How to Choose a Tax Professional
New tax laws bring many opportunities and challenges for taxpayers causing more people to look for professional help. A tax adviser can be as important to someone's financial health as a doctor is to his physical health.
Select someone who shows an interest in your overall tax picture, not just in preparing a tax return. Your preparer should demonstrate an interest in your future plans and goals. Look for someone who is available year-round, who can represent you at all levels of IRS. Questions involving financial decisions come up throughout the year, and so do tax emergencies. Find someone who specializes in tax for the best results.
Don't make the lowest fee your top priority. It is of far greater importance to realize the best net benefit. You wouldn't want to pay a low preparation fee, at the expense of a larger tax liability than you were legally obliged to pay.
There is a Change in Mileage Rates for 2015
Source: IR-2014-114, Dec. 10, 2014
The Internal Revenue Service has issued the above optional standard mileage rates to calculate the deductible costs of operating an automobile (also vans, pickups or panel trucks) used for business, charitable, medical or moving purposes.
A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for any vehicle used for hire or for more than four vehicles used simultaneously.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
Accounting Procedure Adoption
The adoption of new accounting procedures and the election of the Safe Harbor Elections for anyone with depreciable assets will be the hot topics this year. It will affect almost every taxpayer.
You will be exempt from gift tax if your annual gift to any one individual is not over $14,000 in 2015.
Taxpayers who have lost their homes are perhaps the worse affected by current economic conditions. Normally, cancelled debt is considered “phantom income” and taxable. Congress has formulated significant exceptions, however, for those who can qualify.
Deductible Contributions to Qualified Organizations
A qualified organization is a church or other charitable, not-for-profit, organization with a 501 (c) (3) exemption.
All cash contributions over $250 must be acknowledged by the donee in a contemporaneous written receipt with the date and description of the contribution.
All contributions of clothing or household items must be acknowledged with a contemporaneous receipt from donee with name of organization, date, and a description of the donated property received. Amounts over $250 must also have the fair market value stated, and Form 8253 must be filed with the return.
Contribution of a single item of clothing or household items over $500 must be reported on Form 8253 with a qualified appraisal attached.
Automobile expense incurred while providing services to a qualified organization can be deducted at a rate of 14 cents per mile, however, a contemporaneous log must be maintained.
Items Not Deductible to Qualified Organization
The value of services given to a qualified organization are not deductible as a charitable donation. The cost of raffles, bingo, lotteries and the like are not deductible. Dues paid to a fraternal order are not deductible. The cost of appraisal fees paid to determine the fair market value of donated property are not deductible as a charitable contribution.
A qualified charitable distribution from an individual retirement arrangement (IRA) is not deductible as a charitable contribution.
Contributions to a needy individual, contributions made to a fraternal society for the purpose of paying medical or burial expense of an individual, payments to a member of the clergy that can be spent as he or she wishes, and payments to a private school for tuition are not a deductible charitable contribution.
The American Tax Payer Relief Act
While there is still a 10, 15, 25, 28 and 35% tax brackets, the new 39.6% bracket begins with income over $457,600 for married filing joint (MFJ) and $406,750 for single taxpayers. Bunch income to another year and accelerate expenses to avoid this bracket.
The special capital gains tax rates of 0% and 15% are now permanent, but the new 20%
will apply for taxpayers with higher taxable income who are in the 39.6% ordinary income tax bracket. The specific capital gains rates continue to apply to qualified dividends.
Medical expenses now must exceed 10% of taxpayer’s adjustable gross income (AGI) starting with 2013, but remains at 7.5% for taxpayers or their spouses over age 65 until 2017.
The sales tax deduction and mortgage insurance deduction will end this year, as well as, the energy credit for home improvements and new construction. Both have been extended for the tax year 2014, with limitations.
All itemized deductions and exemptions will begin to be phased out for higher incomes starting at $250,000 AGI for singles and $300,000 for MFJ this year.
The Child Tax Credit of $1,000 per child under age 17 and the dependent care credit is now made permanent. The earned income tax credit, however, will expire after 2017.
Health Care Act
The big increase in 2014 will be for taxpayers without health care. Individuals will be accessed a penalty for not having coverage, while businesses who provide coverage for employees will earn sizable credits. As an individual in 2014 you will pay an extra tax of $95 or $285 for a family without coverage. The penalty will increase to $325 for an individual and $975 for a family in 2015 and to $695 and $2,085 respectively in 2016.
Congress had to become creative to ensure that Americans would participate. Penalties and fees have always been a persuasive incentive. Enforcement and collection of these penalties has been curtailed, however. There is no interest assessment on not paying the penalties. The penalties are not subject to liens, seizures, or civil or criminal penalties. In fact, the only thing the IRS can do is send out late notice letters or offset a taxpayer refund against the penalty.
Phase-Out of Personal Exemptions
The new threshold for the phasing-out of both Personal Exemptions and for Itemized Deductions are as follows:
$150,000 for MFS (Married filing separate)
$250,000 for Single
$275,000 for MFJ (Married filing joint)
$300,000 for Head of Household
If your Adjusted Gross Income exceeds the threshold for your filing status, you will reduce your personal exemptions deduction by 2% for each $2,500 (or fraction of) over the threshold. The reduction for a single taxpayers is 2% for each $1,250 over the threshold.
Phase-Out of Itemized Deductions
The same threshold will apply for itemized deductions. Your deductions will be reduced by the lesser of 3% of your AGI over the threshold amount or 80% of all deductions other than those for Medical Expense, Investment Interest, Casualty and Theft Losses, and Gambling Losses over the threshold amount for your status.
New Excise Tax Beginning 2013
The threshold for both the 3.8% of Net Investment Income Tax (NIIT) and for the .9% additional Medicare Tax is as follows:
$200,000 Single and Head of Household
Net Investment Income is defined as any income not earned. It will include dividends, interest, annuities (except 403(b) plans), royalties, net rental income and net capital gains after management and advisor fees paid. It will not include the gain on your personal residence, which is otherwise exempt.
Additional Medicare Tax
An additional .9% (that is less than 1%) will be assessed on any earned income over the same threshold as for NIIT above. For example, if you are single and earn over $200,000 in wages, you will add .9% tax to the amount over $200,000 earned.