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Tax Tip of the Week | No. 238 | New Laws Affecting Your 2013 Tax Return – Part 2 February 26, 2014

Posted by bradstreetblogger in : tax changes, Tax Preparation, Tax Tip, Taxes, Taxes , add a comment

Tax Tip of the Week | February 26, 2014 | No. 238 | New Laws Affecting Your 2013 Tax Return – Part 2

Some tips are worth repeating…a reminder each year:

Last week we looked at the new 3.8% Medicare Surtax that was ushered in as a result of the ObamaCare tax package that was passed in 2010.

This week we discuss two other new tax laws for 2013.

The first is the new “Additional Medicare Tax”.  This new tax is a lot easier to understand than the 3.8% Medicare Surtax we looked at last week.  An additional 0.9% tax will be assessed to every individual with wage or self-employment income that exceeds $200,000.  The threshold for married couples is $250,000.

The employer is required to withhold the additional Medicare tax if an individual is paid more than $200,000.  The employer will be liable for any penalties assessed if they under withhold but the taxpayer is still responsible for the additional tax.

If you are married and each spouse makes less than $200,000, but collectively exceeds $250,000 then you will be paying this extra 0.9% tax with your 2013 tax return.

Self-employed individuals who exceed the threshold amounts should increase their estimated tax payments.

Single taxpayers with multiple W-2s or additional self-employment income that aggregately exceeds the $200,000 threshold should make estimated payments or increase withholdings.

The third change in 2013 is not a new tax.  Rather, it is an increase in the floor to deduct medical expenses on Schedule A (Itemized Deductions). Previously, you had to exceed 7.5% of your AGI in order to deduct medical expenses.  Starting in 2013, you must exceed 10% of your AGI before taking the deduction.  Note, however, the floor remains at 7.5% for individuals over age 65 until 2016.

Keep reading…we will have more tax law changes next week!

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

Tax Tip of the Week | No. 237 | New Laws Affecting Your 2013 Tax Return – Part 1 February 19, 2014

Posted by bradstreetblogger in : Tax Tip, Taxes, Taxes, Uncategorized , 2comments

Tax Tip of the Week | February 19, 2014 | No. 237 | New Laws Affecting Your 2013 Tax Return – Part 1

Part 1 of 2:

Over a year ago in TTW#174, we provided an overview of the tax changes in the Patient Protection and Affordable Care Act (ObamaCare) which will impact your 2013 tax return. This is part one of a two part series that will take a look at three key changes in the tax code this year.

Net Investment Income Tax

This new tax is also referred to as the 3.8% Medicare Surtax. This is a new “stand-alone” tax with its own set of rules.

There are three critical terms you need to understand to determine if you are susceptible to this additional tax:

–    Net Investment Income
–    Threshold Amount
–    Modified Adjusted Gross Income

Net Investment Income includes:  interest, dividends, annuity distributions, rents, royalties, income derived from passive activities and capital gains from the sale of some types of property.

Net Investment Income does NOT include:  salary, wages, bonuses, distributions from IRAs, income from self-employment, income from tax-exempt bonds and any gain from the sale of a primary residence.

Threshold Amount is $200,000 for individuals, $250,000 for married couples and $11,950 for estates and trusts.

Modified Adjusted Gross Income (MAGI) is essentially your regular AGI unless you had any foreign earned income exclusion.  In that case, the excluded foreign income would be added to your AGI to determine your MAGI.

The Medicare Surtax is equal to the 3.8% multiplied by the LESSER of: 1) Net investment Income, or 2) the excess, if any, of the MAGI over the threshold amount.

Example 1

Joe is single.  His AGI for 2013 is $300,000 which includes $50,000 of dividend income, $40,000 from a partnership in which he did not materially participate and $210,000 in wages from his employer.  Joe had no foreign income exclusion.

Modified Adjusted Gross Income               $300,000
MAGI threshold for single individual        (200,000)
Excess MAGI                                                        $100,000

Dividend Income                     $50,000
Passive Income                           40,000
Investment Income                  90,000

Lesser of excess MAGI OR investment income is $90,000.

