Tax Tips

Six Tax Tips

Most people file their taxes because they have to, but even if it is not required, there are scenarios where you still should file. You may be eligible for a refund and not know it. This post has a few tips and rules that can help you determine whether or not you should file a tax return.

1. General Filing Rules.  Determining whether or not you need to file a tax return depends on a few factors. In most cases, the amount of your income, your filing status and your age determine if you must file a tax return. For example, if you’re single and 28 years old you must file if your income was at least $10,150. Other rules may apply if you’re self-employed or if you’re a dependent of another person.

2. New for 2014: Premium Tax Credit.  If you bought Tax timehealth insurance through the Health Insurance Marketplace in 2014, you may be eligible for the new Premium Tax Credit. You will need to file a return to claim the credit. If you purchased coverage from the Marketplace in 2014 and chose to have advance payments of the premium tax credit sent directly to your insurer during the year you must file a federal tax return. You will reconcile any advance payments with the allowable Premium Tax Credit. Your Marketplace will provide Form 1095-A, Health Insurance Marketplace Statement, to you by Jan. 31, 2015, containing information that will help you file your tax return.

3. Tax Withheld or Paid.  Did your employer withhold federal income tax from your pay? Did you make estimated tax payments? Did you overpay last year and have it applied to this year’s tax? If you answered “yes” to any of these questions, you could be due a refund. But you have to file a tax return to get it.

4. Earned Income Tax Credit.  Did you work and earn less than $52,427 last year? You could receive EITC as a tax refund if you qualify with or without a qualifying child. You may be eligible for up to $6,143. Use the 2014 EITC Assistant tool on IRS.gov to find out if you qualify. If you do, file a tax return to claim it.

5. Additional Child Tax Credit.  Do you have at least one child that qualifies for the Child Tax Credit? If you don’t get the full credit amount, you may qualify for the Additional Child Tax Credit.Education

6. American Opportunity Credit.  The AOTC is available for four years of post secondary education and can be up to $2,500 per eligible student.  You or your dependent must have been a student enrolled at least half time for at least one academic period. Even if you don’t owe any taxes, you still may qualify. However, you must complete Form 8863, Education Credits, and file a return to claim the credit.

Information from IRS tax tip 2015-03 was used in this post.

For specific questions regarding filing rules, tax credits, or your specific tax situation, give us a call.

Read More

Year End Tax Tips For Employees

As year-end approaches, taxpayers generally are faced with a number of choices that can save taxes this year, next year or both years. Employees too are faced with these choices. To help our clients who are employees take advantage of these special tax saving opportunities, we have put together a list of items to consider.

Please review the list and contact us if you need additional information on one or more of the items.2014-to-2015-clock_countdown

Health flexible spending accounts. Many employees take advantage of the annual opportunity to save taxes by placing funds in their employer’s health flexible spending arrangement (health FSA). You save taxes because you use pre-tax dollars to pay for medical expenses that might not be deductible. They would not be deductible if you don’t itemize. Even if you do itemize, some medical expenses would not be deductible because of the 10% adjusted gross income floor beneath medical expense deductions. Additionally, participating in a health FSA can also save on FICA taxes.

If you have set aside funds in your employer’s health FSA, check your balance so that you have sufficient time to incur additional reimbursable expenditures to prevent loss of any unused amount under the use-it-lose-it feature of these plans. Keep in mind that you cannot get tax-free reimbursements for aspirin, antacids and other over-the-counter items unless your healthcare provider gives you a prescription for them. Your plan should have a listing of qualifying items and any documentation from a medical provider that may be needed to get a reimbursement for these items.

To avoid the lose-it-use it rule, you must incur qualifying expenditures by the last day of the plan year unless the plan allows an optional grace period. Any grace period cannot extend beyond the 15th day of the third month following the close of the plan year (e.g., March 15 for a calendar year plan). A new exception to the use-it-or lose-it rule permits health FSAs to allow a carryover of a participant’s unused health FSA moneys, up to a $500 (or lower plan) maximum.

Examining your year-to-date expenditures now will also help you to determine how much to set aside for next year. Don’t forget to reflect any changed circumstances in making your calculation.

Adjustments to state withholding. If you expect to owe state and local income taxes when you file your return next year, ask 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 this year.

