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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

November 2015

IRS ANNOUNCES FEW INCREASES TO RETIREMENT SAVINGS LIMITS FOR 2016

by Andrew D. Schwartz, CPA

On October 21st, the IRS announced the cost of living adjustments applicable to the various retirement plan limitations for 2016.  Unfortunately, the bulk of the retirement savings limits will not increase from 2015. 

According to the October 21st announcement made by the IRS on 2016 Pension Plan Limitations, "In general, the pension plan limitations will not change for 2016 because the increase in the cost-of-living index did not meet the statutory thresholds that trigger their adjustment. However, other limitations will change because the increase in the index did meet the statutory thresholds.

No Increases for 2016

Most working professionals have access to a 401(k) plan or a 403(b) plan at work.  Amounts contributed to these plans generally reduce your taxable earnings and always grow tax deferred.  Like 2015, you can contribute up to $18,000 into a 401(k) or 403(b) plan through salary deferrals in 2016.

Anyone 50 or older by December 31, 2016 can contribute an extra $6,000 into their 401(k) or 403(b) plan through salary deferrals next year, for a total annual contribution of $24,000.  That is the same as what was allowed during 2015.

Many smaller employers offer their staff access to SIMPLE/IRAs instead.  SIMPLE's work just like 401(k) plans, which means it's up to you to fund the bulk of this retirement savings account through salary deferrals.  For 2016, the maximum contribution into your SIMPLE remains at $12,500.  Anyone 50 or older by December 31st can sock away an additional $3,000 in 2016, for a total annual contribution of $15,500, unchanged from 2015. 

And if you are self-employed, you can contribute up to 20% of your net self-employment income into a SEP IRA.  The maximum contribution into your SEP IRA for 2016 remains the same at $53,000.

Increase to IRAs

Don't forget about IRA's.  Even if you're covered under a retirement plan at work, you and your spouse can each contribute up to $5,500 into a traditional IRA or Roth IRA next year, as long as your combined wages and net self-employment income exceeds the total amount contributed.  Anyone 50 or older can contribute an extra $1,000, increasing the total allowable contribution to $6,500.  You have until April 15, 2017 to contribute to your IRAs for 2016.

There is a bit of good news for people looking to contribute to a Roth IRA in 2016.  The amount you can earn and still contribute to a Roth did increase by $1,000 for single individuals and joint filers as follows:

  Single Individuals Married Couples
Phase-out begins $117,000 $184,000
Phase-out ends $132,000 $194,000

If your income is too high for a Roth, don't forget that the rules changed a few years ago, eliminating the income limitation as of 2010 for people looking to convert their IRAs to a Roth IRA.  This tax law change provides high-income taxpayers with a great opportunity to get money into these tax-free investment accounts.  Lately, we've written a lot of articles on Roth Conversions, which you can locate on our Newsletter Archive.

And finally, if you're married and your spouse isn't covered under either an employer sponsored or self-employed retirement plan during the year, the phase-out range for your spouse making a deductible IRA contribution has increased to $184,000 - $194,000 for 2016, which is identical to the Roth IRA phase-out limits.

Re-Set Your 2016 Budget

Most people won't be able to max out these tax-advantaged retirement options unless they get on a budget and put away a set amount of money each month.  With 2015 winding down, now's the time to start thinking about resetting your monthly retirement savings goals for 2016.

2016 Maximum Retirement Account Contributions


Retirement Savings Option
 
Under the age
 of 50
50 or older by December 31st

401(k) or 403(b)
 
$18,000
($1,500/month)
$24,000
 ($2,000/month)

SIMPLE IRA
 
$12,500
($1,041.67/month)
$15,500
 ($1,291.67/month)

SEP IRA
 
$53,000
($4,416.67/month)
$53,000
($4,416.67/month)

Solo 401(k)
 
$53,000
($4,416.67/month)
$59,000 or
($4,916.67/month)

IRA or Roth IRA
 
$5,500
($458.33/month)
$6,500
($541.66/month)

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ANNUAL DENTAL PRACTICE MANAGEMENT SUMMIT OFFERED BY MDTAXES AND SCHWARTZ & SCHWARTZ

Spend an afternoon with us and Improve your Practice Management Know-How!

In one afternoon, you’ll learn practical steps that you can take immediately to improve your Practice, including:

  • How to run QuickBooks software and interpret reports
  • How to handle your specific employee and HR issues
  • How to negotiate your lease, work with a bank when purchasing a practice or starting up a new practice, and do your due diligence
  • How to get the most out of your Dentrix software

You select the two topics you’d like to attend:

Session 1 (1 pm – 2:45 pm ) offers:

  • Option A – Dentrix training with Tabitha Lugo, Dentrix software trainer for 15+ years
  • Option B – QuickBooks training with Andrew Schwartz, CPA/Schwartz & Schwartz Partner

Session 2 (3 pm – 5 pm) offers:

Friday, November 6, 2015

at Schwartz & Schwartz office
8 Cedar St, Suite 54, Woburn
 
12 pm – 1 pm: Complimentary Lunch and Registration
1 pm – 5 pm: Class sessions 

Register today for our FREE dental client event
~ CE available ~ Lunch included

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NO INCREASE TO SOCIAL SECURITY MAX FOR 2016

by Andrew D. Schwartz, CPA

For just the third time since Congress enacted automatic Cost-of-Living Adjustments (COLA) for Social Security back in 1975, there will be no increase to the Social Security Wage Base. 

