytrivalleytax.com/blog/how-quickbooks-custom-fields-can-provide-better-business-insight/40253 Tri-Valley Tax & Financial Services Inc QuickBooks' customizability makes it flexible enough for countless business types. Custom fields are a big part of that. QuickBooks makes it possible for your business to create very detailed records for customers, vendors, employees, and items. In fact, you may find that you rarely make use of every field each contains. But you may also find that there are additional fields that you'd like to see in your predefined record formats. That's where custom fields come in. QuickBooks lets you add extra fields and specify what their labels should be. You can define up to 12 total fields for use in customer, vendor, and/or employee records. QuickBooks treats these just as it treats your built-in fields. They appear in the records themselves, of course, and are included when you export a file containing them. You can also search for them in reports. People RecordsThere are separate processes for defining fields for your individual and company contacts and your items. Let's look at how you can set up custom fields for customers, vendors, and employees first. Go to your Customer Center and open a blank Customer record (in newer versions of QuickBooks, you'll click on New Customer & Job in the upper left corner, and then click New Customer). Then click the Additional Info tab in the left vertical pane of the New Customer window, then click on the Define Fields button in the lower right. This window will open (with blank fields): Figure1: You can create up to 12 total custom fields that will be shared by customers, vendors, and employees. It's easy to create your custom field labels. Simply type a word or short phrase on a line under Label, and then click in the box(es) on the same line in the appropriate column(s). While it's possible that you would want to include the same field in multiple record types, you'll most likely have separate labels for each. Consider carefully before creating custom field labels. Ask yourself questions like: What do I want to know about customers/vendors/employees that isn't already covered in the pre-built record formats?  What kinds of information will I want to make available in report filters?  How will I want to separate out individuals for communications like emails, memos, special sale invitations, etc.  Remember that you'll have to go back into existing records and fill in these blanks in order to be consistent. You're not required to complete them, but your searches, reports, etc. will not be comprehensive if you don't. As always, you can consult with us if you want some suggestions. Item Records The custom fields we just created are generally only used internally. That is, they won't automatically appear on sales forms, purchase orders, etc. You may decide that some custom fields in item records, on the other hand, do need to be available on some forms. For example, you might sell shirts in multiple sizes, colors, and styles. To start creating them, open the Lists menu and select Item List. Click the down arrow on the Item menu in the lower left, then click New. Since you will be selling similar items that you'll be keeping in stock, select Inventory Part under TYPE. Then click on the Custom Fields button over on the right and then Define Fields. Figure 2: If you sell similar items that are available with different characteristics, you'll want to create custom fields. As you did with the earlier custom fields, enter a word or phrase under Label and then click in the Use column. After you've entered up to five fields, click OK. A Complicated Process This is where the simplicity of creating and using custom fields for items in reports and transaction forms ends. If you sell t-shirts in various sizes and colors, you're going to need our help in order to see true inventory levels in reports and add those custom fields to sales and purchase transaction forms. Figure 3: Adding custom fields to QuickBooks' standard transaction forms is possible, but you'll need our assistance to make sure inventory tracking is set up right. It may be that you need more inventory-tracking tools than are offered in your version of QuickBooks. If that's the case, we can help you either add an application that will meet your needs or suggest an upgrade. Mon, 23 Mar 2015 19:00:00 GMT Tax Break for Sales of Inherited Homes http://www.mytrivalleytax.com/blog/tax-break-for-sales-of-inherited-homes/40246 http://www.mytrivalleytax.com/blog/tax-break-for-sales-of-inherited-homes/40246 Tri-Valley Tax & Financial Services Inc Article Highlights: Inherited Basis  Certified Appraisals  Loss On Sale  Potential Law Change  People who inherit property are often concerned about the taxes they will owe on any gain from that property's sale. After all, the property may have been purchased years ago at a low cost by a deceased relative but may now have vastly appreciated in value. The usual question is: “Won't the taxes at sale be horrendous?” Clients are usually pleasantly surprised by the answer—that special rules apply to figuring the tax on the sale of any inherited property. Instead of having to start with the decedent's original purchase price to determine gain or loss, the law allows taxpayers to use the value at the date of the decedent's death as a starting point (sometimes an alternate date is chosen). This often means that the selling price and the inherited basis of the property are practically identical, and there is little, if any, gain to report. In fact, the computation frequently results in a loss, particularly when it comes to real property on which large selling expenses (realtor commissions, etc.) must be paid. This also highlights the importance of having a certified appraisal of the home to establish the home's tax basis. If an estate tax return or probate is required, a certified appraisal will be completed as part of those processes. If not, one must be obtained to establish the basis. It is generally not acceptable just to refer to a real estate agent's estimation of value or comparable sale prices if the IRS questions the date of death value. The few hundred dollars it may cost for a certified appraisal will be worth it if the IRS asks for proof of the