Friday, December 19, 2014

2014 Changes to Capitalization of Tangible Property Costs

Final rules and regulations became effective during 2014 for handling the acquisition, repair, improvement and disposition of real estate and tangible personal property. Many types of expenditures are covered in the final regulations, and they will likely affect all taxpayers that acquire, produce or improve tangible property.  A review of current accounting practices and policies, potential adjustments of tax methods used to account for acquisitions and dispositions, and possible tax compliance changes involving tax elections and changes in accounting methods will be necessary due to the new rules. These changes can increase tax savings in 2014.

Here are the major highlights:

Acquisition of Tangible Property

  • De Mimimis Rule: A taxpayer may have a written policy in place that elects a de minimis safe harbor for deducting purchases of or tangible property under a specified amount.  For most taxpayers this amount will be $500, for taxpayers with Audited Financial Statements the amount could be up to $5,000

  • Materials and Supplies: A taxpayer may deduct items with an acquisition or production cost up to $200. The rules provide specific elections for rotable, temporary and emergency spare parts.

  • Routine Maintenance: A taxpayer with recurring costs required to keep property in its ordinarily efficient operating condition and not improve the property may qualify for deduction as routine maintenance. An expenditure, regardless of size would be considered routine maintenance if activities and costs are expected to be incurred more than once during the asset class life.

  • Major Components and Structural Parts: A taxpayer must identify each unit of property and apply the capitalization rules. While a building is generally considered a relevant unit of property, the rules are applied to each building structure or system that has a discrete and critical function. Unit of property - One key concept in the regulations is the "unit of property"(UOP) that is being improved or repaired. The smaller the UOP, the more likely it is that costs incurred in connection with it will have to be capitalized.
    • For example, work on an engine of a vehicle is more likely to be classified as an expense that must be capitalized if the engine is classified as a separate UOP.

  • Repairs and Improvements: A cost for repairs or improvements of units of property is generally capitalized when the cost results in betterment, restoration or adaption of units of property to a new or different use. They are deductible if consistent with the intended, ordinary use of property.  In 2014 you can use these rules to change the classification of these items from past years.

Disposition of Tangible Property

  • Substitution of Costs: An acquisition of property may result in a disposition if it is permanently withdrawn from use, including sale, exchange, retirement, abandonment, transfer or destruction. The acquisition is capitalized and loss is claimed on any undepreciated cost of original property.

  • Partial Disposition Rules: A loss deduction may be elected on a partial disposal of a portion of structural components. A simplified method is used to determine adjusted basis for disposition.  In the 2014 there is a onetime chance to go back to previous years and take a current year deduction for all partial dispositions that took place in prior years.

The new law contains many potential accounting and tax compliance changes that will need to be addressed during the preparation of the 2014 financial statements and tax returns. The impact may include changes in accounting policies, accounting methods, and additional tax elections in order to comply with the new rules prospectively. Please be prepared to discuss these issues with us in the coming months.

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Saturday, November 15, 2014

Borrowing From Your 401(k) Can Have Tax Consequences

If you participate in a 401(k) plan at work, you’re probably planning for retirement. But if you need money before retirement, should you borrow from your 401(k)?

Whether that’s a good idea depends on your personal financial situation – and in the process of making the decision about lending money to yourself, you may have questions regarding the tax consequences.

For instance, though you probably know the initial borrowing has no federal income tax effect, you might be wondering whether the interest you pay will be deductible. In general, the answer is no. That’s true even when you use 401(k) loan proceeds for your home.

Ordinary loan repayments are not taxable events either. That is, you don’t have to pick up the interest you repay into your account as taxable income. And, though you’re increasing your 401(k) account with the principal portion of each payment, that amount is not considered a contribution. You can still make pre-tax contributions up to the annual limit ($17,500 for a traditional 401(k) during 2014, plus an additional $5,500 when you’re age 50 or older).

What if you default on the 401(k) loan? The balance of your loan is considered a distribution to you, and you’ll have to report it as ordinary income on your federal tax return. In addition, when you’re under age 59½, a 10% early-withdrawal penalty typically applies.