"The Social Security Act provides for an automatic increase in Social Security and SSI benefits if there is an increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).  The period of consideration includes the third quarter of the last year a cost-of-living adjustment (COLA) was made to the third quarter of the current year.  As determined by the Bureau of Labor Statistics, there was no increase in the CPI-W from the third quarter of 2014 to the third quarter of 2015.  Therefore, under existing law, there can be no COLA in 2016." explains the Social Security Administration.  For a complete list of the 2016 Social Security changes, check out this Fact Sheet available at www.ssa.gov.

At a rate of 6.2%, the maximum Social Security taxes that your employer will withhold from your salary remains steady at $7,347. 

Higher Medicare Taxes Due To The Affordable Care Act:

As we wrote in our August 2012 Newsletter, on June 28, 2012, the Supreme Court upheld most of the provisions of The Patient Protection and Affordable Care Act, including the increase to the Medicare taxes high-income taxpayers will pay starting in 2013.

Starting in 2013, the employee portion of the Medicare tax jumps from the current rate of 1.45% to 2.35% on earned income in excess of $200k for single individuals and $250k for married couples filing a joint tax return. As of now, the employer will continue to match their employees' Medicare taxes at a rate of 1.45%, which means the total Medicare tax will be 3.8% for high-income taxpayers.

For example, if you're single, and earn $500k from your job, expect to pay $2,700 in additional Medicare taxes (($500k - $200k) * .9%) for 2013 and beyond.

To increase taxes for high-income individuals even more, the Medicare tax will also apply to unearned income for the first time since this tax was enacted. People over the $200k or $250k threshold should expect to pay Medicare taxes at a rate of 3.8% on interest, dividends, capital gains, and net rental income beginning in 2013. You will pay this tax in addition to any federal and state income taxes due on this income.

Calculating the Self-employment Tax:

If you're self-employed and earn more than $400 in net profit from your business, you're subject to social security and Medicare taxes as well. Known as the "self-employment tax", you'll need to complete a Schedule SE to calculate this tax, and then report the amount due on page 2 of your Form 1040.

The self-employment tax is based on a social security tax rate of 12.4% and a Medicare tax rate of 2.9%. These rates are double those paid by employees, since a self-employed person must pay both the employee's portion and the employer's portion of both taxes.  Remember, when you work as an employee, your employer matches the Social Security and Medicare taxes withheld from your pay.

Unlike most other taxes, when dealing with self-employment taxes, the more you earn, the less you pay in taxes.  If you earn income as an employee and as an independent contractor, and your combined income exceeds $118,500 in 2015, make sure to complete Section B of the Schedule SE. Otherwise, your tax calculation will be incorrect and you'll end up overpaying your self-employment taxes.

Do You Work For More Than One Employer in 2015 and Earn More Than $118,500?

For 2015, each of your employers withholds social security taxes from the first $118,500 that you earn from them.  If you work for more than one employer and your total salary from all sources exceeds that threshold, you'll have excess social security taxes withheld. Make sure to claim a credit for these excess taxes on your 1040 as additional federal taxes paid in.

For Example:

Let's say you work for two employers and earn $75,000 from each employer. Employer #1 withholds $4,650 in social security taxes ($75,000 * 6.2%). Employer #2 also withholds $4,650 in social security taxes - for a total of $9,300 in social security taxes withheld during the year. Since the maximum social security taxes that you should pay through payroll withholdings for 2015 is limited to $7,347, the excess of $1,953 counts as additional federal income taxes paid in by you.

A) Social security taxes withheld by Employer #1

$4,650.00

B) Social security taxes withheld by Employer #2

$4,650.00

C) Total social security taxes withheld during the year (A+B)

$9,300.00

D) Social security max for 2014

$7,347.00

E) Excess social security taxes withheld (C-D)

$1,953.00

www.ssa.gov

A great place to find out more about your social security taxes and projected benefits is at the Social Security Administration's website located at www.ssa.gov. 

FYI: The social security wage base has been increased each year except for 2010, 2011 and 2016. The wage base maximum has been increased as follows:

2015 & 2016 wage base max: $118,500
2014 wage base max: $117,000
2013 wage base max: $113,700
2012 wage base max: $110,100
2009, 2010 & 2011 wage base max: $106,800
2008 wage base max: $102,000
2007 wage base max: $97,500
2006 wage base max: $94,200
2005 wage base max: $90,000
2004 wage base max: $87,900
2003 wage base max: $87,000
2002 wage base max: $84,900
2001 wage base max: $80,400
2000 wage base max: $76,200
1999 wage base max: $72,600
1998 wage base max: $68,400
1997 wage base max: $65,400
1996 wage base max: $62,700
1995 wage base max: $61,200
1994 wage base max: $60,600

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TAX AND FINANCIAL PLANNING CALENDAR FOR NOVEMBER 2015

Month

Income Taxes

Saving and Investing

 

 

 

November

  • Need to make applicable elections in connection with employer's flexible spending account
  • Good time to make semi-annual donation of clothing and household items to charitable organizations.  Don't forget to make a list, including each item's condition, since only items "good or better" qualify for deduction. 
  • Contact an MDTAXES CPA to discuss any year end tax planning questions or strategies
  • Determine whether  to convert your IRAs to a Roth IRA prior to 12/31/15.
  • Order your free credit report from here

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2015 & 2016 TAX FACTS

  • For 2015, 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 2015, the personal exemption is $4,000. 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 and 2016, 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 and 2016, 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, 2016 to make your 2015 IRA contributions.

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Need Help With Your Nanny Payroll?
 

This Month's Topics

IRS Announces Few Increases To Retirement Savings Limits For 2016

Annual Dental Practice Management Summit Offered By Mdtaxes And Schwartz & Schwartz

No Increase To Social Security Max For 2016

The FICA Refund for Medical Residents 

2015 & 2016 Tax Facts

Tax and Financial Planning Calendar for November 2015

 

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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