It’s tax season. Now is the time we scramble to find forms and receipts. We wonder if we should have done something to help in lowering our taxes. It’s a good time to plan for 2012 while pulling together the information to complete the 2011 return. There are some things we can still do for 2011 and certainly now is the time to start preparing for 2012.
Let’s talk about organization. At a minimum you should have a folder, envelope, or yes, even a shoe box to store pertinent receipts as you get them. But going through that pile of receipts will take time, cost money (if done by your CPA), and likely result in errors. The IRS, your CPA and tax software all step through tax preparation from income to deductions to payments. Your files should be organized the same way.
For income:
• Keep pay stubs until you receive a W-2.
• Keep bank statements and brokerage statements until you receive a 1099.
• If you are self employed keep all income and expense records related to the business separate from your personal expenses. Vehicle expense records should be maintained during the year. Keep a notebook in the vehicle to record business usage.
• If you rent part of your home or use it for your business, records of expenses to maintain the home should be kept.
• If you rent property, keep those income and expense records in its own folder.
If you’ve maintained income records all year you can verify that you received each W-2 and 1099 that you should have. Having the IRS discover missing income forms could significantly change your return.
For deductions:
The best way to save supporting documents is in folders or envelopes by category – medical expenses, charitable contributions, education expenses, etc. At a minimum, keep all receipts, write an explanation on the receipt and save. Although the IRS doesn’t require copies with the return, you must be able to provide supporting documentation for every deduction if you are audited. If you don’t have the documentation, the deduction could be disallowed.
OK. You’ll make a resolution to get organized for 2012, but you weren’t for 2011. What now? Start digging. Make sure you have a W-2 for each job you had. Make sure you have a 1099-INT from each of your banks, a 1098 from your mortgage company. Look at the 2010 return. Are there items reported on the return that occurred again in 2011? Do you have the form? Look for deductions. Did a child start college? Did you pay for child care? What about medical costs? Chain pharmacies can provide reports of prescription costs. Were you looking for a job? Job search expenses may be deductible. Did you buy a house or refinance a mortgage? Did you contribute to an IRA? This is one step you can still make and impact your 2011 taxes. The more you find, the more accurate your return.
Committing to treating tax preparation as a year round activity could save you money (no lost deductions). It will certainly save you time and anxiety when facing the filing deadline.
IRS Circular 230 Disclosure
Pursuant to U.S. Treasury Department Regulations, we are now required to advise you that any federal tax advice contained in this communication, including attachments and enclosures, is not intended by the Sender or Sandra G Johnson, CPA, P.C. to constitute a covered opinion pursuant to regulation section 10.35 or to be used for the purpose of (i) avoiding tax-related penalties under Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any tax-related matters addressed herein.
Saturday, February 18, 2012
Wednesday, December 14, 2011
10 Year-End Tax Tips
1. Review your portfolio. Consider taking a loss if you have substantial capital gains.
2. Max out your retirement plan contributions. 2011 maximum IRA contribution is $5,000 (plus $1,000 if age 50 or over). 2011 maximum 401(k) contribution is $16,500 (plus $5,500 if age 50 or over).
3. Consider contributing to a 529 Plan if you have children. For example, New York allows a deduction up to $5,000 (or $10,000 for married filing joint filers) for contributions made by an account owner to an account belonging to New York’s 529 College Savings Plan.
4. Use up your flexible spending plan.
5. Save receipts for medical supplies and equipment such as insulin testing supplies, canes, braces, orthotics, eyeglasses, contact lens and hearing aids, etc. Medical expenses that exceed 7.5% of AGI are deductible.
6. If you’re self-employed, stock up on supplies.
7. Prepay your state and/or local taxes.
8. Make charitable donations and be sure to get a receipt. If you are age 70 ½ or over and have an IRA, consider a direct transfer to an eligible charity of up to $100,000 per year. Such a transfer is not taxed and may be used towards your required minimum distribution for the year.
9. Save receipts that include sales tax on big ticket items, such as a car, boat, etc.
10. Save receipts for job search expenses, if you looked for a job in your present occupation. Resume preparation and mailing and travel are examples of deductible expenses. The portion of these expenses that exceed 2% of AGI are deductible.
IRS Circular 230 Disclosure
Pursuant to U.S. Treasury Department Regulations, we are now required to advise you that any federal tax advice contained in this communication, including attachments and enclosures, is not intended by the Sender or Sandra G Johnson, CPA, P.C. to constitute a covered opinion pursuant to regulation section 10.35 or to be used for the purpose of (i) avoiding tax-related penalties under Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any tax-related matters addressed herein.
2. Max out your retirement plan contributions. 2011 maximum IRA contribution is $5,000 (plus $1,000 if age 50 or over). 2011 maximum 401(k) contribution is $16,500 (plus $5,500 if age 50 or over).
