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NOTICE TO RESIDENTS OF MARYLAND

We are NOT affiliated with the State of Maryland. If you are looking for information about Maryland income taxes, please go to www.marylandtaxes.com.


Useful Links:

FindAGoodCPA.com - Not a healthcare professional?  Find a CPA or EA who understands the tax issues specific to you.

Nanny Taxes - Find out what's involved with complying with the Nanny Tax Rules

IRS Web Site - for tax forms, publications, and general tax information.

Exchange Authority - New England's first authority for IRC 1031 Exchanges

Cost Segregation Studies - Accelerate tax depreciation deductions on new and existing buildings through cost segregation studies

Social Security - find out the latest rules or your projected retirement benefit.

The Company Corporation offers fast, reliable & affordable incorporation and LLC services.


MONTHLY TAX NEWSLETTER

January 2017

IRS ANNOUNCES SLIGHTLY LOWER STANDARD MILEAGE RATES FOR 2017

by Andrew D. Schwartz, CPA

The IRS announced that the standard mileage rate will decrease to 53.5 cents per business mile driven in 2017.  That is a decrease of approximately 1% from the 54 cents allowed in 2016.  According to the IRS, "The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile."

When you use your car for business, driving between job sites is deductible.  So is driving between your home and a temporary job site (where you will work for a year or less), job interviews, and conferences.  Commuting between your home and a regular place of business generally isn't tax deductible.

Standard Mileage Rates Versus Actual Expenses

There are two ways for you to calculate your automobile expenses.  You can either claim $.53.5 per business mile driven in 2017 (decreased from $.54 for 2016), or you can base your deduction on the percentage of miles your car was driven for business purposes multiplied by the actual costs incurred during the year.  Allowable costs include gas, insurance, repairs, parking at home, and either your lease payments, or if you own your car, a factor for depreciation.

Generally, unless you drive your car relatively few miles each year with most of those miles being allowable business miles, you're often times better off over time by basing your deduction on the standard mileage rate.

For Example

Let's say you lease a car for $400 a month that you drive only 3,000 total miles during the year.  And of those miles, 2,000 qualify as deductible business miles.  By calculating your deduction based on the standard mileage rate, you'll end up with a deduction of just $1,070 (2,000 business miles * $.535 per mile).

What would your deduction be based on the actual expenses incurred, assuming you spend $1,200 on insurance, $.10 per mile driven for gas, and $1,200 on parking at home?  Based on $7,500 of total automobile expenses (including the lease payments), multiplied by two-thirds (2,000 business miles divided by 3,000 total miles), your allowable deduction for your automobile expenses jumps to $5,000 - almost five times the $1,070 allowed using the standard mileage rate.

Now let's see what happens if you drive 20,000 total miles during the year.   Assuming your allowable business miles remains at 2,000, you can either claim an automobile deduction of $1,070 based on the standard mileage rate, or $920 based on one-tenth (2,000 business miles divided by 20,000 total miles) of your actual automobile expenses incurred.

Expense 3,000
total miles
driven
20,000
total miles
driven
Lease payments $4,800 $4,800
Insurance $1,200 $1,200
Gas ($.10 per mile driven) $300 $2,000
Parking at home $1,200 $1,200
     
Total costs $7,500 $9,200
     
Business use % on 2,000
     business miles driven
66.67% 10%
     
Allowable deduction for
     auto expenses based
     on actual expenses
$5,000 $920

How to Claim The Deduction

Taxpayers who are compensated as employees generally will claim their deductible automobile expenses as an unreimbursed employee business expense. These type expenses are reported on a Form 2106 and are deducted as a miscellaneous itemized deduction on the Schedule A.  Keep in mind that miscellaneous itemized deductions are only allowable to the extent they exceed 2% of your income, and are not allowable when calculating the Alternative Minimum Tax (AMT).

Those taxpayers compensated as independent contractors will generally claim their allowable automobile expenses directly against their self-employment income. For these taxpayers, automobile expenses should be reported the Schedule C.

