Sullivan & Company - Certified Public Accountants 4709 Montgomery Lane #201 - Bethesda, MD, 20814 Phone: 301-657-8080

       

 

Financial Services by Sullivan & Company

Kathy Grow EA/IAR

Financial services are now offered at Sullivan & Co., CPAs.  The story WHY:

 

You may wonder why your accounting firm wants you to invest with them. Years ago, CPAs were not allowed to venture into the investment world, but it always bothered us to see how poorly our clients were treated at their broker. It is not that the broker was not nice or attentive; it was the quality of the investments and, oftentimes, the lack of understanding for how the investments were going to affect the client in the future.

 

The amount of commissions and fees were oftentimes much larger than the client realized. Principles taught in universities were ignored by greedy advisors. Some forward thinking CPAs worked hard to get the accounting industry to see that we could, at the least, counsel our clients so that their investing experience was successful.

 

Our function is to work with you in all areas of your financial life. We prepare your tax returns and financial statements, of course, but there's a lot more decisions you make that we should be involved in. These include: succession planning for business owners such as HOW TO:

1) Sell your business

2) Retire comfortably

3) Handle your finances now that you are divorced or widowed

4) Provide for loved ones if you die

5) Pay for the education of your children

6) Determine if a trust is right for you

7) Minimize estate taxes

 

Worse than hearing that the IRS is going to audit is the call from a client who has plunged into an investment, whether stocks, bonds or another home without consulting us first.

 

Sometimes these decisions have unfortunate results and are difficult or impossible to undo. So, in response to this need, your CPA firm has well trained accountants and financial services professionals to help you navigate the financial world..

For a free review of your investments, give me a call at 301 657-8080 X 135.

 


 

 

Paul Sullivan, CPA

Sullivan & Company

 

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This Month's Feature Articles

- Tax Changes for 2013: A Checklist
- The Fiscal Cliff: What It Means for You
- 1099 Forms: 5 Key Reporting Changes for Businesses
- How to Get Paid on Time

Tax Tips

- IRS Announces 2013 Standard Mileage Rates
- Retirement Accounts Distributions for Sandy Victims
- Don't Fall for Phony IRS Websites



 

   If you missed it listen to our 4th Quarter Tax Change Update Video - Click Here 

 

Tax Changes For 2013: A Checklist

 

Welcome 2013! As the new year rolls around, it's always a sure bet that there will be changes to the current tax law and 2013 is no different. From health savings accounts to retirement contributions here's a checklist of tax changes to help you plan the year ahead.

 

Individuals

 

For 2013, the big news is the signing of the American Taxpayer Relief Act of 2012 (ATRA), which modified, made permanent or extended a number of tax provisions that expired in 2012 and 2011, for both individuals and businesses. Standard mileage, health savings account contribution limits, and foreign earned income exclusion, as well as most retirement contribution limits have been adjusted upward to reflect inflation as well.

 

Alternative Minimum Tax (AMT)
Exemption amounts for the AMT are now permanent and indexed for inflation and allow the use of nonrefundable personal credits against the AMT. Retroactive to January 1, 2012, exemption amounts are $50,600 (individuals) and $78,750 (married filing jointly). These amounts are indexed for inflation in 2013.

 

"Kiddie Tax" 
For taxable years beginning in 2013, the amount that can be used to reduce the net unearned income reported on the child's return that is subject to the "kiddie tax," is $1,000 (up from $950 in 2012). The same $1,000 amount is used to determine whether a parent may elect to include a child's gross income in the parent's gross income and to calculate the "kiddie tax". For example, one of the requirements for the parental election is that a child's gross income for 2013 must be more than $1,000 but less than $10,000.

 

For 2013, the net unearned income for a child under the age of 19 (or a full-time student under the age of 24) that is not subject to "kiddie tax" is $2,000.

