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Tax Strategies Seminar by Christe Jennings
- 1. Seminar provided by Christe Jennings, Enrolled Agent
- 14. Personal Exemptions Top Tax Bracket Exemption Value 10% $370 15% $555 25% $925 28% $1,036 33% $1,221 35% $1,295
- 15. Standard Deduction for 2011 Additional deduction ($1,150 – MFJ/QW/MFS; $1,450 – S/HH) if blind or 65 or over Filing Status Standard Deduction Single $5,800 Married Filing Separately $5,800 Married Filing Jointly $11,600 Qualifying Widow(er) $11,600 Head of Household $8,500
- 24. Earned Income Credit Phaseout rules apply Family Size Maximum Credit Three or More Children $5,751 Two Children $5,112 One Child $3,094 No Children $464
Hinweis der Redaktion
- Slide 1: Advice from CPAs Whether you’re training for a marathon, landing the job of your dreams or closing a sale, you’re not going to succeed without being well prepared and fully informed. Well, the same holds true when managing and preparing your taxes. Let me tell you a little about myself and my company. Enrolled Agent with IRS Office has combined over 45 years of accounting experience Office staff of 6 for tax season Technology like no other! iPad Cloud Computing (only one in area; company’s information is stored in a secure, off-site location to protect loss of information from computer crashes and natural disasters) Client Portals (24/7 access to tax forms; great for bank loan applications, college admissions/student aid) We do all kinds of Tax Returns (Individuals up to Corporations) All Bookkeeping, Payroll for businesses and rental owners Location: 1567 N. Eastman Rd, Suite 1 Hours: Off-season is M-W-F 10-4; Tax season (Jan through April) is daylight to dark and then some!
- To join our polling session, TEXT: 22333 with MESSAGE: 255546 ONLINE: PollEv.com/JenningsGroup
- All of the above!
- Slide 4: Tax Due Date Waiting until the return due date – April 17 th for the 2012 filing season – to put your financial house in order is a straight path to paying higher taxes. To manage your taxes and minimize your tax bill, you need to know the rules of the game, which are constantly changing, and you want to take advantage of year-round tax-planning opportunities. During this presentation, I’ll share with you the most recent tax-law information and planning strategies that will not only help you complete your tax return, but may also help you minimize your 2011 tax bill. However, before we get started, I’d like to remind you that planning and timing are critical, and that tax issues will change throughout the year.
- Slide 5: Select 2010 Tax-Law Changes We’ll start today with recent tax-law changes. I’ll begin by giving you an overview of a few key tax provisions for 2011 before moving on to the basics of filing and the major categories for tax planning.
- Slide 6: Estate Tax – New Law Brings New Options For 2011 and 2012, the estate tax is reinstated at an exemption of $5 million per decedent with a top rate of 35%. There is no change in the gift tax in 2010 (annual exclusion $13,000).
- Slide 7: Mortgage Debt Forgiveness The last two years have created financial difficulties for many families, and this has led to an historic level of home foreclosures. In many cases, the sale of a foreclosed home does not yield enough money to pay off the mortgage. Before 2008, any debt forgiven by the mortgage holder would generally result in ordinary income to the borrower. However, relief is now available in these circumstances. If you still have mortgage liability after foreclosure, any amount forgiven by the lender is generally ordinary income. However, for debt discharged on or after January 1, 2007 and before January 1, 2013, the debt forgiveness is treated as tax-free if the property is your primary residence. The limit on qualifying debt is $2 million ($1 million if married filing separately). This provision also applies when mortgage debt for a primary residence is forgiven as part of a refinance or other loan modification.
- Slide 8: Employer-Provided Educational Assistance If you receive educational assistance benefits from your employer under an educational assistance program, you can exclude up to $5,250 of those benefits each year. This means your employer should not include those benefits with your wages, tips, and other compensation shown in box 1 of your Form W-2. This also means that you do not have to include the benefits on your income tax return. Educational assistance benefits do not include payments for the following items: Meals, lodging, or transportation. Tools or supplies (other than textbooks) that you can keep after completing the course of instruction. Courses involving sports, games, or hobbies unless they have a reasonable relationship to the business of your employer, or are required as part of a degree program. Benefits over $5,250. If your employer pays more than $5,250 for educational benefits for you during the year, you must generally pay tax on the amount over $5,250. Your employer should include in your wages (Form W-2, box 1) the amount that you must include in income. Working condition fringe benefit. However, if the benefits over $5,250 also qualify as a working condition fringe benefit, your employer does not have to include them in your wages. A working condition fringe benefit is a benefit which, had you paid for it, you could deduct as an employee business expense. For more information on working condition fringe benefits, see Working Condition Benefits in chapter 2 of Publication 15-B, Employer's Tax Guide to Fringe Benefits.
