Franklin was a man ahead of his time. Even though he died
more than 100 years before the current income tax code was put
into place, one could argue that he gave some pretty good tax
advice when he coined the phrase, "A penny saved is a penny
Any time you take
advantage of a tax savings opportunity, less of your hard-earned money goes to
taxes and, therefore, more ends up in your pocket. This is even more
important now that taxes have increased for high-income individuals in 2013.
So let's follow another
piece of advice from Ben, "An investment in knowledge pays the best interest,"
and review some of the tax breaks available to you these days.
When is $100 worth
$155? If you're in the 28 percent tax bracket, that's the value of paying
for personal expenses with pre-tax dollars. Whenever post-tax dollars are
involved, you need to earn $155 to have $100 left over after paying your federal
income taxes, Social Security taxes, and Medicare taxes. Here are some
pre-tax opportunities that might be available to you:
paid through a Flexible Spending Account: Most employers, as part of
their benefits package, allow their employees to elect to have certain
expenses paid with pre-tax dollars through a "flexible spending account (FSA)",
including as much as $2,500 per year to be used for medical and dental
expenses. Please beware that this benefit comes with a big caveat, you either use it or
lose it. In other words, if you don't spend the money that is set aside, it
won't be refunded to you.
expenses paid through a Flexible Spending Account: If you're
paying child care expenses, and both you and your spouse work, you
can set aside $5,000 per household through your employer's FSA to pay for your dependent's care
expenses. The catch is that you need to report the name, address, and
taxpayer identification number of the care provider on a
Form 2441 your tax return, or
the $5,000 becomes taxable to you again. If you only have one child,
paying for the child's care through the FSA saves you a lot more in taxes
than claiming the $600 dependent care tax credit.
Health Savings Accounts:
With health insurance premiums
on the rise, more people are looking into high-deductible products. Did you know that you can couple a high-deductible
plan with a special type of savings account known as a
Account (HSA)? While either you or your employer contributes pre-tax dollars
into an HSA in your name, money withdrawn from the HSA for health care expenses is
completely tax-free. Plus, any money remaining in your HSA once you
turn 65 is available to help fund your retirement.
paid through employer's "slush fund": If you have the option of
having your employer pay for some of your out-of-pocket expenses in exchange
for a reduced bonus or salary, those expenses are paid with pre-tax
are a relatively recent phenomenon. Prior to some of the tax law changes
during the late 1990's, there were very few tax-free options available to taxpayers.
Even though you don't get a current tax deduction in most cases, the potential for decades of compounded growth coupled by
tax-free withdrawals down the road makes them worth a close look.
For 2015, you can contribute up to $5,500 to a Roth IRA, as long as you have
earned income, and your adjusted gross income doesn't exceed $131,000 if single or $193,000
if married. Anyone 50 or older can contribute an extra
$1,000 annually. Amounts contributed to a Roth grow tax-free as long
as you don't withdraw any of the earnings until you turn 59 1/2, use $10,000
for first-time homebuyer costs, or
meet certain other exceptions.
529 Plans:College savings plans allow you to put away a sizeable amount of money
for a child's education. Currently, you can contribute up to $14,000 per
child per year into a 529 Account. You can even frontload five years worth
of contributions, up to $70,000, all at one time, but then you can't add to
that child's account for the next four years. Amounts withdrawn from your
529 plan are not taxed as long as the money is used to pay for tuition and
other qualified college expenses.
residence: When you sell your principal residence, you aren't
taxed on the first $500,000 of gain if you are married, or the first
$250,000 of gain if you are single, as long as the home was your principal
residence for two out of the previous five tax years. If you sell the house
in connection with a job related move or meet certain other conditions of
hardship, and lived in the house for less than
two years, you can exclude a prorated amount.
Tax-Free Opportunities: Gifts received from parents and relatives are
generally not taxable to you. Instead, the donor might be subject to a
"gift tax" if the value of the gift to another person exceeds $14,000.
Life insurance proceeds aren't subject to income taxes either.
Depending on who owned the policy, however, the proceeds might be subject to
estate (inheritance) taxes. Make sure to talk with an
attorney about these two items.
With a tax-deferred
savings opportunity, you save taxes today, and then generally owe taxes when you
withdraw the money later on. Even so, these opportunities make sense for a
variety of reasons. For starters, a dollar today is more valuable than a dollar
tomorrow due to the time value of money. Plus, the government lets you
invest the taxes you save and keep the compounded earnings on that
money. For both these reasons, tax-deferred savings opportunities make a
lot of sense.
401(k) & 403(b)
plans: These salary deferral retirement savings plans are only available through your
employer's benefit package. Amounts contributed during the year reduce your
taxable earnings and grow tax-deferred. For 2015, the maximum contribution
into either of these plans through salary deferrals is $18,000. Anyone
50 or older by December 31st can contribute an additional $6,000 this year.
If you go with the Roth version of these plans, you forego a tax savings
today in exchange for a promise from the government of tax-free withdrawals
down the road.
and Solo 401(k) Plans: If you have some self-employment earnings,
or own a small business, you're entitled to set up your own retirement plan.
You can contribute up to 20% of your net earnings into a SEP or up to
$12,500 plus 3% of your income into a SIMPLE. If you don't have
access to a 401(k) or 403(b) plan through another employer, you can
contribute $18,000 ($24k if 50 or older) plus 20% of your net earnings
into a Solo 401(k). Amounts contributed to these plans reduce your
taxable income and grow tax-deferred.
