OASDI Wage Base for 2016

As the end of the year approaches, it’s time to turn our attention to planning for 2016.  This includes ensuring that proper payroll tax rates and wage bases are updated in payroll systems as of January 1.  For 2016, the Old Age, Survivors and Disability Insurance (OASDI) taxable wage base remains at $118,500, the same level as in 2015.  The OASDI tax rate for both employees and the employer match remains at 6.2%. 

The Medicare portion of the FICA tax continues to have no limit or cap on its taxable wage base.  The base Medicare rate for both employees and the employer match remains at 1.45% of wages.  Employees earning more than $200,000, however, must pay an additional 0.9%.  This additional tax is withheld and remitted by their employer, but not matched by the employer. 

For guidance with your payroll tax planning, contact our office.  Call us at (219) 769-3616 with your questions, or email them to dvanprooyen@swartz-retson.com.

Last Minute Tax Savers for Individuals

Even though the end of the year is fast approaching, you still have time to trim your 2015 federal income tax bill. Here are suggestions.

State and local income taxes. If you prepay certain state and local taxes, you can claim the deduction on your 2015 return. Caution: Analyze your exposure to the alternative minimum tax before accelerating these deductions.

Charitable donations. When you itemize, you can generally deduct the full amount of charitable donations you make by December 31, 2015, including those you put on your credit card and pay in 2016.

Capital gains. Consider selling appreciated investments if the gain on the sale will be absorbed by prior losses or if you will benefit from the preferential long-term capital gain tax rate available when you own assets for more than a year.

Capital losses. By “harvesting” capital losses from depreciated securities at year-end, you can offset other capital gains plus up to $3,000 of ordinary income.

Required minimum distributions. Verify that you have withdrawn the right amount from your qualified plans and IRAs to avoid a 50% tax penalty.

Dependency exemptions. Review how much support you provided to dependents in 2015. Generally, you can claim a dependency exemption for a qualifying relative if you provide more than half of the financial support for the year.

Medical expenses. When you itemize, you can claim deductions for unreimbursed medical expenses that exceed 10% of your adjusted gross income. Move elective medical and dental procedures, such as routine exams, into 2015 if those expenses will help you clear the 10% threshold.

Higher education credits. If you pay your child’s tuition bill for the next semester, the cost generally qualifies for a federal income tax credit in 2015.

Estimated taxes. Avoid an underpayment penalty by paying at least 90% of your 2015 tax liability or 100% of last year’s liability (110% if your adjusted gross income exceeded $150,000).

Please call us to discuss planning ideas for your specific tax situation.

 

For more information, call us at (219) 769-3616 with your questions, or email them to tlynch@swartz-retson.com

Five Year-End Tax Savers for Businesses

The year is nearly over, but you can still take action to lower your business income tax during the final months of 2015. Here are five moves to consider.

1. Postpone revenue to 2016. If your business reports on the cash basis, delay billing your customers long enough to ensure that payments will arrive after 2015. Does your business use the accrual basis? Consider delaying product shipments or deferring completion of services until 2016.

2. Accelerate deductible expenses into 2015. Stock up on incidental supplies before January and arrange for necessary repairs and maintenance to be completed before year-end.

Alternatively, if you anticipate falling into a higher tax bracket next year, consider reversing the above steps by accelerating revenues into 2015 and deferring expenses into 2016.

3. Write off receivables. Review your accounts receivable for potential bad debts that can be written off before year-end.

4. Put assets to use. Machinery, equipment, office furniture, and software placed in service before December 31 may qualify for a Section 179 deduction rather than being depreciated over a longer term. Total allowable purchases for Section 179 are limited to $25,000 this year, although Congress may increase that amount before year-end.

5. Take advantage of tangible property regulations. If your business owns or leases a building with an unadjusted basis of $1 million or less, you may qualify for an election to deduct payments for improvements made in 2015 that otherwise would be depreciable. Your business must have average annual gross receipts of $10 million or less, and the total amount paid in 2015 for the building’s improvements, repairs, and maintenance may not exceed the lesser of $10,000 or 2% of the building’s unadjusted basis.

Need more year-end tax saving tips? Give us a call.

For more information, call us at (219) 769-3616 with your questions, or email them to tlynch@swartz-retson.com.

