This newsletter is intended to provide generalized information that is appropriate in certain situations. It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer. The contents of this newsletter should not be acted upon without specific professional guidance. Please call us if you have questions.

2014 Tax Provisions for Individuals: A Review

From tax credits and educational expenses to the AMT, many of the tax changes affecting individuals for 2014 were related to the signing of the American Taxpayer Relief Act (ATRA) in 2013–tax provisions that were modified, made permanent, or extended. With that in mind, here’s what individuals and families need to know about tax provisions for 2014.

Personal Exemptions
The personal and dependent exemption for tax year 2014 is $3,950.

Standard Deductions
The standard deduction for married couples filing a joint return in 2014 is $12,400. For singles and married individuals filing separately, it is $6,200, and for heads of household the deduction is $9,100.

The additional standard deduction for blind people and senior citizens in 2014 is $1,200 for married individuals and $1,550 for singles and heads of household.

Income Tax Rates
In 2014 the top tax rate of 39.6 percent affects individuals whose income exceeds $406,750 ($457,600 for married taxpayers filing a joint return). Marginal tax rates for 2014–10, 15, 25, 28, 33 and 35 percent–remain the same as in prior years.

Due to inflation, tax-bracket thresholds increased for every filing status. For example, the taxable-income threshold separating the 15 percent bracket from the 25 percent bracket is $73,800 for a married couple filing a joint return.

Estate and Gift Taxes
In 2014 there is an exemption of $5.34 million per individual for estate, gift and generation-skipping taxes, with a top tax rate of 40 percent. The annual exclusion for gifts is $14,000.

Alternative Minimum Tax (AMT)
AMT exemption amounts were made permanent and indexed for inflation retroactive to 2012. In addition, non-refundable personal credits can now be used against the AMT.

For 2014, exemption amounts are $52,800 for single and head of household filers, $82,100 for married people filing jointly and for qualifying widows or widowers, and $41,700 for married people filing separately.

Marriage Penalty Relief
The basic standard deduction for a married couple filing jointly in 2014 is $12,400.

Pease and PEP (Personal Exemption Phaseout)
Pease (limitations on itemized deductions) and PEP (personal exemption phase-out) limitations were made permanent by ATRA (indexed for inflation) and affect taxpayers with income at or above $254,200 (single filers) and $305,050 for married filing jointly in tax year 2014.

Flexible Spending Accounts (FSA)
Flexible Spending Accounts are limited to $2,500 per year in 2014 and apply only to salary reduction contributions under a health FSA. The term “taxable year” as it applies to FSAs refers to the plan year of the cafeteria plan, which is typically the period during which salary reduction elections are made.

Specifically, in the case of a plan providing a grace period (which may be up to two months and 15 days), unused salary reduction contributions to the health FSA for plan years beginning in 2012 or later that are carried over into the grace period for that plan year will not count against the $2,500 limit for the subsequent plan year.

Further, employers may allow people to carry over into the next calendar year up to $500 in their accounts, but aren’t required to do so.

Long Term Capital Gains
In 2014 taxpayers in the lower tax brackets (10 and 15 percent) pay zero percent on long-term capital gains. For taxpayers in the middle four tax brackets the rate is 15 percent and for taxpayers whose income is at or above $406,750 ($457,600 married filing jointly), the rate for both capital gains and dividends is capped at 20 percent.

Individuals – Tax Credits

Adoption Credit
In 2014 a nonrefundable (i.e. only those with a lax liability will benefit) credit of up to $13,190 is available for qualified adoption expenses for each eligible child. Child and Dependent Care Credit
The child and dependent care tax credit was permanently extended for taxable years starting in 2013. If you pay someone to take care of your dependent (defined as being under the age of 13 at the end of the tax year or incapable of self-care) in order to work or look for work, you may qualify for a credit of up to $1,050 or 35 percent of $3,000 of eligible expenses.

For two or more qualifying dependents, you can claim up to 35 percent of $6,000 (or $2,100) of eligible expenses. For higher income earners the credit percentage is reduced, but not below 20 percent, regardless of the amount of adjusted gross income.

Child Tax Credit
For tax year 2014, the child tax credit is $1,000. A portion of the credit may be refundable, which means that you can claim the amount you are owed, even if you have no tax liability for the year. The credit is phased out for those with higher incomes.

Earned Income Tax Credit (EITC)
For tax year 2014, the maximum earned income tax credit (EITC) for low and moderate income workers and working families increased to $6,143 (up from $6,044 in 2013). The maximum income limit for the EITC increased to $52, 427 (up from $51, 567 in 2013) for married filing jointly. The credit varies by family size, filing status and other factors, with the maximum credit going to joint filers with three or more qualifying children.