Borrowing from a 401(k) is an important financial decision, and it’s essential to review all of the tax and financial implications before you sign the loan documents. Contact us for any assistance you need.
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Don't Lose Your Financial Records in a Disaster

Every year there are natural disasters that remind us how easily we can lose essential tax and financial records. After a disaster, you’re more likely than ever to need certain records to file insurance claims or apply for loans.

It’s smart to take the time before a disaster to identify key records, make copies, and find a secure place to store them. Here are some suggestions to get you started.

You don’t need to copy every tax and financial record. Your banks, credit card companies, and investment brokerages will have records of your accounts and can probably supply details of recent transactions if needed. Your employer will have current payroll records, and IRA or 401(k) plan trustees will have details of your accounts.

Keep a master list of all account numbers, with a contact phone number for each. That will make it easier to recover information after a disaster. If you handle transactions online, include your user ID and passwords.

Keep copies documenting the purchase of your home or investment properties. Also keep records of expenses for remodels or other improvements that change your cost basis in the property.

Your broker should have details of your original investments in stocks or bonds, but copy details of any investments you purchased independently. That includes numbers of U.S. savings bonds that you own.  If you change investment firms, ensure that your new advisor has all cost basis information for your account.

Make sure your will and estate planning documents are stored safely, either at your lawyer’s office or in another secure place.

Keep copies of your last three years’ tax returns, even if your tax preparer has duplicates.  Copies of older returns along with supporting documents should be retained if you have carryforwards on your returns.  And finally, include a recent backup disk from your home computer.

The best place to store your records depends on a number of factors. A bank safe deposit box should protect against most disasters. Sometimes a fireproof home safe is sufficient. Wherever you decide to keep your records, take the time to prepare now.

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Regroup and Refocus to Save Taxes Before Year End

Cheer up tax procrastinators! November is not too late to regroup and refocus your tax planning efforts before year-end.

Start by examining your withholdings and estimated tax payments to make sure you are not heading toward a penalty. Remember to consider any life changes this year; a change in marital status, dependents, or job can put your withholdings out of whack. Are your gifts to charity or retirement plan contributions on track? If you’ve been putting these off, there may still be time to get back on schedule.

Once you know where you stand, there are several things you can do to refocus your tax-saving efforts. For one, zero in on your taxable portfolio. Taxpayers with capital gains this year should consider harvesting some capital losses to offset those gains. This is particularly important with the new Medicare surtax on net investment income, which is a tax of 3.8% on the lower of net investment income or excess modified adjusted gross income above $200,000 for singles and $250,000 for joint filers. Taxpayers with long-term appreciated stock might consider donating some to charity to score a tax deduction equal to the stock’s market value.

You can also help reduce taxable income by what you put into your portfolio. Tax-exempt municipal bonds pay interest that is excludable from taxable income and the Medicare surtax. Also be aware that many mutual funds pay their annual dividends in December, so before you purchase anything this time of the year, check to determine the impact on your taxes. Another strategy is to put some of your discretionary funds into your child’s education savings account or Section 529 account.

This time of the year it’s all about lowering taxable income and raising deductions. Taking some strategic steps now might pay big dividends come tax time.
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Monday, September 22, 2014

Your Small Business Should Establish Internal Controls

A lack of basic internal controls can leave your company vulnerable to pilferage, embezzlement, and other types of misappropriation.

Small firms generally can’t afford to hire internal auditors or set up separate divisions to break up duties. But even smaller companies can establish controls in certain high-risk areas, such as the following:

Cash disbursements. If at all possible, the owner/manager should sign checks. This control has a dual purpose: management sees how the company is spending its money, and the cash disbursement function is kept separate from bookkeeping or accounting. If the same person signs checks and enters disbursement transactions in the accounting records, embezzlement is harder to prevent. Requiring two signatures on checks above a certain amount also provides greater control.

Customer collections. Consider having the owner/manager open the mail, especially if customer collections are a regular part of your business. Alternatively, you might ask someone separate from the accounting function to open the mail and prepare the deposit slip. Of course, the practice of making daily deposits is also a good control.

Personnel practices. By taking care to perform background checks before hiring key employees, especially those who will be handling cash or other high-risk assets, you can prevent problems later on. Of course, financial pressures, addictions, and other factors can corrupt even good employees.

