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File cabinet with Retirement lableYou may be approaching an important deadline if you have retirement accounts and you turned 70½ last year. Generally, you must begin withdrawing money from tax-favored retirement plans in the year you turn 70½. However, you may postpone your first withdrawal until April 1 of the year after you turn 70½. That means you have until April 1, 2015, to complete your required 2014 distribution.

The minimum distribution rules don't apply to your Roth IRA accounts. And if you are still working at age 70½, you are generally not required to withdraw funds from a qualified employer-sponsored plan until April 1 of the calendar year following your actual retirement.

If you postponed your first distribution, you must take two distributions this year – one for 2014 and one for 2015. Your 2014 distribution must be completed by April 1, while your 2015 distribution must be completed by December 31, 2015. After that, you must take a distribution by December 31 each year until your retirement funds are depleted.

Generally, the amount of the RMD for any year is based on your age. You take the balance in all your traditional IRAs as of the last day of the previous year, and divide by a factor representing your life expectancy. The IRS has published a standard life expectancy table to use in the calculation. Special rules might apply if your spouse is more than ten years younger than you are and is the sole beneficiary of your IRA.

Make sure you notify the holder of your retirement account in time to complete your distribution. Follow up to ensure that the transaction will be completed on time. You may withdraw more than the required amount, but if you fail to take at least the minimum distribution on time, you are subject to a 50% penalty tax.

Don't overlook this important distribution deadline. Call our office if you would like assistance in planning your retirement withdrawals.

 

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Social Security TaxableDid you sign up for social security benefits last year? If so, you may have questions about how those payments are taxed on your federal income tax return.

The good news is the formula is the same as prior years. That's also the bad news, because the thresholds for determining taxability are not indexed for inflation, and did not change either. Those thresholds, or "base amounts," remain at $32,000 when you're married and file a joint return, and $25,000 when you're single.

How much of your social security benefit is taxable? To determine the answer, calculate your "provisional income." That's your adjusted gross income plus tax-exempt interest, certain other exclusions, and one-half of the social security benefits you received.

When you're married filing jointly, your benefits are 50% taxable if your provisional income is between $32,000 and $44,000. If your provisional income is more than $44,000, up to 85% of your benefits may be taxable. For singles, the 50% taxability range is $25,000 to $34,000.

In some cases, diversifying the types of other retirement income you receive can reduce the tax burden on your social security benefits. Contact us if you want more information or planning assistance.

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IRS Scams

The FTC's Bureau of Consumer Protection is advising consumers about a tax scam that has resulted in an "explosion of complaints about callers who claim to be IRS agents – but are not." These IRS impersonation scams count on people's lack of knowledge about how the IRS contacts taxpayers. The IRS never calls a taxpayer about unpaid taxes or penalties; the initial contact is made by a mailed letter. If you get a call purporting to be from the IRS telling you to send money for unpaid taxes, hang up and report the scam to the FTC and the Treasury Inspector General for Tax Administration at www.tigta.gov.

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Last year the IRS finalized regulations that are commonly referred to as the “repair regulations” (Treasury Decision 9636). Broadly speaking, these regulations provide comprehensive standards for determining whether a particular expenditure may be deducted on your tax return as a repair expense or must be capitalized and depreciated.

The IRS requires taxpayers to “adopt” the final regulations, effective for their 2014 tax year. Unfortunately, the adoption of the final regulations required virtually every business taxpayer that owns tangible property to file a Form 3115. This complex 8-page form is used to change a taxpayer’s accounting methods.

In order to file the Form and adopt the repair regulations it is necessary to review all of a taxpayer’s expenditures in tax years that began before 2014 and determine whether those expenditures were properly accounted for as repairs or capital expenditures on earlier tax returns by applying the principles of the repair regulations. As you might imagine, a complete review of this type is potentially a lengthy and expensive process.

The IRS received much criticism for requiring all taxpayers to undergo this type of comprehensive review in order to adopt the regulations. Gratefully, the agency recently responded with some significant relief for “small business taxpayers” (Revenue Procedure 2015-20). This relief allows a small business taxpayer to adopt all or most parts of the repair regulations without filing a Form 3115.

