Tax Extender News!

All You Need to Know about the New Tax Extender Legislation

Category: For Business, Tax Central
Tags: Tax Planning

Congress has reached a bipartisan agreement on tax extenders, aptly named “Protecting Americans from Tax Hikes Act of 2015”. Much to everyone’s surprise, some were made permanent while others were only extended for a period of time. Congress also modified several provisions and added new ones to reduce tax fraud. Here is a look at some of the key provisions included in the legislation that pertain to individuals, small businesses, and certain energy-related provisions:

INDIVIDUAL PROVISIONS:

• Child Credit – This credit was made permanent; it provides a $1,000 credit for each dependent child who is under the age of 17 at year’s end, who lived with the taxpayer for over half of the year and who meets the relationship test. The credit phases out for higher-income taxpayers, and a portion of the credit is refundable for lower-income taxpayers. The changes also include program integrity provisions that prohibit an individual from retroactively claiming the child credit by amending a return (or filing an original return if he or she failed to file) for any prior year in which the individual for whom the credit is claimed did not have an ITIN – generally a Social Security number). After 2015, when a taxpayer improperly claims the credit, the legislation includes a disallowance period when no credit is allowed. For fraud, the disallowance period is 10 years, and for reckless or intentional disregard of rules and regulations, the disallowance period is 2 years.
• American Opportunity Credit (AOTC) – This credit, which was due to expire after 2017, has been made permanent. This is a tax credit equal to 40% of the cost of tuition and qualifying expenses for higher education, with a maximum credit of $2,500. The credit applies to 100% of the first $2,000 and 25% of the next $2,000 of qualifying expenses. The credit offsets any tax liability, and 40% of the credit is refundable even if the taxpayer does not have any tax liability. It also phases out between $160,000 and $180,000 for married taxpayers filing jointly and between $80,000 and $90,000 for others – except for married taxpayers filing separately, who get no credit.

  After 2015, when a taxpayer improperly claims the credit, the legislation includes a disallowance period when no credit is allowed. For fraud, the disallowance period is 10 years, and for reckless or intentional disregard of rules and regulations, the disallowance period is 2 years.

  A provision was added that prohibits an individual from retroactively claiming the AOTC by amending a return or filing a late original return for any prior year when the individual or a student for whom the credit is claimed did not have an ITIN (generally a Social Security number).

• Earned Income Tax Credit (EITC) – The EITC is a refundable credit allowed to certain low-income workers who have W-2 wages and self-employed income. The credit is larger for taxpayers with children. The credit for taxpayers with children is based upon the number of children; those with three or more children receive the highest credit – as much as $6,269 in 2015. The higher credit for three or more children, which was a temporary provision that was set to expire after 2017, has been made permanent.

  The changes also include added program integrity provisions that prohibit an individual from retroactively claiming the AOTC by amending a return (or filing an original return if the individual failed to file) for any prior year in which the individual for whom the credit is claimed did not have an ITIN (generally a Social Security number). The changes also reduced the marriage penalty by increasing the income phase-out for those filing jointly.