Perhaps a small business’s greatest control is the “tone at the top.” If management sets a high standard, employees generally follow. However, if a manager is perceived as lax – for example, he or she doesn’t respond quickly when evidence of misappropriation surfaces – employees might conclude that theft isn’t such a big deal.

Remember this: A company that fails to establish minimum controls is providing a golden opportunity for fraud. If you’d like help reviewing your firm’s controls, give us a call.

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Monday, September 8, 2014

Scam Phone Calls Continue

IRS Identifies Five Easy Ways to Spot Suspicious Calls

The Internal Revenue Service recently issued a consumer alert providing taxpayers with additional tips to protect themselves from telephone scam artists calling and pretending to be with the IRS. 

These callers may demand money or may say you have a refund due and try to trick you into sharing private information. These con artists can sound convincing when they call. They may know a lot about you, and they usually alter the caller ID to make it look like the IRS is calling. They use fake names and bogus IRS identification badge numbers. If you don’t answer, they often leave an “urgent” callback request.

The IRS reminds people that they can know pretty easily when a supposed IRS caller is a fake. Here are five things the scammers often do but the IRS will not do. Any one of these five things is a tell-tale sign of a scam. The IRS will never:

1. Call you about taxes you owe without first mailing you an official notice.
2. Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
3. Require you to use a specific payment method for your taxes, such as a prepaid debit card.
4. Ask for credit or debit card numbers over the phone.
5. Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.

If you get a phone call from someone claiming to be from the IRS and asking for money, here’s what you should do:

  • If you know you owe taxes or think you might owe, call the IRS at 1.800.829.1040. The IRS workers can help you with a payment issue.
  • If you know you don’t owe taxes or have no reason to believe that you do, report the incident to the Treasury Inspector General for Tax Administration (TIGTA) at 1.800.366.4484 or at
  • If you’ve been targeted by this scam, also contact the Federal Trade Commission and use their “FTC Complaint Assistant” at Please add "IRS Telephone Scam" to the comments of your complaint.

Remember, too, the IRS does not use email, text messages or any social media to discuss your personal tax issue. For more information on reporting tax scams, go to and type “scam” in the search box.

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Information taken from

Saturday, July 12, 2014

IRS Releases Taxpayer Bill of Rights

The Internal Revenue Service announced in June the adoption of a Taxpayer Bill of Rights that will become a cornerstone document to provide the nation's taxpayers with a better understanding of their rights.  The Taxpayer Bill of Rights takes the multiple existing rights embedded in the tax code and groups them into ten broad categories, making them more visible and easier for taxpayers to find on  The rights are included in IRS Publication 1, "Your Rights as a Taxpayer," and information is also prominent on the IRS home page at  The ten provisions are as follows:


1.     The Right to Be Informed

2.     The Right to Quality Service

3.     The Right to Pay No More than the Correct Amount of Tax

4.     The Right to Challenge the IRS's Position and Be Heard

5.     The Right to Appeal an IRS Decision in an Independent Forum

6.     The Right to Finality

7.     The Right to Privacy

8.     The Right to Confidentiality

9.     The Right to Retain Representation

10.       The Right to a Fair and Just Tax System


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Monday, June 30, 2014

Handling Indiana Personal Property Tax Notices

The personal property tax return filing deadline was May 15, 2014.  Should you receive a notice from the assessor’s office, you have forty-five days from the mailing date to respond or appeal.  If you receive a notice and have a question, call or fax a copy to the attention of Stephen A. Sienicki, CPA at FAX (219)736-4876.

Saturday, June 28, 2014

Will Your Shareholder Loan Stand Up to IRS Scrutiny?

Borrowing from your closely held corporation may seem simple, but without proper planning it can be painfully expensive. The IRS often reviews such loans to determine if they’re merely disguised cash withdrawals. For example, the IRS may treat an improperly structured loan as a dividend, which would be taxable to you and not deductible by the corporation.

The IRS generally asks the following questions when evaluating a corporation’s loan to one of its shareholders:

    Does the borrowing shareholder control the corporation? The greater the degree of control, the more closely the loan will be scrutinized.

    Did the corporation require adequate collateral for the loan?

    Is the borrower financially able to repay the loan within a reasonable time period?

