I recently made a presentation to financial industry professionals regarding tax issues for Estate & Trusts gifts. Here is a movie of the slideshow presentation. Have questions? Feel free to contact me!
What is the best way to keep the Feds hands out of your Swiss bank account? Make sure you file your FBAR (Report of Foreign Bank and Financial Accounts) by the deadline on June 30, 2014. This filing requirement applies if you had a foreign bank account balance over $10,000 during the course of 2013. To file you need to complete the form FinCEN Report 114 electronically.
There are big penalties for not filing the FBAR. The penalties can range from $500 up to the greater of $100,000 or 50 percent of the account balances, and in some case criminal penalties can apply.
If you have an FBAR filing requirement there is a chance you might have other foreign reporting requirements as well. Contact a CPA to determine what your needs are.
It’s almost summer and if you are thinking about buying a vacation home you might be wondering what the tax ramifications are. Some expenses, including mortgage interest and real estate taxes, are generally deductible on Schedule A the same way they are for primary homes. You will need to watch for the dollar limits ($1 million or less, $500,000 or less if married filing separately) on the combined mortgage interest of your main home and vacation home.
You might consider renting the vacation home out during times when you aren’t enjoying it yourself. There’s a neat rule that says if you rent the property for less than 14 days during the year, you do NOT have to report the rental income. But once you go over 14 days you will need to report the rental income and expenses on Schedule E. At that point speak with your CPA to figure out how to best take advantage of that situation.
Make sure you have the following information handy:
– Bank account information (you will be setting up an electronic payment)
– Your employer information
– Tax return information
– Prior year’s adjusted gross income amount
– Your (and your spouse if you filed jointly) social security number and date of birth
– The amount per month you can afford to pay
It is very important that if you set up a payment plan you stick with it! If you default on your payment plan the IRS will move you into their collections process. You also need to make sure that you get your tax payments caught up in the current year either through payroll withholding or by making estimated quarterly tax payments.
The cost of high education keeps rising. If you, or a dependent, are in college make sure you take advantage of the tax breaks you might be eligible for. The neat thing here is that you are allowed to take the credit or deduction with the best tax benefit for you. So hand your CPA that 1098-T tuition statement and make sure he or she chooses the right one for your situation!
American Opportunities Credit (AOTC)
The AOTC (formerly the Hope Credit) is available for the first four years of college when a student is pursing a degree. Eligible students can get up to $2,500 annually. To be eligible the student must be enrolled at least half time, have not claimed the AOTC or the Hope Credit for more than four years, and not have a felony drug conviction.
The bad news- the AOTC might be limited depending on your income. If your income is over $90,000 for single or $180,000 for married filing jointly you cannot claim the credit.
Lifetime Learning Credit (LLC)
The LLC is available for an unlimited number of years for undergraduate, graduate and professional degree courses. The credit is worth up to $2,000 per tax return. Claim the LLC if the student is still in school after the AOTC has run out.
The bad news- the LLC might be limited depending on your income. If your income is over $62,000 for single or $124,000 for married filing jointly you cannot claim the credit.
Tuition and Fees Deduction
The tuition and fees deduction works a little differently than the AOTC and LLC. The deduction reduces your income by up to $4,000 without requiring you to itemize your deductions. This can be helpful if you are not eligible for the tax credits above.
The bad news- the deduction might be limited depending on your income. If your income is over $80,000 for single or $160,000 for married filing jointly you cannot claim the credit. Married filing separately filers cannot claim the deduction.
The business tax return deadline is quickly coming! Normally C- and S- corporation tax returns are due on March 15th, but this year that date is a Saturday so the kind folks at the IRS make the following Monday, March 17th the deadline instead.
At this point if you haven’t gotten your information to your CPA yet you are probably going to go on extension. This is done by filing IRS Form 7004. This gives you an extra 6 months- until September 15- to complete your tax return. For C-corporations if you owe any tax for the 2013 year this form allows you make a payment for the balance due.
People often ask me how long they need to hold on to tax returns and related documents. The hoarder in me says to keep them forever- just incase! But the IRS says that you really only need to hold onto tax return and supporting documentation (like W-2s, 1099s, deduction receipts) for three years after the date of filing (April 15th or later if you filed an extension).
There are a few exceptions to this though. If you under reported your income by 25% or more the IRS can look back six or even seven years. And if you don’t file a return or file fraudulent returns then there is no statute of limitations so the IRS can come after you at any time!
Can’t stand the clutter? You don’t have to hold onto paper records. The IRS will accept digital copies. I keep my important records in Dropbox.
There is a simplified home office deduction new for the 2013. This is a great thing for those work-at-home types. To calculate the deduction you take the square footage of the home office and multiply it by $5 per square foot, with a maximum deduction of $1,500. If you use the simplified method you don’t even need to file that extra form anymore- it goes right on the Schedule C, line 30 (see it here).
Here’s the catch- in some cases the traditional method of calculating the home office deduction will result in a bigger deduction. This could happen if you have a lot of direct expenses, such as paying for repairs and maintenance specifically to your home office. That means that you might still want to go through the whole long, complex calculation anyway. Check with your CPA to see what is your best bet.
When people get married or divorced or a spouse dies during a year, it can be confusing to determine what the filing status of that year should be. The IRS determines your filing status based on what you are on December 31 of that tax year. This means that whether you got married on January 1 or December 31 of 2013, you are considered married by the IRS for the whole year. Sometimes more than one status applies. If that is the case, you can choose the one that leaves you with the least amount of tax. The IRS doesn’t often give you that luxury!
If 2013 came and went and you did not manage to put away money for retirement, you may be in luck. If you have an individual retirement account (IRA) or a Roth IRA you can make your contribution up until you file your 2013 taxes, including extensions. This gives you a little extra time to knock this important item off of your to-do list. The contribution limits for 2013 were $5,500 ($6,500 if you are over 50).