- Slide 7: Making Work Pay Credit / Payroll Tax Holiday For 2011 only, the employee and self-employed portion of the Social Security taxes are decreased by 2%, so that the tax rate is 4.2% for employees and 10.4% for self-employed. Due to the earned income limit of $106,800, the maximum amount a worker can receive by the end of 2011 is $2,136. This essentially replaces the Making Work Pay Credit that expired at the end of 2010. I hope that you used your Soc Sec savings to pay off debt, increased retirement savings, funded college savings acct, etc.
- Slide 9: Child Tax Credit For 2011, the Child Tax Credit is worth $1,000 for each qualifying child who is under age 17 at the end of the calendar year and who qualifies as a dependent – your son, daughter, adopted child, step child or eligible foster child, brother, sister, step brother, step sister, or a descendant of any of these individuals. The child must also be a U.S. citizen or resident. The Child Tax Credit is in addition to the child’s dependency exemption. That means if you have three children, the child credit can potentially reduce your tax bill by $3,000. The child credit begins to phase out when modified AGI exceeds $110,000 if married filing jointly, $55,000 if married filing separately and $75,000 if a single filer, head of household or qualified widow(er). The credit is reduced by $50 for each $1,000, or fraction thereof, of modified AGI above these thresholds.
- Slide 12: The Basics A basic understanding of the filing process can make the tax-return filing process a much more positive experience, so we'll begin today by taking a quick look at the basics, beginning with determining your filing status. Many people think that the amount of income tax they pay is determined by the amount of their taxable income. The truth is that people with exactly the same amount of taxable income can end up with different tax bills because the amount of tax depends on filing status. Each filing status has its own tax brackets, and your filing status also affects how other tax rules, such as the standard deduction, IRA contribution limits, and tax credits and deductions, apply to you.
- Slide 13: Filing Status There are five categories of filing status: Single Married filing jointly Married filing separately Head of household Qualifying widow(er)/surviving spouse The primary factors impacting your filing status is whether you are married at the end of the year and if unmarried, whether you maintain a household for a qualifying dependent. If you are married, you and your spouse must decide whether to file jointly or separately. In most cases, you’ll pay lower taxes if you file jointly. Also, be aware that your choice will impact your state income-tax calculation, as typically states require consistency with federal tax-return filings. If you are not married, you can use the single filing status or the head-of-household filing status if you have a dependent. Heads of household pay a significantly lower tax rate than singles, but to qualify you must meet the requirement for supporting at least one other dependent. If you are a qualifying widow(er)/surviving spouse, you may use the joint tax rates for two years following the year of death of your spouse, as long as: you have a qualifying dependent, you provide more than half the cost of keeping up a home for you and your dependent and you did not remarry before the end of the tax year. If more than one filing status applies, you may want to choose the one that would result in the lowest tax obligation. Planning hint: In a two-wage earner family, where one might have been laid off for a significant part of the year, you may want to consider whether married filing separately reduces your overall federal tax liability. Other circumstances include when one spouse has high unreimbursed medical expenses or a significant amount of miscellaneous itemized deductions. The only way to be sure is to compute your taxes both ways.
- Slide 14: Tax Rates The 2011 tax rates are the same as 2010. The six tax brackets are 10%, 15%, 25%, 28%, 33% and 35%. For 2011, these brackets apply to married couples filing joint federal income tax returns in the following manner: For taxable income: Not over $16,750, the marginal tax rate is 10% Over $16,750 to $68,000…15% Over $68,000 to $137,300…25% Over $137,300 to $209,250…28% Over $209,250 to $373,650…33% Over $373,650…35%
- Slide 15: Personal Exemptions In addition to the standard or itemized deductions, you can also subtract personal exemptions from your adjusted gross income to arrive at taxable income. You may claim a personal exemption for yourself, your spouse and each of your dependents. A dependent child includes children born to your family as well as step children, eligible foster children and adopted children. A dependent child can also include qualifying grandchildren, brothers, sisters, step-siblings and children of siblings. Each exemption reduces taxable income by $3,700 in 2011. The full $3,700 deduction is available for each personal exemption regardless of income because there is no phaseout for 2011 and 2012. The value of personal exemptions by tax bracket appears in this slide.
- Slide 16: Standard Deduction Now let’s talk about the standard deduction – the basic deduction all taxpayers can take. Every year, the IRS adjusts the standard deduction to account for inflation.
- Slide 18: Itemizing Deductions Planning tip: If you find you’re getting close to exceeding the standard deduction limit, try bunching your tax breaks every other year. This allows you to claim the standard deduction one year, and itemize the next, but it also allows you to plan for the maximum tax benefit. Appreciated Stock: Great contribution if you are planning to make charitable contributions and held more than 1 year; this helps avoid paying tax on the gain and still deduct the donated property’s full value
- $45 Million
- Slide 20: Tax Strategies for Life Now that we have the basics behind us, it’s time to move further ahead. I’ve organized my presentation into six categories that all of us can relate to: Family Education Job Home Investments Retirement We’ll then wrap things up with a few tips that will give you a jump start on preparing your tax return.