basis. Another issue is whether a loss on an inherited home is deductible. Normally, losses on the sale of personal use property such as one's home are not deductible. However, unless the beneficiary is living in the home, the home becomes investment property in the hands of the beneficiary, and a loss is deductible but subject to a $3,000 ($1,500 if married and filing separately) per year limitation for all capital losses with any unused losses carried forward to a future year. In some cases, courts have allowed deductions for losses on an inherited home if the beneficiary also lives in the home. In order to deduct such a loss, a beneficiary must try to sell or rent the property immediately following the decedent's death. In one case, where a beneficiary was also living in the house with the decedent at the time of death, loss on a sale was still deductible, when the heir moved out of the home within a “reasonable time” and immediately attempted to sell or rent it. This treatment could change in the future, however. The President's Fiscal Year 2016 Budget Proposal includes a proposal that would eliminate any step up in basis at the time of death and would require payment of capital gains tax on the increase in the value of the home at the time it is inherited. If you have questions related to inheritances or home sales, please give this office a call. Thu, 19 Mar 2015 19:00:00 GMT Family Home Loan Interest May Not Be Deductible http://www.mytrivalleytax.com/blog/family-home-loan-interest-may-not-be-deductible/38547 http://www.mytrivalleytax.com/blog/family-home-loan-interest-may-not-be-deductible/38547 Tri-Valley Tax & Financial Services Inc Article Highlights: Qualified residence interest is deductible interest that is paid or accrued during the tax year on acquisition indebtedness or home equity indebtedness with respect to any qualified residence of the taxpayer. Acquisition indebtedness means that any indebtedness that is incurred in acquiring, constructing, or substantially improving any qualified residence of the taxpayer is secured by such residence. Interest on unsecured home debt is generally not deductible. It is not uncommon for individuals to loan money to relatives to help them buy a home. In those situations, it is also not uncommon for a loan to be undocumented or documented with an unsecured note, and the unintended result that the homebuyer can’t claim a tax deduction for the interest paid to their helpful relative. The tax code describes qualified residence interest as interest paid or accrued during the tax year on acquisition indebtedness or home equity indebtedness with respect to any qualified residence of the taxpayer. It also provides that the term "acquisition indebtedness" means any indebtedness that is incurred in acquiring, constructing, or substantially improving any qualified residence of the taxpayer, and is secured by such residence. There are also limits on the amount of debt and number of qualified residences that a taxpayer may have for purposes of claiming a home mortgage interest tax deduction, but those details are not covered in this article, which focuses on the requirement that the debt be secured. Secured debt means a debt that is on the security of any instrument (such as a mortgage, deed of trust, or land contract): (i) that makes the interest of the debtor in the qualified residence-specific security of the payment of the debt, (ii) under which, in the event of default, the residence could be subjected to the satisfaction of the debt with the same priority as a mortgage or deed of trust in the jurisdiction in which the property is situated, and (iii) that is recorded, where permitted, or is otherwise perfected in accordance with applicable state law. In other words, the home is put up as collateral to protect the interest of the lender. Thus, interest paid on undocumented loans, or documented but unsecured notes, is not deductible by the borrower but is fully taxable to the lending individual. The IRS is always skeptical of family transactions. Don’t get trapped in this type of situation. Take the time to have a note drawn up and recorded or perfected in accordance with state law. If you have questions related to this situation or other issues related to the deductibility of home mortgage interest, please give this office a call. Thu, 12 Mar 2015 19:00:00 GMT Local Lodging May Be Deductible http://www.mytrivalleytax.com/blog/local-lodging-may-be-deductible/40242 http://www.mytrivalleytax.com/blog/local-lodging-may-be-deductible/40242 Tri-Valley Tax & Financial Services Inc Article Highlights: Away-from-home lodging  Non-away-from-home lodging  Requirements to be deductible  Substantiation requirements  A business deduction is allowed for lodging when a taxpayer travels away from his or her “tax home.” A taxpayer's tax home is generally the location (such as a city or metropolitan area) of a taxpayer's main place of business (not necessarily the place where he/she lives). The traveling away from his or her tax home condition creates problems for individuals attending conferences and training sessions within their tax homes that include extended-hour events that preclude traveling back home between the days of the events. To alleviate this problem, IRS proposed regulations, upon which taxpayers may rely, permit certain non-away-from-home lodging expenses to be treated as deductible business expenses by employers and tax-free working condition fringe benefits or accountable-plan reimbursements to employees. Under the proposed regulations, local lodging expenses are treated as ordinary and necessary business expenses if all of these conditions are met: (1) The lodging is necessary for the individual to participate fully in or be available for a bona fide business meeting, conference, training activity, or other business function. (2) The lodging is for a period that does not exceed five calendar days and does not recur more frequently than once per calendar quarter. (3) If the individual is an employee, his or her employer requires him or her to remain at the activity or function overnight. (4) The lodging is not lavish or extravagant under the circumstances and does not provide any significant element of personal pleasure, recreation, or benefit. Example: A