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Ready or Not, Smart Cards Are Coming

First, the “smart phone” was introduced. Next came the “smart television.” It was inevitable that the “smart card” would make its way into the marketplace.

Smart cards, commonly called EMVs (an acronym for Europay, MasterCard, and Visa), are already in use in Europe and other parts of the world. With an EMV, the magnetic strip that’s been used for decades on the back of credit and debit cards is replaced by a computer chip.

Although they aren’t a cure-all, EMVs have been effective in combating fraud. Unlike cards with magnetic strips, the chip creates a unique transaction code whenever the card is used. If someone attempts to reuse the transaction number, access is denied.

For businesses, the switch to EMVs is about much more than keeping up with new technology. Currently, when fraud occurs – for example, a thief uses a credit card to make a purchase – the credit card company absorbs the costs. Effective October 1, 2015, this liability generally shifts to the merchant. In other words, businesses of all sizes from retail chain outlets in the mall to Mom-and-Pop stores downtown can be on the hook for most fraudulent activities involving major credit cards, including MasterCard, Visa, Discover, and American Express.

Because of this change, you may want to prepare your business to transition to EMVs by installing terminals at every transaction point. For instance, if you own a restaurant with two cash registers, you need two EMV terminals for processing. The first wave of smart cards in the U.S. features both the computer chip and the magnetic strip to help you and your customers make the switch.

Contact your credit card processor for more details about integrating EMVs into your system.

 

For more information, call us at (219) 769-3616 with your questions, or email them to tlynch@swartz-retson.com.

Age Matters in Tax Law

Many tax provisions are linked to age, so whenever there’s a birthday in the family, check for changes to take into account as you do your tax planning. Major age milestones include the following:

Age        What it means for your taxes

Age 13    Beginning at this age, your child no longer qualifies for the child care credit.

Age 17    From this age on, your son or daughter no longer qualifies for the child tax credit (different from the child care credit, above).

Age 18    When your child reaches this age, his or her Coverdell education savings account is not permitted to accept new contributions (except in the case of special needs beneficiaries).

Age 18    Beginning at this age, you must pay social security taxes for any of your children that you employ in an unincorporated business.

Age 19    Is your child a full-time student? Unless you answer “yes,” you could lose the dependency deduction once your child reaches this age.

Age 24   Upon reaching this age, none of your child’s investment income will be taxed at your rate under the “kiddie tax” rules.

Age 30   By this age, any amount remaining in your child’s Coverdell education savings account must be distributed or rolled over to an education savings account for another qualifying family member.

Age 59½ You may start withdrawing money from your IRA, 401(k), and other retirement plans without penalty.

Age 65   Beginning at this age, you generally qualify for a higher standard deduction.

Age 65     Also at this age, low-income seniors may qualify for a special tax credit.

Age 70½ You must start withdrawing at least a required minimum amount from your IRA each year to avoid a stiff penalty. (This requirement doesn’t apply to Roth IRAs.) 

For more information, call us at (219) 769-3616 with your questions, or email them to tlynch@swartz-retson.com.

Get a Tax Credit for Dependent Care Expenses

Did you know that federal tax law allows you to claim a credit when you pay someone to care for your kids while you’re at work? The child and dependent care credit is valuable because it reduces the amount of tax you owe dollar for dollar.

Here’s an overview of the rules.

● The child care expenses must be work-related. This requirement means you have to pay for child care so you can work or actively look for work. If you’re married, you and your spouse must both work. There are exceptions to this “earned income” rule for spouses who are full-time students or who are not able to care for themselves due to mental or physical limitations.

● The expenses generally must be paid for care of your under-age-13 child. However, expenses you pay to care for a physically or mentally disabled spouse or adult dependent may also count.

● The expenses must be paid to someone who is not your dependent. Amounts you pay your spouse, your child’s parent (such as an ex-spouse), anyone claimed as a dependent on your tax return, or your own child age 18 or younger don’t qualify for the credit. For example, if you pay your 17-year-old dependent child to watch a younger sibling, that expense doesn’t count for purposes of claiming the credit.

● The care provider has to be identified on your tax return. You’ll typically need to show the name, address, and taxpayer identification number. You can request this information by asking your provider to complete “Form W-10, Dependent Care Provider’s Identification and Certification.”

