Tax Tips

2016 Year-End Letter

2016 Year-End Letter

2016 is coming to an end and it will soon be time to file income taxes. We look forward to seeing you again as we assist you with your income tax preparation. We have compiled a list of planning tips and suggestions in our year-end letter and recommend that you take some time to read through it. Feel free to contact us with any questions you have. There is still time to set up an appointment for year-end tax planning.Fox Logo

For your copy of the 2016 Year End Letter, Click Here.

We appreciate your business and wish you all the best for the Holidays this year!

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Capital Gains and Losses – Helpful Facts

Capital Gains and Losses – Helpful Facts

When you sell a capital asset, the sale normally results in a capital gain or loss. A capital asset includes most property you own for personal use or own as an investment. Here are helpful facts that you should know about capital gains and losses:

1. Capital Assets.  Capital assets include property such as your home or car, investment-propertyas well as investment property, such as stocks and bonds.

2. Gains and Losses.  A capital gain or loss is the difference between your basis and the amount you get when you sell an asset. Your basis is usually what you paid for the asset.

3. Net Investment Income Tax.  You must include all capital gains in your income and you may be subject to the Net Investment Income Tax if your income is above certain amounts. The rate of this tax is 3.8 percent.

4. Deductible Losses.  You can deduct capital losses on the sale of investment property. You cannot deduct losses on the sale of property that you hold for personal use.

5. Limit on Losses.  If your capital losses are more than your capital gains, you can deduct the difference as a loss on your tax return. This loss is limited to $3,000 per year, or $1,500 if you are married and file a separate return.

6. Carryover Losses.  If your total net capital loss is more than the limit gains-vs-lossesyou can deduct, you can carry it over to next year’s tax return.

7. Long and Short Term.  Capital gains and losses are treated as either long-term or short-term, depending on how long you held the property. If you held it for one year or less, the gain or loss is short-term.

8. Net Capital Gain.  If your long-term gains are more than your long-term losses, the difference between the two is a net long-term capital gain. If your net long-term capital gain is more than your net short-term capital loss, you have a net capital gain.

9. Tax Rate.  The tax rate on a net capital gain usually depends on your income. The maximum tax rate on a net capital gain is 20 percent. However, for most taxpayers a zero or 15 percent rate will apply. A 25 or 28 percent tax rate can also apply to certain types of net capital gain.

Contact the professionals at Fox Peterson for additional help regarding capital gains and losses.

Information from IRS tax tip 2016-33 was used in this post.

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Do I Need a Living Trust?

Do I Need a Living Trust?

Assets placed in a revocable living trust go directly to your heirs when you die, bypassing the sometimes lengthy and costly process of probate. living-trustsThat can make a living trust a valuable estate planning tool if, for example, you plan to disinherit one of your children or leave unequal amounts to your heirs. If your estate goes through probate, heirs can go to court to contest the terms of your will. If you own a vacation home or other property in another state, a living trust can let you avoid having to go through probate in two states. You normally name yourself trustee and retain the authority to manage property in the trust. You must also name a successor trustee to handle the distribution of assets after you die. The cost to set up a living trust varies depending on your location, but it typically ranges from $1,000 to $1,500 for an individual or $1,200 to $2,500 for a married couple.

Fox Peterson has a number of qualified estate attorneys we can refer to.

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June Tax Tips – Avoid an Audit

Tips to Help AVOID AN AUDIT

In 2014, the IRS audited less than 1% of individual income tax returns filed for the 2013 tax year. That’s fewer than in the past and may reflect lower agency funding and manpower. Still, it amounted to more than 1.2 million audited returns – about three out of four examined by mail and the rest involving personal interviews.

Although the prospect of an IRS audit may seem daunting, many queries can be resolved simply by providing additional information or clarification. Some audits result in no change or even a tax refund. Even so, most people would prefer not to receive a letter from the Internal Revenue Service. Here are some tips to keep in mind when filing your return.

