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Monica Rebella, CPA/IAR - President

Rebella Accountancy

 

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Feature Articles

 

- New challenges for 2014 year-end tax planning

- Wolters Kluwer, CCH projects 2015 tax rate brackets and other tax figures adjusted for inflation

- Employers prepare for employer mandate and Code Sec. 6056 reporting

- FAQ: Are employer-provided meals deduction/income?

- How Do I? Compute depreciation conventions at year-end?

- November 2014 tax compliance calendar

 

 

 

 

 

 

 

2014 YEAR END TAX PLANNING, PURCHASES TO CONSIDER, CAPITALIZATION, AFFECTS OF “OBAMACARE”, RETIREMENT PLANNING and more…

 

Winter 2014 - Dear Client and Friend, Now that we are coming up to the close of 2014, I hope that you can focus on some positive aspects of the past year and look forward to a new year and new possibilities!

This issue is about “Planning” for the end of this year and beyond. There have been many changes that you should be aware of. Tips on how tax laws can help you acquire the best plan for both your business’s and personal financial success are included.     

  Let's get started...

 

LATE ADDITION TAX ALERT
Congress Passed Tax Extender Bill


Congress finally passed the tax extender bill which allows businesses to write off up to $500,000 of new equipment, furniture and certain Leasehold Improvements for 2014.

TAX PLANNING FOR THE 2014 YEAR END

 

Ø     Home Office Deductions

1.     S-Corporations must issue you a check as an Office Expense by December 31, 2014 to qualify your home office deductions

2.     The home office space must be used exclusively for business.  Your family cannot access the computer or other equipment for personal use.

3.     The home office must be for the benefit of the employer and must be shown in the minutes if incorporated.

4.     Home office deductions allow mileage for business to start at your driveway when the trip is a business related trip.

Ø     Meal and Entertainment Deductions

1.     Company Holiday Party is not an allowable expense if it is not documented properly.  Write details that include who, when, where, why and how much when you pay the expense.  A receipt or credit card charge will have when and amount.  It’s best to write the other details on the back at the time. 

2.     You can expense Company Team Building events held at a beach house, ski lodge, scuba diving or backyard  BBQ, but just as the previous expense, document everything with who, when, where, why and how much.

Ø      Monitor income

1.     If your income is getting close going over the $200,000/single or $250,000 married you may want to see if you can defer income to 2015 and offset capital gains with capital losses.  There are two additional surtaxes of .09% and 3.8% income exceeding the above amounts.

2.     Accelerate expenses into 2014 to lessen the tax on high income or do the opposite if you expect higher income in 2015.  If you use your credit card for last minute expenses in 2014, you can choose to take the deduction in 2014 or use it for 2015.  You can also do this with planned contributions but be sure it is by the year end. 

3.     You can mail your January, 2015 estimated state or local income tax payment by the end of 2014 and take that additional deduction for this year.  However, if you will be in Alternative Minimum Tax it is not necessary.

4.     Make sure all personal out of pocket cash expenses have been reimbursed from your corporation.  This also applies to home office deduction. 

5.     Consider funding your retirement plan to the maximum if your income is going to exceed the $200,000/$250,000 maximums.  Also, be sure to fund your HSA.

6.     The rate for those with income exceeding $400,000/single and $450,000/married remains at 39.6%, you will need to plan around the reduction of some itemized deductions and personal exemptions. 

7.     If your business owns the office building, keep the rent payments high as this “self-rental”  income is excluded from the 3.8% tax.  But keep in mind; you cannot exceed the Fair Market rental rates. 

8.     If your business is incorporated, you can use extra payroll withholding to make up for any personal tax shortfalls.  This is better than increasing quarterly estimates which have penalties assessed for shortfalls. 

Ø     Capital Gains

1.     You can have 0% capital gain rate for the sale of assets and qualified dividends if your income is less than $73,800/married and $36,900/single.