 

Health Savings Accounts (HSAs) 
Contributions to a Health Savings Account (HSA) are used to pay current or future medical expenses of the account owner, his or her spouse, and any qualified dependent. Medical expenses must not be reimbursable by insurance or other sources and do not qualify for the medical expense deduction on a federal income tax return.

 

A qualified individual must be covered by a High Deductible Health Plan (HDHP) and not be covered by other health insurance with the exception of insurance for accidents, disability, dental care, vision care, or long-term care.

 

For calendar year 2013, a qualifying HDHP must have a deductible of at least $1,250 (up $50 from 2012) for self-only coverage or $2,500 (up $100 from 2012) for family coverage (unchanged from 2011) and must limit annual out-of-pocket expenses of the beneficiary to $6,250 for self-only coverage (up $200 from 2012) and $12,500 for family coverage (up $400 from 2012).

 

Medical Savings Accounts (MSAs) 
There are two types of Medical Savings Accounts (MSAs): the Archer MSA created to help self-employed individuals and employees of certain small employers, and the Medicare Advantage MSA, which is also an Archer MSA, and is designated by Medicare to be used solely to pay the qualified medical expenses of the account holder. To be eligible for a Medicare Advantage MSA, you must be enrolled in Medicare. Both MSAs require that you are enrolled in a high deductible health plan (HDHP).

 

Self-only coverage. 

For taxable years beginning in 2013, the term "high deductible health plan" means, for self-only coverage, a health plan that has an annual deductible that is not less than $2,150 (up $50 from 2012) and not more than $3,200 (up $50 from 2012), and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $4,300 (up $100 from 2012).

 

Family coverage. 

For taxable years beginning in 2013, the term "high deductible health plan" means, for family coverage, a health plan that has an annual deductible that is not less than $4,300 (up $100 from 2012) & not more than $6,450 (up $150 from 2012), & under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $7,850 (up $200 from 12').

 

 

Increased AGI Limit for Deductible Medical Expenses
Starting in 2013, the deduction threshold increases from 7.5% to 10% of adjusted gross income (AGI). However, if either you or your spouse will be age 65 or older as of December 31, 2013, the new 10% of AGI threshold will not take effect until 2017. In other words, the 7.5% threshold continues to apply for tax years 2013 to 2016 for these individuals. In addition, if you or your spouse turns age 65 in 2014, 2015, or 2016, the 7.5% of AGI threshold applies for that year through 2016 as well. Starting in 2017, the 10% of AGI threshold applies to everyone.

 

Eligible Long-Term Care Premiums 
Premiums for long-term care are treated the same as health care premiums and are deductible on your taxes subject to certain limitations. For individuals age 40 or less at the end of 2013, the limitation is $360. Persons over 40 but less than 50 can deduct $680. Those over age 50 but not more than 60 can deduct $1,360, while individuals over age 60 but younger than 70 can deduct $3,640. The maximum deduction $4,550 and applies to anyone over the age of 70.

 

Medicare Taxes 
Starting in 2013, there will be an additional 0.9 percent Medicare tax on wages above $200,000 for individuals ($250,000 married filing jointly). Also starting in 2013, there is a new Medicare tax of 3.8 percent on investment (unearned) income for single taxpayers with modified adjusted gross income (MAGI) over $200,000 ($250,00 joint filers). Investment income includes dividends, interest, rents, royalties, gains from the disposition of property, and certain passive activity income. Estates, trusts and self-employed individuals are all liable for the new tax.

 

Foreign Earned Income Exclusion 
For taxable years beginning in 2012, the foreign earned income exclusion amount is $97,600, up from $95,100 in 2012.

 

Long-Term Capital Gains and Dividends
In 2013 tax rates on capital gains and dividends for taxpayers whose income is at or below $400,000 ($450,000 married filing jointly) remain the same as 2012 rates. As such, for taxpayers in the lower tax brackets (10% and 15%), the rate remains 0%. For taxpayers in the middle tax brackets, the rate is 15%. An individual taxpayer whose income is at or above $400,000 ($450,000 married filing jointly), the rate for both capital gains and dividends is capped at 20% (up from 15% in 2012).

