Carol McAtee & Associates, CPAS

What to Do if Your Form 1099 is Wrong

As reported by Forbes at msn.com, it’s Form 1099 time, so these little tax reports will begin to arrive in our mailboxes.

All the data in these forms is also going into an IRS computer to be matched against our tax returns.

But, what if you receive a Form 1099 that you know to be wrong? Say you’ve been paid a consulting fee of $30,000, but the 1099 you receive is for $300,000. What should you do?

Promptly contact the issuer, show them you really were paid $30,000, and ask them to reissue the 1099 to you for the correct amount. Ideally, do this before the issuer sends the 1099 to the IRS. Forms 1099 should be sent to taxpayers by January 31st and to the IRS by February 28th. So, if you call and write the issuer of the 1099 as soon as you receive it, the issuer may be able to simply destroy the incorrect one and issue a new one.

Ideally, get a letter from the company saying that it erroneously issued a Form 1099 for $300,000, destroyed it, and then promptly issued one for $30,000.

It is important to keep this documentation. Because you may find that the company did transmit the incorrect Form 1099 to the IRS after all. This way you’ll be able to explain it.

If the issuer of the 1099 has already sent the erroneous form to the IRS, ask for a “corrected” Form 1099. The “corrected” box on the form tips off the IRS not to simply add up the figures on the two Forms 1099.

What happens if the issuer won’t cooperate? There’s no good answer.

You’ll want to address this on your tax return. For example, you could show the $300,000 payment on your return (on line 21, 0r on a Schedule C), and then explain the $270,000 overstatement. You might do this in a statement or a footnote, as by showing $30,000 on line 21, but adding “see statement” to explain it.

Does this make your audit risk higher? It may, and that’s an argument for doing all you can to make sure the Form 1099 is correct in the first place. But, you probably don’t have much choice about this. After all, you practically guarantee yourself an audit if you merely report the $30,000 figure and don’t explain it. In that event, the IRS will likely send you a notice asking for tax on the $270,000.

Whatever you do, pay attention to Form 1099. The IRS sure does.

If you have any questions about this topic or other tax related questions, please do not hesitate to contact us at 727-327-1999.

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

Carol McAtee & Associates, CPAS

With 2014 drawing to a close, we want to thank our valued clients and friends for your part in making 2014 such a successful and rewarding year here at our accounting firm.

We wish all of you a Happy, Healthy and Prosperous New Year and look forward to assisting you in your accounting needs in the coming year.

If you have any questions and if we may be of service to you in the coming year, please do not hesitate to contact us at 727-327-1999.

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

CAROL McATEE & ASSOCIATES, CPAS

Six Tips for Year-End Gifts to Charity

We included this article in our firm’s December newsletter, but thought it would also be a valuable blog posting as 2014 draws to an end.

If you’re thinking about making a charitable donation during the holiday season this year and want to claim a tax deduction for your gifts, you must itemize your deductions. This is just one of several tax rules that you should know about before you give. Here’s what else you need to know:

1. Qualified charities. You can only deduct gifts you give to qualified charities. Give us a call if you’re not sure if the group you give to is a qualified organization. Remember that you can deduct donations you give to churches, synagogues, temples, mosques and government agencies.

2. Monetary donations. Gifts of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. You must have a bank record or a written statement from the charity to deduct any gift of money on your tax return. This is true regardless of the amount of the gift. The statement must show the name of the charity and the date and amount of the contribution. Bank records include canceled checks, or bank, credit union and credit card statements. If you give by payroll deductions, you should retain a pay stub, a Form W-2 wage statement or other document from your employer. It must show the total amount withheld for charity, along with the pledge card showing the name of the charity.

3. Household goods. Household items include furniture, furnishings, electronics, appliances and linens. If you donate clothing and household items to charity they generally must be in at least good used condition to claim a tax deduction. If you claim a deduction of over $500 for an item it doesn’t have to meet this standard if you include a qualified appraisal of the item with your tax return.

4. Records required. You must get an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. Additional rules apply to the statement for gifts of that amount. This statement is in addition to the records required for deducting cash gifts. However, one statement with all of the required information may meet both requirements.

5. Year-end gifts. You can deduct contributions in the year you make them. If you charge your gift to a credit card before the end of the year it will count for 2014. This is true even if you don’t pay the credit card bill until 2015. Also, a check will count for 2014 as long as you mail it in 2014.

6. Special rules. Special rules apply if you give a car, boat or airplane to charity. For more information about this and other questions about charitable giving, please contact our office.

If you have any questions about this topic or other tax related questions, please do not hesitate to contact us at 727-327-1999.

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

CAROL McATEE & ASSOCIATES, CPAS

The Patient Protection and Affordable Care Act of 2010 resulted in several changes to the U.S. tax code that affect individuals purchasing health care insurance through the health care exchanges. Let’s take a closer look at what it all means for you.

