Tax Essentials. Presented by: Barry H. Franklin, CPA

Transcription

1 Tax Essentials Presented by: Barry H. Franklin, CPA

2 Objectives 2 R E S O U R C E S F O R YO U C U R R E N T TA X U P D AT E 4 S I M P L E WAY S TO R E D U C E YO U R TA X L I A B I L I T Y C R E D I T S AVA I L A B L E TO YO U H A N D L I N G I R S TA X N O T I C E S A N D / O R A U D I T S A M E N D I N G I N C O M E TA X R E T U R N S

3 Society for Financial Awareness 3

4 WealthCare Network Wealthcarenetwork.org IRS.GOV Where s my refund? All Forms and Publications Information Resources for You Where is my Georgia refund? 4

5 Tax update for preparing 2016 returns IRS began accepting E-Filed returns January 23 rd. Deadline for filing is April 18 th. Returns claiming Earned Income Credit and Additional Child Tax Credit the refunds will be held until February 15 th but don t expect the money in your account until week of February 27 th. 5 Not sure where your refund is go to IRS.gov click on Where is my refund?

6 The Protecting Americans from Tax Hikes Act 2015 State and local sales tax deduction made permanent in 2015 Mortgage insurance premiums extended through 12/31/16 Above the line deduction for higher education expenses extended through 12/31/16 6

7 Additional Current Tax Update Deduction for Path2College 529 Plan for Georgia Up to $4,000 per year per beneficiary for joint returns filed Doubles previous limit Up to $2,000 per year per beneficiary for all other filing statuses 7 Have until April 18, 2017 to make tax deductible contributions for 2016 returns * Limitations are applicable on the amounts allowed to be accumulated in a plan

8 Additional Current Tax Update Other changes you may notice Affordable Care Act Form 1095-A - Health Insurance Marketplace Statement 8 Form 1095-B Health Coverage Issued by whoever provides minimum essential coverage (generally health issuers and carriers) Form 1095-C - Employer-Provided Health Insurance Offer and Coverage Issued by applicable large employers (50 or more full time equivalent employees) These are used in preparing Form 8965 Health Coverage Exemption and Form 8962 Premium Tax Credit

9 Society for Financial Awareness 9

10 Society for Financial Awareness 10

11 Current Tax Update - Continued Personal Exemption 4,050 4,000 Standard Deduction Single 6,300 6,300 Married filing joint 12,600 12,600 Head of Household 9,250 9,250 Standard Mileage Rate 54 cents per mile 57.5 cents per mile Medical Mileage Rate 19 cents per mile 23 cents per mile 11

12 Current Tax Update - Continued Estate Tax Limitation 5,450,000 5,430,000 Gift Limits 14,000 14,000 IRA Contribution 5,500 5,500 FSA Limit 2,600 2,550 12

13 4 - Simple Ways to Reduce Your Taxes Participate in your company s 401k plan or contribute to an IRA (Individual Retirement Account) Participate in your company s Cafeteria Plan Section 125 Plan Donation of appreciated stock or inherited assets Using itemized deductions or standard deduction 13

14 401k deferrals and IRA deductions k & 403b Plans Limit for 2017 is $18,000 was same for 2016 If over 50, allowed an additional $6,000 for 2017 was same for 2016 IRA Individual retirement account Limit for 2017 is $5,500 If over 50, allowed an additional $1,000 No change from 2016 Limitations based on adjusted gross income and whether your employer offers a retirement plan

15 Tax Benefits of Participating in 401k, IRA and Sec. 125 Plans 401k deferral amounts are not subject to income tax Contributions to an individual IRA are an adjustment against your income Amounts contributed to a cafeteria plan (Section 125 Plan) are not subject to income tax or social security and medicare taxes. 15

16 Cafeteria Plans Section 125 Plans One of the most underrated and underused employee benefits Withhold a portion of pre-tax salary to cover certain medical or child-care expenses Reduces taxable federal and state wages Reduces social security and Medicare taxes paid Can be used to pay (depending on your company s plan) Employee portion of health insurance premiums Out of pocket unreimbursed medical expenses Dependent care expenses 16

17 Donations of Appreciated Stock or Mutual Funds Must be owned for more than one year Deduction is the fair market value of the investment at the date of the gift No tax due on the gain from the investment Don t donate investments that have lost value from the original purchase price 17

