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Alternative Minimum Tax

03/26/2015

New Tax Laws Affecting 2015 Income Taxes

What's new?As we complete and file our 2014 federal income tax returns, this is a good time to make adjustments as needed affecting our current-year 2015 income tax plan.  To help, the IRS has released its list of new income tax changes, rates and updates that are now in effect.

As a reminder, federal income tax is designed to be a pay-as-you-go tax.  You are obligated to pay taxes throughout the year as you earn or receive income, and you may be subject to penalties if you don’t.  You may pay through payroll withholding, or by paying estimated taxes.  

The new updates regarding deductions and exemptions may directly affect the tax you owe.  Consider our tax planning services to give you a year-round tax perspective so the annual tax preparation season will go smoother with fewer surprises.

Standard Mileage Rates:  For taxpayers claiming itemized deductions, including deducting the cost of operating your personal vehicle for business purposes, the standard mileage rate allowed for business miles driven is now 57.5 cents per mile, up from 56 cents in 2014.

The business standard mileage rate is based on a combination of annual averages of fixed and variable costs of operating a vehicle including not only gas and oil, but also depreciation, insurance, tires and average maintenance and repairs.  Some taxpayers may enjoy a greater tax benefit by itemizing their actual annual vehicle costs, but they must choose between the actual costs method and the standard mileage rate deduction.

If you will drive more than usual for medical expenses or because of a move this year, the rate has dropped to 23 cents per mile for this year, down a bit from 2014’s rate of 23.4 cents.  The mileage rate allowed for miles driven in service of a charitable organization remains at 14 cents per mile.

Personal Exemptions ChangesFor 2015, the personal exemption amount has increased for certain taxpayers.  It has increased to $4,000 for taxpayers with adjusted gross incomes at or below $309,900 if married filing jointly or if a qualifying widow(er), $284,050 if a head of household, $258,250 if single, or $154,950 if married filing separately. The allowed personal exemption amount for taxpayers with adjusted gross incomes above these thresholds has been reduced from 2014 and may be calculated using a new Personal Allowances Worksheet.

Itemized Deductions Limitation:  Now in 2015, the total amount allowed for itemized deductions is reduced for taxpayers with adjusted gross income above $309,900 if married filing jointly or a qualifying widow(er), $284,050 if head of household, $258,250 if single, and $154,950 if married filing separately.

Alternative Minimum Tax (AMT) Exemption: The AMT exemption amount is increased to $53,600 ($83,400 if married filing jointly or qualifying widow(er); $41,700 if married filing separately).

Lifetime Learning Credit Income Limits: In order to claim a Lifetime Learning Credit of up to $2,000, your Modified Adjusted Gross Income (MAGI) must be less than $55,000, that’s down considerably from $64,000 in 2014 ($110,000 if married filing jointly, down from $128,000).

Adoption Credit or Exclusion: The maximum adoption credit or exclusion for employer-provided adoption benefits has increased to $13,400.  In order to claim either the credit or exclusion, your MAGI must be less than $241,010.

Earned Income Credit (EIC): You may be able to claim the EIC in 2015 if: three or more children lived with you and you earned less than $47,747 ($53,267 if married filing jointly), two children lived with you and you earned less than $44,454 ($49,974 if married filing jointly), one child lived with you and you earned less than $39,131 ($44,651 if married filing jointly), or a child did not live with you and you earned less than $14,820 ($20,330 if married filing jointly).

To learn more about how the 2015 tax year will affect your income tax planning, contact us at McRuer CPAs.

02/19/2015

Tax Software vs Professional Accountants

As we enter into the peak of tax preparation season, we are often asked about the difference between using tax preparation software and using the services of a professional accountant.  Today there are dozens of preparation software options online and in software packages that can help a taxpayer complete their tax return.  This as today's tax liabilities and concerns are growing more complicated than they've ever been. 

1040 form with glasses and penniesA recent Wall Street Journal article revealed as taxpayers try out new tax software tools, they are making more and more mistakes.  Often, it has to do with not knowing the right questions to ask to discover their best options.  Many times, incorrectly entered numbers cause automatic equations to produce the wrong totals.  

Don't misunderstand, there are good reasons to choose tax software to help you complete your income tax return on your own.  There are also good reasons to choose a professional accountant.  We came across an interesting and concise article online on Investopedia that explains your options clearly.