● The amount you can claim depends on how much you spend for the care up to a dollar limit of $3,000 of expenses for one dependent and $6,000 for two or more dependents.

Give us a call for more information.

For more information, call us at (219) 769-3616 with your questions, or email them to tlynch@swartz-retson.com.

Plan Your Estate to Reflect Your Intentions

If you own assets that you’d like to leave to a loved one, you have an estate. But without a plan, your state of residence will choose your heir — not necessarily the result you intended. How can you ensure your intentions will be realized? Start by understanding the basics of estate taxes.

How estate taxes work. Estate tax applies to the excess of your gross estate over the allowable exclusion and deductions. Your gross estate is the current value (not the cost) of everything you own. The allowable exclusion for 2015 is $5,430,000, and an estate can deduct the following:

1. Assets left to a surviving spouse, without limitation.

2. Property left to qualifying charities.

3. Mortgages, debts, and administrative expenses and losses.

Because property in your estate is valued at current market value, your heirs can benefit from a “step-up” in basis. Here’s an example. Say your home cost $120,000. If the value is $220,000 when the house passes to your heir, your heir’s basis becomes $220,000. That means if your heir later sells the house for $300,000, the taxable gain is limited to $80,000 ($300,000 less $220,000).

 

Planning steps to take. No matter what the size of your estate, your plan should begin with a will. Your will lets you distribute property to your chosen beneficiaries, designate guardians for your dependents, and make charitable contributions. You can also use your will to establish trusts, another important part of estate planning. Trusts can be used for asset management, distribution timing, and protecting the inheritance of heirs who can’t manage their own affairs. In addition, trusts can be useful to bypass the complexities of probate, the state court system governing distributions.

Another initial planning move is to update your beneficiary designations. Some assets, such as life insurance proceeds and IRAs, bypass your will and go directly to the designated beneficiaries.

Call us to get started on your estate plan. We’ll work with your attorney as well as other members of your financial team to help you achieve the results you intend.

 

For more information, call us at (219) 769-3616 with your questions, or email them to tlynch@swartz-retson.com

Refinancing? Understand the Tax Issues

Are you thinking of refinancing your home mortgage? Keep the tax rules in mind.

 

                        Track “points.” A point is a fee equal to one percent of the loan amount. While you can fully deduct the points you pay when you buy your home, points paid on a refinancing are generally amortized over the term of the loan. If you refinance a loan for a second time, the balance of remaining points from the previous loan becomes immediately deductible. That’s also the case when you sell your home.

What if you refinance for more than your existing mortgage balance and decide to use some (or all) of the extra cash to improve your main home? A portion of the points you pay “up front” is deductible. Points not immediately deductible can be amortized over the term of the loan.

Trace your use of funds.

When you “cash out,” or convert $100,000 or less of your home equity to cash during a refinance, the interest is deductible. If you take additional amounts, the interest may or may not be deductible depending on how the funds are used. When you use those funds to expand your business, the interest may be deductible business interest. If you buy investments, the interest may be investment interest expense       

                Look at the whole picture. Not all loan fees are deductible. Alternative minimum tax rules differ on deducting your equity interest, and may limit the expense. One more reminder: Double-check your tax withholding or estimates when you refinance. Why? Reducing the interest rate on your loan means the mortgage interest deduction on your federal income tax return also goes down. Adjusting your withholding or estimated payments can help avoid an unanticipated tax bill.

 

Need more information on refinancing or mortgage interest tax deductions? Give us a call.

For more information, call us at (219) 769-3616 with your questions, or email them to tlynch@swartz-retson.com

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Life Insurance - Get the Facts

You may think of life insurance as income-replacement protection for your family in the event you or your spouse dies. But what are the tax implications of life insurance?

Here are four rules to know.

1. Death benefits.

Normally, death benefits paid under a life insurance policy aren’t subject to income tax. But this isn’t a blanket exemption. For instance, if you transfer a policy for value during your lifetime (a sale for example), the proceeds received by your beneficiary may be taxable. Exceptions to this transfer-for-value rule exist including a transfer to your company

 

2. Cash value.

With cash-value life insurance, such as a traditional whole life policy, a portion of  your premiums goes into an “account” that grows over time. The buildup of cash value during your lifetime is exempt from income tax. You can even borrow against the cash value without adverse tax consequences unless you surrender the policy. One caution: If the premiums you pay during the first seven years exceed certain limits, the policy becomes a modified endowment contract

(MEC). MEC rules could result in tax on policy loans and withdrawals.