- Slide 21: Family Strategies Let’s start with some tax breaks for which you may be eligible if you are raising a family. If you’re a parent, you want to be sure to take advantage of every tax-saving opportunity available. In this section, we’ll discuss: Kiddie Tax Adoption Credit Dependent Care Tax Credit Long-term Care Premium Earned Income Credit Shifting Income We discussed the Child Tax Credit earlier in the presentation. And as I mentioned, a credit is the best tax break you can get. Deductions reduce the amount of taxable income on which you must pay taxes, but tax credits reduce, dollar-for-dollar, the taxes you actually owe.
- Slide 22: Kiddie Tax A strategy long employed by parents was to shift assets to a child’s name with the result that the investment income would be taxed at the child’s lower tax bracket. However, recent changes make this strategy less beneficial. The first $950 of unearned income would not be taxed – that is the standard deduction amount for a child. The next $950 of unearned income would be taxed at the child’s tax rate. To discourage income splitting of investment income between parents and minor children, the tax law has imposed a Kiddie Tax under which any investment income over $1,900 will be taxed at the parent’s tax rate. Even if the Kiddie Tax does apply, regular tax liability must be computed, with the child paying the higher tax liability. The tax does not apply if both of a child’s parents were deceased at the end of 2011 and regular rules are followed to determine the child’s tax. The Kiddie Tax applies to investment income of children in these three categories: (1) children under age 18 at the end of 2011, (2) children who are age 18 at the end of 2011 and do not have earned income exceeding 50% of their support for the year and (3) children age 19 through 23 at end of 2011 and who are full-time students and who do not have earned income exceeding 50% of their support for the year.
- Slide 23: Adoption Credit This benefit phases out for modified AGIs between $182,520 and $222,520. The credit or exclusion can be fully claimed if modified AGI is less than $182,520 and it cannot be claimed if modified AGI is equal to $222,520. When you adopt a child with special needs, you are allowed to claim these benefits regardless of actual expenses paid or incurred in the year the adoption becomes final. You are assumed to have incurred the maximum amount of qualifying expenses and may claim the full credit. When adopting a child from within the United States, the family is permitted to take the credit in the year following the year where the actual expense was incurred. These expenses are deductible even if the adoption ultimately is not completed. This is different from how adoption expenses are treated if the child is from outside the United States. Where a foreign adoption is involved, the family may not deduct any expenses until the adoption is final, which considering the time and uncertainty of a foreign adoption, places an added burden on the family financing the cost of the adoption. Clearly, in this situation, the longer the adoption process, the more expenses are incurred, none of which are deductible until the adoption is finalized.
- Slide 24: Dependent Care Tax Credit If, to work or look for work, you pay someone to care for a dependent under age 13 whom you also claim as a dependent, you may be eligible for a tax credit of up to $2,100. The credit is a percentage of qualifying expenses that range from 20% to 35%. However, you must have earned income to receive the credit and if married, filing a joint return. The dollar limit on the expenses toward which you can apply the credit percentage is $3,000 for the care of one dependent or $6,000 for two or more. The percentage of the expenses you can take as a credit depends on your AGI. These dollar limits must be reduced by the amount of any dependent-care benefits provided by your employer, excluded from your income. This credit is not restricted to child-related care costs. If you pay someone to look after an incapacitated dependent of any age, such as a parent or disabled family member, for example a spouse who is physically or mentally incapable of self-care, you may also be eligible for this tax break. The value of qualifying day care provided by your employer under a written, non-discriminatory plan is generally not taxable up to $5,000 ($2,500 if married filing separately). You will need documentation to claim the Dependent Care Tax Credit, which specifies an invoice from the provider that includes the care provider’s name, address and employer identification number or Social Security number. The credit’s limits are subject to any changes that may occur due to expiring legislation.
- Slide 25: Long-term Care Premium An increasing number of Americans require long-term care due to advanced age or chronic conditions. Unfortunately, nursing-homes and their high costs, which can range from $60,000 to $70,000 annually, are not covered by Medicare or supplemental Medicare insurance. However, long-term care insurance pays for this type of care and a portion of your premiums is tax deductible as a qualified medical expense. The deductible increased in 2010. You can include your premiums as medical expenses up to the following amounts: Age 40 or under - $330 Age 41 to 50 - $620 Age 51 to 60 - $1,230 Age 61 to 70 - $3,290 Age 71 or over - $4,110 In addition, health care reform legislation added a federal program for long-term care.
- Slide 26: Earned Income Credit There’s one more credit I’d like to touch on. Although the Earned Income Credit (EIC) applies to eligible low-wage taxpayers without children, those with children receive the largest benefit. EIC is subtracted directly from the amount of tax you owe. Even if you do not owe any tax to the IRS on your tax return, you might still get some money back. However, you must have earned income – as an employee or self-employed. For 2011, the maximum amount of income you can earn while still receiving the credit has increased. You can now take the credit, subject to phaseout rules, if: You have three or more qualifying children and you earn less than $43,998 ($49,078 if married filing jointly) You have two qualifying children and you earn less than $40,964 ($46,044 if married filing jointly) You have one qualifying child and you earn less than $36,052 ($41,132 if married filing jointly) or You do not have a qualifying child and you earn less than $13,660 ($18,740 if married filing jointly) You can include tax-free combat pay as earned income for EIC purposes. Keep in mind also that taxpayers with unearned income such as interest and dividends of more than $3,150 are not eligible for EIC.