18 Donations of Appreciated Stock or Mutual Funds 18 Current Value of Stock $ 15,000 Cost Basis 2,000 Capital Gain on Stock 13,000 Taxes on the Capital Gain Federal Tax on Gain 1,950 State Tax on Gain 780 Total Taxes on Capital Gain 2,730 Net Cash Available for Contribution after Tax Sales Price 15,000 Taxes on Gain 2,730 Charitable Deduction after Taxes 12,270 Contributing the Stock Directly to Charity Charitable Deduction for Stock 15,000 Charitable Deduction if Pay Tax on Gain 12,270 Increase to Charitable Deduction 2,730 Additional Tax Savings for the Higher Charitable Deduction Federal Tax at 25% 683 State Tax at 6% Plus Taxes Saved by Not Recognizing Capital Gains 2,730 Total Tax Savings by Contributing the Stock Directly to Charity 3,576

19 Donations of Appreciated Stock or Mutual Funds Donation of Inherited Property Donation is the Fair Market Value at the date donated If greater than $5,000 must have an appraisal and appraiser must sign the Form 8283 (Noncash Charitable Contributions) The charitable organization must acknowledge the donation by signing the Form

20 Itemized Deduction vs Standard Deduction Standard Deduction - Federal Single $6,300 Married filing joint $12,600 Standard Deduction Georgia Single $2,300 Married filing joint $3,000 20

21 Itemized Deduction vs Standard Deduction - Continued An example of tax savings Assume you are filing married filing joint Federal tax rate is 15% State tax rate is 6% Itemized deductions - $12, Atlanta Wealth Care Network

22 Itemized Deduction vs Standard Deduction - Continued 22 Additional Federal tax due to electing to force itemized deduction versus taking the standard deduction Federal standard deduction 12, Itemized deductions 12, Additional federal taxable income Additional federal tax Additional state deduction by using itemized deductions Georgia standard deduction 3, Itemized deductions 12, Additional reduction to state taxable income 9, Reduction in state tax Net Tax Savings

23 Tax Credits Available Federal Credits Earned Income Credit Education Credits American Opportunity Credit Lifetime Learning Credit Education Deductions Child Tax Credit Adoption Credit Saver s Credit Residential Energy Efficient Property Credit 23

24 Tax Credits Available - Continued Saver s Credit based on contributions to your IRA or employer sponsored retirement plan 24

25 Tax Credits Available - Continued Residential Energy Efficient Property Credit A credit of 30% of the expenditures made by a taxpayer during the taxable year for: - Qualified Solar Electrical Systems through 12/31/21 - Qualified Solar Water Heaters through 12/31/21 - Qualified Fuel Cell Property purchased by 12/31/16 - Qualified Small Wind Energy Property - Qualified Geothermal Heat Pumps 25 * Before you make the expenditures make sure they qualify for the credit do your research

26 Tax Credits Available - Continued Georgia Credits Georgia Goal Tax Credit 26 Georgia Retirement Exclusion Applies to taxpayer s 62 and older Exclude up to $65,000 in pension or investment income a year if 65 years or older

27 Tax Notices IRS Tax Notices and/or Audits Don t always assume that they are correct Compare the details from the notice to your return If you disagree Respond in writing Letter explaining why you disagree Attach a copy of the notice Attach a copy of your support Keep a copy of response Call the IRS Be prepared to hold Only recommend for simple issues 27

28 IRS Tax Notices and/or Audits If you agree Pay the balance due Amend your Georgia return for changes If you have someone to handle the notice Will need to provide a Power of Attorney Form

29 Audits IRS Tax Notices and/or Audits Types of Audits Correspondence audit Office or field audit If you have a paid preparer 29 Have them assist you or at least advise you The best defense is a good offense Prepare or have the return prepared as though the return will be examined Keep your records and support for at least 3 years When responding to a correspondence audit or going through a office or field audit Detail out support with a easily followed trail

30 Correcting Previously Filed Returns Use Form 1040X No increased audit risk from amending a return 2013 is the earliest year that can be amended 30 Have 3 years from the due date or filing date to amend If you receive and pay an IRS adjustment amount, don t forget to amend your Georgia return. They will eventually send you a bill.

31 Complimentary Phone Call Assistance with: Tax questions you have Prior years tax return questions Your tax planning options Recommendations for action Can be completed via phone call or 31

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