Individual Shared Responsibility Payment

Starting January 2014, United States citizens and legal residents must obtain minimum essential health care coverage for themselves and their dependents, have an exemption from coverage, or make a payment when filing a 2014 tax return in 2015. The Individual Mandate is also known as the Individual Shared Responsibility Payment.

The payment varies and is based on income level. In 2014, the basic penalty for an individual (no dependents) is $95 or 1 percent of your yearly income above applicable thresholds ($10,000 for an individual and $20,000 for a family in 2013) (whichever is higher), with substantial increases in subsequent years. For example, in 2015, the penalty is $325 or approximately 2 percent of income, whichever is higher. In 2016, it increases to $695 or 2.5 percent of income (again, whichever is higher), indexed for inflation thereafter.

The individual shared responsibility payment is capped at the cost of the national average premium for the bronze level health plan available through the Health Insurance Marketplace in 2014. You will make the payment when you file your 2014 federal income tax return in 2015.

For example, a single adult under age 65 with household income less than $19,650 (but more than $10,150) would pay the $95 flat rate. However, a single adult under age 65 with household income greater than $19,650 would pay an annual payment based on the 1 percent rate.

For any month in 2014 that you or any of your dependents don’t maintain coverage and don’t qualify for an exemption, you will need to make an individual shared responsibility payment with your 2014 tax return filed in 2015.

However, if you went without coverage for less than three consecutive months during the year you may qualify for the short coverage gap exemption and will not have to make a payment for those months. If you have more than one short coverage gap during a year, the short coverage gap exemption only applies to the first.

Most people already have qualifying health care coverage and will not need to do anything more than maintain that coverage throughout 2014. Self-insured ERISA policies used by larger employers, as well as Medicare, Medicaid, and CHIP (Children’s Health Insurance Program), and all of the health insurance plans offered by the exchanges, fall under the category of minimum essential health care coverage.

Qualifying coverage does not include coverage that may provide limited benefits, such as coverage only for vision care or dental care, workers’ compensation, or coverage that only covers a specific disease or condition.

Note: Certain individuals are exempt from the tax and include: (1) people with religious objections; (2) American Indians with coverage through the Indian Health Service; (3) undocumented immigrants; (4) those without coverage for less than three months; (5) those serving prison sentences; (6) those for whom the lowest-cost plan option exceeds 8 percent of annual income; and (7) those with incomes below the tax filing threshold who do not file a tax return($10,000 for singles and $20,000 for couples under 65 in 2013).

A special hardship exemption applies to individuals who purchase their insurance through the Health Insurance Marketplace during the initial enrollment period for 2014 but due to the enrollment process have a coverage gap at the beginning of 2014.

Premium Tax Credit

Effective in 2014, certain taxpayers will be able to use a refundable tax credit to offset the cost of health insurance premiums so that their insurance premium payments do not exceed a specific percentage of their income. Qualified individuals are those with incomes between 133 percent and 400 percent of the federal poverty level. A sliding scale based on family size will be used to determine the amount of the credit. In addition, married taxpayers must file joint returns to qualify.

If you purchased coverage through the Health Insurance Marketplace (sometimes referred to as health care exchanges), you may be eligible for the premium tax credit. This refundable tax credit helps people with moderate incomes afford health insurance coverage they purchase through the exchange.

The premium tax credit can help make purchasing health insurance coverage more affordable for people with moderate incomes. To be eligible for the credit, you generally need to satisfy three rules.

First, you need to get your health insurance coverage through the Health Insurance Marketplace. The open enrollment period to purchase health insurance coverage for 2014 through the Health Insurance Marketplace runs from October 1, 2013 through March 31, 2014.

Second, you need to have household income between one and four times the federal poverty line. For a family of four for tax year 2014, that means income from $23,550 to $94,200.

Third, you can’t be eligible for other coverage, such as Medicare, Medicaid, or sufficiently generous employer-sponsored coverage.

If you are eligible for the credit, you can choose to “get it now” by having some or all of the credit paid in advance. These payments go directly to your insurance company to lower what you pay out-of-pocket for your monthly premiums during 2014. Or you “get it later” by waiting to get the credit when you file your 2014 tax return in 2015.

If you wait to get the credit, it will either increase your refund or lower your balance due. Your 2014 tax return will ask if you had insurance coverage or qualified for an exemption. If not, you may owe a shared responsibility payment when you file in 2015.

If you choose to receive the credit in advance, changes in your income or family size will affect the credit that you are eligible to receive. If the credit on your tax return you file in 2015 does not match the amount you have received in advance, you will have to repay any excess advance payment, or you may get a larger refund if you are entitled to more.

Reporting Changes

It is important to notify the Health Insurance Marketplace about changes in your income or family size as they happen during 2014 because these changes may affect your premium tax credit.

Changes in circumstances that you should report to the Health Insurance Marketplace include, but are not limited to:

• an increase or decrease in your income
• marriage or divorce
• the birth or adoption of a child
• starting a job with health insurance
• gaining or losing your eligibility for other health care coverage
• changing your residence

Reporting the changes will help you avoid getting too much or too little advance payment of the premium tax credit. Getting too much means you may owe additional money or get a smaller refund when you file your taxes. Getting too little could mean missing out on premium assistance to reduce your monthly premiums.

