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What You Should Know about AMT

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January 6  |  Uncategorized  |   admin

IRS Tax Tip 2014-10, February 10, 2014

Have you ever wondered if the Alternative Minimum Tax applies to you? You may have to pay this tax if your income is above a certain amount. The AMT attempts to ensure that some individuals who claim certain tax benefits pay a minimum amount of tax.

Here are some things from the IRS that you should know about AMT:

  1. You may have to pay the tax if your taxable income, plus certain adjustments, is more than the AMT exemption amount for your filing status. If your income is below this amount, you usually will not owe AMT.
  2. The 2013 AMT exemption amounts for each filing status are:
    • Single and Head of Household = $51,900
    • Married Filing Joint and Qualifying Widow(er) = $80,800
    • Married Filing Separate = $40,400
  3. The rules for AMT are more complex than the rules for regular income tax. The best way to make it easy on yourself is to use IRS e-file to prepare and file your tax return. E-file tax software will figure AMT for you if you owe it.
  4. If you file a paper return, use the AMT Assistant tool on IRS.gov to find out if you may need to pay the tax.
  5. If you owe AMT, you usually must file Form 6251, Alternative Minimum Tax – Individuals. Some taxpayers who owe AMT can file Form 1040A and use the AMT Worksheet in the instructions.
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Tax Tips for 2014 That You Need to Know

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January 6  |  Uncategorized  |   admin

The Patient Protection and Affordable Care Act health insurance mandate goes into effect

Starting in 2014, you must carry a minimum level of health insurance for yourself, your spouse, and your dependents, or possibly pay a fine.

If you have adequate health insurance through your employer, you purchase coverage yourself, or you are enrolled in a government program such as Medicaid, you don’t have to do anything different.

If you qualify for an exception; for example, if your income is too low for you to be required to file a return, you won’t have to pay the fine.

If you don’t have coverage or qualify for an exception, you could get hit with a tax penalty of up to 1% of your yearly income or $95 per person for 2014, whichever is higher. The penalties go up in 2015.

New 3.8% Medicare Investment Tax

The Affordable Care Act also mandated an additional 3.8% tax on investment income, including interest, dividends, capital gains, rental and royalty income.

This special tax is collected for Medicare, starting in 2013. You only pay it if your modified adjusted gross income is $200,000 or more ($250,000 if filing jointly, or $125,000 if married filing separately).

You pay the 3.8% tax in addition to tax you already pay on investment income. For example, if you pay 20% tax on a long-term capital gain, your total tax on the gain is 23.8% (20% + 3.8%).

New Medicare Health Insurance Tax on wages

The Affordable Care Act levies a special tax on the wages and other earned income of high-income taxpayers.

You must pay this tax if you earn more than $200,000 in wages, compensation, and self-employment income ($250,000 if filing jointly, or $125,000 if married and filing separately).

Your employer generally withholds the Additional Medicare Tax from your pay. If you’re self-employed, you should plan for this tax when you calculate your estimated taxes.

This tax went into effect for 2013.

Simplified option for home office deduction

The IRS may have good news for you if you work at home as an employee or are self-employed and take a home office deduction.

Starting in 2013, you can use a simplified option for determining your deduction, based on $5 per square foot of home use for business (up to 300 square feet).

When you take the simplified deduction, you can still deduct mortgage interest and real estate taxes in full as itemized deductions. In addition, you don’t have to worry about calculating depreciation on your home, or recapturing depreciation later when you sell your home.

Energy credits

Thanks to an extension through 2015, you can still get an energy efficiency tax credit for qualifying energy-efficient products such as windows and doors, biomass stoves, and insulation.

The credit is 10% of the cost of your qualified energy efficiency improvements installed during the year, plus any residential energy property costs.

Your total credit for all years after 2005 cannot be more than $500.

Reminder: IRS e-file starts late this year

The IRS will begin processing individual income tax returns starting on January 31, 2015. The IRS is getting a late start accepting e-file returns this year because of the sequester.

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Understanding the IRS

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October 3  |  IRS News  |   admin

What words come to your mind when you think of the IRS? Perhaps strict, unsympathetic, uncompromising, or merciless? That is actually just fine with them.

The IRS prides themselves on such a self-image, because somehow it gets them what they want. The combination of fear and respect fuels the voluntary compliance with tax laws that they demand.

Seven regions and 63 districts, consisting of over 102,000 employees, make up the IRS’s organizational structure. The following are common titles of the enforcement people of whom you may want to be aware.

Tax Auditors: typically conduct audits of 1040 tax returns and related schedules in the local IRS office, but may occasionally audit 1040s with uncomplicated Schedule C’s.

Revenue Agents: conduct audits of more complex 1040s and business returns, such as the U.S. Return of Partnership Income (Form 1065) and the U.S. Corporation Income Tax Return (Form 1120). These audits are usually conducted on site at the taxpayer’s business.

Revenue Officers: collect delinquent taxes.

Special Agents: handle serious cases through criminal investigations and can make arrests.

Tax examiners: an alternate term used to describe both tax auditors and revenue agents, who belong to IRS’s Examination Division.

With the IRS, rather than giving you the benefit of the doubt, they automatically doubt any and all of your benefits. Do not expect to change their minds when going into an audit armed with only courteous, law-abiding behavior.

If you fall into the situation in which you receive an invitation to an audit, we can help you plan your strategy. Give us a call at 619-497-1040.

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