• Teachers’ $250 Above-the-Line Deduction – This provision, which was available from 2002 through 2014, allows teachers and other eligible educators (levels kindergarten through grade 12) to take an above-the-line deduction of up to $250 for unreimbursed expenses incurred as part of their educational work. This deduction has been made permanent and modified by adjusting the $250 for inflation in years after 2015. In addition, professional development expenses were added to the qualified expenses allowed as part of the $250 deduction.
• Transit Pass & Parking Fringe Benefit Parity – From 2010 through 2014, the monthly exclusion amount for employer-paid transit passes and qualified parking were temporarily the same. The parity of these two fringe benefits has been made permanent. Thus, for 2015 they will both be $250.
• Optional Deduction of State and Local General Sales Taxes – Since 2004, taxpayers who itemized their deductions have had the option to deduct the Larger of (1) state and local income tax paid during the year, or (2) state and local sales tax paid during the year. This provision, which had been previously extended through 2014, provides the greatest benefit to those taxpayers who reside in a state that has no income tax (which include Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming). This election has been made permanent.
• Above-the-Line Deduction for Qualified Tuition and Related Expenses – This above-the-line deduction for qualified higher education tuition and related expenses had been available from 2002 through 2014. The deduction includes adjusted gross income (AGI) limitations; it is not allowed for joint filers with an AGI of $160,000 or more ($85,000 for other filing statuses). This deduction has been retroactively extended through 2016.
• Tax-Free IRA Distributions For Charitable Purposes – This provision was temporarily added in 2004 and originally expired in 2011; it was not extended until late in the year during the years 2012, 2013 and 2014, thus limiting its application in those three years. The provision allows taxpayers age 70.5 and over to directly transfer (not rolled over) funds from their IRA accounts to a qualified charity. The distribution is not taxable, but it does count toward the individuals’ required minimum distribution (RMD) for the year. The maximum allowable transfer is $100,000 per year. No charitable deduction is allowed, as the distribution is not taxable. This provision has been made permanent; it provides four potential tax advantages:
  1. The distribution is not included in income, thus lowering the taxpayer’s AGI, which in turn helps to avoid various AGI phase-outs and limitations.
  2. Keeping the AGI lower also helps to minimize the amount of Social Security income that is subject to tax for some taxpayers.
  3. Taxpayers using the standard deduction cannot get a charitable deduction, but they are essentially deducting the charitable deduction from their gross income when making contributions this way.
  4. The transferred distribution counts towards the taxpayer’s RMD for the year.
• Discharge of Qualified Principal Residence Indebtedness – When an individual loses his or her home to foreclosure, abandonment or short sale or has a portion of his or her loan forgiven under the HAMP mortgage reduction plan, that person generally will end up with cancellation of debt (COD) income. COD income is taxable unless the taxpayer can exclude it. A taxpayer can exclude the COD income in the extent that he or she is insolvent (with debts exceeding assets immediately before the event occurs) using the insolvency exclusion.

  Due to the housing market crash, in 2007, Congress added the qualified principal residence COD exclusion, which allowed taxpayers to exclude COD income to the extent that it was discharged acquisition debt. Acquisition debt is debt originally incurred to acquire a home or substantially improve it – not debt used for other purposes, which is called equity debt. However, equity debt is deemed to be discharged first, thus limiting the exclusion when both equity and acquisition debt are involved in the transaction.

  The qualified principal residence COD exclusion had been previously extended but had expired at the end of 2014. This exclusion has been retroactively extended through 2016 (a two-year extension).

• Mortgage Insurance Premiums – For tax years 2007 through 2014, taxpayers could deduct (as an itemized deduction) the cost of premiums for qualified mortgage insurance on a qualified personal residence (first or second home). To be deductible, the premiums must have been related to acquisition debt incurred after Dec. 31, 2006. However, this deduction phases out for higher-income taxpayers (generally those whose AGI exceeds $100,000). This provision, which had expired after 2014, has been retroactively extended through 2016, a two-year extension.

BUSINESS PROVISIONS:

• Research Credit – Tax law provides a tax credit of up to 20% of qualified expenditures for businesses that develop, design or improve products, processes, techniques, formulas or software (and similar activities). The credit has been available off and on since 1981 without being made permanent. It had been extended several times but had expired at the end of 2014. This credit has been retroactively made permanent. In addition, it is not a tax preference for small businesses.
• 100% Exclusion of Gain – Certain Small Business Stock – Previously, for stock issued after September 27, 2010, and before January 1, 2015, non-corporate taxpayers could exclude 100% of any gain realized on the sale or exchange of “qualified small business stock” held for more than 5 years. In addition, there was no alternative minimum tax (AMT) preference when the exclusion percentage was 100%. Generally, the term “qualified small business” means any domestic C corporation with assets of $50 million or less. This provision has been made permanent.
• Differential Wage Payment Credit – Through 2014, eligible small business employers – generally those that have an average of fewer than 50 employees and that pay a individual called into active duty military service all or part of the wages that they would have otherwise received from the employer – can claim a credit. This differential wage payment credit is equal to 20% of up to $20,000 of differential pay made to an employee during the tax year. This credit has been retroactively made permanent; for years after 2015, the credit will apply to any size employer.
• Work Opportunity Tax Credit (WOTC) – Through 2014, employers could elect to claim a WOTC for up to 40% of employees’ first-year wages for hiring workers from targeted groups – not exceeding wages of $6,000 (a maximum credit of $2,400). First-year wages are wages paid during the tax year for work performed during the one-year period beginning on the date when the employee begins work for the employer. This credit has been retroactively extended for five years through 2019; it applies to veterans and non-veterans and adds qualified long-term unemployment recipients to the list of targeted groups for years after 2015.
• Section 179 Election – Since 2003, the Section 179 election has been temporarily increased from its statutory limit of $25,000 to between $100,000 and $500,000. Since 2010, the expense cap has been $500,000 (or $250,000 on a married-filing-separate tax return), and the investment limit has been $2 million. However, the last extension expired after 2014; without an extension, the cap would have returned to the statutory $25,000 limit in 2015. The statutory expensing limit of $500,000 and the $2 million investment limit have both been made permanent.