You are a small business taxpayer if your trade or business either has less than $10 million in assets on the first day of the 2014 tax year or the business has average annual gross receipts of less than $10 million over the three preceding tax years. If either test is satisfied, you may choose to adopt the repair regulations without filing the Form 3115.

If you are a qualifying taxpayer you may not necessarily want to exercise the option not to file Form 3115. First, if you take advantage of the filing relief you may not make a “late partial disposition election.” This election is a one-time opportunity available only in 2014 to treat prior-year retirements of structural components of buildings (such as a replaced roof) as a disposition that generates a retirement loss deduction. If you previously retired a structural component, you are likely still depreciating the cost allocable to the component. The partial disposition election allows you to claim a loss for the remaining undepreciated cost in 2014.

Secondly, if you choose to adopt the repair regulations without filing Form 3115, no deduction may be claimed in 2014 for amounts that you capitalized prior to 2014 but which are deductible under the final repair regulations. You must continue to capitalize and depreciate those amounts.

It should also be pointed that if you are selected for audit in some future year, the IRS has the authority to change the treatment of your prior expenditures to follow the treatment required by the final repair regulations even though you chose the relief.

The decision to opt out of filing Form 3115 needs to be made on a case-by-case basis by weighing the cost and inconvenience of the filing requirement against the value of any potential benefits.

If you do not qualify for filing relief or choose not to exercise it, a review of your prior year expenditures will be necessary to properly comply with the repair regulations. Generally speaking, this review may result in a deduction on your 2014 return if the amounts of prior capitalized expenditures that may be expensed under the repair regulations plus any retirement loss deductions for structural components under the partial disposition election exceed the amount of previously deducted expenditures that should be capitalized under the repair regulations. If the reverse is true, then the difference must be included in income over a four-year period. 

Our firm stands ready and able to help you comply with the repair regulations on your 2014 return. Please contact us so that we can help you address these rules.

 

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Divorce Tax Alternative
Are you a parent who is (or was) involved in a separation or divorce? If so, you’re aware that many important issues can be overshadowed by emotional concerns during this often contentious process. We would like to offer our family tax expertise to help you maximize the benefits of various child-related tax alternatives. In some instances, the value of these benefits can be quantified in order to offer them as a concession in your divorce or separation agreement. Even if your divorce is finalized, there may be issues that were not adequately addressed during your financial negotiations that can be revisited.

Raising children with an ex-spouse or partner can be very complicated. There are many interrelated tax issues that should be considered, such as:

·    Who gets to claim the dependency exemption for the children?

·    How does the tie-breaking rule work?

·    How does a multiple support agreement affect the dependency exemption?

·    How does a taxpayer qualify for head-of-household filing status?

·    When are children treated as a dependent of both parents?

·    How does a taxpayer qualify for the various child-related tax credits?

·    When can tax-favored education incentives be utilized by divorced or separated parents for their children?

·    How is the “kiddie tax” calculated for children of unmarried parents?

·    How do the tax consequences of child support differ from alimony or maintenance payments?

Taking advantage of the child-related tax benefits available to you can lower your taxable income significantly. By gathering and analyzing pertinent data, we can provide a tax plan tailored to your unique circumstances. Please call our office at your earliest convenience to arrange an appointment.

 

 

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Gunnip & Company LLP is pleased to announce that it has successfully completed a peer review of its accounting and auditing practice.  After a thorough study of its policies and procedures, the reviewer concluded Gunnip & Company complies with the stringent quality control standards established by the American Institute of Certified Public Accountants (AICPA). The firm received the highest possible rating which exemplifies its commitment to provide the highest standard of excellence in the quality of their work.

Robert D. Mosch, Jr. CPA, Partner, who heads quality control at Gunnip & Company, says “We are proud to once again successfully complete our peer review, especially given the increasing scrutiny of the accounting sector.”

Peer review is a periodic outside review, performed by another accounting firm, of a firm's quality control system in accounting and auditing.  The rigorous review is based on a series of standards for quality control set by the AICPA, the national professional organization of CPAs. 

Gunnip is committed to periodic peer reviews to enhance the quality of its accounting and auditing services.  To see the latest peer review report, please click here.

