June 15, 2015, is the due date for making your second installment of 2015 individual estimated tax. Your check to the United States Treasury should be accompanied by Form 1040-ES. June 15 is also the due date for calendar-year corporations to make their second quarter 2015 estimated tax payment.
If you hold foreign bank or financial accounts and the total value of your account exceeds $10,000 at any time during the calendar year, you may be required to file a Treasury Department report known as the FBAR. It’s easy to overlook this requirement because it’s separate from your federal income tax filing, with a different deadline and strict rules.
FBAR refers to “Form 114, Report of Foreign Bank and Financial Accounts.” Your 2014 Form 114 must be filed electronically with the Treasury Department no later than June 30, 2015. No filing extension is available. Contact us if you need details or filing assistance.
A new simplified Roth IRA is the latest retirement plan. The account is called a myRA (short for “my retirement account”). It’s funded by having your employer make direct paycheck deposits to your retirement account. The contributions to your myRA are invested in government-guaranteed Treasury securities. A myRA isn’t connected to your employer; it belongs entirely to you and can be moved to any new employer that offers direct deposit capability. The annual contribution limits that apply to regular Roth IRAs apply to myRAs. To find out more about myRAs, contact our office.
The IRS reports that its enforcement budget has been cut by $254 million, a 5% reduction from the previous year. As a result, the Agency expects to cut the number of individual and business audits it conducts. In 2014 the IRS audited 0.86% of individual taxpayers and 26% of large corporations. Though audit statistics show a decline in examinations, the IRS contacts many more taxpayers with questions about their returns. Once statistics include these taxpayer contacts, the 2014 return examination rate is closer to 4% or one in every 25 returns filed.
How close to the edge are you when it comes to tax phase-outs? As you begin your midyear tax planning, consider the effects of these benefit-limiting provisions. Knowing how close you are to the “edge” can help preserve tax breaks for 2015.
Many phase-outs are based on modified adjusted gross income, or MAGI. MAGI is the adjusted gross income shown on your tax return as “modified” by adding back certain deductions. The “add-backs” vary with specific phase-outs. That means you might have to choose between conflicting opportunities. For instance, if you have a child in college this semester, the American Opportunity Credit and the Lifetime Learning Credit may be on your mind. Both benefits are education-related, yet the qualifying rules differ – including the MAGI threshold.
Here are some common federal tax benefits with MAGI phase-outs:
● Education credits
The American Opportunity Credit is a partially refundable, dollar-for-dollar reduction of your tax bill, with a maximum of $2,500 per student. This year the credit starts to shrink when your MAGI reaches $160,000 and you’re married filing jointly ($80,000 when you’re single). The credit disappears completely when your MAGI is greater than $180,000 for joint returns ($90,000 if your filing status is single).
For 2015, the Lifetime Learning Credit begins to phase out at $110,000 when you’re married filing a joint return and $55,000 when you’re single. Once your MAGI reaches $130,000 (married) or $65,000 (single), the credit is no longer available.
● Retirement plans
Phase-outs affect retirement planning too. The deduction for contributions to your traditional IRA is limited when you are eligible to participate in your employer’s plan and your MAGI exceeds $98,000 ($61,000 when you’re single).
While Roth IRA contributions are not tax-deductible, the amount you can contribute for 2015 begins to phase out when your MAGI reaches $183,000 and you’re married filing jointly ($116,000 if you’re single).
In addition, the federal “saver’s” credit for contributing to retirement plans phases out when your 2015 MAGI is more than $61,000 and your filing status is married filing jointly ($30,500 for singles).
● Social Security
The phase-out for the exclusion of social security benefits from taxable income is calculated on the amount of your “combined income” (one half of social security benefits plus other income) over the base amount of $32,000 when you’re married filing jointly. The base amount is $25,000 when you’re single.
Phase-outs also reduce personal exemptions, itemized deductions, and the alternative minimum tax exclusion. Contact our office for guidance in managing your income for maximum tax breaks.
If you own or manage your own business, you're probably busy monitoring operations and dealing with everyday problems. But there are a few things that you should make time to do every year. These are important for your long-term business and personal success.