 

Pease and PEP (Personal Exemption Phaseout) 
Pease (limitations on itemized deductions) is permanently extended for taxable years beginning after December 31, 2012 for taxpayers with income at or below $250,000 for single filers) and $300,000 for married filing jointly. The PEP (personal exemption phase-out) limitations was also reinstated, but with higher thresholds of $250,000 for single filers and $300,000 for married taxpayers filing joint tax returns.

 

Estate and Gift Taxes 
For an estate of any decedent during calendar year 2013, the basic exclusion amount is $5,120,000 (indexed for inflation--same as 2012). The maximum tax rate rises to 40% (up from 35% in 2012). The annual exclusion for gifts increases to $14,000 (up from $13,000 in 2012).

 

Individuals - Tax Credits

 

Adoption Credit 
In 2013, a non-refundable (only those individuals with tax liability will benefit) credit of up to $10,000 is available for qualified adoption expenses for each eligible child.

 

Earned Income Tax Credit 
For tax year 2013, the maximum earned income tax credit (EITC) for low and moderate income workers and working families rises to $5,981, up from $5,891 in 2012. The credit varies by family size, filing status and other factors, with the maximum credit going to joint filers with three or more qualifying children.

 

Child Tax Credit 
For tax year 2013, the child tax credit is $1,000 per child.

 

Child and Dependent Care Credit
The child and dependent care tax credit was permanently extended for taxable years beginning in 2013. If you pay someone to take care of your dependent (defined as being under the age of 13 at the end of the tax year or incapable of self-care) in order to work or look for work, you may qualify for a credit of up to $1,050 or 35 percent of $3,000 of eligible expenses. For two or more qualifying dependents, you can claim up to 35 percent of $6,000 (or $2,100) of eligible expenses. For higher income earners the credit percentage is reduced, but not below 20 percent, regardless of the amount of adjusted gross income.

 

Individuals - Education

 

American Opportunity Tax Credit and Lifetime Learning Credits 
The American Opportunity Tax Credit (formerly Hope Scholarship Credit) is extended to the end of 2017. The maximum credit is $2,500 per student. The Lifetime Learning Credit remains at $2,000.

 

Interest on Educational Loans 
Starting in 2013, the $2,500 maximum deduction for interest paid on student loans is repealed and no longer limited to interest paid during the first 60 months of repayment. The deduction is phased out for higher-income taxpayers.

 

Tuition and Related Expenses Deduction
In 2013, there is once again an above-the-line deduction of up to $4,000 for qualified tuition expenses. This means that qualified tuition payments can directly reduce the amount of taxable income, and you don't have to itemize to claim this deduction. However, this option can't be used with other education tax breaks, such as the American Opportunity Tax Credit, and the amount available is phased out for higher-income taxpayers.

 

Individuals - Retirement

 

Contribution Limits 
The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan is increased from $17,000 to $17,500. Contribution limits for SIMPLE plans increase from $11,500 to $12,000. The maximum compensation used to determine contributions increases to $255,000 (up $5,000 from 2012 levels).

 

Income Phase-out Ranges 
The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by an employer-sponsored retirement plan and have modified adjusted gross income (AGI) between $59,000 and $69,000, up from $58,000 and $68,000 in 2012.

 

For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by an employer-sponsored retirement plan, the phase-out range is $95,000 to $115,000, up from $92,000 to $112,000. For an IRA contributor who is not covered by an employer-sponsored retirement plan and is married to someone who is covered, the deduction is phased out if the couple's modified AGI is between $178,000 and $188,000, up from $173,000 and $183,000.

 

The modified AGI phase-out range for taxpayers making contributions to a Roth IRA is $178,000 to $188,000 for married couples filing jointly, up from $173,000 to $183,000 in 2012. For singles and heads of household, the income phase-out range is $112,000 to $127,000, up from $110,000 to $125,000. For a married individual filing a separate return who is covered by a retirement plan, the phase-out range remains $0 to $10,000.