    Did the shareholder sign a promissory note with an appropriate interest rate, a reasonable repayment schedule, and a fixed maturity date?

    Has the borrower been making the required payments on schedule?

    If the borrower missed one or more payments, has the corporation tried to collect?

When a corporation lends money to one of its shareholders, the transaction should be structured as though it were being made to an unrelated party – a stranger. The borrower should sign a promissory note that includes payment terms and a final due date. At a minimum, interest should be charged at the IRS statutory rate in effect at the time of the loan. Requiring adequate collateral will be regarded as a favorable indicator by the IRS, although it is not mandatory. The terms of the loan should be voted on by the Board of Directors, and the details should be entered into the corporate minutes. The borrower should make payments according to the agreed-upon schedule.

Since circumstances are different for each corporation and each shareholder, you should always consult your accountant before transferring money from your company. If we can be of assistance, call us.
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Wednesday, June 11, 2014

Turn Up the Heat on Your 2014 Tax Planning This Summer

While you’re cooling off by the pool this summer, your opportunity to save on taxes might just be heating up. Here are some summertime tips to keep your 2014 tax plans simmering.

If you are a sole proprietor with children, you might consider putting them on the payroll during the summer months. Wages paid to your children under age 18 are not subject to social security and Medicare taxes. What’s more, their earnings are not subject to Federal Unemployment Tax until they turn 21.

If employing your children is not an option, you might still be able to score a deduction by sending them to summer camp. Day camp expenses for kids under 13 can provide a tax credit of up to 35%. Just remember, overnight camps do not qualify, and child-care must be necessary to allow the parents to work.

Summer is also a common time for home selling and moving, so be on the lookout for deductions related to these activities. Carefully file away all home sale or purchase papers for next year’s tax filing. If your move is job-related, there is the potential for additional deductions if you meet the 50 miles or more test.

Perhaps your sights are set instead on some leisure travel. Tacking on a few fun days before or after a business trip might be a tax (and cost) efficient way to pay for a vacation — if you follow all the rules. Travel that is primarily for charitable work might also qualify you for a tax deduction.

And finally, no matter what your summer plans are, this is always a good time for a general tax check-up to ensure your withholdings and estimated tax payments are on target. For assistance with any of these issues, contact our office.

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Friday, May 16, 2014

Tips for Handling Correspondence with the IRS

Tips for Handling Correspondence with the IRS

Getting a letter or notice from the IRS can be upsetting, confusing, and unnecessary. The IRS sends taxpayers notices to request payment for taxes, to notify them of a change to their account, or to request additional information. Attention to the following details will reduce the likelihood that you will become pen pals with the IRS.

·     Never send a payment to the IRS without designating what it is for. Otherwise the IRS may apply it in any manner they want. Every payment should include your name, your taxpayer identification number, the type of tax you are paying, and the period the tax payment is for.

·     Make sure the name and social security number on your tax return agree with the Social Security Administration’s records. If you change your surname, notify the Social Security Administration and request a new social security card.

·     Don’t claim a tax exemption for your child unless you are entitled to do so. Special rules apply to divorced parents. If both parents claim the child as a dependent, both returns will be subject to further IRS review.

·     Respond promptly to any notice you receive from the IRS, even if you think the notice is incorrect. If the IRS doesn’t hear from you within the time specified on their notice, you may lose the right to protest any changes made to your return.

·     Send a change of address form (Form 8822) to the IRS when your address changes. If you fail to provide the IRS with your current mailing address, you may not receive a refund check or a notice if there are problems or adjustments to your return. And even if the IRS can’t find you, penalties and interest will continue to accumulate on any tax due.

For assistance with any tax concern you have, give our office a call.
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Saturday, May 3, 2014