3. Consider contributing to a 529 Plan if you have children. For example, New York allows a deduction up to $5,000 (or $10,000 for married filing joint filers) for contributions made by an account owner to an account belonging to New York’s 529 College Savings Plan.
4. Use up your flexible spending plan.
5. Save receipts for medical supplies and equipment such as insulin testing supplies, canes, braces, orthotics, eyeglasses, contact lens and hearing aids, etc. Medical expenses that exceed 7.5% of AGI are deductible.
6. If you’re self-employed, stock up on supplies.
7. Prepay your state and/or local taxes.
8. Make charitable donations and be sure to get a receipt. If you are age 70 ½ or over and have an IRA, consider a direct transfer to an eligible charity of up to $100,000 per year. Such a transfer is not taxed and may be used towards your required minimum distribution for the year.
9. Save receipts that include sales tax on big ticket items, such as a car, boat, etc.
10. Save receipts for job search expenses, if you looked for a job in your present occupation. Resume preparation and mailing and travel are examples of deductible expenses. The portion of these expenses that exceed 2% of AGI are deductible.
IRS Circular 230 Disclosure
Pursuant to U.S. Treasury Department Regulations, we are now required to advise you that any federal tax advice contained in this communication, including attachments and enclosures, is not intended by the Sender or Sandra G Johnson, CPA, P.C. to constitute a covered opinion pursuant to regulation section 10.35 or to be used for the purpose of (i) avoiding tax-related penalties under Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any tax-related matters addressed herein.
Wednesday, September 21, 2011
New York’s Marriage Equality Act
As of July 24, 2011, New York enacted the Marriage Equality Act making the gender of the partners of a marriage irrelevant. This means the state cannot consider gender when deciding on benefits, rights, or responsibilities connected with marriage and no application for marriage can be denied based on the gender of the partners to be married.
To understand the implications of New York’s law, it will be helpful to review the Federal law, The Defense of Marriage Act. DOMA forbids the federal government from recognizing same sex marriage. Same sex spouses are excluded from federal benefits and protections including Social Security Survivor benefits, the right to file jointly, the right to family leave, the right to petition for permanent residence for a foreign spouse. Additionally, employee benefit plans governed by the Employee Retirement Income Security Act (ERISA), a federal law, are subject to DOMA. Most retirement savings plans and pensions are governed by ERISA. DOMA also permits states to disregard the marital status of same sex couples married in other jurisdictions. New York happens to recognize the marital status of same sex couples from other states.
The interaction of the state and federal laws present some challenges. Perhaps the easiest to describe but certainly more complicated and expensive for the same-sex married couple is preparing tax returns.
The new state law requires all married couples, same sex or opposite sex, to file married (filing jointly or filing separately). The federal law does not allow same sex partners in a marriage to file married. They must file single, or if applicable, head of household.
The process for compiling a tax return for the married same sex couple is complicated. Each person must prepare and file a federal return as single (or head of household). Then a combined federal return must be prepared (not filed) as if the marriage was recognized by the federal government. It will be this return that is used to create a New York State married filing jointly return.
A couple married by Dec 31, 2011 is considered married for tax year 2011. The law does not allow for retroactive changes to prior tax years.
The estate tax is also impacted by the interaction of state and federal law. For federal estate tax purposes, the decedent and same sex spouse are considered unmarried and, therefore, the unlimited marital exclusion does not apply. For NYS tax purposes, the federal return must be redone as if the marriage was recognized by the federal government so the appropriate numbers may be transferred to the NYS estate tax return. The estate tax provisions are effective for a decedent with a same sex spouse dying on or after July 24, 2011.
The effects on benefits provided by employers are also complicated. Since many plans are governed by federal laws, the contributions by the same sex spouse for those plans can not be pre-tax for federal tax reporting. However, with the NY law, those contributions are pre-tax for state tax purposes. Some same sex couples have taken advantage of employers’ domestic partner benefits where the same sex spouse has been taxed on the value of the benefit. For NY state tax purposes, these benefits are no longer taxable.
An interesting consequence of the state law is that some employers are deciding not to offer domestic partner benefits requiring New York couples to marry to receive benefits. This impacts non-married heterosexual couples as well.
The decision to marry is rarely based on tax implications alone. However, tax treatment can be quite different when filing married or single. Remembering that the taxpayers only have this choice for state taxes, some areas of consideration are:
• The income of each partner. When there is a disparity of income, one high, one low, it is usually beneficial to file jointly (married)
• The deductions of each partner. Higher income could limit taking some deductions when filing jointly (medical)
• Capital gains/losses. If one partner has loss, the other a gain, joining forces could be financially beneficial.
• Domestic partner health coverage is currently taxable as income. It would not be taxable if married.
