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“Taxing” is a word synonymous with “onerous” and “wearing.” Bond Beebe, Accountants & Advisors, have created a user friendly blog called “It’s Taxing” to inform and educate our clients and business associates on timely topics related to tax, estates, accounting and finance. We hope our blog answers your questions and alleviates the heavy burden and anxiety related to understanding complicated tax laws and related matters.
Summertime is commonly a time to relax and take a break from the pressure of everyday life. However, a little planning now while things are otherwise slow can go a long way towards simplifying your life at the end of the year when tax and financial planning are frequently undertaken.
Mid-year tax planning can give you more time to map out and execute a smart plan that can save you time and money later. It can also be a good time to discuss your situation and get planning advice from your tax or investment professional while they have more time available.
Here are a few taxing items to consider:
Changes in your life – Did you get married, divorced or gain or lose a dependent? Did you or your spouse get a new or additional job? Any of these can affect your tax and may require an adjustment in your withholding or estimates to keep you from being under- (or over-) withheld come tax time. It may also offer new deduction opportunities (or drawbacks) for you.
Are you taking full advantage of your retirement plan options? At a minimum everyone should contribute enough to get their employer’s full matching contribution. Ideally you should strive to increase your contribution every year until you get to the maximum contribution limit; for a standard 401(k) or 403(b) plan that is currently $18,000 + $6000 more if you are age 50 or more. If your income is below the phaseout for a Roth ($183,000 to $193,000 for married people) consider a contribution here as well: $5,500 + $1,000 more if you are age 50 or older. Make sure your beneficiary designations are correct.
Consider your itemized deductions. Too often people only look at these after the year is over. At that point there’s no planning left to be done. Considering your medical or miscellaneous deductions now can allow you to shift some costs into the current or next year to maximize the potential deduction. Consider making donations to charity now rather than waiting until December.
You can plan your charitable giving budget and allocate the money to the causes you like the best. Get a batch of unused clothing and household items together while you have time to document the details of what you are donating and their value rather than the “3 bags of clothing” descriptions we see all too often. Vague listings like this aren’t likely to get you full value for your donation and are difficult to support in an audit. (See our prior posts on charitable deductions and documentation)
Review your insurance coverage. Auto, life, home and health; any changes in your life can require updates to your policies. Shop for competitive quotes every year or two, before your policies are due to renew to be sure you are getting the best value. Make sure the limits are consistent with your current situation and your beneficiaries are also current.
Review your investments. Check on your taxable gain or loss to date and review whether you have any clunkers that it might be time to sell. Too often this is only done at the end of December, and as a result, many tax planning opportunities are lost. A good review plan would include considering whether your investment goals have changed and is your portfolio consistent with your current goals and needs. Based on this, you might consider asset allocation, reviewing individual holdings for performance and to see whether they still make sense to your portfolio, and evaluating whether you have sufficient liquidity available to meet any expected needs over the next 6 months to a year.
A little planning now could save you some money later as well as time trying to manage this at the end of the year when it becomes a crisis.
As part of the Affordable Care Act, the IRS was charged with collecting a fee from health insurers and plan sponsors of self-insured plans each year, for seven years, to help fund the Patient-Centered Outcomes Research Institute (PCORI). These so-called “PCORI Fees” are a set fee based on the average number of lives covered by the plan during the year. The fee started at $1 but increases with inflation, and is currently at $2.08 per average number of lives covered for years ended after September 30, 2014 and before October 1, 2015. The fees should stop being collected beyond years ending after October 1, 2019.
Under most plans, the health insurer is responsible for paying the fee and filing. However, if you have a self-insured plan, the plan sponsor is responsible. That is usually the employer in a self-insured plan.
Under a self-insured plan, the employer must file Form 720 (Quarterly Federal Excise Tax Return) and pay the fee using the Electronic Federal Tax Payment System (EFTPS). The form and fee are due July 31, 2015. The form itself is very simple but there is some nuance in calculating the average number of covered lives. More details on that calculation can be found in IRB 2012-52.
The IRS has a detailed Q&A here.
If you need help filing the form, or have any questions, please feel free to contact Bond Beebe.
The Maryland General Assembly has released more details about the Maryland Tax Amnesty Program. This program waives all civil penalties and one half of the interest for delinquent taxpayers who apply and are approved. We shared some information about the Tax Amnesty Program in April. To read more about the program and how it may affect you, visit taxes.maryland.com.
The IRS announced on Tuesday that identity thieves were able to access tax transcript information of more than 100,000 tax accounts through their “Get Transcript” application. Prior knowledge of personal information allowed the criminals to pass a multi-step authentication process to access the tax transcripts. The IRS believes approximately 200,000 attempts to access transcript information were made in total from “questionable e-mail domains” starting in February and ending in mid-May, with more than 100,000 gaining access.
The IRS has temporarily disabled the “Get Transcript” application. They also plan to contact via mail those 200,000 taxpayers whose accounts the criminals had attempted access. For those 100,000 accounts that were successfully accessed, the IRS will be offering free credit monitoring. The letters to those affected are set to be mailed later this week.
You can read the full IRS statement here.
On Monday, May 18th, the Supreme Court ruled that Maryland’s income tax law for income earned outside of the state is unconstitutional. The court voted 5-4 to affirm a 2013 Maryland Court of Appeals decision. The case specifically addressed Maryland’s denial of credits against the MD county income tax, otherwise known as the ‘piggy-back’ local tax. Going forward, residents who earn out-of-state income from certain businesses/sources will be able to claim a credit against the county taxes paid, too. This decision may cost Maryland an estimated $42 million a year in revenue.
Much has been written about the benefits of Roth versus Traditional IRAs, and over the past several
years a popular “backdoor Roth” conversion has made headlines as well. As a refresher, this method allows high-income taxpayers, who are excluded from making direct contributions to Roth IRAs, the ability to make non-deductible contributions to a Traditional IRA, and then immediately convert that amount to a Roth. The net effect, ideally, is minimal tax on any earnings between the date of contribution and the conversion, and years of tax-free growth in a Roth account moving forward. This is especially beneficial for young people who can benefit from growth over time, and can avoid theoretically higher tax rates in the future when distributions may be taken. Furthermore, required minimum distributions do not apply to Roth accounts.
On the surface, there doesn’t appear to be much downside. However, many taxpayers found out the hard way that there can be significant tax implications if other IRAs exist at the time of conversion. This is true because the IRS considers the value of all IRA assets at the time of conversion. For instance, if you had a Traditional IRA account with pre-tax assets of $544,500, made a $5,500 non-deductible IRA contribution and then immediately converted that $5,500 to a Roth account, 99% (or $5,445) would be taxable. In addition to creating an unintended tax liability, it also creates an administrative burden to track the amount on which tax has already been paid.
There have recently been a series of cases decided by the Tax Courts disallowing charitable contributions due to a lack of proper documentation about them. The rules here (under Code Section 170(f)(8)) are precise and strict:
For Maryland individuals and corporations past due on filing Maryland tax returns and paying Maryland taxes, the Maryland legislature has passed a tax amnesty bill which is awaiting the governor’s signature. The amnesty will apply to corporate and individual income taxes, withholding tax, sales and use tax or admissions and amusement tax and will waive all penalties and one half of the interest due. Although the bill takes effect June 1, 2015, the amnesty period will be starting on September 1, 2015 and run through October 31, 2015. See Senate Bill 763 for more information.