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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

December 2014

TEN TIPS TO CUT YOUR 2014 TAXES

by Andrew D. Schwartz, CPA

It's not too late to cut your 2014 tax bill. Prior to December 31st:

  • Increase your 401(k) and 403(b) contributions if you haven't been contributing at the maximum rate all year.  This year you can put up to $17,500 into your 401(k) or 403(b) plan.  Anyone 50 or older by December 31st can put away an additional $5,500.  Contributing to a 401(k) or 403(b) plan at work is one of the best tax shelters available to you during your working years.  (You might also start thinking about setting your 2015 retirement savings goals too, especially since the limits are increasing for 2015.)

  • If you’re self-employed, consider setting up a Solo 401(k) by 12/31.  A Solo 401(k) plan lets a self-employed person hit the $52k retirement plan max with less income than a SEP IRA, and also allows a person aged 50 or older to put away $57.5k into a retirement plan for 2014.

  • Take a look at your withholdings and instruct your employer to withhold additional taxes if you haven’t had enough taxes withheld during the year to avoid getting hit with an underpayment penalty.  (Take a look at the IRS' Withholding Calculator to set your withholdings for 2015.)

  • Consider selling your investments held in non-retirement accounts that have decreased in value since your capital losses can offset other capital gains realized during the year (including from your mutual funds).  Excess losses can then be used to offset up to $3,000 of wages and other income.  Make sure to wait at least 31 days before buying back a security sold at a loss, or the IRS will disallow the loss under the "wash sale" rules.

  • Consider selling your investments that have increased in value if you are in the lowest tax bracket since the capital gains rate for you will be 0%.  You can then buy back those securities, and the "cost-basis" will be the higher amount.  This strategy will save you taxes down the road when you sell these securities.  Just make sure that the capital gains realized don't push you out of the 15% tax bracket, or you'll be taxed on those gains that fall outside that bracket at 15%.

  • Send in your January 2015 mortgage payment early enough so it will be processed prior to 12/31/14.  By sending in your payment a few weeks early, you can deduct the interest portion of that payment a full year earlier.

  • Clean out your closets and donate your clothing and household items to a charitable organization, since "non-cash" contributions are deductible if you itemize.  Don’t forget to get a receipt.  And you should make a list of each item donated, along with its condition, and snap a few photos as well.  Remember, only donations of clothing and household items in "good condition or better" qualify for a deduction.  (To track what you donate, download our Non-Cash Contribution Worksheet - Excel Version  or the PDF version.)
     

  • For gifts of money, making your donation by credit card before December 31st allows you to deduct the donation on this year's return, even if you don't pay your credit card bill until 2015.  And you always have the option of donating appreciated investments to charities. You get to claim your donation based on the value of the assets donated, without paying any capital gains taxes on the appreciation.  (Use this IRS tool to confirm a charity as legitimate.)

  • Pre-pay your projected state tax shortfall if you'll be itemizing your deductions and not subject to the alternative minimum tax.  Due to the higher tax rates enacted for 2014, there is a better chance that you won't get hit by the AMT this year than prior to 2013.

  • Pre-pay and pay off your medical bills if your total medical expenses exceed 10% of your income and you itemize.  Please note that this threshold remains at 7.5% for people over the age of 65 while the threshold for everyone increased from 7.5% to 10% back in 2013.

And, as always, evaluate whether you'll save any taxes by postponing 2014 income or deductions into 2015 or by accelerating 2015 income or deductions into 2014.

Got questions about year-end tax planning?  If so, please contact the closest MDTAXES CPA.

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401K/403B BASICS

by Susan M. Schwartz, CFP(r)

A 401k or a 403b plan offered by your employer is a great way to save money for retirement.

  • Money contributed to these plans as salary deferrals comes out of your paycheck before your income taxes are calculated.  This lowers your tax bill for the current year.

  • Money in the 401k or 403b account grows tax deferred, so you do not pay taxes on the investment earnings as long as the money remains within the account.

  • When you retire, you can make qualified withdrawals from the money built up in your 401kor 403b plan and pay regular income tax. 

If you redeem the money before reaching age 59.5, you will pay income taxes plus a 10% early withdrawal penalty on distributions taken and not repaid within 60 days.  Exceptions for this penalty (see Form 5329 or the Instructions to Form 5329) include the following:

  • Qualified retirement plan distributions you receive after separation from service in or after the year if 55 or older.