- Slide 27: Shifting Income Kiddie Tax However, as I mentioned, it won’t pay to shift a significant amount of income to a child falling under the Kiddie Tax rules, but transferring a few income-producing assets to a child might still lower your overall tax bill. And it’s important to know that shifting income to your child will also reduce the AGI on your personal return, which may mean you’ll lose less of your itemized deductions and personal exemptions. Lowering your AGI may also make you eligible for other tax benefits. Gift Tax Also, be sure to consider the gift tax when shifting assets. For 2011, you generally can give a gift to a child, or anyone else, valued at up to $13,000 each without being subject to the gift tax ($26,000 if your spouse agrees to split the gifts). Family Business If you’re a sole proprietor, you can shift income by hiring your minor children to help in your business. In addition to providing valuable work experience for your child, this arrangement offers significant tax savings to the business. As long as the work your children do is legitimate and you follow all the rules and they receive reasonable wages, you can deduct their wages as a business expense and shift the money to your children in lower tax brackets. As an added bonus, if your son or daughter is under age 18, you don’t have to pay Social Security or Medicare taxes on the wages you pay. Because of the standard deduction, in 2011, the first $5,800 earned by each child is not taxed. Also, since it’s earned income, it is not subject to the Kiddie Tax. Just be sure to file W-2 forms and other necessary tax forms for the child.
- 77% Today 35%
- Slide 28: Education Strategies Since, in most cases, education accounts for the greatest cost associated with raising kids, you’ll want to listen carefully to learn all you can about the credits and deductions for education expenses. Keep in mind that these benefits are available to college students of every age.
- Slide 8: American Opportunity Tax Credit For tax years 2009 through 2012, the American Opportunity Tax Credit is available to each eligible student and for the first four years of college or other postsecondary school that leads to a degree, certificate or other recognized educational credential. It does not apply to graduate-level courses. The maximum credit is $2,500 per student for each year and 40% of the credit is refundable (it can reduce the taxpayer's liability below zero). This means you can receive up to $1,000 even if you owe no taxes. Costs include tuition, student-activity fees required for enrollment and attendance as well as books, supplies and equipment needed for a course of study that must be purchased from the educational institution as a condition of enrollment or attendance. However, course materials qualify for the credit even if not required as a condition of employment. The credit applies to 100% of the first $2,000 of costs and 25% of the next $2,000 of costs. It phases out at modified AGI levels between $160,000 and $180,000 (married filing jointly), and $80,000 and $90,000 (other filers). If modified AGI is less than the $160,000 and $80,000 thresholds, the full credit can be claimed. However, if it is equal to or greater than the $180,000 and $90,000 thresholds, the credit is not available.
- Slide 30: Lifetime Learning Credit Earlier, I discussed the American Opportunity Tax Credit, previously known as the HOPE Scholarship Credit, and now I’d like to explain a second credit called the Lifetime Learning Credit (LLC). The LLC provides a credit of up to $2,000 per year. As its name suggests, the LLC can be used by you, your spouse or your dependent for undergraduate, graduate and professional-degree expenses – tuition, student-activity fees required for enrollment and attendance as well as books, supplies and equipment needed for a course of study that must be purchased from the educational institution as a condition of enrollment or attendance. However, course materials qualify for the credit even if not required as a condition of employment. The credit can be claimed for every year that you qualify to receive it. Unlike the American Opportunity Tax Credit that applies to each student, the LLC applies to each taxpayer and courses taken do not need to be toward a recognized educational credential. The amount of your LLC is phased out if your modified AGI is between $50,000 and $60,000 ($100,000 and $120,000 if married filing jointly). You can claim the full credit if your MAGI is less than the $50,000 and $100,000 phaseout thresholds and you cannot claim a LLC if your modified AGI is more than $60,000 (more than $120,000 if you file a joint return).
- Slide 31: Student Loan Deduction If you’re paying off student loans, you’ll be happy to know that the rules for deducting student loan interest remain liberal. Taxpayers can continue to deduct up to $2,500 of the interest paid on a student loan, regardless of how long it takes to repay the loan. And you don’t have to itemize in order to take this deduction. However, there is no deduction if you file as married filing separately, you are claimed as a dependent or the loan is from a related party or a qualified employer plan. For the 2010 tax year, the deduction is phased out for taxpayers with modified AGI between $60,000 and $75,000 if single, head of household or surviving widow(er) ($120,000 and $150,000 if married filing jointly). You can take the full deduction if modified AGI is less than or equal to the $60,000 or $120,000 threshold amounts and cannot claim any deduction if your modified AGI is equal to or greater than $75,000 and $150,000.