business conducts business-related sales training sessions at a hotel and conference center near its main office. The employer requires both its field and in-house sales force to attend the training and stay at the hotel overnight for the bona fide purpose of facilitating the training. If the company pays the lodging costs directly to the hotel, the stay is a working condition fringe benefit to all attendees (even to employees who live in the area who are not on travel status) and the company may deduct the cost as an ordinary and necessary business expense. If the employees pay for the lodging costs and are reimbursed by the company, the reimbursement is of the accountable plan variety and is tax-free to the employees and deductible by the company as an ordinary and necessary business expense. Example: If Warren, a locally based, self-employed consultant, were required by a company to attend the sessions and stay at the hotel, he could deduct the expense if he paid for it himself or exclude the expense if he were reimbursed by the company after accounting for it in full for his costs. Substantiation requirements - Generally lodging expenses are deductible only if they are substantiated in full (record of time, place, amount, and business purpose, plus paid bills or receipts). The expenses can't be substantiated using the lodging component of the federal per-diem rate. If you have questions about the deduction and substantiation of business-related lodging expenses, please give this office a call. Tue, 10 Mar 2015 19:00:00 GMT Checking the Status of Your Federal Tax Refund is Easy http://www.mytrivalleytax.com/blog/checking-the-status-of-your-federal-tax-refund-is-easy/40221 http://www.mytrivalleytax.com/blog/checking-the-status-of-your-federal-tax-refund-is-easy/40221 Tri-Valley Tax & Financial Services Inc Article Highlights 24/7 access  How quickly posted  Direct deposit  Information needed to use  If you already filed your federal tax return and are due a refund, you can check the status of your refund online. Where's My Refund? is an interactive tool on the IRS web site. Whether you split your refund among several accounts, opted for direct deposit into one account, or asked the IRS to mail you a check, Where's My Refund? will give you online access to your refund information nearly 24 hours a day, 7 days a week. If you e-file, you can get refund information 24 hours after the IRS acknowledges receipt of your return. Nine out of 10 taxpayers typically receive refunds in less than 21 days when they use e-file with direct deposit. If you file a paper return, refund information will be available starting four weeks after mailing your return. When checking the status of your refund, have a copy of your federal tax return handy. To access your personalized refund information, you must enter: Your Social Security Number (or Individual Taxpayer Identification Number);  Your Filing Status (Single, Married Filing Joint Return, Married Filing Separate Return, Head of Household, or Qualifying Widow(er)); and  The exact refund amount shown on your tax return.  Once your personal information has been entered, one of several personalized responses may come up, including the following:  Acknowledgement that your return was received and is in processing.  The mailing date or direct deposit date of your refund.  Notice that the IRS could not deliver your refund due to an incorrect address. You can update your address online using the Where's My Refund? feature.  Where's My Refund? also includes links to customized information based on your specific situation. The links guide you through the steps to resolve any issues affecting your refund. For example, if you do not get the refund within 28 days from the original IRS mailing date shown on Where's My Refund?, you can start a refund trace online. Where's My Refund? is also accessible to visually impaired taxpayers who use the Job Access with Speech screen reader used with a Braille display and is compatible with different JAWS modes. IRS2Go is the IRS' first smartphone application that lets taxpayers check on the status of their tax refund. Apple users can download the free IRS2Go application by visiting the Apple App Store. Android users can visit the Google Play Store to download the free IRS2Go app. Where's My Refund? provides the most up-to-date information the IRS has. There's no need to call the IRS unless Where's My Refund? tells you to do so. Where's My Refund? is updated every 24 hours - usually overnight - so you only need to check once a day. Please call this office if you encounter problems. Tue, 03 Mar 2015 19:00:00 GMT Turning 70 1/2 This Year? http://www.mytrivalleytax.com/blog/turning-70-12-this-year/40202 http://www.mytrivalleytax.com/blog/turning-70-12-this-year/40202 Tri-Valley Tax & Financial Services Inc Article Highlights: Turning 70 1/2  Traditional IRA Contributions  Excess Contributions Penalty Required Minimum Distributions  Still Working Exception  Excess Accumulation Penalty  If you are turning 70 1/2 this year, you may face a number of special tax issues. Not addressing these issues properly could result in significant penalties and filing hassles. Traditional IRA Contributions - You cannot make a traditional IRA contribution in the year you reach the age of 70 1/2 Contributions made in the year you turn 70 1/2 (and from then on) are treated as excess contributions and are subject to a nondeductible 6% excise tax penalty for every year in which the excess contribution remains in the account. The penalty, which cannot exceed the value of the IRA account, is calculated on the excess contributed and on any interest it may have earned. You can avoid the penalty by removing the excess and the interest earned on the excess from the IRA prior to April 15 of the subsequent year and including the interest earned on the excess in your taxable income. Even though you can no longer make contributions to a traditional IRA in the year you reach age 70 1/2 you can continue to make contributions to a Roth IRA, not to exceed the annual IRA contribution limits, provided you still have earned income, such as wages or self-employment income, at least equal to the amount of the contribution. If you are married to a non-working or low-earning spouse who has not yet reached age 70 1/2 and you have earned income, your earnings can still be used to qualify your spouse for a contribution to a spousal IRA, even if you are 70 1/2 or older and can't contribute to your traditional IRA.   