Moving, Medical and Charitable Miles

The use of an automobile in connection with a charitable activity is set by statute and is deductible at a rate of 14 cents per mile in 2017 and should be reported with other charitable contributions as an itemized deduction of the Schedule A. 

You'll deduct any mileage driven in connection with a qualified move at a rate of 17 cents per mile in 2017, down from 19 cents per mile in 2016 and 23 cents per mile in 2015, and should report that mileage along with your other allowable expenses on a Form 3903, Moving Expenses.

And don't forget that medical related mileage is also deductible.  For 2017, medical mileage is allowable at 17 cents per mile, and should be reported with all other medical expenses on the Schedule A.

Why lower rates for medical and charitable mileage? According to the IRS, "The rate for medical and moving purposes is based on the variable costs", but omits the fixed costs allowed when calculating the business standard mileage rate.

Additional info and links is available at IR-2016-169, Dec.13, 2016

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WE'RE APPROACHING 30,000 VIEWS AND CLIMBING

We're pleased to announce that our YouTube channel will soon exceed more than 30,000 views.  "I'm not sure what percent of YouTube channels have hit this milestone," says Andrew Schwartz CPA, "but we're definitely very happy that our videos will soon be viewed more than 30,000 times."

Please check out our YouTube channel for a listing of all the videos currently available.   2016 additions include:

Suggestions for Future Recorded Presentations???

If you have any suggestions for information you'd like us to include in our 2016 recorded presentations, please e-mail Andrew Schwartz CPA.  Please note that we plan to add a few more videos to our channel after April 15th.

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RE: 2017

by Andrew D. Schwartz, CPA

Personal financial planning is an ongoing process.  The good news is that financially speaking, 2016 was another really good year. The stock markets are once again at all time highs.  Same can be said for many real estate markets around the country.  And interest rates remain near historic lows.

Hello 2017.  Who knows how financially friendly this year will be - especially with Trump taking over the Presidency later this month. For that reason, here are some prudent steps you can take to keep your personal finances moving on the right track:

  • REset your retirement savings:  Most people find it easier to max out their retirement contributions by budgeting a set amount each month.  Instruct your employer to withhold $1,500 per month for your 401(k) or 403(b) plan to ensure that you hit the max of $18,000 in 2017.  Are you self-employed?  If so, you can sock away up to $54,000 next year into a SEP, Keogh or Solo 401(k), which equals $4,500 per month.  And if you'll be 50 or older by December 31st, the maximum 2017 contribution jumps to $24,000 for 401(k) and 403(b) salary deferrals and $60.000 for Solo 401(k)'s.

  • REfinance your home mortgage:  Back in 2012, my wife and I locked in a fifteen-year fixed-rate mortgage at 2.875% with no points.  While mortgage rates may no longer be quite that low, according to our go to mortgage guru Bob Cahill of Leader Bank, there are still a variety of low-rate mortgage products currently available to people looking to purchase a new home or refinance an existing mortgage.

  • REduce your personal debt: Over time, people and businesses seem to have forgotten that any money borrowed needs to be repaid.  Remember, leverage equals risk.  Make 2017 a year to pay down some of your personal debt.  Perhaps you can delay the purchase of a new car, scale down your awesome vacation, or settle for a 60 inch flat screen TV.  (You should still take a vacation with family and friends though.)

  • REvise your savings and debt reduction goals: Take a few minutes to set new savings goals including how much you’d like to put away towards your retirement, a child’s education, and/or the down payment on a home, and also to reset how much you plan to pay down your student loans, personal debt, and home mortgage. 

  • REbalance your investment portfolio:   Warren Buffet said it best by stating, "A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful."  During 2016, the stock market once again posted substantial gains and the markets are at all time highs.  By rebalancing your portfolio to its original or updated asset allocation, you lock in gains from the sectors that performed the best and move money into sectors that underperformed and soon enough might be poised to catch up.

