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February 2015


by Andrew D. Schwartz, CPA

Ben 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 earned." 

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.

Pre-Tax Opportunities

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:

  • Medical expenses 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.   

  • Childcare 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 Health Savings 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.

  • Business expenses 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 dollars.

Tax-Free Opportunities:

Tax-free opportunities 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.

  • Roth IRAs: 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.

  • Principal 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.

  • Other 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 estate planning attorney about these two items.

Tax-Deferred Opportunities:

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.

  • SEPs, SIMPLEs, 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.

Be A "Learned Blockhead"

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 higher taxes.



We're pleased to share with you with links to the following recorded presentations available on MDTAXES:

NEW IN 2014

Preventing Theft By The Front Desk Staff of a Dental Practice

Every business is at risk of losing money to fraud and theft. This presentation details 8 steps that dental practice owners can take to prevent theft from their front desk staff.



Professional Expenses Commonly Deducted by Doctors to Save Taxes

Physicians, 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.

Retirement Plan Basics for Practice Owners

Wondering which 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 for General Dentists

The ten "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 Practice Revenue and Profits with SIBS (Simple Incentive Bonus System)

Learn to 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.

Recorded Short Presentations on QuantiaMD:

We also have four three-minute multi-media podcasts, including insightful poll questions, available only on QuantiaMD:

And One Modest Attempt at Humor. 

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.

Best Depreciation Joke Ever Written

Suggestions for Future Recorded Presentations???

If you have any suggestions for information you'd like us to include in our 2015 recorded presentations, please e-mail me.



IR-2015-08, Jan. 27, 2015

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 year.

“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 them.

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 their clients.

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
  • 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 others can.
  • 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 account.
  • 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 tax return.
  • 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.
  • Report abusive tax preparers to the IRS. You can report abusive tax return preparers and suspected tax fraud to the IRS. Use Form 14157, Complaint: Tax Return Preparer. If you suspect a return preparer filed or changed the return without your consent, you should also file Form 14157-A, Return Preparer Fraud or Misconduct Affidavit. You can get these forms on

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 task.




Income Taxes

Saving and Investing



  • Get a jump on your tax prep and call one of the MDTAXES CPAs by 2/28/15 to set up an appointment
  • Organize your tax information
  • Try to have holiday credit card balances paid off by 2/28/15


2014 & 2015 TAX FACTS

  • 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 business expenses.
  • For 2014, the personal exemption is $3,950.
  • Individuals will claim a personal deduction for themselves, their spouse, and their dependents. 
  • The maximum earnings subject to social security taxes is $118,500 for 2015, up from $117,000 in 2014.
  • The standard mileage rate is $.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 contributions.


Need Help With Your Nanny Payroll?

This Month's Topics

A Tax Dollar Saved Is A Dollar Earned

Recorded Presentations Available on MDTAXES

Return Preparer Fraud Hits IRS Annual "Dirty Dozen" List Of Tax Scams

The FICA Refund for Medical Residents 

2014 & 2015 Tax Facts

Tax and Financial Planning Calendar for February 2015


Browse our index of previous months' newsletter topics

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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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