  The application of the Section 179 election to “off-the-shelf” computer software, qualified leasehold improvements, qualified restaurant property and qualified retail improvements has also been made permanent.

• Leasehold and Retail Improvements and Restaurant Property – The class life for qualified leasehold and retail Improvements and restaurant property had been temporarily included in the 15-year depreciation class life, as opposed to the 31-year category. Qualified leasehold and retail Improvements and restaurant property have been retroactively and permanently included in the 15-year MACRS class life.
• Bonus Depreciation – As a means of stimulating the economy, a 50 percent bonus depreciation was temporarily implemented in 2008 and subsequently extended through 2014. For the period between September 8, 2010, and before January 1, 2012, it was even boosted to 100 percent. Bonus depreciation applies to personal tangible property placed in service during the year for which the original use began with the taxpayer.

  The 50% bonus depreciation has been extended for 2 years (through 2016) for property placed in service before January 1, 2017. This generally applies to property with a class life of 20 years or less, to qualified leasehold improvements and to certain plants bearing fruits and nuts that are planted or grafted before January 1, 2020.

• Enhanced First – Year Depreciation for Autos and Trucks – This is the so-called “luxury limit” on the deprecation deduction of passenger automobiles and light trucks used for business. For such vehicles placed in service in 2015, the limits are $3,160 and $3,460, respectively. In the past, the bonus depreciation had increased the first-year luxury limits by $8,000. Under the new law, the bonus depreciation applicable to luxury vehicles will be phased out through 2019. Thus, the luxury auto rates will be increased by the following bonus depreciation rates: $8,000 for 2015 through 2017, $6,000 for 2018 and $4,800 for 2019.

ENERGY PROVISIONS:

• Residential Energy (Efficient) Property Credit – From 2006 through 2014, a nonrefundable credit had been available for qualified improvements to make the taxpayer’s existing primary home more energy efficient. Qualified improvements generally included insulation, storm windows and doors certain types of energy-efficient roofing materials, and energy-efficient air conditioning and hot-water systems. The credit was equal to 10% of the improvement’s cost (not including installation), with a lifetime credit of $500. The credit has been retroactively extended through 2016 (two years).
• Credit for Fuel-Cell Vehicles – Through 2014, a taxpayer could claim a credit for vehicles fueled by chemically combining oxygen with hydrogen to create electricity. Generally, the credit was $4,000 for vehicles weighing 8,500 pounds or less (and up to $40,000 for heavier vehicles, depending on their weight). An additional $1,000 to $4,000 credit was available for cars and light trucks to the extent that their fuel economy exceeded the 2002 base fuel economy set forth in the Internal Revenue Code. This credit has been retroactively extended for two years through 2016.

If you have questions related to these or other, less commonly encountered provisions of the new law (Protecting Americans from Tax Hikes Act of 2015), please give this office a call. Benefiting from these provisions for 2015 will require taking action before year’s end. Please call if you need assistance.

Getting Hitched?

Jointly or Separately – How to File After Saying I Do

Category: Tax Central
Tags: Marriage, Tax Planning

Article Summary:

• Filing Options
• Married Filing Jointly
• Unpleasant Consequences
• Pleasant Consequences
• Married Filing Separately

A taxpayer’s filing status for the year is based upon his or her marital status at the close of the tax year. Thus, if you get married on the last day of the tax year, you are treated as married for the entire year. The options for married couples are to file jointly or separately. Both statuses can result in surprises for individuals who previously filed as unmarried. The surprises can be both pleasant and unpleasant.