1. Review your business insurance coverage.
Don't just automatically write a check to renew your insurance policies when they come due. Instead, you should sit down with your insurance agent every year. Review your business operations, focusing on any changes. Discuss types of risk that could arise. Ask about new developments in business insurance. Use your agent's expertise to identify risk areas and suggest suitable coverage.
2. Review your business tax strategy.
A month or so after you've filed your tax return, make an appointment with your tax advisor. Go over your return together and identify opportunities for tax savings. Question everything, starting with whether you're using the right form of business entity. Ask about recent changes in the tax code and how they might benefit your business. Make your advisor a "partner" in your business strategy.
3. Update succession planning for your business.
Review your succession planning annually. You should have a specific plan for each key manager position, including yourself. Be prepared for a short-term absence or a permanent vacancy. Your plan might mean promoting from within or recruiting externally. But an up-to-date plan can be invaluable if you have an unexpected vacancy.
4. Review your business banking relationships.
Annually, you should go over your cash balances and banking relationships with your controller or CFO. Then both of you should meet with your banker. Ask about new products or services that could help your company. Address any service concerns or problems you might have had. Look for ways to reduce idle cash, boost interest earned, and improve cash flows.
5. Review and update your personal estate planning.
If you're a business owner, your company is likely to be a significant part of your estate. A good estate plan is essential if you hope to pass a business on to your heirs. But your company, your personal circumstances, and the tax laws are continually changing. You should meet with your estate planner annually to make sure your plans are current.
Let us and your attorney assist you with the reviews and planning necessary to your business's long-term success. Give our office a call.
Getting a letter or notice from the IRS can be upsetting, confusing, and unnecessary. The IRS sends taxpayers notices to request payment for taxes, to notify them of a change to their account, or to request additional information. Attention to the following details will reduce the likelihood that you will become pen pals with the IRS.
Never send a payment to the IRS without designating what it is for. Otherwise the IRS may apply it in any manner they want. Every payment should include your name, your taxpayer identification number (social security number), the type of tax you are paying, and the period the tax payment is for.
Make sure the name and social security number on your tax return agree with the Social Security Administration's records. If you change your surname, notify the Social Security Administration and request a new social security card.
Don't claim a tax exemption for your child unless you are entitled to do so. Special rules apply to divorced parents. If both parents claim the child as a dependent, both returns will be subject to further IRS review.
Respond promptly to any notice you receive from the IRS, even if you think the notice is incorrect. If the IRS doesn't hear from you within the time specified on their notice, you may lose the right to protest any changes made to your return.
Send a change of address form (Form 8822) to the IRS when your address changes. If you fail to provide the IRS with your current mailing address, you may not receive a refund check or a notice if there are problems or adjustments to your return. And even if the IRS can't find you, penalties and interest will continue to accumulate on any tax due.
Send your income tax return and any other correspondence to the IRS by certified mail, return receipt requested. The receipt provides evidence that you filed on time. That proof will be valuable in the event the IRS or Postal Service loses your paperwork and the IRS threatens to assess late-filing and late-payment penalties.
Don't ignore your opportunity to save on taxes just because it's summertime. Here are some summertime tips to keep your tax plans going.
If you are a sole proprietor with children, you might consider putting them on the payroll during the summer months. Wages paid to your children under age 18 are not subject to social security and Medicare taxes. What's more, their earnings are not subject to federal unemployment tax until they turn 21.
If employing your children is not an option, you might still be able to score a deduction by sending them to summer camp. Day camp expenses for kids under 13 can provide a tax credit of up to 35%. Just remember, overnight camps do not qualify, and child-care must be necessary to allow the parents to work.
Summer is also a common time for home selling and moving, so be on the lookout for deductions related to these activities. Carefully file away all home sale or purchase papers for next year's tax filing. If your move is job-related, there is the potential for additional deductions if you meet the 50 miles or more test.
Perhaps your sights are set instead on some leisure travel. Tacking on a few fun days before or after a business trip might be a tax (and cost) efficient way to pay for a vacation – if you follow all the rules. Travel that is primarily for charitable work might also qualify you for a tax deduction.
And finally, no matter what your summer plans are, this is always a good time for a general tax check-up to ensure your withholdings and estimated tax payments are on target. For assistance with any of these issues, contact our office.
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