 

Saver's Credit 
The AGI limit for the saver's credit (also known as the retirement savings contribution credit) for low and moderate income workers is $59,000 for married couples filing jointly, up from $57,500 in 2012; $44,250 for heads of household, up from $43,125; and $29,500 for married individuals filing separately and for singles, up from $28,750.

 

Businesses

 

Standard Mileage Rates 
The rate for business miles driven is 56.5 cents per mile for 2013, up from 55.5 cents per mile in 2012.

 

Section 179 Expensing 
For 2013 the maximum Section 179 expense deduction for equipment purchases increases to $500,000 of the first $2,000,000 of business property placed in service during 2013. The bonus depreciation of 50% is also extended through 2013.

 

Work Opportunity Tax Credit (WOTC) 
The WOTC is extended through 2013 (retroactive to 2012) and includes a one-year extension of the enhanced credit for hiring certain veterans. When a business hires a person from one of several specific economically disadvantaged groups it may claim a Work Opportunity Tax Credit, generally equal to 40 percent of the first $6,000 in wages paid to a new hire.

 

Transportation Fringe Benefits 
If you provide transportation fringe benefits to your employees, for tax years beginning in 2013 (through 2017) the maximum monthly limitation for transportation in a commuter highway vehicle as well as any transit pass is $240. The monthly limitation for qualified parking is also $240.

 

While this checklist outlines important tax changes for 2013, additional changes in tax law are more than likely to arise during the year ahead.

 

Don't hesitate to call us if you want to get an early start on tax planning for 2013. We're here to help!  To talk or ask me questions, call me, Paul Sullivan, at 240-316-3531.
 

 


 

How is Your Retirement Planning Going?
by Kathy Grow, EA/IAR - Sullivan & Co. CPAs


Youíve seen the articles everywhere. The old opportunities for preparing for retirement have seemingly vanished. If you were age 50 in 1960, you could confidently assert:

- We are in our peak earning years.
- The kids are grown and out of the house.
- Weíve made more than our folks did and it shows.
- The equity in our house will provide a good nest egg.
- I have a company pension plan for my retirement.
- I will receive social security.
- Our cost of living will be lower once we retire.

None of these are true for most people age 50 in 2012. So, what have you done to prepare?

 

If youíre an employee, you should be contributing as much as possible to your 401(k). If youíre an employer, you should be sure your firm has a 401(k) and that it is new enough that it allows you to sock away the max each year.

Is that it? Are you done? Can you sleep easy now? NO

There are other strategies and investments to consider so that you are prepared. The most obvious is to consider adding a Roth or Traditional IRA. I have other ideas that wonít fit all, but may fit you. Give me a call at (240) 316-3564 so we can discuss your own situation and see if we canít come up with at least one idea that you can act on today.

If you are the type of person that likes to learn & do research I would also suggest you listen to an audio recording of a recent conference call we did on this subject titled the Top 13 Mistakes Made By Retirement Plan Investors.

There are more than 13 mistakes but these are the top ones people tend to make that can EASILY be avoided with a little time and planning.

Bill Isaacs, CPA our Tax Department Manager was on the call with some other Sullivan & Company staff and we walked through these mistakes in detail.

And as always if you have any questions about accounting or investments and how they effect you or your business, please give me a call at (240) 316-3564. We can help guide you in the right direction.

 

Kathy Grow, EA/IAR

 


 

Remember you can call our offices if you have any questions about these or any other accounting, tax, financial planning or insurance related issues, at 301-657-8080. 

 

Regards, Paul Sullivan, CPA

President, Sullivan & Company

 

 

 

 

Sullivan & Company, CPAs | 4709 Montgomery Lane | Bethesda, MD 20814 www.eSullivan.net | email: pSullivan@eSullivan.net | Like Us on Facebook

Direct: 240-316-3531 | Main no.: 301-657-8080 Ext 102 | Fax: 301-657-9055