Individuals filing jointly must combine their incomes, and if both spouses are working, combining income can trigger a number of unpleasant surprises, as many tax benefits are eliminated or reduced for higher-income taxpayers. The following are some of the more frequently encountered issues created by higher incomes:

• Being pushed into a higher tax bracket
• Causing capital gains to be taxed at higher rates
• Reducing the child care credit
• Limiting the deductible IRA amount
• Triggering a tax on net investment income that only applies to higher-income taxpayers
• Causing Social Security income to be taxed.
• Reducing the Earned Income Tax Credit
• Reducing or eliminating medical and/or miscellaneous itemized deductions
• Causing the overall itemized deductions to be phased out
• Causing the personal exemption deduction to be phased out

Filing separately generally will not alleviate the aforementioned issues because the tax code includes provisions to prevent married taxpayers from circumventing the loss of tax benefits that apply to higher-income taxpayers by filing separately.

On the other hand, if only one spouse has income, filing jointly will generally result in a lower tax because of the lower joint tax brackets and the additional exemption provided by the non-working spouse. In addition, some of the higher-income limitations that might have applied to an unmarried individual with the same amount of income may be reduced or eliminated on a joint return.

Filing as married but separate will generally result in a higher combined income tax for married taxpayers. The tax laws are written to prevent married taxpayers from filing separately to circumvent a limitation that would apply to them if they filed jointly. For instance, if a couple files separately, the tax code requires both to itemize their deductions if either does so, meaning that if one itemizes, the other cannot take the standard deduction. Another example relates to how a married couple’s Social Security (SS) benefits are taxed: on a joint return, none of the SS income is taxed until half of the SS benefits plus other income exceeds $32,000. On a married-but-separate return, the taxable threshold is reduced to zero.

Aside from the amount of tax, another consideration that married couples need to be aware of when deciding on their filing status is that when married taxpayers file jointly, they become jointly and individually responsible (often referred to as “jointly and severally liable”) for the tax and interest or penalty due on their returns. This is true even if they later divorce. When using the married-but-separate filing status, each spouse is only responsible for his or her own tax liability.

If you would like to evaluate the impact of marriage on your tax liability before saying “I do,” please give this office a call.

And last but not least is Jon Gerrity! J

And last but not least is Jon Gerrity!

Jon started at McAuley & Crandall in September of 2015 after several years in banking. He is taking coursework at the University of Kansas Edwards Campus toward a Master of Accounting degree. He plans to sit for the CPA exam after graduating.
Jon and his wife, Alyssa, moved to Kansas City from Chicago three years ago. Some of his favorite activities include watching the Royals and Chiefs, participating in his local church, sipping coffee with a good book in hand, and going on walks with Alyssa. They just adopted a baby boy who was born last month. http://ow.ly/i/efntv

Next up to Robert Wolfe, III Robert star

Next up to Robert Wolfe, III
Robert started working in public accounting and has been a staff accountant with our company since August 2015. He is currently sitting for the CPA exam. He comes with six seasons of experience as a tax examiner/quality reviewer for the Internal Revenue Service. He graduated from Auburn University Montgomery with a Bachelor of Science in Business Administration. He completed his education at the University of Missouri-Kansas City with a Master of Science Accounting degree.

Robert enjoys volunteering in church and in the community. He also enjoys getting outdoors, playing guitar and bass, and sharing his interest of live event sound and lighting. http://ow.ly/i/efnnG

First us is our Office Manager Kassie! K

First us is our Office Manager Kassie!

Kassandra Looney is currently pursuing her BS in accounting through Capella University, and is enjoying the opportunity to gain work experience in her chosen field. As office manager, she organizes the office operations and procedures, and maintains the public aspects of our company through marketing and social media.
Kassie is a transplant from the icy wasteland of Alaska. She is enjoying learning about these strange Lower 48 things like “sun” and “heat”. When she isn’t soaking up the sunshine, she can usually be found gardening, reading, or knitting. http://ow.ly/i/efneD

They’ve all been here for about 2 month

They’ve all been here for about 2 months but we’d like to introduce our new employees at M&C! Welcome Kassie, Robert & Jon! We will share their bios with you in the upcoming weeks! http://ow.ly/i/effWp http://ow.ly/i/efg0Y http://ow.ly/i/efgpO