Check your math and personal information. The IRS sent out more than 2 million math-error notices in 2014. Although a math error may not lead to an audit, it can call attention to your return. The same is true for entering incorrect personal information, such as the wrong Social Security number, or forgetting to sign your return.

File forms on time. Not surprisingly, missing a filing deadline often leads to a letter from the IRS (though not necessarily an audit). Remember that even if you file an extension, you must pay all tax due by the regular filing deadline or you will be charged interest.

Report all income. Other sources of income not reported on a W-2 form might include investment income, interest, royalties, rent, compensation as an independent contractor, forgiven debt, alimony, tips, gambling winnings, heath insurance reimbursements (for expenses deducted in a previous year), and proceeds from sales on online sites such as eBay. Many types of income are reported to the IRS by the payer (typically on a 1099 form), but even if income is not reported by the payer, you should include it on your tax return.

Use good judgment when taking deductions. Take all deductions allowed by law, but keep in mind that certain deductions tend to raise a red flag. Among the most common are home-office deductions, vehicle expense deductions, and high value charitable contributions. Follow all legal requirements and keep necessary records. If you claim self-employment business expenses, be sure you understand IRS regulations distinguishing a business from a hobby. And remember that there are more rigorous record-keeping requirements for higher-value charitable deductions

Find a good tax preparer. It’s generally wise to consult with a tax professional before taking specific action related to your taxes. The professionals at Fox Peterson are fully qualified to assist you with all your personal and business income tax and accounting needs.

Tax Penalty Relief. If you miss the April 18 tax return filing deadline this year and face penalties for late filing and late payment, see whether you quality for this one-time waiver before paying the fines. Under the IRS’s “first time abate” program, the IRS will waive the penalties for those who pay the tax due (or arrange to pay via installments) and who have complied with filing and payment obligations for the previous three years. The forgiveness isn’t automatic. You have to ask for it, either with a written note when you file your return or a written or telephone appeal after you receive a penalty notice.

Taking extra care when preparing your return may reduce your chances of an audit or other query from the IRS. The professionals at Fox Peterson are prepared to help you every step of the way.

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Tax Tips for Parents

Tax Tips for Parents

Children may help reduce the amount of taxes owed for the year. If you’re a parent, here are several tax benefits you should look for when you file your federal tax return:

  • Dependents.  In most cases, you can claim your child as a dependent. You can deduct $4,000 for eachFamily Parenting dependent you are entitled to claim. You must reduce this amount if your income is above certain limits.
  • Child Tax Credit.  You may be able to claim the Child Tax Credit for each of your qualifying children under the age of 17. The maximum credit is $1,000 per child. If you get less than the full amount of the credit, you may be eligible for the Additional Child Tax Credit.
  • Child and Dependent Care Credit.  You may be able to claim this credit if you paid for the care of one or more qualifying persons. Dependent children under age 13 are among those who qualify. You must have paid for care so that you could work or look for work.
  • Earned Income Tax Credit.  You may qualify for EITC if you worked but earned less than $53,267 last year. You can get up to $6,242 in EITC. You may qualify with or without children.
  • Adoption Credit.  You may be able to claim a tax credit for certain costs you paid to adopt a child. For details see Form 8839, Qualified Adoption Expenses.
  • Education Tax Credits.  An education credit can help you with the cost of higher education.  Two credits are available. The American Opportunity Tax Credit and the Lifetime Learning Credit may reduce the amount of tax you owe. If the credit reduces your tax to less than zero, you may get a refund. Even if you don’t owe any taxes, you still may qualify. You must complete Form 8863, Education Credits, and file a return to claim these credits.
  • Student Loan Interest.  You may be able to deduct interest you paid on a qualified student loan. You can claim this benefit even if you do not itemize your deductions.
  • Self-employed Health Insurance Deduction.  If you were self-employed and paid for health insurance, you may be able to deduct premiums you paid during the year. This may include the cost to cover your children under age 27, even if they are not your dependent. See Publication 535, Business Expenses, for details.

Information from IRS Tax Tip 2016-17 was used in this blog post.