 

3. Exchange of policies. If you replace one life insurance policy with another, the exchange may be tax-free.

 Typically, you’ll enter into a “Section 1035” exchange when an existing contract is outdated and you’re seeking improved benefits or new features. Be aware that you have to make an actual exchange. You can’t receive a check and apply the cash to a new policy.

 

4. Estate tax on proceeds.

Generally, life insurance proceeds are subject to estate tax if you, as the insured, retain any 

“incidents of ownership” such as the ability to surrender the policy. You can avoid this result by transferring ownership rights to another person or a life insurance trust.

 

Do you have questions about your life insurance policies? Give us a call. We’ll help you ensure the best tax results.

 

For more information, call us at (219) 769-3616 with your questions, or email them to tlynch@swartz-retson.com.

 

 

 

 

 

 

 

 

 

 

 

 

Understand Business Financial Ratios

Financial ratios provide a useful way to pinpoint strengths and weaknesses in the performance and solvency of your business. Here are four types of ratios that you can monitor using the figures from your balance sheet.

Liquidity ratios, such as the current ratio, measure the ability to pay bills over the next 12 months. You compute the current ratio by dividing current assets (cash, receivables, inventory, and other assets expected to be converted to cash within a year) by current liabilities (financial obligations expected to be settled within a year). A current ratio greater than one is generally considered healthy.

 

 Asset turnover ratios indicate how efficiently your business is using assets. For instance, receivables turnover (annual credit sales divided by accounts receivable) reveals how quickly your business collects accounts receivable. Inventory turnover (cost of goods sold divided by average inventory level within a given time period) tells you how often your inventory is moving

 

Financial leverage ratios

address your company’s long-term solvency. An example is the debt ratio, which is total liabilities divided by total assets. A debt ratio greater than one may be reason for concern.

 

Profitability ratios measure your business’s success at generating profits. One profitability margin you may be familiar with is the profit margin. You calculate your profit margin by dividing net income by sales. Here’s an illustration: Say your net income is $30,000 and sales are $150,000. Your net profit margin is 20%

($30,000/$150,000).

 

How do you know if a financial ratio is good or bad? One way is to compare the ratio to the same ratios from previous periods. You can also use comparisons to similar companies or to your business forecasts.

 

Contact us for more details about how ratios can help you assess the health of your business.

 

For more information, call us at (219) 769-3616 with your questions, or email them to rzondor@swartzretson.

com.

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July 24, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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July 24, 2015

Know the Tax Rules for Summer Travel

Are you traveling for business this summer? If you’re planning to take a tax deduction for your expenses, the rules may be more complicated than you think. Here’s a refresher.

The general rule. “Travel” expenses are ordinary and necessary costs incurred while away from your normal working area. “Away” means you’re away from your tax home overnight and you need to sleep or rest so you can complete your work.

Domestic travel. For domestic travel that’s entirely business related you can fully deduct expenses such as airfare, hotel, rental car, and gratuities. Your meals are 50% deductible.

What if you incur incidental personal expenses, such as a side trip to visit family or an amusement park, on a trip made primarily for business? The expenses related to your personal activities are not deductible.

If your travel is primarily personal, such as a vacation, your expenses generally cannot be deducted at all. However, you may be able to claim some deductions if, for example, you call on a client while on vacation. You can deduct the cost of the client visit, but not the travel or hotel costs of getting from your tax home to the client’s location.

Foreign travel. If you travel outside the U.S. and spend the entire time on business activities, your expenses are deductible. If you combine business and personal activities on an international trip, you must typically allocate your time between those activities. You can only deduct the business portion of getting to and from your destination. Total deductions are generally limited to the business percentage (business days divided by total days).

When your trip is partly domestic and partly international, use the domestic guidelines for the domestic portion and the international guidelines for the international portion.

As you make your summer travel plans, give us a call. We can help you navigate the rules.

 

For more information, call us at (219) 769-3616 with your questions, or email them to tlynch@swartz-retson.com

Inspection & Disclosure Requirements of Charitable 501(c)(3) Organizations

Charitable organizations enjoy significant benefits, such as receiving tax-deductible contributions and not having to pay taxes on income. 

