Tax Tips for Newlyweds

Looking for a gift to give after all those June weddings? How about some solid tax tips for the newlyweds?

Taxes may not be top-of-mind for most new couples, but there are some important tax issues they should be aware of, so the IRS put together the following set of tips..

  • New names? Whether one of the spouses takes the other’s name or not, the names and Social Securities on their tax return must match their Social Security Administration records – so if any names are changed, they’ll need to report it to the SSA with Form SS-5, Application for a Social Security Card. The form is available on www.ssa.gov, or by calling (800) 772-1213.
  • Congratulations – you’re in a new bracket! The spouses’ new marital status needs to be reported to their employers on a new Form W-4, Employee’s Withholding Allowance Certificate. And the IRS was quick to point out that the new couple’s combined income may move them into a higher tax bracket.
  • Yes, there’s an Obamacare angle. If either spouse bought a Health Insurance Marketplace plan got an Advanced Premium Tax Credit this year, they need to report any changes in circumstance, like income or family size. They should also alert their Marketplace is they moved out of its area.
  • Crossing the threshold. If either of the newlyweds is moving, they’ll want to let the IRS know, with Form 8822, Change of Address. (They should probably also let the Post Office know, too.) Don’t make them come looking.
  • Married? Filing jointly? If the couple is married as of December 31, that’s their marital status for the whole year for tax purposes – and that means they need to decide whether to file jointly or separately. Which one is better depends on the couple’s individual circumstances, so they’ll want to check out both possibilities.
  • New forms. Combined financial lives may mean a higher tax bracket, but they can also mean more benefits from itemizing – which would mean claiming those deductions on a Form 1040, as opposed to a 1040A or 1040EZ. This would be a good area for a friendly tax advisor to offer some advice …
  • More IRS resources. The tax services offers a host of resources for new couples, including videos (like this one on “Getting Married”) and more. No need to send them a thank-you card.

originally written BY DANIEL HOOD for accountingtoday.com

Summer Tax Tips for You and Your Children


The summer has started and summer camp bills have been paid. Summer camp is a great way to keep our children busy and looked after while we are working. But it comes at a steep price.
Summer camp costs are, on average, about $300 per week. And for our children who are graduating from high school, we are looking at college tuition fees coming due this August ranging from an average of $9,139 (for state residents at public colleges) to $31,231 (private college). There are some tax advantaged ways, though, to help pay these expenses.

The Child and Dependent Care Credit might be useful if a parent pays for camp for his or her children while working or looking for work. As the IRS points out in its Special Edition Tax Tip 2016-10, for the expenses to qualify, certain conditions must be met:

1. Care for qualifying persons. The expenses must be for the care of one or more qualifying persons. A dependent child or children under age 13 usually qualify. Publication 503, Child and Dependent Care Expenses, contains more information.

2. Work-related expenses. The expenses for care must be work-related. This means taxpayers must pay for the care so they can work or look for work. This rule also applies to the taxpayer’s spouse if they file a joint return. Spouses meet this rule during any month they are full-time students. Spouses also meet it if they are physically or mentally incapable of self-care.

3. Earned income required. The taxpayers must have earned income, such as from wages, salaries and tips. It also includes net earnings from self-employment. A taxpayer’s spouse must also have earned income if they file jointly. Spouses are treated as having earned income for any month they are full-time students or incapable of self-care. This rule also applies to the taxpayer if they file a joint return. Refer to Publication 503 for more details.

4. Joint return if married. Generally, married couples must file a joint return. A parent can still take the credit, however, if the parents are legally separated or living apart.

5. Type of care. Expenses may qualify for the credit whether the care takes place at home, at a daycare facility or at a day camp.

6. Credit amount. The credit is worth between 20 and 35 percent of the allowable expenses. The percentage depends on the amount of the taxpayers’ income.

7. Expense limits. The total expense that can be used in a year is limited. The limit is $3,000 for one qualifying person or $6,000 for two or more.

8. Certain care does not qualify. Expenses do not include the cost of certain types of care, including:
• Overnight camps or summer school tutoring costs.
• Care provided by a spouse or a sibling who is under age 19 at the end of the year.
• Care given by a person whom the taxpayer can claim as a dependent.

Keep records and receipts. Taxpayers should keep all receipts and records for when they file tax returns next year. Taxpayers will need the name, address and taxpayer identification number of the care provider. Taxpayers must report this information when they claim the credit on Form 2441, Child and Dependent Care Expenses.

Dependent care benefits. Special rules apply if taxpayers get dependent care benefits from their employer. See Publication 503 for more on this topic.

Remember, this credit is not just a summer tax benefit. Taxpayers may be able to claim it for qualifying care paid for at any time during the year.