Individuals – Education Expenses

Coverdell Education Savings Account
You can contribute up to $2,000 a year to Coverdell savings accounts in 2014. These accounts can be used to offset the cost of elementary and secondary education, as well as post-secondary education.

American Opportunity Tax Credit
For 2014, the maximum American Opportunity Tax Credit that can be used to offset certain higher education expenses is $2,500 per student, although it is phased out beginning at $160,000 adjusted gross income for joint filers and $80,000 for other filers.

Employer Provided Educational Assistance
In 2014, as an employee, you can exclude up to $5,250 of qualifying post-secondary and graduate education expenses that are reimbursed by your employer.

Lifetime Learning Credit
A credit of up to $2,000 is available for an unlimited number of years for certain costs of post-secondary or graduate courses or courses to acquire or improve your job skills. For 2014, the modified adjusted gross income threshold at which the lifetime learning credit begins to phase out is $108,000 for joint filers and $54,000 for singles and heads of household.

Student Loan Interest
In 2014 you can deduct up to $2,500 in student-loan interest as long as your modified adjusted gross income is less than $65,000 (single) or $130,000 (married filing jointly). The deduction is phased out at higher income levels. In addition, the deduction is claimed as an adjustment to income so you do not need to itemize your deductions.

Individuals – Retirement

Contribution Limits
For 2014, the elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is $17,500 (same as 2013). For persons age 50 or older in 2014, the limit is $23,000 ($5,500 catch-up contribution). Contribution limits for SIMPLE plans remain at $12,000 for persons under age 50 and $14,500 for persons age 50 or older in 2014. The maximum compensation used to determine contributions increases to $260,000.

Saver’s Credit
In 2014, the AGI limit for the saver’s credit (also known as the retirement savings contributions credit) for low-and moderate-income workers is $60,000 for married couples filing jointly, $45,000 for heads of household, and $30,000 for married individuals filing separately and for singles.

Please contact us if you need help understanding which deductions and tax credits you are entitled to. We are always available to assist you.

2014 Tax Provisions for Businesses: A Review

Whether you file as a corporation or sole proprietor here’s what business owners need to know about tax changes for 2014.

Standard Mileage Rates
The standard mileage rates in 2014 are as follows: 56 cents per business mile driven, 23.5 cents per mile driven for medical or moving purposes, and 14 cents per mile driven in service of charitable organizations.

Health Care Tax Credit for Small Businesses
Small business employers who pay at least half the premiums for single health insurance coverage for their employees may be eligible for the Small Business Health Care Tax Credit as long as they employ fewer than the equivalent of 25 full-time workers and average annual wages do not exceed $51,000 (adjusted for inflation).

Starting in 2014, the tax credit is worth up to 50 percent of your contribution toward employees’ premium costs (up to 35 percent for tax-exempt employers). For tax years 2010 through 2013, the maximum credit was 35 percent for small business employers and 25 percent for small tax-exempt employers such as charities.

Section 179 Expensing

An extension for increased limitations for Section 179 expensing along with an extension of the bonus depreciation was included in HR 5771, Tax Increase Prevention Act of 2014, which was signed into law on December 31, 2014.

As such, in 2014 the maximum Section 179 expense deduction for equipment purchases up to $500,000 of the first $2,000,000 of certain business property placed in service during the year. In addition, there is a bonus depreciation of 50 percent for qualified property that exceeds the threshold amount. Please call us if you have any questions about Section 179 expensing and the bonus depreciation.

Without the passage of HR 5771, the maximum Section 179 expense deduction for equipment purchases is $25,000 of the first $200,000 of certain business property placed in service during the year and the bonus depreciation of 50 percent for qualified property that exceeds the threshold amount is no longer available.

Work Opportunity Tax Credit (WOTC)

An extension for the WOTC was included in HR 5771, Tax Increase Prevention Act of 2014, which was signed into law on December 31, 2014.

As such, the WOTC is extended through 2014 (retroactive to January 1) and includes the enhanced credit for hiring certain veterans. When a business hires a person from one of several specific economically disadvantaged groups it may claim a Work Opportunity Tax Credit, generally equal to 40 percent of the first $6,000 in wages paid to a new hire. Please call us if you have any questions about the Work Opportunity Tax Credit.

SIMPLE IRA Plan Contributions
Contribution limits for SIMPLE IRA plans remain at $12,000 for persons under age 50 and $14,500 for persons age 50 or older in 2014. The maximum compensation used to determine contributions increased to $260,000.

Please contact us if you need help understanding which deductions and tax credits you are entitled to. We are always available to assist you.

IRS Clarifies One-Per-Year Limit on IRA Rollovers

The Internal Revenue Service recently issued guidance clarifying the impact a 2014 individual retirement arrangement (IRA) rollover has on the one-per-year limit imposed by the Internal Revenue Code on tax-free rollovers between IRAs.