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2015 IRA Contribution Facts

2015 IRA Contribution Facts

Did you contribute to an Individual Retirement Arrangement last year? Are you thinking about contributing to your IRA now? If so, you may have questions about IRAs and your taxes. Here are some IRS tax tips about saving for retirement using an IRA:

  • Age Rules. You must be under age 70½ at the end of the tax year in order to contribute to a traditional IRA. There is no age IRA-Contributionslimit to contribute to a Roth IRA.
  • Compensation Rules. You must have taxable compensation to contribute to an IRA. This includes income from wages and salaries and net self-employment income. It also includes tips, commissions, bonuses and alimony. If you are married and file a joint tax return, only one spouse needs to have compensation in most cases.
  • When to Contribute. You can contribute to an IRA at any time during the year. To count for 2015, you must contribute by the due date of your tax return. This does not include extensions. This means most people must contribute by April 18, 2016. If you contribute between Jan. 1 and April 18, make sure your plan sponsor applies it to the year you choose (2015 or 2016).
  • Contribution Limits. In general, the most you can contribute to your IRA for 2015 is the smaller of either your taxable compensation for the year or $5,500. If you were age 50 or older at the end of 2015, the maximum you can contribute increases to $6,500. If you contribute more than these limits, an additional tax will apply. The additional tax is six percent of the excess amount contributed that is in your account at the end of the year.
  • Taxability Rules. You normally don’t pay income tax on funds in your traditional IRA until you start taking distributions from it. Qualified Savers Creditdistributions from a Roth IRA are tax-free.
  • Deductibility Rules. You may be able to deduct some or all of your contributions to your traditional IRA. See IRS Publication 590-A for more.
  • Saver’s Credit. If you contribute to an IRA you may also qualify for the Saver’s Credit. It can reduce your taxes up to $2,000 if you file a joint return. Use Form 8880, Credit for Qualified Retirement Savings Contributions, to claim the credit. You can file Form 1040A or 1040 to claim the Saver’s Credit.
  • New myRA. If your employer does not offer a retirement plan, you may want to consider myRA. It is a new retirement savings plan offered by the U.S. Department of the Treasury. It’s safe and affordable. You can also direct deposit your entire refund or a portion of it into an existing myRA – Retirement Account.

Information from IRA Tax Tip 2016-39 was used in this blog post.

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Protect Your Computer Online

Protect Your Computer Online

The Internal Revenue Service, the states and the tax industry urge you to be safe online and remind you to take important steps to help protect yourself against identity theft.

Scammers, hackers and identity thieves are looking to steal your personal information – and your money. But there are simple steps you can take to help protect yourself, like keeping your computer software up-to-date and giving out your personal information only when you have a good reason.

We all have a role to play to protect your tax account. There are just a few easy and practical steps you can take to protect yourself as you conduct your personal business online.

Here are some best practices you can follow to protect your tax and financial information:

  1. Understand and Use Security Software.  Security software helps protect your computer against the digital threats which are prevalent online. Generally, your operating system will include security software or you can access free security software from well-known companies or Internet providers. Other options may have an annual licensing fee and offer more features. Essential tools include a firewall, virus/malware protection and file encryption if you keep sensitive financial/tax documents on your computer. Security suites often come with firewall, anti-virus and anti-spam, parental controls and privacy protection. File encryption to protect your saved documents may have to be purchased separately. Do not buy security software offered as an unexpected pop-up ad on your computer or email! It’s likely from a scammer.Security Lock
  2. Allow Security Software to Update Automatically. Set your security software to update automatically. Malware – malicious software – evolves constantly and your security software suite is updated routinely to keep pace.
  3. Look for the “S” for encrypted “https” websites. When shopping or banking online, always look to see that the site uses encryption to protect your information. Look for https at the beginning of the web address. The “s” is for secure. Unencrypted sites begin with an http address. Additionally, make sure the https carries through on all pages, not just the sign-on page.
  4. Use Strong Passwords. Use passwords of at least 10 to 12 characters, mixing letters, numbers and special characters. Don’t use your name, birthdate or common words. Don’t use the same password for several accounts. Keep your password list in a secure place or use a password manager. Don’t share your password with anyone. Calls, texts or emails pretending to be from legitimate companies or the IRS asking you to update your accounts or seeking personal financial information are generally scams.
  5. Secure your wireless network.  A wireless network sends a signal through the air that allows you to connect to the Internet. If your home or business wi-fi is unsecured it also allows any computer within range to access your wireless and steal information from your computer. Criminals also can use your wireless to send spam or commit crimes that would be traced back to your account. Always encrypt your wireless. Generally, you must turn on this feature and create a password.
  6. Be cautious when using public wireless networks. Public wi-fi hotspots are convenient but often not secure. Tax or financial Information you send though websites or mobile apps may be accessed by someone else. If a public Wi-Fi hotspot does not require a password, it probably is not secure. If you are transmitting sensitive information, look for the “s” in https in the website address to ensure that the information will be secure.
  7. Avoid phishing attempts. Never reply to emails, texts or pop-up messages asking for your personal, tax or financial information. One common trick by criminals is to impersonate a business such as your financial institution, tax software provider or the IRS, asking you to update your account and providing a link. Never click on links even if they seem to be from organizations you trust. Go directly to the organization’s website. Legitimate businesses don’t ask you to send sensitive information through unsecured channels.

Information from IRS Security Awareness Tax Tips was used in this blog post

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2015 Tax Organizer

2015 Tax Organizer

The 2015 Fox Peterson tax organizer is now available in two forms. You can A) go to our resources page and fill out the organizer(s) that apply to you and submit them directly to your tax preparer or B) click here to download and print the PDF version.

A customized organizer is also available. Please email or call your tax preparer to request yours.Fox Logo

These resources are meant to be used as a tool to help taxpayers prepare for the upcoming tax season.

As always, if you have any questions you can call Fox Peterson at 480-898-7640

Happy new year!

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2015 Tax Planning Letter

2015 is almost behind us and the time to file income taxes is fast approaching. We are looking forward to seeing you again as we assist you with your income tax preparation over the next several months. We have compiled a list of planning tips and suggestions in our year end letter and recommend that you take some time to read through it. With the implementation of the Affordable Care Act, virtually every taxpayer will be impacted by the laws and regulation changes that have take place in Congress this year. Fox Logo

For your copy of our Year End Tax Planning Letter Click Here.

We appreciate your business and wish you all the best for the Holidays this year!

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Vacation Home Rentals

Vacation Home Rentals

If you rent a home to others, you usually must report the rental income on your tax return. However, you may not have to report the rent you get if the rental period is short and you also use the property as your home. In most cases, you can deduct your rental expenses. When you also use the rental as your home, your deduction may be limited. Here are some basic tax tips that you should know if you rent out a vacation home:

  • Vacation Home.  A vacation home can be a house, apartment, condominium, mobile home, boat or similar property.
  • Schedule E.  You usually report rental income and rental expenses on Schedule E, Supplemental Income and Loss. Your rental income may also be subject to Net Investment Income Tax.
  • Used as a Home.  If the property is “used as a home,” rent-a-houseyour rental expense deduction is limited. This means your deduction for rental expenses can’t be more than the rent you received. For more about these rules, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes).
  • Divide Expenses.  If you personally use your property and also rent it to others, special rules apply. You must divide your expenses between the rental use and the personal use. To figure how to divide your costs, you must compare the number of days for each type of use with the total days of use.
  • Personal Use.  Personal use may include use by your family. It may also include use by any other property owners or their family. Use by anyone who pays less than a fair rental price is also personal use.
  • Schedule A.  Report deductible expenses for personal use on Schedule A, Itemized Deductions. These may include costs such as mortgage interest, property taxes and casualty losses.
  • Rented Less than 15 Days.  If the property is “used as a home” and you rent it out fewer than 15 days per year, you do not have to report the rental income. In this case you deduct your qualified expenses on schedule A.

Information from IRS Tax Tip 2015-03 was used in this post.

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