Here is that article for your consideration as you choose the best steps to take regarding the preparation of your federal and state income tax returns. 

Tax Software Vs. An Accountant: Which Is Right For You?    By Jason Steele | Updated January 29, 2014

""With every important job comes the question of whether or not individuals should do it themselves or hire a professional. While the ever-improving selection of tax preparation software certainly makes it easier to do your own taxes, it has hardly put Certified Public Accountants (CPAs) and other personal tax preparers out of business. 

The Advantages of Using Tax Software
Price
There is no way around the fact that you will pay less for a software package than you will to hire a CPA or another qualified tax professional. The price of tax preparation software ranges from the $10 to $120 range to websites that offer the service for free. On the other hand, the least expensive tax preparers will cost at least $100 and a CPA is likely to charge at least twice that amount. The upfront savings of using tax software over an accountant is one of the most attractive benefits of filing your own taxes. 

The Advantages of Using Tax Software
Price
There is no way around the fact that you will pay less for a software package than you will to hire a CPA or another qualified tax professional. The price of tax preparation software ranges from the $10 to $120 range to websites that offer the service for free. On the other hand, the least expensive tax preparers will cost at least $100 and a CPA is likely to charge at least twice that amount. The upfront savings of using tax software over an accountant is one of the most attractive benefits of filing your own taxes. 

The Benefits of Hiring a Professional Accountant
Better Software
Accountants pay around $1,000 to $6,000 for their software, which is far more sophisticated than the products sold to consumers. These more advanced programs have the ability to quickly scan your information and organize line items and forms correctly. By automating much of the data entry and organization, there's less chance for human error to hurt your tax return.

Human Touch
Like a good family doctor that knows your medical history, you can develop a relationship with an accountant so that he or she understands your family's financial situation and future goals. According to Wehner, who has been preparing taxes for 45 years, "A tax professional is often able to make valuable tax savings suggestions that a software program just can't anticipate." The value of this advice can easily exceed the additional cost of consulting with a professional. For example, a tax accountant can provide you advice on tax-friendly ways to save for your children's education, or how to reduce taxes on your capital gains.

Accountants Can Answer Your Questions Year Round
As a trusted professional, a good accountant will be able to answer important questions that arise not just during your annual consultation, but at other times during the year.

Calculator help and form 1040A CPA Saves You Time When Handling Complicated Issues
Taxpayers who find themselves at the center of complicated business and investment matters may even have the skill to sort through their taxes on their own, but is it worth their time? A professional tax preparer is so familiar with the system; he or she can quickly and easily accomplish tasks that might take even skilled taxpayers hours of research. For busy non-tax professionals, their time can generally be better spent earning money in their area of expertise. Even if your tax situation is straightforward, hiring a professional will save you the time and stress of doing your taxes.

The Bottom Line
Ultimately, there is no universally correct answer to the question of hiring a tax professional or doing your taxes yourself with software. Your comfort and familiarity with IRS rules will be part of your decision, but the complexity of your finances should be the key deciding factor. Those with a single employer and few investments may save hundreds of dollars by preparing their own taxes, while those with business income or rental properties will find the expense of hiring an accountant to be worth their peace of mind and potential tax saving.""

##  So, as we add one final thought to the article above, consider that the more complicated your taxes are, the more likely you need comprehensive accounting services and an accounting professional to help you make the best decisions. For us at McRuer CPAs, it's all about making certain you pay no more taxes than you owe.

If you have any questions, or would like to review your income tax situation with an accountant, contact us at McRuer CPAs to set up a consultation.  We'll take a look and provide you options so you can make the best choice.  Call us:  816.741.7882 or contact us online.

 

11/24/2014

McRuer CPAs Year-End Tax Planning Guide

Income tax and flag imageIt's time to review year-end tax strategies that may help reduce your tax bill or prevent you from paying more than you owe.  

The 2014 tax year has been marked by more questions and unresolved tax issues than in years past.  The current uncertainty especially about expiring "temporary" tax provisions, income tax deductions and IRA conversions leads us to send a precautionary "yellow" signal as we stay alert to react to any last minute updates.

Click here to download the McRuer CPAs 2014 Year-End Tax Planning Guide with tips and information that may help you.

Your window of opportunity to take action regarding your 2014 tax obligation is rapidly closing, but remember, this is also a very good time to consider choices about your individual and/or business tax strategies for the 2015 tax year.

