Tax Essentials Presented by: Barry H. Franklin, CPA P.770-492-8700 Email: barry@franklincpafirm.com www.franklincpafirm.com
Objectives 2 CURRENT TAX UPDATE THE PROTECTING AMERICANS FROM TAX HIKES ACT OF 2015 (PATH) 4 SIMPLE WAYS TO REDUCE YOUR TAX LIABILITY HANDLING IRS TAX NOTICES AND/OR AUDITS AMENDING INCOME TAX RETURNS
WealthCare Network Wealthcarenetwork.org Resources for You 3 Fiscal Fitness Center www.fiscalfitnesscenter.com
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Fiscal Fitness Center Web Site www.fiscalfitnesscenter.com Resources Continued 5 Educate yourself about financial matters with videos and articles 15 minute (complimentary) phone call for personal assistance schedule right on the web site Choose a professional to help: Financial Planner CPA Attorney providing estate planning, wills, powers of attorney, trusts, and probate Real Estate Agent Mortgage Lender Sign up for the bi-monthly newsletter www.irs.gov
The Protecting Americans from Tax Hikes Act Makes the $3,000 threshold permanent for the Child Tax Credit American Opportunity Tax Credit made permanent State and local sales tax deduction made permanent Mortgage insurance premiums extended for 2 years Above the line deduction for higher education expenses extended for 2 years 6
Current Tax Update Other changes you may notice Affordable Care Act Form 1095-A -Health Insurance Marketplace Statement 7 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
Current Tax Update - Continued 2015 2014 Personal Exemption 4,000 3,950 Standard Deduction Single 6,300 6,200 Married filing joint 12,600 12,400 Head of Household 9,250 9,100 Standard Mileage Rate 57.5 cents per mile 56 cents per mile Medical Mileage Rate 23 cents per mile 23.5 cents per mile 8
Current Tax Update - Continued 2015 2014 Estate Tax Limitation 5,430,000 5,340,000 Gift Limits 14,000 14,000 IRA Contribution 5,500 5,500 FSA Limit 2,550 2,500 9
Current Tax Update - Continued 10 Reminder of new line items that started in 2014 Line 46 on Form 1040 repayment of excess advance premium credits that help pay premiums for health insurance purchased from the Health Insurance Marketplace. Calculated using Form 8962 Line 61 on Form 1040 Health care individual responsibility Indicate whether covered Claim an exemption on Form 8965, or Make a shared responsibility payment Line 69 on Form 1040 Net premium tax credit from Form 8962 Assistance with question on health coverage and the tax consequences www.healthcare.gov/taxes also Publication 5187.
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13 Adjusted Gross Income is defined as gross income minus adjustments to income. Line 37 on Form 1040 Adjusted Gross Income
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 14
401k deferrals and IRA deductions 15 401k & 403b Plans Limit for 2016 is $18,000 was same for 2015 If over 50, allowed an additional $6,000 for 2016 was same for 2015 IRA Individual retirement account Limit for 2016 is $5,500 If over 50, allowed an additional $1,000 No change from 2015 Limitations based on adjusted gross income and whether your employer offers a retirement plan
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Example Calculations Box 1 Gross wages 105,777.51 Less box 12 -Code D (9,224.15) Contributions to a 401(k) plan Section 125 Plan Contributions (3,923.22) Plus box 12 -Code C 28.09 Group term life in excess of $50,000 Wages 92,658.23 Box 3 Gross wages 105,777.51 Section 125 Plan Contributions (3,923.22) Plus box 12 -Code C 28.09 Group term life in excess of $50,000 Social Security Wages 101,882.38 Box 5 Gross wages 105,777.51 Section 125 Plan Contributions (3,923.22) Plus box 12 -Code C 28.09 Group term life in excess of $50,000 Medicare Wages 101,882.38 Box 16 Gross wages 105,777.51 Less box 12 -Code D (9,224.15) Contributions to a 401(k) plan Section 125 Plan Contributions (3,923.22) Plus box 12 -Code C 28.09 Group term life in excess of $50,000 State Wages 92,658.23 Box 12 Code DD 10,299.30 Amount for employer sponsored health coverage Total Taxes Paid on this W-2 Federal WH 12,439.38 Social Security WH 6,316.71 Medicare WH 1,477.29 State WH 4,080.64 Total Tax 23% 24,314.02 17
Tax Savings What did I save? 18 Tax savings by participating in tax favored plans 401K 9,224.15 Federal Taxes 25.00% 2,306.04 Georgia Taxes 5.90% 544.22 2,850.26 Section 125 Plan 3,923.22 Federal Taxes 25.00% 980.81 Social Security 6.20% 243.24 Medicare 1.45% 56.89 Georgia Taxes 5.90% 231.47 1,512.40 Total Tax Savings 33% Savings 4,362.66
Cafeteria 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 19
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 20
Donations of Appreciated Stock or Mutual Funds 21 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% 164 846 Plus Taxes Saved by Not Recognizing Capital Gains 2,730 Total Tax Savings by Contributing the Stock Directly to Charity 3,576
Donations of Appreciated Stock or Mutual Funds Donation of Inherited Property Donation is the Fair Market Value at the date donated 22 If greater than $5,000 must have an appraisal and appraiser must sign the Form 8283 The charitable organization must acknowledge the donation by signing the Form 8283
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 23
Itemized Deduction vs Standard Deduction An example of tax savings Assume you are filing married filing joint Federal tax rate is 15% State tax rate is 6% Itemized deductions - $12,000 24
Itemized Deduction vs Standard Deduction 25 Additional Federal tax due to electing to force itemized deduction versus taking the standard deduction Federal standard deduction 12,600.00 Itemized deductions 12,000.00 Additional federal taxable income 600.00 Additional federal tax 90.00 Additional state deduction by using itemized deductions Georgia standrad deduction 3,000.00 Itemized deductions 12,000.00 Additional reduction to state taxable income 9,000.00 Reduction in state tax 540.00 Net Tax Savings 450.00
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 26
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 2848 27
Audits IRS Tax Notices and/or Audits 28 Types of Audits Correspondence audit Office or field audit If you have a paid preparer 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
Correcting Previously Filed Returns Use Form 1040X No increased audit risk from amending a return 2012 is the earliest year that can be amended 29 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.
Complimentary Phone Call/Consultation A Review of: Prior years tax return Your tax efficiency Your tax planning options Recommendations for action Not necessary to come in can be completed via phone call or email 30
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