Ben Franklin put it
best when he said, "A learned blockhead is a better blockhead than an ignorant
one." And with the complexity of today's tax code, Ben warns us that, "By
failing to prepare, you are preparing to fail" and will end up paying
dentists, psychologists, and other healthcare professionals can often times save
some taxes by deducting their unreimbursed professional expenses. Check out this
presentation to learn about a variety of professional expenses commonly deducted
by doctors in the U.S.
type of retirement plan makes the most sense for your practice? Check out this presentation on the most common retirement plan options available to
practice owners. You'll also learn why it makes sense to set up and begin to max
out your retirement plan savings as soon as possible.
"million dollar metrics" presented in this video will provide general dentists
with valuable insight to help improve their practice management. General
dentists can learn which metrics to generate to gauge how their dental practice
is doing, and then compare those metrics with other general dental practices,
including those practices from the sample that collected one million dollars or
more during 2012.
increase revenues and profits at your practice by implementing a Simple
Incentive Bonus System. For short we call this SIBS. We've seen a lot of clients
implement bonus system similar to the one presented in this video who saw
immediate positive results within their practice.
Presentations on QuantiaMD:
We also have four three-minute multi-media podcasts, including insightful poll questions,
available only on QuantiaMD:
Editor's note: Please don't ask us why. Sometimes there are things in a person's
brain that just need
to come out. Please remember that we are tax accountants first, and I
don't even know where comedian would come on this list.
WASHINGTON — The Internal Revenue Service today warned taxpayers to be on the
lookout for unscrupulous return preparers, one of the most common “Dirty Dozen”
tax scams seen during tax season.
The vast majority of tax professionals provide honest high-quality service. But
there are some dishonest preparers who set up shop each filing season to
perpetrate refund fraud, identity theft and other scams that hurt taxpayers.
That's why unscrupulous preparers who prey on unsuspecting taxpayers with
outlandish promises of overly large refunds make the Dirty Dozen list every
“Filing a tax return can be one of the biggest financial transactions of the
year, so taxpayers should choose their tax return preparers carefully,” said IRS
Commissioner John Koskinen. “Most tax professionals provide top-notch service,
but we see bad actors every year that steal from their clients or compromise
returns in ways that can severely harm taxpayers."
Return preparers are a vital part of the U.S. tax system. About 60 percent of
taxpayers use tax professionals to prepare their returns.
Illegal scams can lead to significant penalties and interest and possible
criminal prosecution. IRS Criminal Investigation works closely with the
Department of Justice (DOJ) to shutdown scams and prosecute the criminals behind
Choosing Return Preparers Carefully
It is important to choose carefully when hiring an individual or firm to prepare
your return. Well-intentioned taxpayers can be misled by preparers who don’t
understand taxes or who mislead people into taking credits or deductions they
aren’t entitled to in order to increase their fee. Every year, these types of
tax preparers face everything from penalties to even jail time for defrauding
Here are a few tips when choosing a tax preparer:
Check to be sure the
preparer has an IRS Preparer Tax Identification Number (PTIN). Anyone with a
valid 2015 PTIN is authorized to prepare federal tax returns. Tax return
preparers, however, have differing levels of skills, education and
expertise. An important difference in the types of practitioners is
“representation rights”. You can learn more about the several different
types of return preparers on IRS.gov/chooseataxpro.
Ask the tax preparer if they have a professional credential (enrolled agent,
certified public accountant, or attorney), belong to a professional
organization or attend continuing education classes. A number of tax law
changes, including the Affordable Care Act provisions, can be complex. A
competent tax professional needs to be up-to-date in these matters. Tax
return preparers aren’t required to have a professional credential, but make
sure you understand the qualifications of the preparer you select.
Check on the service fees upfront. Avoid preparers who base their fee on a
percentage of your refund or those who say they can get larger refunds than
Always make sure any refund due is sent to you or deposited into your bank
account. Taxpayers should not deposit their refund into a preparer’s bank
Make sure your preparer offers IRS e-file and ask that your return be
submitted to the IRS electronically. Any tax professional who gets paid to
prepare and file more than 10 returns generally must file the returns
electronically. It’s the safest and most accurate way to file a return,
whether you do it alone or pay someone to prepare and file for you.
Make sure the preparer will be available. Make sure you’ll be able to
contact the tax preparer after you file your return – even after the April
15 due date. This may be helpful in the event questions come up about your
Provide records and receipts. Good preparers will ask to see your records
and receipts. They’ll ask you questions to determine your total income,
deductions, tax credits and other items. Do not rely on a preparer who is
willing to e-file your return using your last pay stub instead of your Form
W-2. This is against IRS e-file rules.
Never sign a blank return. Don’t use a tax preparer that asks you to sign an
incomplete or blank tax form.
Review your return before signing. Before you sign your tax return, review
it and ask questions if something is not clear. Make sure you’re comfortable
with the accuracy of the return before you sign it.
Ensure the preparer signs and includes their PTIN. Paid preparers must sign
returns and include their PTIN as required by law. The preparer must also
give you a copy of the return.
To find other tips about choosing a preparer, better understand the differences
in credentials and qualifications, and learn how to submit a complaint regarding
a tax return preparer, visit
Remember: Taxpayers are legally responsible for what is on their tax return even
if it is prepared by someone else. Make sure the preparer you hire is up to the
For 2014, the standard deduction for a single individual is $6,200 and
for a married couple is $12,400. 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
For 2014, the personal exemption is $3,950.
Individuals will claim a personal deduction for themselves, their spouse, and
The maximum earnings subject tosocial security taxes is $118,500
for 2015, up from $117,000 in 2014.
The standard mileage rateis $.575 per business mile as of
January 1, 2015, up from $.56 for 2014.
The maximum annual salary deferral into a 401(k) plan or a
403(b) plan is $18,000 in 2015, 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, up from $5,500 last year.
The maximum annual contribution to your IRA is $5,500 for
2014 and 2015. And if you turn 50 by December 31st, you can contribute an extra
$1,000 that year. You have until April 15, 2015 to make your 2014 IRA
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.