If you haven't already scheduled your year-end tax planning strategy session, please contact us right away.  Call us for an appointment with one of our tax strategy experts who will explain details to help you choose the best plan for you: 816.741.7882.

 

06/13/2013

Taxes and the Second Home Dream

Federal tax provisions affecting residential real estate are being reviewed for possible cuts. The National Association of Realtors has recently defended the tax deductions associated with home ownership in testimony before the U.S. House Ways and Means Committee.

Tax deductions make home ownership financially attractive.  New tax laws provide updated guidelines on mortgage availability and regulations on lenders.  These and other benefits have helped increase the purchase rate of “second” homes.   But as tax laws continue to change, homebuyers may need to more carefully consider the tax consequences of their purchase.

Nationally, about one third of home purchases today are for second homes.  Second homes are most often purchased as an investment, a vacation home, or a rental property. 

Real estate professionals say more homeowners today are purchasing a home for their elderly parents or their adult children who cannot otherwise afford to pay for a home during the economic downturn.  These relatives may have few or no resources of their own to make down payments or pay for home repairs. Some may pay rent and/or utilities for the residence.

Should you consider purchasing a second home, there are tax advantages and a few warnings.

Keys to second home

First, a warning: there’s a potential pitfall for higher income taxpayers who are subject to the alternative minimum tax (AMT).  Those who must pay AMT cannot deduct real estate taxes, they must pay tax on any gain on the sale of the property, and should there be a loss on the sale of the property later, the loss is not deductible.

There are several tax deduction benefits though, that make the purchase of a second home attractive, such as:

Mortgage interest: Mortgage interest paid on a loan used to finance the price of the purchase, improvements made to the home, or the building of a second home is typically 100 percent deductible, just as it is on a primary residence.

Rental income:  If you rent the property no more than 14 days a year, you can pocket the rental income tax free.  If you rent the property for more than 14 days you must report all rental income, but you can deduct a portion of the mortgage interest, property taxes, insurance premiums, utilities and other rental expenses.

Investment:  If you buy a property and expect that you may sell it again when property values go up, you are allowed to earn a certain amount of profit tax free.  But the practice is not as lucrative as it used to be.  Congress has changed the tax law to give the greater benefit to those who have lived in the second house for a time as a permanent residence before they sell it.  Tax rules on losses have also changed; though losses collectively over time may be deducted from taxable profit when you sell the property.

As you review the financial considerations, remember that much of the tax benefit depends upon how high your overall income is and how much you may use the property yourself.

Each taxpayer’s story is unique, so the purchase of a second home should be deliberated carefully and with the assistance of not only a real estate professional, but also a tax professional you trust.  For more information, contact us at McRuer CPAs.


03/11/2013

ATRA & AMT -OMG!

The American Taxpayer Relief Act (ATRA), enacted in January 2013, has a provision that relieves millions of taxpayers from having to pay the Alternative Minimum Tax (AMT) in the 2012 and 2013 tax years.

For years Congress has passed temporary “patches” to address who must pay AMT.  Those are now made permanent.  Without a patch, the Tax Policy Center reports 30 million more Americans would have had to pay AMT.

Generally, AMT is designed to prevent affluent taxpayers who may enjoy “tax preference items” like large deductions for accelerated depreciation and oil and gas well cost depletion to avoid paying ordinary tax.

AMT imposes an increasing flat tax rate with an inflation adjusted floor once incomes reach a Holding money certain threshold. The floor is called an “exemption”.  Taxpayers whose incomes exceed the floor must pay an alternative minimum tax that raises their tax liability to the regular income tax amount.  Because the floor amounts have not been regularly adjusted to reflect inflation, opponents have argued it unfairly taxes working Americans.

AMT rates and exemptions vary by filing status as standard federal income taxes do.  It may apply to you if your taxable income plus adjustments for certain tax preference items like state and local taxes paid is more than the AMT exemption amount for your filing status.

The new tax law sets a higher permanent exemption for 2012.  It also indexed the exemption and other AMT parameters for inflation. 

The IRS lists the 2012 AMT exemption amounts for each filing status as:

  • $50,600 Single and Head of Household
  • $78,750 Married Filing Joint and Qualifying Widow(er)
  • $39,375 Married Filing Separately

The new TPC report estimates more than 30 million taxpayers who would have owed AMT for 2012 are no longer facing the levy while 3.4 million taxpayers will pay AMT.