Adjustments to federal withholding. If you face a penalty for underpayment of federal estimated tax, you may be able to eliminate or reduce it by increasing your withholding. You should especially review your withholding to ensure that enough tax is withheld if you hold multiple jobs, you and your spouse both work, or you can be claimed as dependent by another person.

401(k) contributions. The pre-tax and Roth 401(k) contribution limit for 2014 is $17,500. Employees age 50 or older by year-end are also permitted to make an additional contribution of $5,500 (for a total limit of $23,000). Review and make appropriate adjustments to your contributions to your employer’s 401(k) retirement plan for the remainder of this year. Figure your contribution rate for next year as well. Keep in mind the amount you need to save for the age at which you plan to retire.

Additional Medicare Tax: Just a reminder that, as part of the Affordable Care Act, an additional Medicare tax went into effect in 2013 and applies to wages and compensation (as well as self-employment income) paid in excess of an applicable threshold (above $250,000 for taxpayers filing married-filing-jointly and above $200, 000 for single filers). Employers are obligated to withhold on wages and compensation in excess of $200,000 for all affected employees, without having to determine the employee’s ultimate filing status or wages or compensation paid by another employer during the year. If you may be subject to this tax, but the amount withheld may be over or under the amount of your projected tax liability, you may wish to modify your Form W-4, accordingly.

Read More

Helpful Tips for Dealing with the IRS

Disappearing “Service” at the IRS

Don’t expect much in the way of service from the IRS this filing season. Budget cuts have forced the agency to pare back on services that filers have relied upon in the past. Folks who call the IRS don’t have a great chance of speaking to a person, even after a wait of 20 minutes or more. And if you finally reach someone, you’ll get no help with complicated questions. The IRS will answer only basic queries, such as those regarding filing status, dependents and whether income is taxable. Those with tougher issues will be sent to IRS publications or its Web site.

It’s Not the IRS Calling

A phone scam is targeting taxpayers across the nation. Callers claiming to be IRS officials (and altering caller ID information to make it appear as if the IRS is calling) are telling their victims that they owe taxes and must pay up fast with a prepaid debit card or wire transfer. Unsuspecting victims are being threatened with arrest, deportation or loss of their driver’s license if they fail to comply. The fraudsters sometimes follow up with bogus e-mails, and often will use fake names and IRS badge numbers. Don’t be tricked. The IRS never makes unsolicited calls to people to tell them that they owe more taxes. The agency normally contacts people first by mail. And it doesn’t ask for personal or financial information via e-mail or on social media sites.

If you get a phone call from someone claiming to be from the IRS, here’s what you should do:

  • If you know you owe taxes or you think you might owe taxes, call the IRS at 800-829-1040. The IRS employees at that line can help you with a payment issue – if there really is such an issue.
  • If you know you don’t owe taxes or have no reason to think that you owe any taxes (for example, you’ve never received a bill or the caller made some bogus threats as described above), then call and report the incident to the Treasury Inspector General for Tax Administration at 800-366-4484
  • If you’ve been targeted by this scam, you should also contact the Federal Trade Commission and use their “FTC Complaint Assistant” at www.FTC.gov. Please add “IRS Telephone Scam” to the comments of your complaint.

Remember, the IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. The IRS also does not ask for PINs, passwords or similar confidential access information for credit card, bank or other financial accounts. Recipients should not open any attachments or click on any links contained in the message. Instead, forward the email to phishing@irs.gov

Read More

Exclusion of gain on sale or exchange of principal residence

Selling your home and moving into a smaller one or a condo is seldom an easy decision, but at least part of the decision-making process is a little easier in light of an exclusion that eliminates most people’s federal tax liability on gain from the sale or exchange of their homes.

Under these rules, up to $250,000 of the gain from the sale of single person’s principal residence is tax-free. For certain married couples filing a joint return, the maximum amount of tax-free gain doubles to $500,000.

Like most tax breaks, however, the exclusion has a detailed set of rules for qualification. Besides the $250,000/$500,000 dollar limitation, the seller must have owned and used the home as his or her principal residence for at least two years out of the five years before the sale or exchange. In most cases, sellers can only take advantage of the provision once during a two-year period.