Repayments of excess premium assistance may be limited to an amount between $400 and $2,500 depending on your income and filing status. However, if advance payment of the premium tax credit was made but your income for the year turns out to be too high to receive the premium tax credit, you will have to repay all of the payments 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.

Changes in circumstances also may qualify you for a special enrollment period to change or get insurance through the Health Insurance Marketplace. In most cases, if you qualify for the special enrollment period, you will have sixty days to enroll following the change in circumstances.

If you have any questions about this topic or other tax related questions, please do not hesitate to contact us at 727-327-1999.

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

Carol McAtee & Associates, CPAS

IRS Announces 2015 Mileage Rates

The Internal Revenue Service announced standard mileage rates for 2015 today for taxpayers to use in calculating the deductible costs of using a car for business, charitable, medical or moving purposes.

In Notice 2014-79, the IRS lists the standard mileage rates, effective as of January 1, 2015:

Business use:      57.5 cents a mile
Charitable use:   14 cents a mile
Medical use:       23 cents a mile
Moving use:        23 cents a mile

According to staff writer Ashlea Ebeling at Forbes.com, gas prices may be down, but business mileage rates—how much you can deduct if you use a car for business purposes—are up for 2015.  The business use rates are up from 56 cents a mile in 2014.

Driving to the doctor or the food pantry can also be deductible.  The medical use and moving rates are down from 23.5 cents a mile in 2014. The charity use rate stays the same at 14 cents a mile. The rate for charitable miles driven has been fixed at 14 cents a mile since 1997, but the other rates are adjusted each year.

Why is the business rate up and the moving and medical rate down? The business rate adjustment takes into account all the costs associated with owning a care, including insurance and repairs, while the other adjustment primarily takes into effect oil and gas costs.

Don’t forget to keep track of your miles if you want a deduction.

The standard rates are the simple option for taxpayers to use. The other option is to claim deductions based on the actual costs of using a vehicle. In either case, you need to keep records to prove how far you drove and when and for what purpose.

Another warning: you can’t use the business standard mileage rate for a vehicle after claiming accelerated depreciation, including the Section 179 expense deduction, on that vehicle.

Don’t underestimate the charity and medical mileage breaks. If you itemize deductions, mileage driven to a volunteer gig at the local food pantry counts. And medical miles can add up to help you meet the threshold to claim a medical expense deduction. For individuals 65 and up, the nondeductible floor is 7.5 percent of adjusted gross income through 2016; for the rest of us it’s a high 10%.

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IRS Sets Per Diem Rates for Business Expenses When Traveling

As detailed by Michael Cohn in the September 22nd issue of AccountingToday Web CPA, the Internal Revenue Service has announced the new 2014-2015 per diem rates that taxpayers can use, starting October 1, 2014, to substantiate their expenses for lodging, meals and incidental expenses when traveling away from home.

The rates in IRS Notice 2014-57 include the special transportation industry rate, the rate for the incidental expenses only deduction, and the rates and list of high-cost localities for purposes of the high-low substantial method.

The special meal and incidental expense rates for tax payers in the transportation industry are $59 for travel in the continental United States and $65 for travel outside the continental United States.

The rate for any locality of travel inside or outside the United States for the incidental expenses only deduction is $5 per day.

For purposes of the high-low substantiation method, the per diem rates are $259 for travel to any high-cost locality and $172 for travel to any other locality within the continental United States.  The amount of the $259 high rate and $172 low rate that is treated as paid for meals is $65 for travel to any high-cost locality and $52 for travel to any other locality within the continental United States.

The per diem rates using the meal and incidental expenses only substantiation method are $65 for travel to any high-cost locality and $52 for travel to any other locality within the continental United States.  The Notice also provides a list of high-cost localities that have a federal per diem rate of $216 or more.

Use of a per diem substantiation method is not mandatory, the IRS noted.  A taxpayer may substantiate actual allowable expenses if the taxpayer maintains adequate records or other sufficient evidence for proper substantiation.

If you have any questions about this topic or other tax related questions, please do not hesitate to contact us at 727-327-1999.

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

Carol McAtee & Associates, CPAS

Year-End Tax Planning for Individuals

Once again, tax planning for the year ahead presents more challenges than usual, this time due to the numerous tax extenders that expired at the end of 2013.

These tax extenders, which include nonbusiness energy credits and the sales tax deduction that allows taxpayers to deduct state and local general sales taxes instead of state and local income taxes, may or may not be reauthorized by Congress and made retroactive to the beginning of the year.

More significant however, is taxable income in relation to threshold amounts that might bump a taxpayer into a higher or lower tax bracket, thus, subjecting taxpayers to additional taxes such as the Net Investment Income Tax (NIIT) or an additional Medicare tax.

In the meantime, let’s take a look at some of the tax strategies that you can use right now, given the current tax situation.

