Tips on Updated Provisions
The recently passed legislation that avoided the “fiscal cliff” also brought some opportunities for tax savings. We have outlined some of them below.
Pre-tax Mass Transit Benefit
In early January 2013, the House and Senate passed the American Taxpayer Relief Act (ATRA) which included a retroactive provision regarding the pretax mass transit benefit offered by many employers to its employees. The Act contained a retroactive provision hiking the cap to $240 a month, up from $125 a month for employees enrolled in this benefit plan. Although most employers would have already sent out W-2’s before guidelines from the IRS were received, it is possible that your employer might be making arrangements to let employees take advantage of the potential tax savings that could result in a decrease of taxable income. If you participated in a mass transit pass or van pool benefit program for tax year 2012, contact your employer to find out about the possibility of their adjusting your 2012 earnings to take advantage of the retroactive provision of the Act. It could mean a reduction in your taxable Federal and State wages, including Social Security and Medicare wages.
Residential Energy Credits
The Residential Energy Credit was revived for 2012 and 2013. The 10% credit allows for a maximum deduction of $500 on energy efficient improvements to your home. But the rules are specific and, for example, a new furnace does not automatically mean a deduction. Certain standards have to e met. If you have any questions regarding the credit or your eligibility please contact us.
Charitable Giving
Also revived was a provision regarding donations to charities from IRAs by those age 70 ½ and older. It again allows for direct transfer from the IRA of up to $100,000 tax free to eligible charitable organizations.
From Fillo Financial LLC
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Email Scams
The Internal Revenue has issued several recent consumer warnings on the fraudulent use of the IRS name or logo by scammers trying to gain access to consumers’s financial information in order to steal their identity of assets. A popular scams include phony e-mails which claim to come from the IRS and which lure the victims into the scam by telling them that they are due a tax refund. The IRS periodically alerts taxpayers to, and maintains a list of, schemes using the IRS name, logo or Web site clone. If you’ve received an e-mail, phone call or fax claiming to come from the IRS that seemed a little suspicious, you just may find it on this list.
read moreTax Strategies
The election is over…
The Patient Protection and Affordable Care Act of 2010 established a new 3.8% Medicare tax on investment income for taxpayers whose modified adjusted gross income exceeds $200,000 ($250,000 for joint filers) which takes effect on 1/1/13. This legislation is part of Obama Care and therefore it is separate from the “fiscal cliff” issues.
If the bottom line on your federal form 1040, page 1 is greater than $200,000 then you will incur a 3.8% tax on your net investment income. Net investment income includes the sum of the following: a) gross income from interest, dividends, annuities, rent and royalties, b) net capital gains, c) trade or business income that is considered either passive activity income or is derived from trading in financial instruments or commodities.
What strategies can you implement to minimize the burden of this new tax: a) convert to a Roth IRA by the end of 2012 to lower your threshold for the tax, b) gift income-producing investments, c) invest in growth rather than income stocks, d) invest in tax-free municipals, e) sell appreciated capital assets before the end of 2012, or f) use installment sales to spread gain over several years.
As I am writing this Newsletter, President Obama is holding a press conference on the “fiscal cliff” issues. We will need to stay tuned for the negotiations ahead but keep in mind that the House only has sixteen working days scheduled before it adjourns on December 14th…
Our TaxPro Journal reports that the frequency and inaccuracy of IRS Notices are on the Rise. I have noticed the inaccuracy of the Notices to be alarming. One example is IRA contributions which are not allowed unless you have earned income but as always, there are exceptions to the rules and one is alimony. CP 2000 Notices are often issued for this set of facts. When it is explained, the Notice goes away but it takes time to respond and time for the IRS to correct the individual account. It would be much easier if they would correct their program.
Since it is the end of the year and we are reviewing our contributions to charity for 2012 deductions, keep in mind the IRS does deny contributions due to incorrect receipts. Here are the rules for the documentation requirements: No deduction will be allowed for any contribution of $250 or more unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgement of the contribution by the donee organization. Acknowledgement must state the amount contributed, indicate whether the donee organization provided any goods or services in consideration for the contribution and provide a description and good faith estimate of the value for any goods or services provided by the donee organization.
At Fillo Financial, we are happy to welcome Marie Taylor to our team to serve our client needs. Marie previously worked for us eight years ago and has experience in tax preparation, office management and business development and also holds a certificate in customer service.
As we mentioned in our last Newsletter, we have a new website: www.fillofinancial.com. We have just completed coordinating our email with the new website and now each of us has their name as part of their email address. For your convenience I have listed our individual email addresses here: maryellen@fillofinancial.com, brian@fillofinancial.com, joe@fillofinancial.com and marie@fillofinancial.com. We are all looking forward to helping you with your tax needs during the upcoming tax season.
Happy Thanksgiving from all of us at Fillo Financial.
read moreFinancial Documents to Keep on File
There are five kinds of financial documents you should keep in a safe place. We list all them here.
1. Retirement Forms:
- Form 8606 – reports nondeductible contributions to traditional IRA’s
- Form 5498 – Fair Market Value statements
- Form 1099-R – Reports IRA Income Distributions
2. Investment Forms:
- Form 1099-INT – Reports interest income
- Form 1099-DIV – Reports dividend income
- Form 1099-B – Reports proceeds from Broker Exchange Transactions
- Retain any records of your original investment in stocks or funds
3. Mortgage Documents:
Retain any documents pertaining to your mortgage for the period you own the property plus an extra seven years.
4. Insurance Policies:
Retain these for the life of the policy plus an extra three years.
5. Tax Returns:
Retain your tax returns for at least three years and up to seven years if you want to be really safe.
read moreThe Massachusetts Homestead Act
A Declaration of Homestead allows the owner/owners to protect against attachment, seizure, execution on judgment, levy, or sale for the payment of debts up to an amount of $500,000, per residence, per family.
Massachusetts General Law, Chapter 188, Sections 1-10
Under M.G.L. c. 188, §§1-10, the owner/owners of a home, who reside in the home as their principal residence, can obtain homestead protection by filing a Declaration of Homestead, with the registry of deeds in the county in which the property is located.
Homestead protection has long been available on Massachusetts, but the Homestead Act was recently amended. As of March 16, 2011, the homestead law was amended in the following ways:
- (1) Without filing a declaration of homestead an owner receives only an automatic homestead protection of $125,000, which is certainly better than nothing, but not likely to be enough to protect the full value of your home;
- (2) A property that is owned by a trust is now eligible for homestead protection, as a holder of a beneficial interest in a trust is now considered an “owner” under the law. The trustee of the trust should execute a declaration of homestead on behalf of the beneficiary or beneficiaries.
- (3) There are additional protections for spouses that are not listed as owners – for example neither divorce nor remarriage will affect the homestead protection of the spouse who still primarily resides in the home.
- (4) Elderly persons, defined in the statute as people over age 62, and disabled persons, will be personally exempt up to $500,000. If there are two owners over the age of 62 both owners can file homestead declarations and the aggregate coverage will be $1,000,000.
From Strategic Planning Group, Inc. – The Retirement Report
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