Required Minimum Distributions (RMDs) - You must begin taking required minimum distributions from your qualified retirement plans and IRA accounts in the year you turn 70 1/2 The distribution for the year in which you turned 70 1/2 can be delayed to the subsequent year without penalty if the distribution is made by April 1 of the subsequent year. That means two distributions must be made in the subsequent year: the delayed distribution and the distribution for that year. In the following years, your annual RMD must be taken by December 31 of each year.   Still Working Exception - If you participate in a qualified employer plan, generally you need to start taking required minimum distributions (RMDs) by April 1 of the year following the year you turn 70 1/2. This is your required beginning date (RBD) for retirement distributions. However, if your plan includes the “still working exception,” your RBD is postponed to April 1 of the year following the year you retire. Example: You reached age 70 1/2 in 2015, but chose to continue working and did not retire until June of 2017. Provided your employer's plan includes the option, you can make the “still working election” and delay your RBD until no later than April 1, 2018. Caution: This exception does not apply to an employee who owns more than 5% of the company. There is no “still working exception” for IRAs, Simple IRAs, or SEP IRAs.   Excess Accumulation Penalty - When you fail to take an RMD, you are subject to a draconian penalty called the excess accumulation penalty. This penalty is a 50% excise tax of the amount (RMD) that should have been distributed for the year. Example: Your RMD for the year is $35,000, but you only take $10,000. Your excess accumulation penalty for failing to take the full amount of the distribution for the year would be $12,500 (50% of $25,000). The IRS will generally waive the penalty for non-willful failures to take your RMD, provided you have a valid excuse and the under-distribution is corrected.  As you can see, turning 70 1/2 can complicate your tax situation. If you need assistance with any of the issues discussed here, or need assistance computing your RMD for the year, please give this office a call. Thu, 26 Feb 2015 19:00:00 GMT UNDERSTANDING THE LANGUAGE OF TAXES http://www.mytrivalleytax.com/blog/understanding-the-language-of-taxes/824 http://www.mytrivalleytax.com/blog/understanding-the-language-of-taxes/824 Tri-Valley Tax & Financial Services Inc Part of our increasingly complicated Federal income tax structure is a myriad of acronyms and abbreviations. Understanding the meaning of the more frequently encountered terminology can lead to a better comprehension of the complex tax situations that a taxpayer might encounter. This section explains some common terminology and provides an overview of their application. Wed, 25 Feb 2015 19:00:00 GMT Will the Interest on Your Vehicle Loan be Deductible? http://www.mytrivalleytax.com/blog/will-the-interest-on-your-vehicle-loan-be-deductible/40198 http://www.mytrivalleytax.com/blog/will-the-interest-on-your-vehicle-loan-be-deductible/40198 Tri-Valley Tax & Financial Services Inc Article Highlights: Vehicle loan interest  Consumer loans secured by the vehicle  Using home equity loans to create deductibility  Exercising restraint when using home equity  Whether or not the interest you pay on a loan to acquire a vehicle is deductible for tax purposes depends how the vehicle is being used (for business or personal purposes), the tax form on which the expenses are being deducted, and the type of loan. If the loan were a consumer loan secured by the vehicle, then the following rules would apply: If the vehicle is being used partially for business and the expenses are being deducted on your self-employed business schedule, then the business portion of the interest will be deductible as business interest, but the personal portion will not.   If the vehicle is being used partially for business as an employee and the expenses are being deducted as an itemized deduction, then neither the business portion nor the personal portion of the interest will be deductible.   If the vehicle is entirely for personal use, then none of the interest will be deductible, because the only interest that is still deductible as an itemized deduction is home mortgage interest and investment interest.  As an alternative to a nondeductible consumer loan, you might consider acquiring that vehicle with a home equity line of credit. Generally, current law allows individual taxpayers to borrow up to $100,000 of home equity and deduct the interest on that loan as home mortgage interest. This would also apply to the purchase of a vehicle or motor home. Using a home equity line will generally make the interest deductible. Before borrowing against the home, you should consider the following: Treat the home equity loan like a consumer loan and pay it off over the same period of time you would have had to pay the consumer loan. Otherwise, you may reach retirement age without having the home paid for.   When buying a car, you can sometimes get very favorable interest rates or a rebate.  To determine which is best, compare the difference in total loan payments over the life of the loans to the rebate amount. It is also good practice to make sure the benefit of making the interest deductible is greater by using the home equity line of credit than the benefit of the low interest consumer loan or the rebate.   If there is any chance of defaulting on the loan, the repercussions from defaulting on a home loan are far more serious than on consumer debt.  If you need assistance in deciding on a course of action, please call our office.  