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August 2015


by Andrew D. Schwartz, CPA

Tax planning is a year round process.  One important step of the process is to work through an income tax projection each summer.  That's the only way to ensure that you won't be surprised with either a huge tax refund or balance due next April. 

Annual Reconciliation

A big flaw in the tax system is the annual reconciliation called the Form 1040 that every taxpayer completes and submits to the IRS each winter.  The first step is to complete the required tax forms, taking advantage of all the tax breaks available to minimize your income tax liability for the year.  In step two, you tally all the taxes you paid in during the year through withholdings and estimated tax payments.

Step three is where things really get exciting.  Now is the time to compare your tax liability with the taxes you paid in during the year.  If the taxes paid in exceed your tax liability, you'll be getting a refund from the IRS.  Otherwise, expect to write a check on April 15th. 

While the small percentage of taxpayers who actually plan ahead and work through a tax projection during the year are generally not surprised by the amount of taxes they owe or will have refunded, it's fair to say that most everyone else compares step three with rolling the dice at a casino.

The Misleading W-4 Form

A leading culprit of this uncertainty is the benign looking W-4 form.  On the surface, the form seems easy enough to complete.  Simply fill in your name, marital status, how many allowances you're claiming, and whether you want any additional taxes withheld from your pay.

Like the W-4 form, the rules governing the withholding tables are simple enough to understand as well.  Less taxes are withheld for people claiming to be married than those who claim single. Plus, less taxes are withheld with each additional allowance that is claimed.

So what causes the W-4 form to backfire so often?  There are two major underlying problems:

  • Each employer withholds taxes as if they're your only employer
  • If you tell your employer that you're married, the withholding tables assume that your spouse doesn't work.

If you work for more than one employer, or if both you and your spouse work, you need to be very careful when you complete the W-4 Form.  It's not uncommon for an individual with multiple employers, or a married couple comprised of two working spouses, to owe thousands of dollars in taxes because not enough taxes were withheld throughout the year due to how the W-4 was completed.

The IRS is aware of how misleading the results can be based on how you complete the W-4 form , so has developed an Online Withholding Calculator to use when filling out that form.

Self-employed Individuals

Tax planning for salaried individuals tends to be pretty straightforward.  For the majority of people on salary, their income doesn't generally fluctuate much from year to year.  And if there is a big fluctuation, their withholdings are automatically adjusted accordingly.

Self-employed individuals don't have that luxury.  Usually, their income changes significantly from year to year.  Plus, chances are good that the person is remitting their taxes through quarterly estimates based on their prior year's tax return.  The combination of these two factors results in the potential for big surprises for self-employed individuals each winter.

Do The Math

Some surprises are great, such as surprise birthday parties or perhaps receiving a sizeable gift or inheritance from a long, lost relative you never met.  When it comes to taxes, surprises generally aren't so great.

If you work with a CPA or plan to start working with one for the first time, now's the time to touch base with your tax preparer and spend a few minutes working through a tax projection. 

For do-it-yourselfers, you have a few options.  Either re-enter this year's projected information into your 2014 tax program and see how it comes out. For the most part, the tax rules didn't change substantially since last year, so this will give you a good idea as to where you stand with your taxes for 2015.

Another suggestion is to print out a copy of your 2014 tax return, and pencil in this year's numbers in the margin of each form.  Even though this method is less precise, you should still be able to get a sense of this year's projected tax liability.

However you decide to work through the math, taking a little time now will not only help you avoid any surprises next winter, but will also give you the remaining five months of 2015 to adjust your withholdings and quarterly estimates based on your tax projection.

Call In the Pros

Need help with your 2015 income tax projection?  Find the closest MDTAXES CPA at



Completing a W-9 form for your LLC can be a little tricky.  That’s because LLCs were set up to be very flexible entities.

For starters, LLCs can elect to be treated as a Corporation by “checking a box” on a Form 8832  Or, an LLC can elect to be treated as an S-Corporation simply by filing a Form 2553 with the IRS.

For LLCs electing to be treated as a corporation:

Put the name of the LLC on line 1, the business name if different on line 2, check the box next to where it says Limited Liability Company, and then write is a C for a C-Corporation or an S for an S-Corporation, at the end of the row.  You will also enter the address as requested and the EIN in the middle of the form.

For LLCs with more than one owner that have not elected to be treated as a corporation:

If there is more than one owner, the LLC will be treated as a partnership.  Put the name of the LLC on line 1, the business name if different on line 2, and check the box next to where it says Limited Liability Company, and write in the letter P at the end of the row . You need to also enter the address as requested, and the Employer Identification Number in the middle of the form.  

For LLCs with one owner that have not elected to be treated as a corporation:

These LLCs are treated as “Disregarded Entities” for tax purposes, and are essentially sole proprietors.  For these LLCs, put the owner’s name on line 1, the name of the LLC and/or the business name if different on line 2, the address where requested, and then put either your social security number or EIN obtained for the LLC in the middle of the form. You should also not check the Limited Liability Company” box; and instead, check the first box in line 3 “Individual/sole proprietor or single-member LLC".

Please watch our 2-minute recorded presentation on this topic available at:



by Andrew D. Schwartz, CPA

Ever wonder how much money you need to retire?  Experts suggest that for each $1k of money to spend each month during retirement, you need to have $150k in financial assets. So to generate $10k per month (or $120k per year), you’ll need $1.5 million saved up. That’s a lot of money.

How can you ever manage to save that much money? Contributing to a 401(k), 403(b), or 457 plan at work is one of the best tax shelters available to people during their working years.  Amounts contributed generally reduce your taxable salary and grow tax-deferred. For 2015. you can make salary deferrals of $18k into your employer’s plan.  Anyone 50 of older can contribute $24k.

If you are fortunate to work at a business that matches your salary deferrals, Rule #1 is very obvious.  Put away enough to max out employer contributions.  Otherwise, you are leaving a portion of your compensation package on the table.

What if your employer does NOT make any matching contributions?  In this case, the advice I routinely give is quite simple: No Match Does Not Mean No Good.

Here’s why.  Let’s assume you’re in the 25% federal tax bracket and the 5% state tax bracket.  Every dollar you contribute in salary deferrals saves you 30 cents in taxes.  It only costs you $700 in after-tax dollars, therefore, for every $1,000 you contribute to the plan.  You’ve already earned a 43% return on your money. ($300 / $700 = 43%)

Yes, you’ll owe taxes on the money in your 401k, 403b, or 457 plan when you retire.  But as long as the money stays invested, the government lets you keep the compounded earnings on the taxes you didn’t pay. 

Let’s look at an example of $100k invested earning an 8% return over 25 years: This money would grow to $685k within your retirement account versus only to $370k in a taxable account assuming all the earnings were taxed each year. That’s the power of tax deferred growth!

Please watch our 2-minute recorded presentation on this topic available at:




Income Taxes

Saving and Investing





  • Returns on extension are no longer due 8/15.  For 2015, you have until 10/15 to file returns that have been put on extension.


  • Consider rolling your old retirement accounts  held at a previous employer into your current employer's 401(k) or 403(b) plan to consolidate your finances
  • If your income will be too high for 2015 to contribute to a Roth IRA this year, consider making a non-deductible contribution to an IRA to convert to a Roth before December 31st.


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.


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This Month's Topics

Avoid Surprises Next Winter With A Mid-Year Tax Projection

W-9 Basics: How To Complete A W-9 Form For Your LLC

401k & 403b Basics: No Match Doesn't Mean No Good

The FICA Refund for Medical Residents 

2014 & 2015 Tax Facts

Tax and Financial Planning Calendar for August 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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