- Slide 32: Higher Education Tuition and Fees Deduction This may expire 12/31/11 In 2011, you can claim a deduction – up to $2,000 or $4,000 – as an adjustment to gross income for qualified expenses that you paid for higher education at an eligible educational institution. This deduction applies to the same expenses as those covered by the American Opportunity Tax Credit and Lifetime Learning Credit. The deduction applies to you, your spouse and any dependents who you claimed as an exemption. However, to claim the $4,000 deduction, your modified AGI must be equal to or less than $65,000 ($130,000 if married filing jointly). The $2,000 deduction applies if your modified AGI is greater than $65,000 but not more than $80,000 ($130,000/$160,000 if married filing jointly). The deduction is barred if your filing status is married filing separately, you can be claimed as a dependent on another taxpayer’s return, or if you claimed an education credit such as the American Opportunity Tax Credit or Lifetime Learning Credit.
- Slide 33: Qualified Tuition Programs (529 Plans) Qualified Tuition Programs, also known as 529 Plans, give parents and other family members a tax-advantaged way to save money for college expenses. While there is no tax deduction or credit available on contributions to the plan, the money in the plan grows tax-free, earnings in the plan are tax-deferred and no tax is due on withdrawals if the distribution is used to pay for qualified higher-education expenses. There may also be state income tax breaks for plan contributors. Expenses include tuition, room and board, books, supplies, fees and in 2011 or 2012, computer software, any computer or related peripheral equipment, fiber optic cable related to computer use and Internet access (including related services) that the beneficiary and the beneficiary’s family use during enrollment at an eligible educational institution. There is no set dollar limit for these expenses. The 529 Plan is valuable as a vehicle for gifts from family members, especially grandparents.
- Slide 32: Coverdell Education Savings Account Coverdell Education Savings Accounts give parents and other family members a tax-advantaged way to save money for college expenses. While there is no tax deduction or credit available on contributions to the plan, the money in the plan grows tax-free, earnings in the plan are tax-deferred and no tax is due on withdrawals if the distribution is used to pay for qualified higher-education expenses. There may also be state income tax breaks for plan contributors. Designated beneficiary must be under the age of 18 or a special needs beneficiary when the account is created and the amounts in account must be distributed when beneficiary reaches age 30. Certain transfers to members of the beneficiary’s family are permitted. The Coverdell ESA is valuable as a vehicle for gifts from family members, especially grandparents.
- Slide 34: Prepaid Tuition Plans When saving for tuition, you are not restricted to using your state’s savings plans and can use any state’s plan. However, if you select another state’s plan, you may lose a state tax deduction that some states offer to residents who use their state’s prepaid or 529 Plans. Many states have instituted savings plans substantially similar to the Section 529 Plans that propose to create a prepaid tuition account for a student in that state. The amount contributed will depend on when the plan is begun and the child’s age. States have created actuarial tables that they believe will result in a fully-funded tuition based on a schedule of deposits and investment-return rates. The advantage of these plans is that they guarantee tuition costs will be covered. However, they do not guarantee admissions, and they do not cover room and board and the cost of books. These expenses would have to be funded separately. The plans provide assistance if the student decides not to attend an in-state school; however, it may not cover the full tuition costs of these schools. In general, the tax treatment of these prepaid tuition plans is similar to 529 Plan rules.
- Slide 35: U.S. Savings Bonds Generally, investors who redeem qualified U.S. savings bonds to pay for qualified higher-education expenses may exclude the interest redeemed from gross income. The exclusion applies to series EE bonds issued after 1989 or series I bonds. If the interest from the redeemed bond exceeds the amount of qualified education expenses, the investor pays taxes on the excess; however, the exclusion is limited to a fraction of the redeemed amount. The fraction equals the amount of qualified education expenses paid during the tax year over the aggregate proceeds of qualified U.S. savings bonds redeemed during the tax year. For 2011, the amount of your interest exclusion is phased out if your filing status is married filing jointly or qualifying widow(er) and your modified AGI is between $105,100 and $135,100 ($70,100 and $85,100 if single or head of household). You can take the full exclusion if your modified AGI is equal to the $105,100 and $70,100 levels. However, at modified AGI equal to or greater than the $135,100 and $85,100 thresholds the exclusion is zero.
- $800 Today is $50,200
- Slide 36: Job Strategies
- Slide 37: Health Flexible Spending Arrangements Although employees are increasingly responsible for some or all of their medical expenses, many companies are offering Flexible Spending Arrangements (FSAs) to help employees pay for these expenses. Employees can contribute some of their wages to these special accounts and the amounts are not taxed in 2011. Funds can be accessed any time during the year to pay for health insurance premiums as well as medical costs and other expenses not covered by insurance, although they must qualify as a deductible medical expense. The company’s plan determines contribution terms and limits. Funds not used during the year, or by the end of any grace period the plan may offer, are lost. Also, under certain circumstances, FSA amounts can be distributed to qualified reservists ordered or called to active duty. This rule applies to distributions made after June 17, 2008, if the plan has been amended to allow these distributions. Beginning in 2011, you cannot use these accounts to purchase over-the-counter medications.