Tue, 24 Feb 2015 19:00:00 GMT Above-the-Line Deduction http://www.mytrivalleytax.com/blog/above-the-line-deduction/17 http://www.mytrivalleytax.com/blog/above-the-line-deduction/17 Tri-Valley Tax & Financial Services Inc The “line” in this term refers to the line drawn when totaling the items that make up the taxpayer's adjusted gross income (AGI). The term “deduction” is usually associated with itemized deductions, but an above-the-line deduction is one that can be taken in addition to the standard deduction or itemized deductions, whichever is used. This type of deduction is taken before determining the taxpayer's AGI; hence, the term “above-the-line.” Mon, 23 Feb 2015 19:00:00 GMT Acquisition Indebtedness http://www.mytrivalleytax.com/blog/acquisition-indebtedness/18 http://www.mytrivalleytax.com/blog/acquisition-indebtedness/18 Tri-Valley Tax & Financial Services Inc This is the debt used to acquire, build, or substantially improve a taxpayer's principal residence or a second home, and it is debt that is secured by the principal residence or second home. The interest on up to $1 million of acquisition indebtedness is deductible as an itemized deduction. Sun, 22 Feb 2015 19:00:00 GMT Adjusted Gross Income (AGI) http://www.mytrivalleytax.com/blog/adjusted-gross-income-agi/19 http://www.mytrivalleytax.com/blog/adjusted-gross-income-agi/19 Tri-Valley Tax & Financial Services Inc This may be the most important tax term since the tax code uses the AGI to limit a vast number of tax benefits. AGI is basically a taxpayer's gross taxable income from all sources (gross income) reduced by certain allowable adjustments, sometimes referred to as above-the-line deductions, which are deductible whether or not the taxpayer itemizes their deductions. The more frequently encountered adjustments include deductions for deductible IRA contributions, moving, alimony payments, higher education interest, forfeited interest and deductions for health insurance premiums, pension plan contributions and 50% of SE tax for self-employed individuals. Sat, 21 Feb 2015 19:00:00 GMT Memorizing Transactions in QuickBooks: Why? How? http://www.mytrivalleytax.com/blog/memorizing-transactions-in-quickbooks-why-how/40190 http://www.mytrivalleytax.com/blog/memorizing-transactions-in-quickbooks-why-how/40190 Tri-Valley Tax & Financial Services Inc QuickBooks saves time in countless ways, one of which is its ability to memorize transactions. Are you taking advantage of this feature? One of the reasons you started using accounting software, among many others, was to save time. And QuickBooks has complied. Once you create a record for a customer, vendor, item, etc., you rarely – if ever – have to enter that information again; you simply choose it from a list. You no longer waste time searching through endless piles of papers to find the one you need; you just do a search. And when you need a report on your monthly sales or inventory purchases or your payroll liabilities, you don’t have to wrestle with Excel or locate the right paper records; you just click a few times. Memorized transactions can be another major time saver. You might use them when you, for example: Provide the same service for a customer on a regular basis, Charge a monthly fee for rentals, maintenance, membership, etc., Pay a bill to the same company regularly, or Have a standing order with a vendor for a similar set of items. It’s easy to create memorized transactions. QuickBooks provides an icon for them in the toolbar of every transaction form that’s supported, like invoices, bills, and purchase orders. Figure 1: When you see the Memorize icon in the toolbar of a transaction form, you know that you can create a template to use over and over. To get started, create a transaction that you know will be repeated – even if the amount will be different every time (you’ll still save time because you won’t have to fill in or select absolutely every detail). Let’s say you’re doing some social media consulting for a customer, and you’ve contracted for eight hours every month. Create the invoice for that billing. Then click the Memorize icon. This window opens: Figure 2: In the Memorize Transaction window, you’ll tell QuickBooks how often the transaction will be created, in addition to providing other information. Your customer will already appear in the Name field. You’ll have to choose from among three options so that QuickBooks knows how to handle this recurring form: Add to my Reminders List. If you choose this by clicking on the button in front of the option, QuickBooks will add this transaction to your existing Reminders List. Note: Confused about how you get QuickBooks to remind you about actions you have to take? We can walk you through the setup process. Do Not Remind Me. We don’t recommend this option unless you have an exceptionally good memory, few memorized transactions, or a tickler file in another application. Even then, reminders are a good idea. Automatic Transaction Entry. This absolutely saves the most time. It’s also the riskiest option. If you select this, QuickBooks will send the transaction through at the intervals you’ve defined. You’ll have to enter a number that indicates how many times you want the form sent and how many days in advance it should be entered. Please consult with us if you are planning to automate transactions. We don’t want you to have unhappy customers or vendors or an unpredictable cash flow. Next, you’ll tell QuickBooks how often this transaction needs to be created by clicking on the down arrow to the right of How Often. Click on the calendar icon in the Next Date field to select the exact day this should occur next (you’ll have an opportunity when you work with the Reminders List to specify how much advance warning you want). When you’re done, click OK. Once you start memorizing transactions, QuickBooks will store them in a list. When you get a reminder that one is due soon, open the Lists menu and select Memorized Transaction List. You'll see this screen, populated with your own work: Figure 3: You’ll open the Memorized Transaction List to enter one or to work with one you’ve already created. Highlight a transaction in the list and click the down arrow next to Memorized Transaction in the lower left corner to see your options here. You can also click Enter Transaction, and your original form will appear. If you’ve saved it with a permanent amount, you can just save and dispatch it. Otherwise, enter the correct amount before you proceed. If you’re fairly new to QuickBooks and don’t feel like you’re well acquainted with its time-saving features, give us a call and we’ll set up some training. Better