Tax planning strategies for individuals this year include postponing income and accelerating deductions, as well as careful consideration of timing related investments, charitable gifts, and retirement planning. General tax planning strategies that taxpayers might consider include the following:

• Sell any investments on which you have a gain or loss this year. For more on this, see Investment Gains and Losses, below.

• If you anticipate an increase in taxable income in 2015 and are expecting a bonus at year-end, try to get it before December 31. Keep in mind, however, that contractual bonuses are different, in that they are typically not paid out until the first quarter of the following year. Therefore, any taxes owed on a contractual bonus would not be due until you file a tax return for tax year 2015.

• Prepay deductible expenses such as charitable contributions and medical expenses this year using a credit card. This strategy works because deductions may be taken based on when the expense was charged on the credit card, not when the bill was paid. For example, if you charge a medical expense in December, but pay the bill in January, assuming it’s an eligible medical expense, it can be taken as a deduction on your 2014 tax return.

• If your company grants stock options, you may want to exercise the option or sell stock acquired by exercise of an option this year if you think your tax bracket will be higher in 2015. Exercise of the option is often but not always a taxable event; sale of the stock is almost always a taxable event.

Caution: Keep an eye on the estimated tax requirements.

Accelerating Income and Deductions

Accelerating income into 2014 is an especially good idea for taxpayers who anticipate being in a higher tax bracket next year or whose earnings are close to threshold amounts ($200,000 for single filers and $250,000 for married filing jointly) that make them liable for additional Medicare tax or Net Investment Income Tax (see below).

Here are several examples of what a taxpayer might do to accelerate deductions:

• Pay a state estimated tax installment in December instead of at the January due date. However, make sure the payment is based on a reasonable estimate of your state tax.

• Pay your entire property tax bill, including installments due in year 2015, by year-end. This does not apply to mortgage escrow accounts.

• It may be beneficial to pay 2015 tuition in 2014 to take full advantage of the American Opportunity Tax Credit, worth up to $2,500 per student to cover the cost of tuition, fees and course materials paid during the taxable year. Forty percent of the credit (up to $1,000) is refundable, which means you can get it even if you owe no tax.

• Try to bunch “threshold” expenses, such as medical and dental expenses (10 percent of AGI starting in 2013 for those under age 65, 7.5 percent for those age 65 or older) and miscellaneous itemized deductions. For example, you might pay medical bills and dues and subscriptions in whichever year they would do you the most tax good.Threshold expenses are deductible only to the extent they exceed a certain percentage of adjusted gross income (AGI). By bunching these expenses into one year, rather than spreading them out over two years, you have a better chance of exceeding the thresholds, thereby maximizing your deduction.

In cases where tax benefits are phased out over a certain adjusted gross income (AGI) amount, a strategy of accelerating income and deductions might allow you to claim larger deductions, credits, and other tax breaks for 2014, depending on your situation.

The latter benefits include Roth IRA contributions, conversions of regular IRAs to Roth IRAs, child credits, higher education tax credits and deductions for student loan interest.

Caution: Taxpayers close to threshold amounts for the Net Investment Income Tax (3.8 percent of net investment income) should pay close attention to “one-time” income spikes such as those associated with Roth conversions, sale of a home or other large assets that may be subject to tax.

Tip: If you know you have a set amount of income coming in this year that is not covered by withholding taxes, increasing your withholding before year-end can avoid or reduce any estimated tax penalty that might otherwise be due.

Tip: On the other hand, the penalty could be avoided by covering the extra tax in your final estimated tax payment and computing the penalty using the annualized income method.

Healthcare Reform
If you haven’t signed up for health insurance this year, it’s not too late to do so–and avoid or reduce any penalty you might be subject to. Healthcare subsidies are also a potential tax planning issue. Please contact us if you need assistance with this.

Additional Medicare Tax
Taxpayers whose income exceeds certain threshold amounts ($200,000 single filers and $250,000 married filing jointly) are liable for an additional Medicare tax of 0.9 percent on their tax returns, but may request that their employers withhold additional income tax from their pay to be applied against their tax liability when filing their 2014 tax return next April.

High net worth individuals should consider contributing to Roth IRAs and 401(k) because distributions are not subject to the Medicare Tax.

If you’re a taxpayer close to the threshold for the Medicare Tax, it might make sense to switch Roth retirement contributions to a traditional IRA plan, thereby avoiding the 3.8 percent Net Investment Income Tax as well (more about the NIIT below).

Alternate Minimum Tax
The Alternative Minimum Tax (AMT) exemption “patch” was made permanent by the American Taxpayer Relief Act (ATRA) and is indexed for inflation. It’s important not to overlook the effect of any year-end planning moves on the AMT for 2014 and 2015.

Items that may affect AMT include deductions for state property taxes and state income taxes, miscellaneous itemized deductions, and personal exemptions.

Note: AMT exemption amounts for 2014 are as follows:

• $52,800 for single and head of household filers,
• $82,100 for married people filing jointly and for qualifying widows or widowers,
• $41,050 for married people filing separately.