529 Plans
As for college, 529 plans have become very popular. At the end of 2012, over $166 billion was invested in the various state plans. While each state provides different tax benefits for its plan, on the federal level all plans are treated the same. Contributions are made after tax, earnings grow tax-deferred, and distributions are tax free if used for qualifying higher education expenses.
Qualifying higher education expenses include:
1. Tuition and fees as required for enrollment.
2. Books, supplies, computers and other equipment required for enrollment.
3. Expenses for special needs services for a special needs beneficiary (which must be incurred in connection with enrollment or attendance at an eligible educational institution).
4. Expenses for room and board, but only for students who are enrolled at least half-time. The room and board expense qualifies only to the extent that it is not more than the greater of the following two amounts.
a. The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student.
b. The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution.

The taxpayer must contact the eligible educational institution for qualified room and board costs.
But distributions not used for qualifying higher education expenses are subject to tax—the previously untaxed portion of the distribution is taxed at the owner’s ordinary income tax rate plus a 10 percent additional tax. The 10 percent penalty is waived if a distribution is made:
1. Due to the death, impending death or long-term disability of the account’s designated beneficiary.
2. After the designated beneficiary receives a tax-free scholarship or fellowship grant; veterans’ educational assistance; employer-provided educational assistance; any other nontaxable payment (other than a gift or inheritance) received as educational assistance.
3. Because the designated beneficiary is attending a U.S. military academy.
4. Only because it is included in income because the qualified education expenses were taken into account in determining the American Opportunity Tax Credit (AOTC) or lifetime learning credit.
The Child and Dependent Care Credit and 529 Plan rules are complex, and this article only provides an outline of the requirements needed to take advantage of them. Both summer camp and college are significant investments. Enjoy the summer and tax clients should speak to their accountant or lawyer to make sure they can enjoy these savings.

Originally written BY MICHAEL SONNENBLICK for accountingtoday.com

Year-End Tax Planning For Individuals For 2015

As the end of the year approaches, it is a good time to think of planning moves that will help lower your tax bill for this year and possibly the next. Factors that compound the challenge include turbulence in the stock market, overall economic uncertainty, and Congress’s failure to act on a number of important tax breaks that expired at the end of 2014. Some of these tax breaks ultimately may be retroactively reinstated and extended, as they were last year, but Congress may not decide the fate of these tax breaks until the very end of 2015 (or later).

These breaks include, for individuals: the option to deduct state and local sales and use taxes instead of state and local income taxes; the above-the-line-deduction for qualified higher education expenses; tax-free IRA distributions for charitable purposes by those age 70-1/2 or older; and the exclusion for up-to-$2 million of mortgage debt forgiveness on a principal residence.

Higher-income earners have unique concerns to address when mapping out year-end plans. They must be wary of the 3.8% surtax on certain unearned income and the additional 0.9% Medicare (hospital insurance, or HI) tax. The latter tax applies to individuals for whom the sum of their wages received with respect to employment and their self-employment income is in excess of an unindexed threshold amount ($250,000 for joint filers, $125,000 for married couples filing separately, and $200,000 in any other case).

The surtax is 3.8% of the lesser of: (1) net investment income (NII), or (2) the excess of modified adjusted gross income (MAGI) over an unindexed threshold amount ($250,000 for joint filers or surviving spouses, $125,000 for a married individual filing a separate return, and $200,000 in any other case). As year-end nears, a taxpayer’s approach to minimizing or eliminating the 3.8% surtax will depend on his estimated MAGI and NII for the year. Some taxpayers should consider ways to minimize (e.g., through deferral) additional NII for the balance of the year, others should try to see if they can reduce MAGI other than NII, and other individuals will need to consider ways to minimize both NII and other types of MAGI.

The 0.9% additional Medicare tax also may require year-end actions. Employers must withhold the additional Medicare tax from wages in excess of $200,000 regardless of filing status or other income. Self-employed persons must take it into account in figuring estimated tax. There could be situations where an employee may need to have more withheld toward the end of the year to cover the tax. For example, if an individual earns $200,000 from one employer during the first half of the year and a like amount from another employer during the balance of the year, he would owe the additional Medicare tax, but there would be no withholding by either employer for the additional Medicare tax since wages from each employer don’t exceed $200,000. Also, in determining whether they may need to make adjustments to avoid a penalty for underpayment of estimated tax, individuals also should be mindful that the additional Medicare tax may be over withheld. This could occur, for example, where only one of two married spouses works and reaches the threshold for the employer to withhold, but the couple’s combined income won’t be high enough to actually cause the tax to be owed.

We have compiled a checklist of additional actions based on current tax rules that may help you save tax dollars if you act before year-end. Not all actions will apply in your particular situation, but you (or a family member) will likely benefit from many of them. We can narrow down the specific actions that you can take once we meet with you to tailor a particular plan. In the meantime, please review the following list and contact us at your earliest convenience so that we can advise you on which tax-saving moves to make.

