Getting ready for a new year

Just prior to enjoying our November 28^th celebrations, final regulations were passed on the new 3.8% healthcare tax which you can view online by Googling ”TD 9644.”  It now appears that all tax regulations are set for us to proceed with our 2014 filing season for 2013 tax returns.  As providers of tax services, we would like to inform you of significant changes in the tax law as well as expiring provisions.

If you are looking to lower your 2013 tax liability, there is still time to act.  There are some year-end tax strategies that may work for you.  As I always remind you at this time of year, the easiest way to reduce your tax – as well as clean your house – is to donate all the clothes that you have not worn in the last year or those household items that you no longer need.  Get signed receipts from the charitable organization.

Based on the myriad of tax law changes affecting us, I have attended numerous education seminars.  In October, I attended the MA Chapter of the National Association of Tax Professionals’ annual event where Kathryn Keene presented on the following topics and the nuances based on the new laws:

1)  The first part of the day focused on foreign asset reporting requirements, foreign tax credits and foreign earned income exclusion.  As our world shrinks into one global community, the IRS is increasing compliance on assets and income for which you have control.

2)  The Affordable Care Act and its application was the second focus of the seminar.  The Act created an additional Medicare tax of .9% on compensation that exceeds $250,000 married filing joint, $125,000 married filing separate and $200,000 for all other filers.

Under the Act, the employer withholds the tax on an employee’s wages if they are greater than $200,000.  Since the employer is not aware of the spousal wages, taxpayers may be subject to the additional Medicare tax when their return is due.  Application of the Act also burdens taxpayers with modified adjusted gross income (which is income prior to deductions and exemptions of the aforementioned floors) with a 3.8% unearned income Medicare tax applied to investment income.  This tax will be applied when your return is prepared or prior to April 15^th.  Also, as part of the Act, the floor to deduct medical expenses has increased from 7.5% to 10% unless you are 65 or older.

Tomorrow I plan to attend a seminar on enhanced 1099 reporting and the following week, I have scheduled a seminar on the DOMA Act as same sex spouses will be filing federal taxes as married couples for the first time.  As well, keep in mind the phase-out of itemized deductions for 2013, higher tax brackets and the expiration of the teacher expense deduction and the energy credit.  You may want to order that new storm door after you read this, but make sure it is energy efficient.  Please schedule an appointment to discuss tax planning issues that could lower your tax.

Happy Holidays from all of us at Fillo Financial

read more

Home Selling Tax Tips

Now that the housing market has improved, many people who were thinking of selling their homes have decided that now is the time to act.  But what are the tax implications?  The IRS has compiled a list of tips for individuals selling their main home in 2013 that you should keep in mind.

1. If you sell your home at a gain, you may be able to exclude part or all of the profit from your income.  This rule generally applies if you’ve owned and used the property as your main home for at least two out of the five years before the date of sale.
2. You normally can exclude up to $250,000 of the gain from your income ($500,000 on a joint return).  This excluded gain is also not subject to the new Net Investment Income Tax, which is effective in 2013.
3. If you can exclude all of the gain, you probably don’t need to report the sale of your home on your tax return.
4. If you can’t exclude all of the gain, or you choose not to exclude it, you’ll need to report the sale of your home on your tax return.  You’ll also have to report the sale if you received a Form 1099-S, Proceeds From Real Estate Transactions.
5. IRS Publication 523 Selling Your Home can be a helpful resource  in figuring the gain on the sale of your home.
6. Generally, you can exclude a gain from the sale of only one main home per two-year period.
7. If you have more than one home, you can exclude a gain only from the sale of your main home.  You must pay tax on the gain from selling any other home.  If you have two homes and live in both of them, your main home is usually the one you live in most of the time.
8.  Special rules may apply when you sell a home for which you received the first-time homebuyer credit.  See Publication 523 for details.
9. You cannot deduct a loss from the sale of your main home.
10. When you sell your home and move, be sure to update your address with the IRS and the U.S. Postal Service. File Form 8822, Change of Address, to notify the IRS.

If you have questions about the tax treatment on selling your home, contact Mary Ellen Fillo at Fillo Financial LLC to set up an appointment to go over your particular situation.

read more

Additional Medicare Tax goes into effect

Starting in 2013, a 0.9% Additional Medicare Tax will apply to individuals’ wages, other compensation, and self-employment income over certain thresholds.  For married persons filing jointly the threshold is $250,000, for married persons filing separately the threshold is $125,000, and for all others the threshold is $200,000. Employers are responsible for withholding the Additional Medicare Tax from wages it pays to individuals in excess of $200,000 in a calendar year, without regard to the individuals’ filing status tax or wages paid by another employer.  An individual may owe more than the amount withheld by the employer, depending on the individual’s filing status, wages, compensation, and self-employment income.  In that case, the individual should make estimated tax payments and/or request additional income tax withholding using Form W-4, Employee’s Withholding Allowance Certificate. To additional information including answers to many of your questions, check out the Basic FAQs and Individual FAQs on the IRS website.

read more

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

 

read more

Tax 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 14^th…

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 more