2.     Consider donating stocks with high value to charity.   The contribution is for the full appreciated value and you may avoid the new Net Investment Medicare Surtax of 3.8%.  Never donate stock that has dropped in value as you will lose a valuable capital loss.  Sell the stock, take the loss and donate the cash from the sale proceeds.

3.     Federal Capital Gain rate is 20% for income thresholds of $400,000/single and $450,000/married instead of 15%..  If your income may be less in 2015, see if you can delay these gains into next year.

Ø     Deductions

1.     Itemized deductions are reduced beginning at $300,000 for 3% of income exceeding $300,000 and 20% reduction at $450,000 and over. 

2.     Medical Expenses must now be over 10% of your income.  If you are over age 65 you can still deduct over 7.5% for this year only.  Try bunching as many medical costs into one year as you can.  Pay the full amount for your child’s braces, schedule elective surgeries, or if you are supporting a dependent by providing more than 50% of their support, you can deduct their medical costs that you pay directly.  This includes long-term care insurance.  This applies even if you cannot claim a personal exemption due to a high income or if the person has income of $3,950 or more. 

3.     No personal exemptions for incomes of $400,000/single or $450,000/married. 

4.     For income exceeding $600,000 - $1,000,000 there is an additional 1% to 5.5% increase with California’s new Proposition 30 tax. 

5.     Final note:  don’t do anything foolish to get a deduction.  a) It’s better to pay tax on gains than to deduct questionable losses.  b) Never pay a dollar for something you don’t need just because it gets you a dollar deduction and c) avoid investments that make no economic sense without the help of some special tax advantage such as variable annuities or whole life insurance.   Remember Congress can change the tax rules mid-game on those.

6.     You cannot take an interest deduction on past-due mortgage interest that is rolled over into a new loan.  Your deduction is limited to the actual interest paid during that calendar year. 

 

Ø      Gifting

1.     To reduce your estate you can gift down to the next generation.  You can give up to $14,000 (or $28,000, if with spouse) per year to as many as you choose without affecting your lifetime estate tax exemption.  For anything over that amount you must file Form 709 Gift Tax Return.  There may not be any gift tax due, but the gift tax return is required.    

2.     You can pay a child’s or grandchild’s tuition or medical costs and not have it count toward the $14,000 limit, but the payments must go directly to the school or medical provider. 

3.     You can also gift your appreciated stock to your child over age 24 for a 0% capital gain rate (assuming their AGI is not over the limit of $36,900/single, $73,800/married).   The “KiddieTax” now taxes investment income for a child under 19 (or 24 if a full-time student) at the parents’ higher rate, therefore it’s not recommended for those ages.

 

BUSINESS EQUIPMENT PURCHASING BY 2014 YEAR END

 

·        Under Section 179 the deduction for purchasing equipment for 2014 is $25,000.  Before making year end purchases, review your past year purchases to be sure you aren’t over the $25,000 limit. 

·        If you are considering the purchase of a heavy SUV, (weight over 6,000 lbs) you can still deduct $25,000 in the first year (must be for 100% business use).  The purchase of vehicles under 6,000 lbs is only allowed the regular depreciation.

 

CAPITALIZATION TAX LAW CHANGES FOR 2014

 

v   Supplies, Repairs and Maintenance

1.     Supplies under $200 per item or which will be consumed in 12 months can be immediately written off as an expense.  If it exceeds $200.00 or will last over one year, the cost must be capitalized and written off over 5-39 years.

2.     Repairs or maintenances costs of $500 or less per item or project and where the repair would be done more frequently than every 10 years, can be expensed immediately.  Items over $500 must be capitalized and written off over 5-39 years. You cannot break up large repair and maintenance projects into smaller, separate invoices to get around the total. 

v    Improvements

1.     These are costs that are paid to improve a piece of property and they must be capitalized and written off over the same depreciable life of the property if:

a)     It is for the betterment of the property, i.e. a material addition to the property or material increase in productivity.

b)    It is a restoration of the property.

c)     It adapts the property to a new or different use (rebuild to like new; not routine maintenance)

 

HOW DOES “OBAMACARE” AFFECT US IN 2014?