- Slide 38: Health Savings Accounts Health Savings Accounts (HSAs) are designed for individuals covered by a High Deductible Health Plan (HDHP) and are not covered by Medicare. HSAs offer a wide range of tax advantages: contributions within certain limits are tax deductible, withdrawals to pay for qualified medical expenses are tax-free, and earnings are tax-deferred. However, withdrawals for non-medical expenses are both taxable and subject to a 10% penalty unless they are made when the individual is age 65 or older, or disabled. For HSA purposes, the minimum annual deductible of an HDHP increases to $1,200 for self-only coverage ($2,400 for family coverage), and the maximum annual deductible and other out-of-pocket expenses limit increases to $5,950 for self-only coverage ($11,900 for family coverage). Contributions can be made by both the employee and employer, and the total maximum contribution is $3,050 ($4,050 if age 55 or older) for an employee with self-only coverage and $6,150 ($7,150 if age 55 or older and $8,150 if spouse is also age 55 or older) for an employee with family coverage. There is also a $1,000 catch-up contribution for taxpayers who are age 55 or older by the end of the year. The 2012 limits on HSA contributions are: · $3,100 (up $50) for self only coverage, and · $6,250 (up $100) for family coverage.
- Between 12 and 15 million workers As of Sept 2011: 14 million
- Slide 40: Homeowner Strategies Now let’s turn our attention to the tax benefits of owning a home, because as a homeowner there are many tax-saving opportunities available to you.
- Slide 41: Deductions Mortgage Interest In most cases, you can deduct all of the interest you pay on any loan secured by your home if you itemize your deductions. Interest is deductible on up to $1 million ($500,000 if married filing separately) of home-acquisition loans. Interest on a home-equity loan or line of credit up to $100,000 ($50,000 if married filing separately) is also deductible. You can also use this deduction for one additional residence that you identify as your second home. This means you can deduct interest on total home debt up to $1.1 million ($550,000 if married filing separately). As long as the home-equity loan is secured by your home, it doesn’t matter how you spend the proceeds. Home improvements, college tuition, debt consolidation or an exotic vacation – it’s up to you. You have to itemize deductions. Points paid: principal residence are usually fully deductible in the year you paid them refinance your home mortgage or buy a second home must be deducted ratably over the term of the loan. Real Estate Taxes You can deduct real estate taxes and state and local property taxes on all your real estate. The only decision you may need to make is whether you prepay the coming year’s taxes or delay the current year’s taxes to see which way it might benefit you. Mortgage Insurance Premiums: Deductible if insurance provided by the VA, FHA or Rural Housing Service as well as private mortgage insurance premiums Mortgage insurance premiums paid on a qualified mortgage can be deducted as mortgage interest for 2011, subject to the taxpayer's adjusted gross income.
- Slide 42: Selling Your Home Excluding the gain on the sale of a home is another major incentive for buying a home. If you meet certain requirements, you can keep a significant portion of the profit of the sale of your principal residence without having to pay tax on the gain. Any gain is taxed as a capital gain so the amount owed is not as high. However, any losses on the sale of a principal residence are not deductible. When you sell your principal residence, you can exclude from income up to $250,000 in gains ($500,000 if married filing jointly or a surviving spouse if the sale is within two years of the other spouse’s death). To qualify, you must have owned and used your home as a principal residence for at least two of the five years preceding the sale. Members of the uniformed services, intelligence community or Foreign Service as well as Peace Corps volunteers have up to 10 years. Keep in mind that if you took a First Time Homebuyer Credit, you may have to recapture some or all of the credit. The exclusion is available even if you took temporary absences (including vacations) and rented out the home while not living there. If you realize a gain on the sale greater than the exclusion, that amount is taxed at capital-gains rates. Special exceptions are available if you were required to sell your home due to a change in place of employment, health issues or other unforeseen circumstances before meeting the two-year principal-residence rule. The full tax break is available only once every two years.
- Slide 42: Repayment of First Time Homebuyer Credit Should have started repayment on your 2010 return (due 4/18/11) and will continue on your 2011 return and beyond until credit is repaid. Option to pay more than annual amount due each year Make sure to review federal withholdings and/or make quarterly estimated tax payments to make up for the repayment amounts There are exceptions to the repayment. See me or visit IRS.