3.8% Tax X $90,000 = $3,420

Example 2

Same facts as Example 1 but Joe did not receive a $70,000 bonus that he anticipated, so that his wages were $140,000 instead of $210,000.

MAGI                                        $230,000
MAGI threshold                    (200,000)
Excess MAGI                          $30,000

Dividend Income                     50,000
Passive Income                         40,000
Investment Income                 90,000

Lesser of excess MAGI OR investment income is $30,000.

3.8% Tax X $30,000 = $1,140

This new tax is calculated on a new Form 8960.

Confused?  Just give us a call.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

Tax Tip of the Week | No. 236 | How Are You Going To File Your Taxes? February 12, 2014

Posted by bradstreetblogger in : Deductions, Tax Planning Tips, Tax Preparation, Tax Tip, Taxes, Taxes , 3comments

Tax Tip of the Week | February 12, 2014 | No. 236 | How Are You Going To File Your Taxes?

Some tips are worth repeating…a reminder each year:

If you were legally married on 12/31/13, the IRS considers you married for the entire year of 2013.

You now must decide if you are going to file as Married Filing Jointly (MFJ) or Married Filing Separately (MFS).  Note, however, if you file MFJ it is an irrevocable election—you cannot go back and amend a MFJ return to a MFS return.

The primary reason to file MFS is to pay less tax.  It is a particularly beneficial filing status to save on the amount of Ohio taxes paid.  Another reason to file separately is to avoid joint liability.  Each spouse who signs a joint return is responsible for the accuracy and tax liability on the return.

Many times, for example, in a second marriage situation we see couples who have a desire to maintain separate financial responsibilities.  While this is understandable, it could lead to paying several thousand dollars in additional taxes.  If you file MFS, you will lose the following:

–    Credits for child care, education, adoption and the earned income credit
–    Student loan interest deduction, tuition and fees deduction, and savings bond interest deduction
–    If one spouse itemizes, or takes the standard deduction, the other spouse must do the same.  (That is, one cannot itemize and the other take the standard deduction.)
–    A greater percentage of your Social Security benefits may be taxable
–    Your ability to contribute to traditional or Roth IRAs will be greatly limited
–    Capital losses will be limited to a maximum of $1,500 per spouse
–    Passive losses will be limited

Before filing your return you need to look at both MFJ and MFS to see which lowers your tax burden the greatest.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

Tax Tip of the Week | No. 235 | Update to Filing Same-Sex Marriage Tax Returns February 5, 2014

Posted by bradstreetblogger in : tax changes, Tax Preparation, Tax Tip, Taxes, Taxes, Uncategorized , add a comment

Tax Tip of the Week | February 5, 2014 | No. 235 | Update to Filing Same-Sex Marriage Tax Returns

Ohio does not recognize same gender marriages…

Several months ago  (TTW # 216) we discussed the ruling by the Department of the Treasury and the Internal Revenue Service that same-sex couples, legally married in states that recognize their marriage, will be treated as married for federal tax purposes.  The ruling applies regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage or a jurisdiction that does not recognize same-sex marriages.

Since the State of Ohio does not recognize same-sex marriages a new form called Ohio Schedule IT S was created so taxpayers who file a joint or married filing separately federal income tax return with a person of the same gender can file their 2013 Ohio tax returns. Schedule IT S is to be used by same-sex couples to determine their federal income for Ohio purposes by using a “single” filing status or, if qualified, a “head of household” filing status.

The Ohio tax return (Form IT 1040) starts on Line 1 with the federal AGI. This Schedule IT S will determine each individual’s federal AGI for Ohio taxing purposes.

A separate Ohio Form IT 1040 and Schedule IT S must be filed for each individual with an Ohio filing requirement whether they are residents, nonresidents or part-year residents of Ohio.

Questions?   Just give us a call.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.