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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Change in IRA Rollover Rule Could Lead to Penalties

If you’re planning to roll all or part of your IRA into a different IRA this year, you’ll only get one chance. Previously, you could roll over each of your IRAs once every 12 months. Now you’re limited to a total of one rollover per 12-month period, regardless of how many IRAs you own. Spouses are considered separate individuals for this purpose, so a rollover by one will not limit the other.

The IRS will ignore 2014 rollovers in determining the 2015 limit, as long as the IRA rolled over in 2015 is not one of those that was rolled over in the previous 12 months. As an example, say you have three IRAs. You rolled two of them over in June 2014. In 2015, you can roll the third IRA over, but not the other two.

What happens if you go over the limit? If you make a second rollover within the 12-month window, you’ll be taxed on the entire amount withdrawn plus an additional 10% if the early withdrawal penalty applies. You’ll also pay a 6% penalty on any amount over the $5,500 contribution limit ($6,500 if you’re over 50) that you put into the destination IRA. The 6% penalty will be reapplied for each year the money remains in the account.

The change affects both traditional and Roth IRAs, which are lumped together in determining the limitation. The only exceptions are (a) conversions from traditional IRAs to Roth IRAs, and (b) rollovers into IRAs from 401(k) accounts.

You can still make unlimited transfers among your IRAs by instructing your plan trustee to switch the funds directly. Trustee-to-trustee IRA transfers are not considered rollovers and the limitations don’t apply.

Rollover mistakes can create significant tax liabilities. Please consult us before you transfer money between your IRAs.

 

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

Think Taxes - Even After Your Return is Filed

 

After you file your 2014 tax return, you may want to forget about taxes for a while. But perhaps you should take advantage of your current familiarity with your financial situation instead. By acting now, you can make next year’s return less taxing.

Here are suggestions.

●  Check your withholding for 2015. The best indicator that you need to change your withholding is the bottom line on your 2014 tax return. A large refund means you’ve given the IRS an interest-free loan — money you could have invested yourself. A large balance due can mean you end up paying penalty and interest charges on top of your regular tax liability. To change your withholding, give your employer an updated Form W-4. If you’re newly retired, you may need to start making quarterly estimated tax payments.

●  Maximize the benefit you get from tax-deductible contributions to a retirement plan by making your 2015 contribution as early in the year as possible. This extends the time your account can grow tax-deferred.

●  Establish your long-term tax planning strategies. Possibilities to consider: a salary-deferral arrangement with your employer, investing in assets that will appreciate rather than produce current income, shifting income among family members to take advantage of lower tax brackets, and structuring your borrowing to maximize interest deductions.

●  Get your tax and financial records organized. A simple system to track and store electronic or paper records will save you from the last-minute scramble to pull your information together. An added benefit: You’ll be less likely to miss available deductions.

To discuss strategies relevant to your tax situation, please call for an appointment.

 

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