Please call us if you’d like more information or if you’re not sure whether AMT applies to you. We’re happy to assist you.

Residential Energy Tax Credits

Non-Business Energy Credits
ATRA extended the non-business energy credit, which expired in 2011, through 2013 (retroactive to 2012); however, it has not been reauthorized by Congress. For years prior to 2014, taxpayers could claim a credit of 10 percent of the cost of certain energy-saving property that was added to their main home.

Residential Energy Efficient Property Credits
The Residential Energy Efficient Property Credit is available to individual taxpayers to help pay for qualified residential alternative energy equipment, such as solar hot water heaters, solar electricity equipment and residential wind turbines. In addition, taxpayers are allowed to take the credit against the alternative minimum tax (AMT), subject to certain limitations.

Qualifying equipment must have been installed on or in connection with your home located in the United States.

Geothermal pumps, solar energy systems, and residential wind turbines can be installed in both principal residences and second homes (existing homes and new construction), but not rentals. Fuel cell property qualifies for the tax credit only when it is installed in your principal residence (new construction or existing home). Rentals and second homes do not qualify.

The tax credit is 30 percent of the cost of the qualified property, with no cap on the amount of credit available, except for fuel cell property.

Generally, labor costs can be included when figuring the credit. Any unused portions of this credit can be carried forward. Not all energy-efficient improvements qualify so be sure you have the manufacturer’s tax credit certification statement, which can usually be found on the manufacturer’s website or with the product packaging.

What’s included in this tax credit?

• Geothermal Heat Pumps. Must meet the requirements of the ENERGY STAR program that are in effect at the time of the expenditure.
• Small Residential Wind Turbines. Must have a nameplate capacity of no more than 100 kilowatts (kW).
• Solar Water Heaters. At least half of the energy generated by the “qualifying property” must come from the sun. The system must be certified by the Solar Rating and Certification Corporation (SRCC) or a comparable entity endorsed by the government of the state in which the property is installed. The credit is not available for expenses for swimming pools or hot tubs. The water must be used in the dwelling. Photovoltaic systems must provide electricity for the residence and must meet applicable fire and electrical code requirement.
• Solar Panels (Photovoltaic Systems). Photovoltaic systems must provide electricity for the residence and must meet applicable fire and electrical code requirement.
• Fuel Cell (Residential Fuel Cell and Microturbine System.) Efficiency of at least 30 percent and must have a capacity of at least 0.5 kW.

Charitable Contributions

Property, as well as money, can be donated to a charity. You can generally take a deduction for the fair market value of the property; however, for certain property, the deduction is limited to your cost basis. While you can also donate your services to charity, you may not deduct the value of these services. You may also be able to deduct charity-related travel expenses and some out-of-pocket expenses, however.

Keep in mind that a written record of your charitable contributions is required in order to qualify for a deduction. A donor may not claim a deduction for any contribution of cash, a 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 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.

Tip: Contributions of appreciated property (i.e. stock) provide an additional benefit because you avoid paying capital gains on any profit.

Investment Gains and Losses

This year, and in the coming years, investment decisions are likely to be more about managing capital gains than about minimizing taxes per se. For example, taxpayers below threshold amounts in 2014 might want to take gains; whereas taxpayers above threshold amounts might want to take losses.

If your tax bracket is either 10 or 15 percent (married couples making less than $73,800 or single filers making less than $36,900), then you might want to take advantage of the zero percent tax rate on qualified dividends and long-term capital gains. If you fall into the highest tax bracket (39.6 percent), the maximum tax rate on long-term capital gains is capped at 20 percent for tax years 2013 and beyond.

Minimize taxes on investments by judicious matching of gains and losses. Where appropriate, try to avoid short-term capital gains, which are usually taxed at a much higher tax rate than long-term gains–up to 39.6 percent in 2014 for high-income earners ($406,750 single filers, $457,600 married filing jointly).

Where feasible, reduce all capital gains and generate short-term capital losses up to $3,000.

Tip: As a general rule, if you have a large capital gain this year, consider selling an investment on which you have an accumulated loss. Capital losses up to the amount of your capital gains plus $3,000 per year ($1,500 if married filing separately) can be claimed as a deduction against income.

Tip: After selling securities investment to generate a capital loss, you can repurchase it after 30 days. If you buy it back within 30 days, the loss will be disallowed. Or you can immediately repurchase a similar (but not the same) investment, e.g., another mutual fund with the same objectives as the one you sold.

Tip: If you have losses, you might consider selling securities at a gain and then immediately repurchasing them, since the 30-day rule does not apply to gains. That way, your gain will be tax-free; your original investment is restored, and you have a higher cost basis for your new investment (i.e., any future gain will be lower).

Net Investment Income Tax (NIIT)

The Net Investment Income Tax, which went into effect in 2013, is a 3.8 percent tax that is applied to investment income such as long-term capital gains for earners above certain threshold amounts ($200,000 for single filers and $250,000 for married taxpayers filing jointly). Short-term capital gains are subject to ordinary income tax rates as well as the 3.8 percent NIIT. This information is something to think about as you plan your long term investments. Business income is not considered subject to the NIIT provided the individual business owner is materially active in the business.