  • REcalculate how much your retirement savings will be worth when you retire: With the market indexes at all time highs, now's a great time to take a look at how much buying power you can expect to have upon retiring.

  • REvisit your life and disability insurance needs: As you move through your career and your life, your disability insurance needs change. Give some thought to how much of these insurances you need versus how much you currently get through your employer’s benefit package and how much coverage you've already purchased for your personal policies. 

  • REsolve errors on your credit report:  Each year, you’re entitled to three free credit reports, so there’s no excuse to not look at this important financial report annually, especially since errors are not uncommon.  Order your free report at www.annualcreditreport.com.

Questions about financial planning steps you should take for 2017? Please check out our Directory of Financial Advisors to find a professional familiar with the financial planning issues that affect you and your colleagues.

You can also listen to a radio interview I had with Boston radio personality George Knight a few years back on this topic.

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TAX AND FINANCIAL PLANNING CALENDAR FOR JANUARY 2017

Month

Income Taxes

Saving and Investing

 

 

 

January

  • 4th quarter 2016 estimates due 1/15/17
  • Expect to receive W-2s and 1099s by January 31, 2017
  • Review your withholdings for 2017, and, if necessary, file a new W-4 Form with your employer to adjust your withholding
  • Prepare a W-2 for your Nanny by January 31st
  • Establish a savings and debt reduction goals for the year
  • Try to increase your monthly contributions to your 401(k) or 403(b) plans.  The maximum annual contribution for 2017 is $18,000.  Anyone 50 or older can contribute an extra $6,000
  • Automatically transfer $458.33 per month from your checking account into a Roth or Traditional IRA, and $1,166.67 per month into a 529 Account and/or $166.67 per month into an Education Savings Account for each of your children

 TOP


2016 & 2017 TAX FACTS

  • For 2016, the standard deduction for a single individual is $6,300 and for a married couple is $12,600. A person will benefit by itemizing once allowable deductions exceed the applicable standard deduction. Itemized deductions include state and local income taxes (or sales taxes), real estate taxes, mortgage interest, charitable contributions, and unreimbursed employee business expenses.
  • For 2016, the personal exemption is $4,050. Individuals will claim a personal deduction for themselves, their spouse, and their dependents. 
  • The maximum earnings subject to social security taxes is $127,200 for 2017, up from $118,500 for 2015 and 2016.
  • The standard mileage rate is $.535 per business mile as of January 1, 2017, down from $.54 for 2016.
  • The maximum annual salary deferral into a 401(k) plan or a 403(b) plan is $18,000 in 2015, 2016 and 2017, up from $17.5k in 2014.  And if you'll be 50 or older by December 31st, you can contribute an extra $6,000 into your 401(k) or 403(b) account this year.
  • The maximum annual contribution to your IRA is $5,500 for 2014 through 2017.  And if you turn 50 by December 31st, you can contribute an extra $1,000 that year.  You have until April 15, 2017 to make your 2016 IRA contributions.

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This Month's Topics

IRS Announces Slightly Lower Standard Mileage Rates For 2017

We're Approaching 30,000 Views and Climbing

RE: 2017

The FICA Refund for Medical Residents 

2016 & 2017 Tax Facts

Tax and Financial Planning Calendar for January 2017

 

NEWSLETTER ARCHIVES
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WHAT'S NEW WITH THE FICA REFUND?

In a shocking development, the IRS recently announced that they will be honoring the FICA tax refunds submitted by residency programs and individual doctors.  The catch is that only FICA taxes paid prior to 4/1/05 qualify.

For more information, go to our April 2010 Newsletter, our January 2009 Newsletter, or our February 2001 Newsletter or read through the IRS' Chief Counsel Advice Memorandum on this issue.

Let's work together to keep current on this hugely valuable tax break.  Please post whatever you read or hear regarding this FICA issue on our new Message Board we set up just for this topic.

 

 
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