  • Distributions made to an estate or beneficiary after the owner's death.

  • Distributions made because an individual became permanently disabled.

  • Distribution for medical expenses that exceed 10% of the accountholder's adjusted gross income,

  • Distributions made to the IRS to pay a levy on the plan itself.

  • Distributions made as part of a series of substantially equal periodic payments over the life expectancy of the owner and the beneficiary.  If these withdrawals come from a plan other than an IRA (as is the case with a 401(k) plan), then the individual must separate from their employer before payments begin for this exception.

If you leave your employer, you have a few options for your account that will not result in a taxable event or penalty:

  • Leave the account with former employer's plan (subject to minimum balance requirements)

  • Transfer to your new employer’s retirement plan

  • Rollover the account to an IRA

Eligibility requirements vary by employer, so make sure to ask the Human Resource department about the 401k or 403b rules affecting you as soon as possible following the start of your job.  Remember, maxing out your contributions to your 401k or 403b plan at work is one of the best tax shelters available to you during your working years.

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ARE YOU AN EMPLOYEE OR AN INDEPENDENT CONTRACTOR?

by Andrew D. Schwartz, CPA

While this question seems simple enough on the surface, trying to figure out whether you are an employee or an independent contractor isn't always so obvious.  Add to this uncertainty that there are a variety of tax advantages and disadvantages that go along with each option, and you have an issue that the IRS is very concerned about.

Some advantages of being classified as an independent contractor include:

The IRS is well aware that there is a lot of subjectivity in this area of these tax rules. They have tried to standardize how to classify a worker by creating the Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding

The Form SS-8 asks a variety of questions as they relate the these three areas of control:

  • Behavioral Control

  • Financial Control

  • Relationship of the Worker and the Firm

The more answers on this form that show that the employer maintains control, the more likely the IRS would consider you an employee and not an independent contractor.

According to the Form SS-8:

The information provided on Form SS-8 may be disclosed to the firm, worker, or payer named above to assist the IRS in the determination process. For example, if you are a worker, we may disclose the information you provide on Form SS-8 to the firm or payer named above. The information can only be disclosed to assist with the determination process. If you provide incomplete information, we may not be able to process your request. See Privacy Act and Paperwork Reduction Act Notice in the separate instructions for more information. If you do not want this information disclosed to other parties, do not file Form SS-8.

I've only seen the IRS provide a ruling following the submission of the Form SS-8 a few times, and each time they have ruled that the worker was an employee of the organization and not an independent contractor.  This is not surprising since the IRS would prefer that almost everyone be classified as an employee unless it's a situation where a true independent contactor relationship exists between the worker and the organization. Remember, from what the IRS has learned by studying the "Tax Gap", self-employed individuals and small business owners  account for 75% of the projected $400 billion tax receipt shortfall each year.

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TAX AND FINANCIAL PLANNING CALENDAR FOR DECEMBER 2014

Month

Income Taxes

Saving and Investing

 

 

December

  • 4th quarter state estimates should be paid by 12/31 for people who itemize their deductions and won't be hit by the AMT.
  • Keogh plans and Solo 401(k)'s must be established by 12/31
  • 529 Plans must be funded by 12/31 to take full advantage of this year's gift limit of $14,000. 
  • Last chance to maximize annual contributions to your 401(k) or 403(b) plan of up to $17,500, ($23,000 if 50 or older).

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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 $117,000 for 2014, increasing to $118,500 in 2015.
  • The standard mileage rate is $.56 per business mile as of January 1, 2014, down from $.565 for 2013.
  • The maximum annual salary deferral into a 401(k) plan or a 403(b) plan is $17,500 in 2014, increasing to $18,000 n 2015.  And if you'll be 50 or older by December 31st, you can contribute an extra $5,500 into your 401(k) or 403(b) account this year and $6,000 next year.
  • The maximum annual contribution to your IRA is $5,500 for 2014.  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

Ten Tips to Cut Your 2014  Taxes

401k/403b Basics

Are You An Employee or an Independent Contractor?

The FICA Refund for Medical Residents 

2014 & 2015 Tax Facts

Tax and Financial Planning Calendar for December 2014

 

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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