Please call us if you need assistance with any of your long term tax planning goals.

Mutual Fund Investments

Before investing in a mutual fund, ask whether a dividend is paid at the end of the year or whether a dividend will be paid early in the next year but be deemed paid this year. The year-end dividend could make a substantial difference in the tax you pay.

Example: You invest $20,000 in a mutual fund at the end of 2014. You opt for automatic reinvestment of dividends. In late December of 2014, the fund pays a $1,000 dividend on the shares you bought. The $1,000 is automatically reinvested.

Result: You must pay tax on the $1,000 dividend. You will have to take funds from another source to pay that tax because of the automatic reinvestment feature. The mutual fund’s long-term capital gains pass through to you as capital gains dividends taxed at long-term rates, however long or short your holding period.

The mutual fund’s distributions to you of dividends it receives generally qualify for the same tax relief as long-term capital gains. If the mutual fund passes through its short-term capital gains, these will be reported to you as “ordinary dividends” that don’t qualify for relief.

Depending on your financial circumstances, it may or may not be a good idea to buy shares right before the fund goes ex-dividend. For instance, the distribution could be relatively small, with only minor tax consequences. Or the market could be moving up, with share prices expected to be higher after the ex-dividend date.

Tip: To find out a fund’s ex-dividend date, call the fund directly.

Be sure to call us if you’d like more information on how dividends paid out by mutual funds affect your taxes this year and next.

Year-End Giving To Reduce Your Potential Estate Tax

The federal gift and estate tax exemption, which is currently set at $5.340 million is projected to increase to $5.43 million in 2015 (Bloomberg BNA). ATRA set the maximum estate tax rate set at 40 percent.

Gift Tax. For many, sound estate planning begins with lifetime gifts to family members. In other words, gifts that reduce the donor’s assets subject to future estate tax. Such gifts are often made at year-end, during the holiday season, in ways that qualify for exemption from federal gift tax.

Gifts to a donee are exempt from the gift tax for amounts up to $14,000 a year per donee.

Caution: An unused annual exemption doesn’t carry over to later years. To make use of the exemption for 2014, you must make your gift by December 31.

Husband-wife joint gifts to any third person are exempt from gift tax for amounts up to $28,000 ($14,000 each). Though what’s given may come from either you or your spouse or both of you, both of you must consent to such “split gifts”.

Gifts of “future interests”, assets that the donee can only enjoy at some future time such as certain gifts in trust, generally don’t qualify for exemption; however, gifts for the benefit of a minor child can be made to qualify.

Tip: If you’re considering adopting a plan of lifetime giving to reduce future estate tax, then don’t hesitate to call us. We can help you set it up.

Cash or publicly traded securities raise the fewest problems. You may choose to give property you expect to increase substantially in value later. Shifting future appreciation to your heirs keeps that value out of your estate. But this can trigger IRS questions about the gift’s true value when given.

You may choose to give property that has already appreciated. The idea here is that the donee, not you, will realize and pay income tax on future earnings and built-in gain on sale.

Gift tax returns for 2014 are due the same date as your income tax return. Returns are required for gifts over $14,000 (including husband-wife split gifts totaling more than $14,000) and gifts of future interests. Though you are not required to file if your gifts do not exceed $14,000, you might consider filing anyway as a tactical move to block a future IRS challenge about gifts not “adequately disclosed.”

Tip: Call us if you’re considering making a gift of property whose value isn’t unquestionably less than $14,000.

Income earned on investments you give to children or other family members are generally taxed to them, not to you. In the case of dividends paid on stock given to your children, they may qualify for the reduced child tax rate, generally 10 percent, where the first $1,000 in investment income is exempt from tax and the next $1,000 is subject to a child’s tax rate of 10 percent (0 percent tax rate on long-term capital gains and qualified dividends).

Caution: In 2014, investment income for a child (under age 18 at the end of the tax year or a full-time student under age 24) that is in excess of $2,000 is taxed at the parent’s tax rate.

Other Year-End Moves

Retirement Plan Contributions. Maximize your retirement plan contributions. If you own an incorporated or unincorporated business, consider setting up a retirement plan if you don’t already have one. It doesn’t actually need to be funded until you pay your taxes, but allowable contributions will be deductible on this year’s return.
If you are an employee and your employer has a 401(k), contribute the maximum amount ($17,500 for 2014), plus an additional catch-up contribution of $5,500 if age 50 or over, assuming the plan allows this much and income restrictions don’t apply.

If you are employed or self-employed with no retirement plan, you can make a deductible contribution of up to $5,500 a year to a traditional IRA (deduction is sometimes allowed even if you have a plan). Further, there is also an additional catch-up contribution of $1,000 if age 50 or over.  Contributions need to be made by April 15, 2015.