November 15, 2013

Year-End Tax Cutting Suggestions for Individuals
It’s not too late to consider tax moves that could reduce your 2013 taxes and get you in a better
tax position for 2014.
• Be aware of higher tax rates. In 2013 the top tax rate has been increased to 39.6%
for top bracket taxpayers (with taxable income over $400,000 for singles, $450,000 for married
taxpayers). In addition, singles with income greater than $200,000 (or $250,000 for married
taxpayers) will be subject to the new 3.8% surtax on net investment income. If you believe that you
will be close to this limitation, consider making moves that will defer income into 2014.
• Take advantage of tax-deferred accounts. All of the new tax rates and phase-outs
are based upon adjusted gross income or taxable income. The most efficient way to reduce both of
those items is to maximize contributions to tax-deferred retirement plans. If your employer offers
such a plan, make maximum use of it (such as a deferred compensation plan). If not, see if you are
eligible for your own deductible IRA.
• Consider a health savings account (HSA). Investing in an HSA gives you a current-
year tax deduction, while providing a savings account to use to pay out-of-pocket medical expenses
currently or in the future. An HSA is not a “use it or lose it” plan. Any funds in the plan can be
used in future years. And be aware that you can fully fund your HSA up to April 15th of the
following year.
• Make charitable gifts from your IRA. Seniors age 70½ and older can make
charitable contributions directly from their IRA. While this won’t be deductible, it can apply
against your annual required minimum distribution (RMD), thereby lowering your adjusted gross
For guidance with your year-end tax planning, contact our office.
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Leaving Your Job? Weigh the Options of a Rollover

If you’re quitting your job for another position or retiring completely, you probably have a zillion things on your mind. But don’t forget about the assets in your 401(k) plan or other qualified plan at work. There are several options to consider.
·     Leave the money where it is. But remember that you won’t be connected any longer with the employer providing the plan.
·     Cash in the funds at a hefty tax price. Generally, the payout will be taxed at ordinary income rates, now reaching as high as 39.6%. Plus, you’ll be assessed a 10% tax penalty if you’re under age 59½, unless a special exception applies.
·     Roll over the funds to a traditional IRA (or another qualified plan if one is available at a new job). The rollover is exempt from income tax if it is completed within 60 days of the distribution.
The rollover-to-an-IRA option is often preferable since it preserves your nest egg without any tax erosion while offering a wide array of investment choices. But this tax-saving technique is not without its perils.
Notably, if you don’t meet the 60-day deadline, the payout is treated as a taxable distribution. Also, if you receive the funds, the plan administrator will withhold tax at a 20% rate, even if you intend to roll over within 60 days. Thus, you can’t recoup this amount until you file your tax return for the year of the transfer. To avoid withholding, arrange a “trustee-to-trustee transfer” to the IRA where your hands never touch the money. Finally, if you roll over funds to a Roth IRA instead of a traditional IRA, you must pay tax like any other Roth conversion.
Review your options and choose what’s right for you. Contact us if you would like help investigating the alternatives.
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Thursday, April 24, 2014

Gift Tax Returns Are Due April 15

Gift Tax Returns Are Due April 15

As you finalize your 2013 return, here’s one more thing to remember. If you funded a trust or transferred assets to someone during 2013, you may need to file a return reporting those transactions – and that return, along with any required tax, is due April 15, 2014, just like your regular income tax forms.

Do you have to file? It depends on the type of gifts you made.

Some payments you might consider gifts are not subject to gift taxes or filing requirements. For instance, you can pay tuition directly to a college or other school for any student without having to file a gift tax return. The same is true for unreimbursed, qualified medical expenses you pay directly to the doctor or hospital for the benefit of a family member or stranger.

The amount of your gifts matter, too. Were your total gifts to any one person during the year $14,000 or less? That’s the annual exclusion – the maximum amount you could give anyone during 2013 without having to file a return, as long as the gifts were currently usable by the recipient.

A caution: You may have heard of “gift-splitting,” which is an election you can make when you’re married. Gift-splitting lets you combine your annual exclusion with that of your spouse, resulting in total tax-free gifts of up to $28,000 each year to any one person. However, because gift tax returns are not filed jointly, each of you will generally have to complete Form 709, “United States Gift (and Generation-Skipping Transfer) Tax Return.”

When a return is required, you may not owe gift tax. Under present tax law applicable to 2013 gifts, up to $5,250,000 of gifts made during your lifetime can be shielded from tax. This is in addition to the $14,000 per donee annual exclusion.

Contact us if you made any gifts during 2013. We’ll help you sort out your filing requirements.

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Should You Be Making Estimated Tax Payments?

Should You Be Making Estimated Tax Payments?