Year-End Tax Planning Moves for Individuals

  • Realize losses on stock while substantially preserving your investment position. There are several ways this can be For example, you can sell the original holding, then buy back the same securities at least 31 days later. It may be advisable for us to meet to discuss year-end trades you should consider making.
  • Postpone income until 2016 and accelerate deductions into 2015 to lower your 2015 tax This strategy may enable you to claim larger deductions, credits, and other tax breaks for 2015 that are phased out over varying levels of adjusted gross income (AGI). These include child tax credits, higher education tax credits, and deductions for student loan interest. Postponing income also is desirable for those taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances. Note, however, that in some cases, it may pay to actually accelerate income into 2015. For example, this may be the case where a person’s marginal tax rate is much lower this year than it will be next year or where lower income in 2016 will result in a higher tax credit for an individual who plans to purchase health insurance on a health exchange and is eligible for a premium assistance credit.
  • If you believe a Roth IRA is better than a traditional IRA, consider converting traditional-IRA money invested in beaten-down stocks (or mutual funds) into a Roth IRA if eligible to do so. Keep in mind, however, that such a conversion will increase your AGI for 2015.
  • If you converted assets in a traditional IRA to a Roth IRA earlier in the year and the assets in the Roth IRA account declined in value, you could wind up paying a higher tax than is necessary if you leave things as is. You can back out of the transaction by recharacterizing the conversion-that is, by transferring the converted amount (plus earnings, or minus losses) from the Roth IRA back to a traditional IRA via a trustee-to-trustee transfer. You can later reconvert to a Roth IRA.
  • It may be advantageous to try to arrange with your employer to defer, until 2016, a bonus that may be coming your way.
  • Consider using a credit card to pay deductible expenses before the end of the Doing so will increase your 2015 deductions even if you don’t pay your credit card bill until after the end of the year.
  • If you expect to owe state and local income taxes when you file your return next year, consider asking your employer to increase withholding of state and local taxes (or pay estimated tax payments of state and local taxes) before year-end to pull the deduction of those taxes into 2015 if you won’t be subject to the alternative minimum tax (AMT) in 2015.
  • Take an eligible rollover distribution from a qualified retirement plan before the end of 2015 if you are facing a penalty for underpayment of estimated tax and having your employer increase your withholding is unavailable or won’t sufficiently address the Income tax will be withheld from the distribution and will be applied toward the taxes owed for 2015. You can then timely roll over the gross amount of the distribution, i.e., the net amount you received plus the amount of withheld tax, to a traditional IRA. No part of the distribution will be includible in income for 2015, but the withheld tax will be applied pro rata over the full 2015 tax year to reduce previous underpayments of estimated tax.
  • Estimate the effect of any year-end planning moves on the AMT for 2015, keeping in mind that many tax breaks allowed for purposes of calculating regular taxes are disallowed for AMT These include the deduction for state property taxes on your residence, state income taxes, miscellaneous itemized deductions, and personal exemption deductions. Other deductions, such as for medical expenses of a taxpayer who is at least age 65 or whose spouse is at least 65 as of the close of the tax year, are calculated in a more restrictive way for AMT purposes than for regular tax purposes. If you are subject to the AMT for 2015, or suspect you might be, these types of deductions should not be accelerated.
  • You may be able to save taxes this year and next by applying a bunching strategy to “miscellaneous” itemized deductions, medical expenses and other itemized deductions.
  • You may want to pay contested taxes to be able to deduct them this year while continuing to contest them next year.
  • You may want to settle an insurance or damage claim in order to maximize your casualty loss deduction this year.
  • Take required minimum distributions (RMDs) from your IRA or 401(k) plan (or other employer-sponsored retirement plan). RMDs from IRAs must begin by April 1 of the year following the year you reach age 70-1/2. That start date also applies to company plans, but non-5% company owners who continue working may defer RMDs until April 1 following the year they retire. Failure to take a required withdrawal can result in a penalty of 50% of the amount of the RMD not If you turned age 70-1/2 in 2015, you can delay the first required distribution to 2016, but if you do, you will have to take a double distribution in 2016-the amount required for 2015 plus the amount required for 2016. Think twice before delaying 2015 distributions to 2016, as bunching income into 2016 might push you into a higher tax bracket or have a detrimental impact on various income tax deductions that are reduced at higher income levels. However, it could be beneficial to take both distributions in 2016 if you will be in a substantially lower bracket that year.
  • Increase the amount you set aside for next year in your employer’s health flexible spending account (FSA) if you set aside too little for this year.
  • If you can make yourself eligible to make health savings account (HSA) contributions by Dec. 1, 2015, you can make a full year’s worth of deductible HSA contributions for 2015.
  • Make gifts sheltered by the annual gift tax exclusion before the end of the year and thereby save gift and estate The exclusion applies to gifts of up to $14,000 made in 2015 to each of an unlimited number of individuals. You can’t carry over unused exclusions from one year to the next. The transfers also may save family income taxes where income-earning property is given to family members in lower income tax brackets who are not subject to the kiddie tax.

These are just some of the year-end steps that can be taken to save taxes. Again, by contacting us, we can tailor a particular plan that will work best for you. We also will need to stay in close touch in the event that Congress revives expired tax breaks to assure that you don’t miss out on any resuscitated tax-saving opportunities.