 

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The IRS announces that, as part of its efforts to curb fraud and identity theft, it will no longer directly deposit more than three electronic refunds to a single financial account or prepaid debit card. Taxpayers who exceed the limit will receive an IRS notice and a paper refund.

The IRS also warns that direct deposit must be made only to accounts bearing the taxpayer's name.

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The Tax Increase Prevention Act of 2014 (2014 Tax Prevention Act) provides a one-year extension of the exclusion from income for the forgiveness of debt on a principal residence. The exclusion now applies to discharges of qualified principal residence indebtedness occurring on or after January 1, 2007, and before January 1, 2015. During the exclusion period, taxpayers who are caught in a mortgage crisis do not have to pay taxes for debt forgiveness on their troubled home loans.

Debt forgiveness relief was originally granted to taxpayers through the Mortgage Forgiveness Debt Relief Act of 2007, effective for debts discharged after January 1, 2007 and before January 1, 2010. The 2008 Stabilization Act extended this relief to debts discharged before January 1, 2013. The 2012 Tax Relief Act extended this relief again to debts discharged before January 1, 2014.

In general, the amount of the forgiveness of debt on a principal residence that is included in income is equal to the difference between the amount of the debt being cancelled and the amount used to satisfy the debt. The tax on this income creates an additional burden to taxpayers already struggling financially. The 2014 Tax Prevention Act provides relief from this burden so that taxpayers can recover faster. These rules generally apply to foreclosure or the exchange of an old obligation for a new obligation.

If you have any questions regarding this provision or if you have concerns regarding a home foreclosure, we can answer any questions and discuss your options in greater detail. Please call our office at your earliest convenience to arrange an appointment. 

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In its final session of the year, Congress extended a long list of tax breaks that had expired, retroactive to the beginning of 2014. But the reprieve is only temporary. The extensions granted in the Tax Increase Prevention Act of 2014 remain in effect through December 31, 2014. For these tax breaks to survive beyond that point, they must be renewed by Congress in 2015.

Although certain extended tax breaks are industry-specific, others will appeal to a wide cross-section of individuals and businesses. Here are some of the most popular items.

* The new law retains an optional deduction for state and local sales taxes in lieu of deducting state and local income taxes. This is especially beneficial for residents of states with no income tax.

*  The maximum $500,000 Section 179 deduction for qualified business property, which had dropped to $25,000, is reinstated for 2014. The deduction is phased out above a $2 million threshold.

*  A 50% bonus depreciation for qualified business property is revived. The deduction may be claimed in conjunction with Section 179.

*  Parents may be able to claim a tuition-and-fees deduction for qualified expenses. The amount of the deduction is linked to adjusted gross income.

*  An individual age 70½ and over could transfer up to $100,000 tax-free from an IRA to a charity in 2014. The transfer counts as a required minimum distribution (RMD).

*  Homeowners can exclude tax on mortgage debt cancellation or forgiveness of up to $2 million. This tax break is only available for a principal residence.

*  The new law preserves bigger tax benefits for mass transit passes. Employees may receive up to $250 per month tax-free as opposed to only $130 per month.

*  A taxpayer is generally entitled to credit of 10% of the cost of energy-saving improvements installed in the home, subject to a $500 lifetime limit.

*  Educators can deduct up to $250 of their out-of-pocket expenses. This deduction is claimed "above the line" so it is available to nonitemizers.

The remaining extenders range from enhanced deductions for donating land for conservation purposes to business tax credits for research expenses and hiring veterans.

Finally, the new law authorizes tax-free accounts for disabled individuals who use the money for qualified expenses like housing and transportation. Another provision in the law provides greater investment flexibility for Section 529 accounts used to pay for college.

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Form 1099s must be filed by businesses each year. This year the deadline for filing falls on February 2, though electronic filers have until March 31 to file. The most common form for businesses is probably Form 1099-MISC, used to report miscellaneous payments to nonemployees. This includes fees for services paid to independent contractors, such as consultants, lawyers, cleaning services, and others. Generally, you don't report fees paid to corporations, but there are exceptions (payments to lawyers, for example).

For details or filing assistance, contact our office.

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