The clarification relates to a change in the way the statutory one-per-year limit applies to rollovers between IRAs. The change in the application of the one-per-year limit reflects an interpretation by the U.S. Tax Court in a January 2014 decision applying the limit to preclude an individual from making more than one tax-free rollover in any one-year period, even if the rollovers involve different IRAs.

Before 2015, the one-per-year limit applies only on an IRA-by-IRA basis (that is, only to rollovers involving the same IRAs). Beginning in 2015, the limit will apply by aggregating all an individual’s IRAs, effectively treating them as if they were one IRA for purposes of applying the limit.

To allow transition time, the IRS made it clear that the new interpretation will apply beginning Jan. 1, 2015. A distribution from an IRA received during 2014 and properly rolled over (normally within 60 days) to another IRA, will have no impact on any distributions and rollovers during 2015 involving any other IRAs owned by the same individual. In other words, IRA owners will be able to make a fresh start in 2015 when applying the one-per-year rollover limit to multiple IRAs.

Although an eligible IRA distribution received on or after Jan. 1, 2015 and properly rolled over to another IRA will still get tax-free treatment, subsequent distributions from any of the individual’s IRAs (including traditional and Roth IRAs) received within one year after that distribution will not get tax-free rollover treatment. As the guidance makes clear, a rollover between an individual’s Roth IRAs will preclude a separate tax-free rollover within the 1-year period between the individual’s traditional IRAs, and vice versa.

As before, Roth conversions (rollovers from traditional IRAs to Roth IRAs), rollovers between qualified plans and IRAs, and trustee-to-trustee transfers–direct transfers of assets from one IRA trustee to another–are not subject to the one-per-year limit and are disregarded in applying the limit to other rollovers.

IRA trustees are encouraged to offer IRA owners requesting a distribution for rollover the option of a trustee-to-trustee transfer from one IRA to another IRA. IRA trustees can accomplish a trustee-to-trustee transfer by transferring amounts directly from one IRA to another or by providing the IRA owner with a check made payable to the receiving IRA trustee.

For more information, please contact our office.

Retirement Contributions Limits Announced for 2015

The Internal Revenue Service announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for Tax Year 2015.

In general, many of the pension plan limitations will change for 2015 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged for 2015. Here are the highlights:

• The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $17,500 to $18,000.

• The catch-up contribution limit for employees age 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $5,500 to $6,000.

• The limit on annual contributions to an Individual Retirement Arrangement (IRA) remains unchanged at $5,500. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

• Contribution limits for SIMPLE retirement accounts is increased from $12,000 to $12,500.

• The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $61,000 and $71,000, up from $60,000 and $70,000 in 2014. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $98,000 to $118,000, up from $96,000 to $116,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $183,000 and $193,000, up from $181,000 and $191,000. For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

• The AGI phase-out range for taxpayers making contributions to a Roth IRA is $183,000 to $193,000 for married couples filing jointly, up from $181,000 to $191,000 in 2014. For singles and heads of household, the income phase-out range is $116,000 to $131,000, up from $114,000 to $129,000. For a married individual filing a separate return, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

• The AGI limit for the saver’s credit (also known as the retirement savings contribution credit) for low- and moderate-income workers is $61,000 for married couples filing jointly, up from $60,000 in 2014; $45,750 for heads of household, up from $45,000; and $30,500 for married individuals filing separately and for singles, up from $30,000.

Questions? Give us a call. We’re here to help.

Six Tips for Year-End Gifts to Charity

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.

Are Your Social Security Benefits Taxable?

Some people must pay taxes on part of their Social Security benefits. Others find that their benefits aren’t taxable. If you get Social Security, we can help you determine if some – or all – of your benefits are taxable. Here are five tips about how Social Security affects your taxes:

1. If you receive these benefits in 2014, you should receive a Form SSA-1099, Social Security Benefit Statement, showing the amount.

2. If Social Security was your only source of income in 2014, your benefits may not be taxable. You also may not need to file a federal income tax return next spring.

3. If you get income from other sources, then you may have to pay taxes on some of your benefits.

4. Your income and filing status affect whether you must pay taxes on your Social Security.

5. A quick way to find out if any of your benefits may be taxable is to add one-half of your Social Security benefits to all your other income, including any tax-exempt interest. Next, compare this total to the base amounts below. If your total is more than the base amount for your filing status, then some of your benefits may be taxable. The three base amounts are:

• $25,000 – for single, head of household, qualifying widow or widower with a dependent child or married individuals filing separately who did not live with their spouse at any time during the year
• $32,000 – for married couples filing jointly
• $0 – for married persons filing separately who lived together at any time during the year

Questions about income related to Social Security? Give us a call. We’ll help you figure it out.