They’ve all been here for about 2 month

They’ve all been here for about 2 months but we’d like to introduce our new employees at M&C! Welcome Kassie, Robert & Jon! We will share their bios with you in the upcoming weeks! http://ow.ly/i/effWp http://ow.ly/i/efg0Y http://ow.ly/i/efgpO

Mid-Year Tax Planning Checklist

All too often, taxpayers wait until after the close of the tax year to worry about their taxes, missing opportunities that could reduce their tax liability or help them financially. Fall is the perfect time for tax planning. The following are some events that can affect your tax return; you may need to take steps to mitigate their impact and thus avoid unpleasant surprises after it is too late to address them.

• Did you get married, divorced, or become widowed?
• Did you change jobs or has your spouse started working?
• Did you have a substantial increase or decrease in income?
• Did you have a substantial gain from the sale of stocks or bonds?
• Did you buy or sell rental property?
• Did you start, acquire, or sell a business?
• Did you buy or sell a home?
• Did you retire this year?
• Are you on track to withdraw the required amount from your IRA (age 70.5 or older)?
• Did you refinance your home or take out a second home mortgage this year?
• Were you the beneficiary of an inheritance this year?
• Did you have a child? Time to start a tax-advantaged savings plan!
• Are you taking advantage of tax-advantaged retirement savings?
• Have you made any significant equipment purchases for your business?
• Are your cash and non-cash charitable contributions adequately documented?
• Are you keeping up with your estimated tax payments or do they need adjusting?
• Are you aware of and prepared for the 3.8% surtax on net investment income?
• Did you make any unplanned withdrawals from an IRA or pension plan?
• Have you updated your income and other information with your Health Marketplace?
• Have you stayed abreast of every new tax law change?

If you anticipate or have already encountered any of the above events, it may be appropriate to consult with our office, preferably before the event, and definitely before the end of the year.

Reporting Gambling Income and Losses on Your Tax Return

If you play the ponies, play cards or pull the slots, your gambling winnings are taxable. You must report them on your tax return. If you gamble, these IRS tax tips can help you at tax time next year:

1. Gambling income. Income from gambling includes winnings from the lottery, horse racing and casinos. It also includes cash and non-cash prizes. You must report the fair market value of non-cash prizes like cars and trips.
2. Payer tax form. If you win, the payer may give you a Form W-2G, Certain Gambling Winnings. The payer also sends a copy of the W-2G to the IRS. The payer must issue the form based on the type of gambling, the amount you win and other factors. You’ll also get a form W-2G if the payer must withhold income tax from what you win.
3. How to report winnings. You normally report your winnings for the year on your tax return as “Other Income.” You must report all your gambling winnings as income. This is true even if you don’t receive a Form W-2G.
4. How to deduct losses. You can deduct your gambling losses on Schedule A, Itemized Deductions. The amount you can deduct is limited to the amount of the gambling income you report on your return.
5. Keep gambling receipts. You should keep track of your wins and losses. This includes keeping items such as a gambling log or diary, receipts, statements or tickets.

See Publications 525, Taxable and Nontaxable Income for rules on this topic. Refer to Publication 529, Miscellaneous Deductions for more on losses. It also lists some of the types of records you should keep. You can download and view both on IRS.gov/forms at any time.

This message was distributed automatically from the IRS Tax Tips mailing list. For more information on federal taxes please visit IRS.gov.

What’s So Great about CPAs?

You may not have asked yourself that question in so many words, but you may have wondered what sets CPAs apart from other financial professionals. The answer in short: A lot. We typically begin our careers with years of college and graduate education. To become licensed, we must take the demanding Uniform CPA Examination, which tests our knowledge on a wide range of business topics over a total period of 14 hours. In addition, we have to meet an experience requirement and then be licensed by a State Board of Accountancy to practice. But it doesn’t stop there. Once we become CPAs, we also must meet continuing education requirements to update our knowledge of new business developments as well as commit to a strict code of ethical standards. Armed with this rigorous training, we’re on the job year round, ready to help individuals and businesses address their own unique challenges.

If you want more information about our firm and how we can help you resolve all your financial issues, don’t hesitate to contact us.

Email: info@mccpas.com     Phone: (913)239-9130     Fax: (913)239-0520