Health Savings Accounts.  Consider setting up a health savings account (HSA). You can deduct contributions to the account, investment earnings are tax-deferred until withdrawn, and amounts you withdraw are tax-free when used to pay medical bills.

In effect, medical expenses paid from the account are deductible from the first dollar (unlike the usual rule limiting such deductions to the excess over 10 percent of AGI). For amounts withdrawn at age 65 or later, and not used for medical bills, the HSA functions much like an IRA.

To be eligible, you must have a high-deductible health plan (HDHP), and only such insurance, subject to numerous exceptions, and must not be enrolled in Medicare. For 2014, to qualify for the HSA, your minimum deductible in your HDHP must be at least $1,250 for single coverage or $2,500 for a family.

Summary

These are just a few of the steps you might take. Please contact us for help in implementing these or other year-end planning strategies that might be suitable to your particular situation.

If you have any questions about this topic or other tax related questions, please do not hesitate to contact us at 727-327-1999.

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

Year-End Tax Planning for Businesses

While the fate of several business-related tax extenders such as R & D credits and bonus depreciation that expired at the end of 2013 is uncertain, there are still a number of end of year tax strategies businesses can use to reduce their tax burden for 2014.

Purchase New Business Equipment

Section 179 Expensing. Business should still take advantage of Section 179 expensing this year for a couple of reasons. First, is that in 2014 businesses can elect to expense (deduct immediately) the entire cost of most new equipment up to a maximum of $25,000 for the first $200,000 of property placed in service by December 31, 2014. Keep in mind that the Section 179 deduction cannot exceed net taxable business income. In addition, unless Congress reauthorizes it, the bonus depreciation expired at the end of 2013 and is not available for 2014.

While most businesses follow a calendar year, for those that don’t there is an exception to the $25,000 cap that allows those business to take advantage of the $500,000 Section 179 benefit. However, only businesses whose calendar year begins in 2013 and ends in 2014 can take advantage of this.

Qualified property is defined as property that you placed in service during the tax year and used predominantly (more than 50 percent) in your trade or business. Property that is placed in service and then disposed of in that same tax year does not qualify, nor does property converted to personal use in the same tax year it is acquired.

       Note: Many states have not matched these amounts and, therefore, state tax may not
allow for the maximum federal deduction. In this case, two sets of depreciation records
will be needed to track the federal and state tax impact.

Please contact our office if you have any questions regarding qualified property.

Timing. If you plan to purchase business equipment this year, consider the timing. You might be able to increase your tax benefit if you buy equipment at the right time. Here’s a simplified explanation:

Conventions. The tax rules for depreciation include “conventions” or rules for figuring out how many months of depreciation you can claim. There are three types of conventions. To select the correct convention, you must know the type of property and when you placed the property in service.

1. The half-year convention: This convention applies to all property except residential
rental property, nonresidential real property, and railroad gradings and tunnel bores
(see mid-month convention below) unless the mid-quarter convention applies. All
property that you begin using during the year is treated as “placed in service” (or
“disposed of”) at the midpoint of the year. This means that no matter when you begin
using (or dispose of) the property, you treat it as if you began using it in the middle of
the year.
             Example: You buy a $40,000 piece of machinery on December 15. If the
half-year convention applies, you get one-half year of depreciation on
that machine.

2. The mid-quarter convention: The mid-quarter convention must be used if the cost of
equipment placed in service during the last three months of the tax year is more than
40 percent of the total cost of all property placed in service for the entire year. If the
mid-quarter convention applies, the half-year rule does not apply, and you treat all
equipment placed in service during the year as if it were placed in service at the
midpoint of the quarter in which you began using it.

3. The mid-month convention: This convention applies only to residential rental
property, nonresidential real property, and railroad gradings and tunnel bores. It
treats all property placed in service (or disposed of) during any month as placed in
service (or disposed of) on the midpoint of that month.

If you’re planning on buying equipment for your business, call us first. We’ll help you
figure out the best time to buy it to take full advantage of these tax rules.

Other Year-End Moves to Take Advantage Of

Business Energy Investment Tax Credit

Business energy investment tax credits are still available for eligible systems placed in service on or before December 31, 2016, and businesses that want to take advantage of these tax credits can still do so.

Business energy credits include solar energy systems (passive solar and solar pool-heating systems excluded), fuel cells and microturbines, and an increased credit amount for fuel cells. The extended tax provision also established new credits for small wind-energy systems, geothermal heat pumps, and combined heat and power (CHP) systems. Utilities are allowed to use the credits as well.

Partnership or S-Corporation Basis. Partners or S corporation shareholders in entities that have a loss for 2014 can deduct that loss only up to their basis in the entity. However, they can take steps to increase their basis to allow a larger deduction. Basis in the entity can be increased by lending the entity money or making a capital contribution by the end of the entity’s tax year.

     Caution: Remember that by increasing basis, you’re putting more of your funds at risk.
Consider whether the loss signals further troubles ahead.