- Slide 43: New Energy Incentives Home In 2011, homeowners can again claim tax credits for making certain energy-saving improvements to their home. Not all Energy Star products qualify; visit U.S. Dept of Energy website Individual homeowners can claim 10% for property improvements made during 2011, up to $500 (decreased from the collective 2009 and 2010 amount of $1,500) Credits claimed on 2009 and 2010 returns count against the $500 Qualifying property include: some insulation; exterior windows, skylights and doors; electric heat pumps; central air conditioners; natural gas, propane or oil water heaters; biomass stoves; furnaces and boilers There are caps on some items (e.g. $150 for furnaces and water boilers, $200 for windows, $300 for water heaters, air conditioners, and biomass stoves) Beginning in 2012, this credit will not be available to taxpayers The 30% Residential Energy Efficiency Property Credit applies to costs for qualified residential solar panels, a geothermal heat pump, solar water-heating equipment, qualified solar electric property costs and small wind-energy property. A second 30% credit for qualified fuel-cell plants has principal-residence and kilowatt-capacity requirements, and cannot be greater than $500 for each 0.5 kilowatt of capacity. Electric Vehicle Credit: Beginning in 2011, credits are available only for vehicles converted into qualified plug-in electric drive motor vehicles (2011 only) AND Qualified fuel cell motor vehicles (2011 through 2014) Beginning in 2011, no credit for is available for purchasing a hybrid vehicle, advanced lean-burn technology vehicle, or alternative fuel motor vehicle. Alternative Motor Vehicle Credit Plug-in Conversion: 10% of the cost of converting, up to $4,000 Must be placed in service after Feb. 17, 2009 and before Jan. 1, 2012 May claim even if the vehicle qualified for a previous hybrid credit
- $1.7 million That’s almost 3.2 million of deductions
- Slide 48: Retirement Strategies We all know that contributing to a retirement plan is a key step when working toward a secure retirement, but did you know it can lower your current income tax bill as well? As economic events have clearly shown, your retirement account is not an asset that should be reviewed haphazardly. It requires careful consideration, expert management and reallocation as needed to ensure that it’s always working for you.
- Slide 49: Employer-Sponsored Plans If you have a 401(k) and you haven’t arranged to contribute the maximum, try to increase your contributions before year-end. This is especially important if your employer makes matching contributions, which, in effect, represents free money. For 2011, if you’re under age 50, your maximum contribution to a 401(k) plan is $16,500. Taxpayers who are age 50 or older by the end of 2011 can make an additional $5,500 “catch-up” contribution for that calendar year to reach $22,000 for 2011. Also, there is no minimum distribution required in 2011 from your 401(k). In 2011, employers now have the option of offering a Roth 401(k) to employees. 2012 – increase to $17,000
- Slide 50: Individual Retirement Accounts (IRAs) The top annual contribution for traditional or Roth IRAs is $5,000 for 2011, provided you have earned income to cover the contribution. If you’re age 50 or older by the end of 2011, you can make an additional $1,000 “catch-up” contribution. If your spouse does not work for compensation, you can contribute to either a traditional IRA or Roth IRA for your spouse based on your own earnings, with the same dollar limits applying. However, the maximum aggregate that can be contributed to a Roth is reduced by contributions made to other IRAs. Traditional IRA contributions may be deductible depending on your modified AGI and whether you or your spouse (if filing jointly) is covered by an employer-sponsored retirement plan. Roth IRA contributions are not deductible, but you can withdraw them at any time tax-free after the account has been in existence for five years or longer. Also, the earnings on your contributions accumulate tax-deferred and may be withdrawn tax-free if you meet the qualified distribution requirements. You have until the filing deadline of April17, 2012 to open and contribute to an IRA for 2010. But why wait? The sooner you contribute, the longer your money grows tax-deferred or tax-free.
- Slide 51: Traditional IRA to Roth IRA You can convert traditional IRAs to Roth IRAs, with no dollar limit on the amount converted. Although income tax is due on the amount converted, the 10% early-distribution penalty does not apply if you are under age 59½ and keep the funds in the Roth IRA for at least five years. There is no modified AGI requirement needed for a conversion. Jennings Group can help you decide whether a conversion to a Roth IRA is best for you.
- Slide 53: Inherited IRA Although inheritances are usually tax-free, distributions you receive as a beneficiary of traditional IRAs are taxable. However, distributions allocable to the account owner’s nondeductible contributions to the account are tax-free. Also, the 10% penalty for distributions received before age 59 does not apply to taxable distributions received as a beneficiary. Before taking any action in this area, consult with your tax adviser because you may be able to defer taxes on an inherited IRA
- Slide 54: Retirement Savings Contributions (Saver’s) Credit The tax law recognizes that paying bills while saving for retirement can be one of the greatest challenges for Americans today, especially for those earning lower incomes. The Saver’s Credit offers some relief. Qualified taxpayers who make contributions to a retirement plan, including traditional IRAs or Roth IRAs, by April 15, 2011 are eligible for this nonrefundable tax credit. The 10%, 20% or 50% credit is based on adjusted gross income and applies to the first $2,000 of contributions, bringing the top credit to $1,000. To claim the credit, adjusted gross income must be less than $55,500 if married filing jointly, $41,625 if head of household or $27,750 if single, married filing separately or a qualifying widow(er).