The Marriage Equality Act has consequences beyond taxation. And certainly recognition from New York State does not provide the equality same sex couples are seeking. Same sex couples, even after marriage, must be aware of the nuances of the laws and continue to protect their interests through all legal avenues available.
IRS Circular 230 Disclosure
Pursuant to U.S. Treasury Department Regulations, we are now required to advise you that any federal tax advice contained in this communication, including attachments and enclosures, is not intended by the Sender or Sandra G Johnson, CPA, P.C. to constitute a covered opinion pursuant to regulation section 10.35 or to be used for the purpose of (i) avoiding tax-related penalties under Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any tax-related matters addressed herein.
DISCLAIMER
Privileged/Confidential information may be contained in this message and any related attachments. If you are not the addressee indicated in this message (or responsible for delivery of the message to such person), you may not copy, review, distribute or forward the contents of this message to anyone. In such case, you should notify the sender by reply e-mail and delete this message from your computer.
To understand the implications of New York’s law, it will be helpful to review the Federal law, The Defense of Marriage Act. DOMA forbids the federal government from recognizing same sex marriage. Same sex spouses are excluded from federal benefits and protections including Social Security Survivor benefits, the right to file jointly, the right to family leave, the right to petition for permanent residence for a foreign spouse. Additionally, employee benefit plans governed by the Employee Retirement Income Security Act (ERISA), a federal law, are subject to DOMA. Most retirement savings plans and pensions are governed by ERISA. DOMA also permits states to disregard the marital status of same sex couples married in other jurisdictions. New York happens to recognize the marital status of same sex couples from other states.
The interaction of the state and federal laws present some challenges. Perhaps the easiest to describe but certainly more complicated and expensive for the same-sex married couple is preparing tax returns.
The new state law requires all married couples, same sex or opposite sex, to file married (filing jointly or filing separately). The federal law does not allow same sex partners in a marriage to file married. They must file single, or if applicable, head of household.
The process for compiling a tax return for the married same sex couple is complicated. Each person must prepare and file a federal return as single (or head of household). Then a combined federal return must be prepared (not filed) as if the marriage was recognized by the federal government. It will be this return that is used to create a New York State married filing jointly return.
A couple married by Dec 31, 2011 is considered married for tax year 2011. The law does not allow for retroactive changes to prior tax years.
The estate tax is also impacted by the interaction of state and federal law. For federal estate tax purposes, the decedent and same sex spouse are considered unmarried and, therefore, the unlimited marital exclusion does not apply. For NYS tax purposes, the federal return must be redone as if the marriage was recognized by the federal government so the appropriate numbers may be transferred to the NYS estate tax return. The estate tax provisions are effective for a decedent with a same sex spouse dying on or after July 24, 2011.
The effects on benefits provided by employers are also complicated. Since many plans are governed by federal laws, the contributions by the same sex spouse for those plans can not be pre-tax for federal tax reporting. However, with the NY law, those contributions are pre-tax for state tax purposes. Some same sex couples have taken advantage of employers’ domestic partner benefits where the same sex spouse has been taxed on the value of the benefit. For NY state tax purposes, these benefits are no longer taxable.
An interesting consequence of the state law is that some employers are deciding not to offer domestic partner benefits requiring New York couples to marry to receive benefits. This impacts non-married heterosexual couples as well.
The decision to marry is rarely based on tax implications alone. However, tax treatment can be quite different when filing married or single. Remembering that the taxpayers only have this choice for state taxes, some areas of consideration are:
• The income of each partner. When there is a disparity of income, one high, one low, it is usually beneficial to file jointly (married)
• The deductions of each partner. Higher income could limit taking some deductions when filing jointly (medical)
• Capital gains/losses. If one partner has loss, the other a gain, joining forces could be financially beneficial.
• Domestic partner health coverage is currently taxable as income. It would not be taxable if married.
The Marriage Equality Act has consequences beyond taxation. And certainly recognition from New York State does not provide the equality same sex couples are seeking. Same sex couples, even after marriage, must be aware of the nuances of the laws and continue to protect their interests through all legal avenues available.
IRS Circular 230 Disclosure
Pursuant to U.S. Treasury Department Regulations, we are now required to advise you that any federal tax advice contained in this communication, including attachments and enclosures, is not intended by the Sender or Sandra G Johnson, CPA, P.C. to constitute a covered opinion pursuant to regulation section 10.35 or to be used for the purpose of (i) avoiding tax-related penalties under Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any tax-related matters addressed herein.
DISCLAIMER
Privileged/Confidential information may be contained in this message and any related attachments. If you are not the addressee indicated in this message (or responsible for delivery of the message to such person), you may not copy, review, distribute or forward the contents of this message to anyone. In such case, you should notify the sender by reply e-mail and delete this message from your computer.
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