The alternative minimum tax makes tax planning much more difficult, and often taxpayers whose annual incomes have increased are unpleasantly surprised when they learn they owe AMT.  In fact, the TPC estimates the number of AMT taxpayers will increase by 35 percent in the next 5 years.

Another ATRA provision limits itemized deductions and reinstates personal exemption phase-outs.  That is also expected to increase the number of taxpayers who must pay AMT.

The IRS provides an “assistant” to help you compute the AMT.  If you’re uncertain of whether you may owe AMT, contact us at McRuer CPAs and we’ll help you interpret the complicated tax code.

03/16/2012

Fresh Start Gets a Fresh Boost

Though last year’s Fresh Start Initiative has had a slow start, the IRS this week announced some major updates that are designed to accelerate interest in the program. 

Fresh Start is intended to help taxpayers during today’s troubling economic times who are finding it hard to pay all of the taxes they owe by the due date.

The IRS has expanded the program to include more relief from late payment penalties and double the amount of taxes that can be paid through the IRS installment program. 

Fresh Start was announced last year and provides a variety of options to ease the burden on individuals and businesses that owe back taxes. It includes a decrease in the number of instances in which the IRS issues tax liens.

Regarding Late Payment Penalty Charges

Taxpayers that cannot pay their total 2011 taxes owed by April 17th may now avoid paying the 1% per month penalty until October 15, 2012. A taxpayer must still pay a 3% annual interest charge on the outstanding balance until it is paid in full. 

Regarding Installment Agreements

The amount of taxes that can be paid through the IRS installment agreement plan without the need to submit a financial statement has now been doubled to $50,000. The maximum allowable payment term has also been expanded from 60 months to 72 months. 

Taxpayers who participate in the program must agree to monthly automatic withdrawal direct debit payments.

The IRS was criticized for not doing enough to help taxpayers who, in many cases, were facing a greater tax burden due to tax increases, but were earning less income as individuals or in business due to the lagging economy.

Millions of taxpayers already depend upon the IRS installment program to pay their taxes.  The updates to Fresh Start could double the number of people who choose the option.

At McRuer CPAs we provide a comprehensive service that offers tax planning strategies to help ease the burden taxpayers are obligated to pay as well as make certain they only pay what they owe.   If you cannot pay all that you owe by the deadline, the IRS installment plan is one option with a relatively low interest rate that may help, yet we may be able to offer you more options.  Contact us for more information.

To read online about Fresh Start’s new updates, here is the link to this week’s information release and video: Fresh Start Initiative Information

03/09/2012

VOW is WOW! for Hiring Veterans

Hiring a returning war veteran may not only land a business an excellent employee, but it may also provide a nice tax credit as part of the VOW to Hire Heroes Act. New updates are making it easier and faster to process tax credit requests, too.

The credit can reach up to $9,600 per veteran hired by a for-profit business and up to $6,240 for a non-profit organization.  Businesses may claim the tax credit on income tax returns.

New forms and an expanded list of qualifying employers now make it easier to obtain certification needed to verify that a veteran meets program guidelines. New faster electronic submission options are more quickly confirming the credit amount that’s due employers.

The amount of credit depends upon:

  • Length of the veteran’s unemployment before being hired
  • Hours a veteran works
  • Amount of first-year wages paid

~Soldier with Flag in IraqBusinesses that hire qualifying veterans with service-related disabilities also receive the tax credit, many at the maximum allowable tax credit amount.

All of this is an on-going effort to help veterans returning from wars and military actions abroad to adjust to civilian employment opportunities.

Supporters of the tax credit say often business owners who were first attracted to the idea of hiring a veteran because of the tax credit have gladly discovered that the veterans offer a broad skills base and a strong work ethic.

The Department of Labor reports that 20.2 million men and 1.8 million women in America aged 18 and over are veterans who have served on active duty in the U.S. armed forces.  Numbers reflect that male veterans who served in the Gulf War Era have an unemployment rate of 21.9%. 

Survey results also show approximately 25% of Gulf War Veterans have returned home with a service-connected disability.  Current numbers reveal roughly 10% of disabled veterans who are seeking work remain unemployed.

IRS Tax Forms 8850, 5884 and 3800 provide instructions on how to file for the VOW to Hire Heroes credit.  If you have any questions, please don’t hesitate to ask one of our experts at McRuer CPAs.

IRS Information on VOW Hire Heroes Act Tax Credit

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