to do that upbfront than to have to untangle a jumbled company file. We’re always happy to help. Sat, 21 Feb 2015 19:00:00 GMT Alternative Minimum Tax (AMT) http://www.mytrivalleytax.com/blog/alternative-minimum-tax-amt/20 http://www.mytrivalleytax.com/blog/alternative-minimum-tax-amt/20 Tri-Valley Tax & Financial Services Inc A different way of computing one’s tax liability; it MUST be used if the resulting tax is higher than the tax computed by the regular method. This alternate way of computing the tax was introduced over three decades ago to prevent higher income taxpayers from reducing or escaping income tax. The AMT is structured to ignore the use of certain tax breaks and deductions and to apply special rates - 26% and 28%. Inflation over the years has slowly increased the number of taxpayers who are subject to the AMT. Although the factors affecting the AMT are too numerous to delineate here, the ones most frequently encountered by the average taxpayer include: Taxes, including property taxes and state income tax, are not allowed as an AMT itemized deduction. Miscellaneous itemized deductions, including job-related and investment expenses, are not deductible for AMT purposes. The difference between the current market value and the exercise price of stock acquired through an Incentive Stock Option (ISOs) is added to income even though the stock has not been sold. Interest on home equity debt is not allowed as an AMT itemized deduction. Fri, 20 Feb 2015 19:00:00 GMT Basis http://www.mytrivalleytax.com/blog/basis/21 http://www.mytrivalleytax.com/blog/basis/21 Tri-Valley Tax & Financial Services Inc Basis is the dollar value from which a taxpayer measures any gain or loss from an asset for income tax purposes. Generally, your basis begins with what you paid for the asset, including purchase costs (cost basis) and then is adjusted up for improvement and sales costs and down for any depreciation or casualty losses claimed on the asset during the period of ownership. As an example, a rental property is purchased for $200,000. $50,000 is made in improvements to the property, $15,000 is deducted in depreciation during the period of ownership and $12,000 is incurred in sales expenses. The basis for that property, referred to as the adjusted basis, is $247,000 ($200,000 + $50,000 - $15,000 + $12,000). Special rules apply in determining a taxpayer's basis in property that is acquired by gift or inheritance. For gifts, the starting basis is generally the adjusted basis of the giver; for inherited assets, the basis generally begins with the value of the property on the date of the decedent's death. Please note that the word “generally” is frequently used in this explanation since it cannot be relied upon in all situations. Please contact this office for assistance. Thu, 19 Feb 2015 19:00:00 GMT Receive Your Refund Faster With Direct Deposit http://www.mytrivalleytax.com/blog/receive-your-refund-faster-with-direct-deposit/40166 http://www.mytrivalleytax.com/blog/receive-your-refund-faster-with-direct-deposit/40166 Tri-Valley Tax & Financial Services Inc Article Summary: Speed Security Convenience Options Funding an IRA Don’t wait around for a paper check. Have your federal (and state, if applicable) tax refund deposited directly into your bank account. Selecting Direct Deposit is a secure and convenient way to get your money into your pocket more rapidly. Speed - When combining e-file with direct deposit, the IRS will likely issue your refund in no more than 21 days. Security - Direct deposit offers the most secure method of obtaining your refund. There is no check to lose. Each year, the U.S. Post Office returns thousands of refund checks to the IRS as undeliverable mail. Direct deposit eliminates undeliverable mail and is also the best way to guard against having a tax refund check stolen. Easy - Simply provide this office with your bank routing number and account number when we prepare your return and you’ll receive your refund far more quickly than you would by check. Convenience - The money goes directly into your bank account. You won’t have to make a special trip to the bank to deposit the money yourself. Eligible Financial Accounts - You can direct your refund to any of your checking or savings accounts with a U.S. financial institution as long as your financial institution accepts direct deposits for that type of account and you provide valid routing and account numbers. Examples of savings accounts include: passbook savings, individual development accounts, individual retirement arrangements, health savings accounts, Archer MSAs, and Coverdell education savings accounts. Multiple Options - You can deposit your refund into up to three financial accounts that are in the your name or your spouse’s name if it is a joint account. You can’t have part of the refund paid by paper check and part by direct deposit. With the split refund option, taxpayers can divide their refunds among as many as three checking or savings accounts at up to three different U.S. financial institutions. Check with your bank or other financial institution to make sure your direct deposit will be accepted. Deposit Can’t Be to a Third Party’s Bank Account - To protect taxpayers from scammers, direct deposit tax refunds can only be deposited into an account or accounts owned by the taxpayer. Therefore, only provide your own account information and not account information belonging to a third party. Fund Your IRA - You can even direct a refund into your IRA account. To set up a direct deposit, you will need to provide the bank routing number (9 digits) and your account number for each account into which you wish to make a deposit. Please have these numbers available at your appointment. For more information regarding direct deposit of your tax refund and the split refund option, we would be happy to discuss your options with you at your tax appointment. Thu, 19 Feb 2015 19:00:00 GMT Business Gifts http://www.mytrivalleytax.com/blog/business-gifts/22 http://www.mytrivalleytax.com/blog/business-gifts/22 Tri-Valley Tax & Financial Services Inc Gifts to customers, business contacts, clients, etc., are deductible if they are otherwise ordinary and necessary business expenses. However, business gifts are subject to a $25 limit