 

§       You must have health care coverage by 2014, and report on your tax return (check a box and sign “under penalty of perjury”), or pay the penalty ($95/adult, $47.50/child or 1% of household income, whichever is higher).  This includes your spouse and dependents.  There are, however, 33 exemptions from the penalty. 

§       The plan must be a “qualified” plan, which is, according to the Affordable Care Act the “bronze” level plan or better.

§       If you are a 2% or higher owner of an S-Corporation, you must include the total amount the Corporation pays for the cost of your health insurance on your 2014 W-2, in order to take the Self-Employed Health Insurance deduction.

§       If you purchased insurance on the “Exchange” or “MarketPlace” look for Form 1095-A to prove you have Minimum Essential Coverage in January, 2015. You need to include this in your 2014 personal income tax return.

§       If you are receiving a government credit or subsidy on your premium, you must be sure the advanced credit matches the actual credit based on your actual income for the year.  You may have to repay some back or you may be eligible for additional credits if your income has changed from the estimate. Remember the income is based on household income and may also include your dependent’s income also.

§        Under ACA a “net investment income tax” (NIIT) of 3.8% is imposed on individuals, estates, and trusts. 

§        Individuals with certain income thresholds will have to pay 0.9% Medicare Hospital Insurance tax.

§        Starting 2015, if you are an employer who provides minimum essential health care coverage to others, you are required to report the coverage to the individuals and the IRS. 

§        It has now been determined (by the Department of Labor) to be an “illegal” plan under the Affordable Care Act, if you, as an employer, provide your staff with money to purchase their own or reimburse the employees for that cost.  This money must be reported as wages.

 

TOP RED FLAGS THAT SPUR IRS TO AUDIT RETURNS

 

1.    A Sole Proprietor, non-incorporated business that has no income, just expenses.

2.    Personal Service S-Corporation that has no salary for the officer.

3.    Not fully documented automobile expenses.  Keep a log of total business mileage, stating where, why, what.

4.    Claiming deduction for meal expenses with no documentation.  Again, keep a log of where, why, what.

5.    Claiming tuition as a business expense.  Education expenses must: a) maintain or improve skills required of the individual in their employment or business; b) is a requirement from your employer, law or regulations; c) is a condition to the retention of an established employment relationship.  

6.     If you hire your children to work in your business, be sure that the wage is commensurate with the tasks. Have them keep a log of time and tasks performed. Be sure to pay them by payroll check and have their own bank accounts set up to put their money in.  Do not mingle their money with yours nor count credit card payments toward that amount.  Never pay for “chores”. 

 

Let’s Talk Retirement!

 

§        Maximizing your business retirement plan contributions is the single best tax shelter available.  The long-term advantages overwhelm the costs when the doctor and family members get at least 65% of the annual costs.  If starting a new plan consider getting at least 70% of the contribution or amend a current plan if possible. 

§        Dollar limits on retirement plans will be higher in 2015:

1.      401(k) contribution limit will be $18,000 and for individual born before 1966, $24,000.

2.     SIMPLEs will increase to $12,500 and for those age 50 + in 2015, $15,500.

3.     Roth IRA contributions phase out with AGIs of $183,000-$193,000/married and $116,000-$131,000/singles.

4.     Regular IRA phase-out’s will range from $98,000-$118,000/married and $61,000-$71,000/singles. 

§     The basic Medicare Part B premium will stay at $104.90 a month in 2015. 

§     Those of you 70 ½ and over must take your withdrawals from your traditional IRAs by the end of the year or pay a penalty.  The withdrawals are based on the balances for all IRAs, but the total amount of the minimum withdrawal can be taken from any IRA you wish.  If you are working past 70 ½ and you own 5% or less of the business, you can delay taking payouts from a retirement plan of that business until you retire.