Retirement Plans. Self-employed individuals who have not yet done so should set up self-employed retirement plans before the end of 2014. Call us today if you need help setting up a retirement plan.

Dividend Planning. Reduce accumulated corporate profits and earnings by issuing corporate dividends to shareholders.

Budgets. Every business, whether small or large, should have a budget. The need for a business budget may seem obvious, but many companies overlook this critical business planning tool.

A budget is extremely effective in making sure your business has adequate cash flow and in ensuring financial success. Once the budget has been created, then monthly actual revenue amounts can be compared to monthly budgeted amounts. If actual revenues fall short of budgeted revenues, expenses must generally be cut.

      Tip: Year-end is the best time for business owners to meet with their accountants to
budget revenues and expenses for the following year.|

Call Us First

These are just a few of the year-end planning tax moves that could make a substantial difference in your tax bill for 2014. If you’d like more information about tax planning for 2015, give us a call. We’ll sit down with you, discuss your specific tax and financial needs, and develop a plan that works for your business.

Moving Can Affect Your Premium Tax Credit

IRS Health Care Tax Tip 2014-17, Sept. 12, 2014

If you moved recently, you’ve probably notified the U.S. Postal Service, utility companies, financial institutions and employers of your new address.  If you get health insurance coverage through a Health Insurance Marketplace, the IRS reminds you about one more important notification to add to your list – the Marketplace.

If you are receiving advance payments of the premium tax credit, it is particularly important that you report changes in circumstances, including moving, to the Marketplace. There’s a simple reason. Reporting your move lets the Marketplace update the information used to determine your eligibility for a Marketplace plan, which may affect the appropriate amount of advance payments of the premium tax credit that the government sends to your health insurer on your behalf.

Reporting the changes will help you avoid having too much or not enough premium assistance paid to reduce your monthly health insurance premiums. Getting too much premium assistance means you may owe additional money or get a smaller refund when you file your taxes. On the other hand, getting too little could mean missing out on monthly premium assistance that you deserve.

Changes in circumstances that you should report to the Marketplace include, but are not limited to:

• an increase or decrease in your income
• marriage or divorce
• the birth or adoption of a child
• starting a job with health insurance
• gaining or losing your eligibility for other health care coverage

Many of these changes in circumstances – including moving out of the area served by your current Marketplace plan – qualify you for a special enrollment period to change or get insurance through the Marketplace. In most cases, if you qualify for the special enrollment period, you will have sixty days to enroll following the change in circumstances. You can find information about special enrollment periods at HealthCare.gov.

More Information

Find out more about the health care law, the premium tax credit and the individual shared responsibility provision at IRS.gov/aca.

Find out more about the Health Insurance Marketplace at HealthCare.gov, or by calling (800) 318-2596.

If you have any questions about this topic or other tax related questions, please do not hesitate to contact us at 727-327-1999.

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

Scam Phone Calls Continue; IRS Identifies Five Easy Ways to Spot Suspicious Calls

IR-2014-84, Aug. 28, 2014

WASHINGTON — The Internal Revenue Service issued a consumer alert today providing taxpayers with additional tips to protect themselves from telephone scam artists calling and pretending to be with the IRS.

These callers may demand money or may say you have a refund due and try to trick you into sharing private information. These con artists can sound convincing when they call. They may know a lot about you, and they usually alter the caller ID to make it look like the IRS is calling. They use fake names and bogus IRS identification badge numbers. If you don’t answer, they often leave an “urgent” callback request.

“These telephone scams are being seen in every part of the country, and we urge people not to be deceived by these threatening phone calls,” IRS Commissioner John Koskinen said. “We have formal processes in place for people with tax issues. The IRS respects taxpayer rights, and these angry, shake-down calls are not how we do business.”

The IRS reminds people that they can know pretty easily when a supposed IRS caller is a fake. Here are five things the scammers often do but the IRS will not do. Any one of these five things is a tell-tale sign of a scam. The IRS will never:

1. Call you about taxes you owe without first mailing you an official notice.
2. Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
3. Require you to use a specific payment method for your taxes, such as a prepaid debit card.
4. Ask for credit or debit card numbers over the phone.
5. Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.

If you get a phone call from someone claiming to be from the IRS and asking for money, here’s what you should do:

• If you know you owe taxes or think you might owe, call the IRS at 1.800.829.1040. The IRS workers can help you with a payment issue.
• If you know you don’t owe taxes or have no reason to believe that you do, report the incident to the Treasury Inspector General for Tax Administration (TIGTA) at 1.800.366.4484 or atwww.tigta.gov.
• You can file a complaint using the FTC Complaint Assistant; choose “Other” and then “Imposter Scams.” If the complaint involves someone impersonating the IRS, include the words “IRS Telephone Scam” in the notes.

Remember, too, the IRS does not use unsolicited email, text messages or any social media to discuss your personal tax issue. For more information on reporting tax scams, go to www.irs.gov and type “scam” in the search box.

Additional information about tax scams are available on IRS social media sites, including YouTubeand Tumblr where people can search “scam” to find all the scam-related posts.