to each donee per year. Wed, 18 Feb 2015 19:00:00 GMT Capital Gain http://www.mytrivalleytax.com/blog/capital-gain/23 http://www.mytrivalleytax.com/blog/capital-gain/23 Tri-Valley Tax & Financial Services Inc Gains from the sale of certain assets owned for more than one year and inherited assets such as stocks, bonds and real estate enjoy a special tax treatment referred to as a long-term capital gain. Gains from assets held for a shorter period are called short-term capital gains and are not eligible for special tax treatment. Long-term capital gains do benefit from special tax rates and are generally taxed at 0% to the extent a taxpayer is in the 15% or lower tax bracket and 15% for the balance through the 35% tax bracket. To the extent a taxpayer is in the 39.6% tax bracket, the capital gain rate is 20%. There are some exceptions; to the extent that gain results from depreciation on real property claimed since May 1997, the tax rate is 25%, except to the extent the taxpayer is in the 10% or 15% bracket, in which case those rates would then apply. Also, long-term capital gains from the sale of collectibles such as artwork, coins, stamps, etc., are taxed at 28%. Tue, 17 Feb 2015 19:00:00 GMT Don’t Overlook the Spousal IRA http://www.mytrivalleytax.com/blog/don8217t-overlook-the-spousal-ira/38696 http://www.mytrivalleytax.com/blog/don8217t-overlook-the-spousal-ira/38696 Tri-Valley Tax & Financial Services Inc Article Highlights: Spousal IRA Compensation requirements Maximum Contribution Traditional or Roth IRA One frequently overlooked tax benefit is the “spousal IRA.” Generally, IRA contributions are only allowed for taxpayers who have compensation (the term “compensation” includes: wages, tips, bonuses, professional fees, commissions, alimony received, and net income from self-employment). Spousal IRAs are the exception to that rule and allow a non-working or low-earning spouse to contribute to his or her own IRA, otherwise known as a spousal IRA, as long as the spouse has adequate compensation. The maximum amount that a non-working or low-earning spouse can contribute is the same as the limit for a working spouse, which is $5,500 for years 2013 through 2015. If the non-working spouse is age 50 or older, the spouse can also make “catch-up” contributions (limited to $1,000 for 2013 through 2015), raising the overall contribution limit to $6,500. These limits apply provided the couple together has compensation equal to or greater than their combined IRA contributions. Example: Tony is employed and his W-2 for 2015 is $100,000. His wife, Rosa, age 45, has a small income from a part-time job totaling $900. Since her own compensation is less than the contribution limits for the year, she can base her contribution on their combined compensation of $100,900. Thus, Rosa can contribute up to $5,500 to an IRA for 2015. The contributions for both spouses can be made either to a Traditional or Roth IRA, or split between them, as long as the combined contributions don't exceed the annual contribution limit. Caution: The deductibility of the Traditional IRA and the ability to make a Roth IRA contribution are generally based on the taxpayer’s income: Traditional IRAs – There is no income limit restricting contributions to a Traditional IRA. However, if the working spouse is an active participant in any other qualified retirement plan, a tax-deductible contribution can be made to the IRA of the non-participant spouse only if the couple's adjusted gross income (AGI) doesn't exceed $183,000 in 2015 (up from $181,000 in 2014). This limit is phased out in 2015 for AGI between $183,000 and $193,000 (up from $181,000 and $191,000 in 2014). Roth IRAs – Roth IRA contributions are never tax-deductible. Contributions to Roth IRAs are allowed in full if the couple’s AGI doesn’t exceed $183,000 in 2015 (up from $181,000 in 2014). The contribution is ratably phased out for AGI between $183,000 and $193,000 (up from $181,000 and $191,000 in 2014). Thus, no contribution is allowed to a Roth IRA once the AGI exceeds $193,000. Example: Rosa, in the previous example, can designate her IRA contribution to be either a deductible Traditional IRA or a nondeductible Roth IRA because the couple’s AGI is under $183,000. Had the couple’s AGI been $188,000, Rosa’s allowable contribution to a deductible Traditional or Roth IRA would have been limited to $2,750 because of the phaseout. The other $2,750 could have been contributed to a nondeductible Traditional IRA. Please give this office a call if you would like to discuss IRAs or need assistance with your retirement planning. Tue, 17 Feb 2015 19:00:00 GMT Capital Loss http://www.mytrivalleytax.com/blog/capital-loss/24 http://www.mytrivalleytax.com/blog/capital-loss/24 Tri-Valley Tax & Financial Services Inc This is generally a loss from the sale of investment property such as stocks, bonds and land. Losses must first offset other sales in the same year that resulted in capital gains. Then, up to $3,000 ($1,500 for married individuals filing separately) can be deducted against other types of income. Any excess (referred to as capital loss carryover) can be carried over to future years until used up. It should be noted that losses from the sale of personal use property are not allowed for tax purposes; although, gains must be reported. This rule would apply to the taxpayer's home, second home, cars, etc. Mon, 16 Feb 2015 19:00:00 GMT Constructive Receipt http://www.mytrivalleytax.com/blog/constructive-receipt/25 http://www.mytrivalleytax.com/blog/constructive-receipt/25 Tri-Valley Tax & Financial Services Inc Generally, most individual taxpayers are considered cash basis taxpayers. That means they pay taxes on income in the year they receive it. At the end and beginning of a tax year, questions sometimes arise as to when the income was received. The tax concept of constructive receipt treats the income as taxable in the year the taxpayer could have received it, even if it was not received until a later date. An example would be a check for an income item received in December of Year 1 that was not cashed until January of Year 2. Since the income was available when the check was received, the income would be reportable on Year 1's return and not on the return for Year 2 when the check was