In return, Congress allows the public to inspect documents (such as the Form 990 or 990-EZ) that these organizations file with the IRS.  These forms - which require gross receipts, expenses, etc. - are information returns and do not report paying taxes.

In addition, the public can review an organization's original application for recognition of tax-exempt status, any documents filed with the application, and any correspondence between the organization and the IRS regarding the application. 

The public can also inspect a charitable organization's Form 990-T, the tax return filed by organizations that receive unrelated business income of more than $1,000 annually.

In addition to disclosing annual returns and applications for exemption, 501(c)(3) organizations must make certain disclosures to donors to whom something has been given in return for their contributions.  This is called a quid pro quo contribution, which in Latin means "something for something."  For example, suppose a donor gives a charitable organization $100.  As an incentive or thank you, the organization sends the person a concert ticket with a fair market value of $40.  The donor's tax deduction in this transaction may not exceed $60.  In this case, the donor's payment exceeds $75, requiring the charitable organization to furnish a disclosure statement to the donor, even though the deductible amount does not exceed $75.  The disclosure must: 

·         Be in a written statement that is likely to come to the attention of the donor.

·         Be provided at the time the contribution is solicited or when the payment is received.

·         Inform the donor that the amount of the contribution deductible for federal income tax purposes is limited to the excess of the amount of money and the value of any property contributed by the donor over the value of goods or services provided by the organization.

·         Provide the donor with an estimate of the fair market value of the goods or services provided by the organization. 

If the organization fails to meet the written disclosure requirement, a penalty of $10 per contribution, up to $5,000 per fundraising event or mailing, may be assessed.

            In addition to the public inspection and quid pro quo contribution disclosure requirements, if a charity offers to sell goods or services that are available free from the federal government, it must disclose that fact in a recognized format.

 

For more information, call us at (219) 769-3616 with your questions, or email them to tlynch@swartz-retson.com.

Information taken from www.irs.gov.

Ind. Personal Property Tax Notice from the Assessor

Businesses that filed an Indiana personal property tax return may receive tax notice 113/PP from their assessor.   A company that receives this notice only has forty-five days from the mailing date to respond or appeal.  Please watch for tax notices from your assessor.  If you receive a notice, please scan or fax a copy to the attention of Stephen A. Sienicki, CPA at ssienicki@swartz-retson.com, FAX (219)736-4876.

Does the "Other" Tax Apply to You?

You may not have heard much about the alternative minimum tax (AMT) since the American Taxpayer Relief Act of 2012. That law established AMT exemption amounts and indexed them to inflation. But the AMT is still around — and still capable of increasing the tax you owe. That’s because AMT rules do not allow many of the exclusions, deductions, and credits available under regular income tax rules. Eliminating these benefits means more of your income is subject to AMT.

For example, say you itemize and deduct certain taxes paid when you calculate your regular income tax liability. State or local income taxes, real estate taxes, or personal property taxes are not deductible under AMT rules. Lower deductions equal higher income for AMT purposes.

How do you know if AMT rules apply to you? Potential triggers include large itemized deductions such as taxes, as well as certain income, such as the exercise of incentive stock options. Other items can affect your exposure too. For instance, personal exemptions are disallowed under AMT rules. If you claim many exemptions, you may be subject to the tax.

Generally, the best way to determine if you owe AMT is to work through the calculation. To do that, you start with your adjusted gross income for regular tax purposes. Next, you adjust for items that are either not allowed for the AMT, or are calculated differently. Then you subtract the AMT exemption. For 2015, the exemption starts at $53,600 when you’re filing single and $83,400 when you’re married filing jointly. (Note: The exemption phases out as your AMT income increases.) Finally, you multiply any remaining amount by AMT rates, which begin at 26%, and compare the result to your ordinary income tax. You pay the higher amount.

AMT applies to your business as well as your personal tax return. In both cases, certain income, exclusions, deductions and credits receive different treatment than they do for regular income tax. You’ll need to perform separate calculations and maintain separate records.

Give us a call for help in determining how the AMT will affect your 2015 federal income taxes. We can offer planning suggestions and advice to minimize the impact.

 

For more information, call us at (219) 769-3616 with your questions, or email them to tlynch@swartz-retson.com.

 

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