During the tax year you must prepay a substantial amount of the taxes you’ll owe for that year, or you risk being hit with an underpayment penalty. If you’re an employee, that’s usually not a problem. Your employer will withhold taxes from each paycheck. You can adjust the amount withheld so that it covers your total tax bill, even if you have extra income from moonlighting or investments. But if you’re self-employed or retired, you might need to make estimated tax payments.

To avoid a penalty, the total of your withholding and estimated tax payments must generally be at least 90 percent of your tax liability for the year, or 100 percent of your last year’s tax liability (110 percent of last year's tax liability where AGI exceeds $150,000). There’s no penalty if your underpayment is less than $1,000. Special rules apply to farmers and fishermen.

You pay your estimated taxes by making four payments, due in April, June, and September of the current year, and in January of the next year. You can’t just wait until the last date to pay what you owe. You must start paying estimated taxes as you earn taxable income. You can either pay all the tax you owe on each quarter’s earnings, or you can pay it in installments over the remaining periods. But you must be sure to pay enough to avoid an underpayment penalty for each period. Again, special rules apply to farmers and fishermen.

Please contact our office if you think you might need to make estimated tax payments. The quarterly calculations can be complicated, and we can help you figure out how much you need to pay at each date.


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Tax Update March 2014

Tax Update March 2014

If you have a flexible spending account (FSA) to set aside pre-tax dollars to pay for out-of-pocket medical expenses, you’ll be interested in this latest FSA change. Employers can modify these plans to allow up to $500 of unused amounts at year-end to be carried over into the following year. Now health FSAs can either have a 2½ month grace period or the $500 carryover to help alleviate the forfeiture of unspent set-asides at year-end.

· A rule affecting the taxation of tips went into effect this year. Restaurants often add an automatic gratuity to the bill for large parties. If these amounts were treated as tips, they would be paid to restaurant workers along with their other tips, and the workers would be responsible for reporting them as income to the IRS. Now the IRS says “automatic gratuities” will be treated as a “service charge” which, like regular wages, will be subject to withholding by the employer.

· In mid-February, the Treasury Department issued rules that delay until 2016 the employer mandate to provide health insurance for employees for companies with 50 to 99 workers. To benefit from this extension, employers must certify that they have not laid off employees in order to come under the 100 employee threshold.

· Partnerships and other “pass-through” entities should be ready for increased scrutiny by the IRS this year. According to the IRS, the increasing number and complexity of pass-through entities makes these business forms candidates for audit focus in 2014.

· The IRS is again issuing warnings about tax scams. In the latest phone scam, the caller claims to be from the IRS reporting taxes due which must be paid immediately with a pre-paid debit card or wire transfer. Individuals who don’t pay up are threatened with arrest or loss of driving or business licenses. Don’t respond in any way to these scams; instead forward the e-mail to


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Tax Numbers for 2014 and 2013 – Part 2

Tax Numbers for 2014 and 2013 – Part 2



The numbers for 2013 in the chart below apply to your 2013 returns, and the numbers for 2014 should be used in your 2014 tax planning.


                                                                        2014                        2013

Income (AGI) phase-out for personal

exemption and itemized deductions

* Single                                                          Starts at $254,200          Starts at $250,000

* Joint returns and surviving spouses             Starts at $305,050          Starts at $300,000

* Married filing separately                              Starts at $152,525          Starts at $150,000

* Head of household                                      Starts at $279,650          Starts at $275,000


Health savings account contribution limit

* Individual                                                                     $3,300                            $3,250

* Family                                                                           $6,550                            $6,450

* Additional for 55 & older                                             $1,000                            $1,000


Automobile standard mileage rate

* Business                                                                             56¢                              56.5¢

* Medical/moving expense                                                23.5¢                                 24¢

* Charitable work                                                                 14¢                                 14¢


Estate tax top rate                                                               40%                                40%

Estate tax exclusion                                                  $5,340,000                     $5,250,000

Annual gift tax exclusion (per donee)                            $14,000                          $14,000


Alternative minimum tax exemption

* Single                                                                          $52,800                          $51,900

* Married, joint                                                              $82,100                          $80,800

* Married, separate                                                        $41,050                          $40,400

Section 179 deduction limit                                       $    25,000                     $   500,000

Section 179 purchase limit                                        $  200,000                     $2,000,000


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