cashed. Another example would be if the taxpayer earned dividends on stocks but chose to reinvest them. Since the taxpayer has a right to the dividends but chooses to reinvest, it becomes income to the taxpayer on the date the dividends are credited to the account. Sun, 15 Feb 2015 19:00:00 GMT Consumer Debt http://www.mytrivalleytax.com/blog/consumer-debt/26 http://www.mytrivalleytax.com/blog/consumer-debt/26 Tri-Valley Tax & Financial Services Inc This term is used to describe debt incurred to purchase consumer products and includes debt such as motor vehicle loans and credit card debt. Interest paid on consumer debt is not deductible as an itemized deduction on a tax return. However, see the section on Home Equity Debt. Sat, 14 Feb 2015 19:00:00 GMT Dependent http://www.mytrivalleytax.com/blog/dependent/27 http://www.mytrivalleytax.com/blog/dependent/27 Tri-Valley Tax & Financial Services Inc Typically, an individual's minor child is thought of when the word dependent is used, but a dependent could be another relative, or in some cases, even an unrelated person. Generally, a dependent is someone who is reliant upon a taxpayer for support. Five specific qualifications must be met for an individual to be treated as a dependent for tax purposes: the relationship or member of the household test, gross income test, joint return test, citizenship or residence test and support test. For each dependent claimed in 2015, a taxpayer can deduct $4,000 (up from $3,950 in 2014) from their income. For higher income taxpayers, 2% of this deduction is disallowed for each $2,500 of AGI in excess of a threshold amount. The 2015 threshold amounts are $258,250 (up from $254,200 in 2014) for single taxpayers, $309,900 (up from $305,050 in 2014) for married taxpayers filing jointly, $284,050 (up from $279,650 in 2014) for taxpayers filing as Head of Household and one half the Joint amount for married taxpayers filing separately. The tax rules related to dependents can be complicated. Please call this office if you need assistance. Fri, 13 Feb 2015 19:00:00 GMT Depreciation http://www.mytrivalleytax.com/blog/depreciation/28 http://www.mytrivalleytax.com/blog/depreciation/28 Tri-Valley Tax & Financial Services Inc This is a tax deduction that is taken to reflect the wear and tear and gradual decline in value of an asset used in business. Although there are some options for depreciation, the tax law requires that the depreciation deduction be taken even if a taxpayer prefers not to (this is sometimes called the “allowed or allowable” rule). If a taxpayer fails to take the deduction, he/she will still be required to account for the depreciation as if it were taken when the property is sold and pay taxes on the depreciation to the extent of any gain. For purposes of the deduction, tax law assigns a life to various types of business assets and the asset is depreciated over that period of time. Generally, business assets placed in service would be depreciated over 3, 5, or 7 years, except for real estate which would be 27.5 or 39 years. Thu, 12 Feb 2015 19:00:00 GMT Important Times to Seek Assistance http://www.mytrivalleytax.com/blog/important-times-to-seek-assistance/40159 http://www.mytrivalleytax.com/blog/important-times-to-seek-assistance/40159 Tri-Valley Tax & Financial Services Inc Article Highlights When to seek professional assistance  Examples of times where tax saving moves can be made  Waiting for your regular appointment to discuss current tax-related issues can create problems or cause you to miss out on beneficial options that need to be timely exercised before year-end. Generally, you should call this office any time you have a substantial change in taxable income or deductions. By doing so, we can advise you about how to optimize your tax liability, avoid or minimize penalties, estimate and pre-pay required taxes, document deductions, and examine and explore tax options. You should call this office if you or your spouse: Receive a large employee bonus or award  Become unemployed  Change employment  Take an unplanned withdrawal from an IRA or other pension plan  Retire or are contemplating retirement  Move or otherwise change your address  Exercise an employee stock option  Have significant stock gains or losses  Get married  Separate from or divorce your spouse  Sell or exchange a property or business  Experience the death of a spouse during the year  Turn 70½ during the year  Increase your family size through birth or adoption of a child  Start a business or acquire a rental property  Receive a substantial lawsuit settlement or award  Get lucky at a casino, lotto, or game show and receive a W-2G  Plan to donate property worth $5,000 ($500 if a vehicle) or more to a charity  Plan to gift more than $14,000 to any one individual during the year  In addition, you should call whenever you receive a notice from the government related to your tax return. You should never respond to a notice without first checking with this office. Thu, 12 Feb 2015 19:00:00 GMT Direct Transfer http://www.mytrivalleytax.com/blog/direct-transfer/29 http://www.mytrivalleytax.com/blog/direct-transfer/29 Tri-Valley Tax & Financial Services Inc Is a method of moving retirement and IRA funds directly from one account to another without the taxpayer taking possession of the funds and avoiding the potential problems associated with a rollover. Another term for this type of transaction is trustee-to-trustee transfer. Wed, 11 Feb 2015 19:00:00 GMT Early Distributions http://www.mytrivalleytax.com/blog/early-distributions/30 http://www.mytrivalleytax.com/blog/early-distributions/30 Tri-Valley Tax & Financial Services Inc Generally, when a taxpayer withdraws funds from a qualified plan or Traditional IRA before reaching the age of 59-1/2, the withdrawal is considered an early distribution and is subject to a penalty equal to 10% of the taxable amount withdrawn. This penalty is in addition to any income tax due on the distribution. There are a number of exceptions that might avoid the penalty, depending upon if a distribution is from an IRA or a qualified plan. Taxpayers should consult with this office prior to taking a distribution before reaching age 59-1/2. Tue, 10 Feb 2015 19:00:00 GMT The Affordable Care Act Can Bring Surprises at Tax Time