- Tax Return - You should keep a copy of every single year's tax return forever. This will help you determine cost basis on stocks, bonds, real estate, etc. Sort through and be certain to keep any documents pertaining to: • each and every home you've owned • investments • non-deductible IRAs • deductions that carry over more than one year • all past returns and tax forms • sideline business as long as deductions remain subject to challenge These should be kept at least 3 years after they are sold or disposed of.
- Slide 55: Key Takeaways I know this was a lot to cover, but my key takeaways for you are these: First, follow the advice of your accountant. Second, don’t wait until tax time to seek professional tax assistance. Your accountant can help you plan for tax savings throughout the year. Third, delay receipt of payment or completion of professional services, second job, self-employment income until the succeeding year. Postpone the sale of assets that would add to income. Delay the sale of appreciated stocks and securities. If an asset must be sold, selling the asset on the installment basis can be beneficial. Use capital losses to offset capital gains. Purchase Treasury bills, money market certificates, certificates of deposit that mature in the year with the lower tax rate. Defer salary into a tax-deferred or pre-tax plan for your long-term savings. Turn your hobby into a business. Show a profit 3 out of 5 years and deduct all expenses on Schedule C to offset gross income. Thank you.
- 078-05-1120 The most misused SSN of all time was (078-05-1120). In 1938, wallet manufacturer the E. H. Ferree company in Lockport, New York decided to promote its product by showing how a Social Security card would fit into its wallets. A sample card, used for display purposes, was inserted in each wallet. Company Vice President and Treasurer Douglas Patterson thought it would be a clever idea to use the actual SSN of his secretary, Mrs. Hilda Schrader Whitcher. The wallet was sold by Woolworth stores and other department stores all over the country. Even though the card was only half the size of a real card, was printed all in red, and had the word "specimen" written across the face, many purchasers of the wallet adopted the SSN as their own. In the peak year of 1943, 5,755 people were using Hilda's number. SSA acted to eliminate the problem by voiding the number and publicizing that it was incorrect to use it. (Mrs. Whitcher was given a new number.) However, the number continued to be used for many years. In all, over 40,000 people reported this as their SSN. As late as 1977, 12 people were found to still be using the SSN "issued by Woolworth." Mrs. Whitcher recalled coming back from lunch one day to find her fellow workers teasing her about her new-found fame. They were singing the refrain from a popular song of the day: "Here comes the million-dollar baby from the five and ten cent store." Although the snafu gave her a measure of fame, it was mostly a nuisance. The FBI even showed up at her door to ask her about the widespread use of her number. In later years she observed: "They started using the number. They thought it was their own. I can't understand how people can be so stupid. I can't understand that."
- Slide 25: Educational Teachers Educator Expense: Work 900 hours for elem or secondary education Was extended through 2011; no word on 2012 Roth Contributions for 403(b) and 457(b) plan participants 457(b) plan participants have option to create Roth retirement assets Retirement plans sponsored by state and local governments can allow contributions to Roth accounts Contributions are elective deferrals not excluded from income Keep track of expenses as teacher and for classroom: Important deductions for course work, professional equipment, supplies, dues to professional organizations, and deductible travel and entertainment, etc.
- New 403(b) Regulations: The purpose was to make them more like 401(k) plans and to clarify and simplify the rules for employers and employees. Loans - Loans are permitted and can provide means to accessing your funds without adverse tax consequences. The loan must be repaid in 5 years, unless used to buy or build your primary residence. If you default, the entire balance will be treated as a taxable distribution in the year of default and could trigger a tax penalty. Roth 403(b) Contributions to a Roth 403(b) are made with after-tax dollars. Earnings are tax-free. Maximum annual contribution for 2010 is $16,500. Anyone 50 or older may contribute an additional $5,500. You may contribute a portion of the limit to a traditional 403(b) and a portion to the Roth 403(b), not to exceed the annual limit. Funds must be held in a Roth 403(b) for five years and then distributed after 59 ½ or because of disability or death, if prior to 59½. If a distribution is taken before 59½, there is a 10% penalty unless an exemption applies. First time home buying does not apply as an exception to the 10% penalty for a Roth 403(b). Upon leaving your employer, if you roll your Roth 403(b) into a new employer's Roth 403(b), the 5-year period carries over. If you roll it into a Roth IRA, a new 5-year period will begin. Funds cannot be rolled from a Roth IRA into a Roth 403(b). Withdrawal Exceptions: A 20% advance withholding rule applies on withdrawals unless the distribution is: • In the form of an annuity payout • Spread over 10 years or longer • A direct company to company transfer (rollover) Premature withdrawals are subject to a 10% tax penalty, except in the case of • Death or permanent or indefinite disability • Retirement after reaching age 55 • Taking a distribution based on life expectancy for at least five years and until you reach 59½ • Hardship withdrawal to meet medical expenses which exceed 7.5% AGI http://www.360financialliteracy.org/Tools/Calculators/403-b-Savings-Calculator3?fpath=197
- Please visit our website to get more information about Jennings Group. We are located on Eastman Road across from DB tennis courts.