Tips for Recently Married or Divorced Taxpayers

Newlyweds and the recently divorced should ensure the name on their tax return matches the name registered with the Social Security Administration (SSA). A mismatch could unexpectedly increase a tax bill or reduce the size of any refund.

• For recently married taxpayers, the tax scenario begins when the bride says “I do.” If she takes her husband’s last name, but doesn’t tell the SSA about the name change, complications may arise. For example, if the couple files a joint tax return with the bride’s new name, the IRS computers will not be able to match the new name with the Social Security number.
• After a divorce, a woman who had taken her husband’s name and made that change known to the SSA should contact the SSA if she goes back to her previous name.

If you have any questions related to your requirements to the IRS after getting married or divorced, or need help changing your name with the SSA, give us a call. We’re here to help.

Depositing Payments in QuickBooks: The Basics

Satisfying though it may be to enter all of those customer payments manually on a paper deposit slip, it can also be tedious and time-consuming. The more successful in business you are, the more time and care it takes.

Whether you accept cash, checks, or credit/debit cards, QuickBooks has tools that help you streamline the process of moving the funds into your physical bank accounts. In fact, part of your job is done when you enter the payments on the Receive Payments or Sales Receipt screens.

An Important Decision

When you record a payment in QuickBooks, you can enter it in one of two ways. Ask us if you’re not certain which one best suits your business. Payments can be deposited:

• In a specific bank account. QuickBooks lets you specify an individual account for each transaction. If you select this option, a box labeled DEPOSIT TO will appear on the Sales Receipt and Receive Payment screens. Select an account from the drop-down list, and your payment will be automatically deposited into it.

Figure 1: You can choose to deposit customer payments to specific accounts.

• In Undeposited Funds. This is an asset account that can hold multiple payments, but they are not automatically deposited.

If you decide to have all payments sent to the Undeposited Funds account, you can establish that as your default. Open the Edit menu and select Preferences | Payments | Company Preferences. Then make sure that the box in front of Use Undeposited Funds as a default deposit to account is checked.

Figure 2: Check the box on the right if you want payments sent to the Undeposited Funds asset account. You will make the actual deposits later. If this box is not checked, a DEPOSIT TO field will appear on the Sales Receipt and Receive Payments screens.

Other Deposits

What about money you receive that is neither payment on an invoice you sent nor payment for an item or service received immediately? There are many situations where this might be the case, including:

• Vendor refunds, rebates, etc.,
• Unsolicited donations [for non-profits], or
• An owner’s investment in the business.

To record incoming funds like these, open the Banking menu and select Make Deposits to open the Payments to Deposit window. Click OK to skip to the Make Deposits window.

Complete the Deposit To, Date, and Memo fields, then click in the table below them if you haven’t already used the Tab key to get there. Use the drop-down lists to select (or add) the individual or company who submitted the payment, the account where it should be tracked, the payment method, and the amount. Enter any additional information needed, fill in the optional Cash back goes to fields, and then save the transaction.

Note: While you’re working in the Make Deposits window, you can click the Payments button at any time to open a new window containing customer payments that need to be deposited if you want to process them simultaneously.

You may also want to use the Attach tool for miscellaneous payments to store related documentation.

Depositing Undeposited Funds

You should process your Undeposited Funds on a regular basis, whether every day, every few days, or weekly, depending on your banking needs. To do this, go to Banking | Make Deposits.

Figure 3: You can either view all of the unprocessed payments in Undeposited Funds in a single list, or you can display them by type.

The Payments to Deposit window will open if you have pending payments in your Undeposited Funds account. Put a check mark in front of all of the payments you want to deposit by clicking in the column to the left of the DATE column.

Click OK, and the Make Deposits window will open, displaying the payments you just chose. As we instructed previously, select the account where you want the money deposited and the date, add a memo, and request cash back if desired. Save your work when you’re finished.

These are the steps you’ll take to deposit payments by cash and check. If you’re planning to open a merchant account so you can accept debit and credit cards, the process is similar, but there are additional steps you must take to ensure that your books balance.

We can show you the ropes and answer any other questions you have about depositing payments. You work hard for your money, so make sure you see it in your bank accounts.

Tax Due Dates for December 2014

December 10

Employees who work for tips – If you received $20 or more in tips during November, report them to your employer. You can use Form 4070.

December 15

Corporations – Deposit the fourth installment of estimated income tax for 2014. A worksheet, Form 1120-W, is available to help you estimate your tax for the year.

Employers Social Security, Medicare, and withheld income tax – If the monthly deposit rule applies, deposit the tax for payments in November.

Employers Nonpayroll withholding – If the monthly deposit rule applies, deposit the tax for payments in November.