§     If you turned 70 ½ just this year, you can delay the payout for 2014 to April 1, 2015 for this one-time only.  Just remember, you will have to take an additional withdrawal for 2015 during that calendar year and this could put your income into the next tax bracket. 

§     Here are the deadlines for establishing IRAs and retirement plans.

1.      To take 2014 deductions, a regular IRA must be stablished by April 15, 2015.  The payins are due by then also.  Non-deductible contributions are due at the same time to both regular IRAs and Roth IRAs.

Employer plans, such as Keoghs and Profit Sharing, must be in place by Dec. 31, 2014 for the contributions to be taken in 2014.  If you are self-employed and missed that deadline, you can open up a SEP by the due date for filing your 1040, plus any extension of that.  The payin caps for both are at 20% of net self-employment earnings.

           

PLANNING FOR YOUR VISIT TO THE ACCOUNTANT!!

           
  To speed up the process of the dreaded tax appointment here are a few tips.

1. Time to sort. At minimum sort the information into the basic categories. If you have a lot of something, then sort into sub-detail categories. A basic list of the more common items is here for your use.
 
           
  Income
- Wages
- Interest Income (1099 INT)
- Social Security
- Alimony
- Dividends (1099 DIV)
- Investments (1099 B)
- Business income (K-1s)
- Winnings (W-2G, 1099 G)
- Other Income Items
    Income Adjustments
- Student loan interest
- Educator expenses
- IRA contributions
- Tuition & fees deduction
- Moving expenses
- HSA/MSA contributions
- Alimony paid
- Other education expenses
 
           
  Itemized Deductions
- Taxes Paid
- Medical/Dental expenses
- Casualty/Theft losses
- Charitable contributions
- Investor/other expenses
- Unreimbursed employee
expense
- Interest expense
> (mortgage/home equity)
    Credit information
- Child & dependent care expense
- Adoption expenses
- Education expenses
- Other credit related expense
Business/Rental
- Sort income and expenses for each business activity or hobby activity or rental unit.
Miscellaneous – include any items you are not sure about
 
           
  2. Is something missing? Pull out last year’s tax return and create a list of things you needed last year. Use this as checklist against this year’s information. While this process will not identify new items, it will help identify missing items that qualified in prior years.

3. Finalize required documentation. Certain deductions require substantiation and/or logs to qualify your expense. Common areas that require this are: business mileage, charitable mileage, medical mileage, moving mileage, non-cash charitable contributions, and certain business expenses. These logs should be maintained throughout the year, but now is a good time to make sure they are complete and ready to go for tax filing.
 
           

I hope you found this information useful for your tax planning in your practice and/or personal life. I am always available to assist you further in your tax or financial needs. Please feel free to call the office at 714-619-0667 or visit my website at www.rebellacpa.com where you will find additional information and many tools for you to use for your tax needs.

I wish you all a Happy, Healthy, Prosperous New Year. Remember, your success is our business!

Sincerely,

Monica Rebella, CPA


 

   

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As always you can call me at 714-619-0667 if you have any questions about investing, retirement or any other tax & accounting related issues. 

 

Regards, Monica Rebella, CPA/IAR

President, Rebella Accountancy

 
Disclaimer:  The opinions contained herein are not intended to be investment advice or a solicitation to buy or sell any securities. With any investment you should carefully consider the investment objectives, potential risks, management fees, and charges and expenses before investing.  Past performance is not a guarantee of future results. The investment return and principle value of any investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost.

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Monica Rebella, CPA/IAR | President - Rebella Accountancy | Certified Public Accountants
507 E. First Street, Suite A | Tustin, CA 92780 | Phone: 714-619-0667 | Fax: 714-544-0236
Email: mrebella@rebellacpa.com | www.RebellaCPA.com | www.MyDentalCPA.com