However, a reduced exclusion is available if the sale occurred because of a change in place of employment, health, or other unforeseen circumstances where the taxpayer fails to meet the two-year ownership and use requirements or has already used the exclusion for a sale of a principal residence in the past two years. A sale or exchange is by reason of unforeseen circumstances if the primary reason for the sale or exchange is the occurrence of an event that the taxpayer does not anticipate before purchasing and occupying the residence. Unforeseen circumstances that are eligible for the reduced exclusion include involuntary conversions, certain disasters or acts of war or terrorist attacks, death, cessation of employment, change of employment resulting in the taxpayer’s inability to pay certain costs, divorce or legal separation, multiple births from the same pregnancy, and events identified by IRS as unforeseen circumstances (for example, the September 11 terrorist attacks). The amount of the reduced exclusion equals a fraction of the $250,000/$500,000 dollar limitation. The fraction is based on the portion of the two-year period in which the seller satisfies the ownership and use requirements.

These rules can get quite complicated if you marry someone who has recently used the exclusion provision, if the residence was part of a divorce settlement, if you inherited the residence from your spouse, if you sell a remainder interest in your home, if there are periods after 2008 in which the residence isn’t used as your (or your spouse’s) principal residence, or if you have taken depreciation deductions on the residence. Also, the exclusion does not apply if you acquired the residence within the previous five years in a “like-kind” exchange in which gain was not recognized.

For more information please see IRS Publication 523 and talk to one of our tax professionals.

Read More

Since 1993, Fox Peterson has fostered entrepreneurial spirit by providing a wide range of accounting, consulting and tax services to small businesses throughout Arizona and the United States.

A small group of Accountants in Mesa AZ who specialize developing serious financial strategies for small businesses.

Since 1993, Fox Peterson has fostered entrepreneurial spirit by providing a wide range of accounting, consulting and tax services to small businesses throughout Arizona and the United States. Clients of Fox Peterson experience the professional level and knowledge expected from a large industry stronghold (accounting firm), but with the personal attention and reasonable rates of a small, local agency. We are proud to preserve the old-fashioned benefits of professional and prompt service while ensuring our company is up-to-date with all of the latest tax laws and accounting technology. As a Fox Peterson client, you will benefit from the ease of mind that comes with service you can rely on.

We emphasize long-term relationships and continually advise our clients to ensure their future success. The way we see it, our clients’ success is our success. Our CPAs are proficient in all aspects of taxes and accounting, so no matter what your small business or personal accounting needs are, we can help. We cater mostly to small, closely-held businesses, but also serve a variety of individuals and organizations. We offer all the amenities and services of a large accounting firm, but care enough to establish strong relationships with all of our clients. We firmly believe that by getting to know you, we are better able serve you.

We emphasize long-term relationships and continually advise our clients to ensure their future success. The way we see it, our clients’ success is our success. Our CPAs are proficient in all aspects of taxes and accounting, so no matter what your small business or personal accounting needs are, we can help. We cater mostly to small, closely-held businesses, but also serve a variety of individuals and organizations. We offer all the amenities and services of a large accounting firm, but care enough to establish strong relationships with all of our clients. We firmly believe that by getting to know you, we are better able serve you.

Read More

By becoming educated on the what our tax liability is and what things affect it we can then adjust our daily lives to reduce the tax liability that we have.

Generally when we think about tax preparation we link it to April 15th, or perhaps a few weeks leading up to the 15th.  We scramble to get everything prepared for our tax preparer and we desparately try to relive the entire year in an attempt to find anything that we can do reduce our tax liability. 

The reality of the matter is that our taxes are accruing everyday, not just leading up to the 15th of April.  So it would be wise for us to prepare for our taxes or our tax situation all year long.  By becoming educated on the what our tax liability is and what things affect it we can then adjust our daily lives to reduce the tax liability that we have.  That’s not to say that you will eliminate your taxes or pay anything less then you should.  It just means that you won’t overpay or have to scramble and the end of the year.  When we scramble we often have to guesstimate on what amounts we spent or contributed and that leaves us more vulnerable in the event of an audit.  For some tax saving tips and advice visit the Fox Peterson Learning Center at https://foxpeterson.com/learning-center/.

Read More