Important Information Regarding Identity Protection (IP) Pins

by NFS | Jan 6, 2016 | Archives

We have been notified by the IRS that due to an error, taxpayers are receiving Identity Protection PIN letters with an incorrect year listed. Taxpayers and tax professionals should be advised the IP PIN listed on the CP 01A Notice dated January 4, 2016 is valid for use on all 2015 individual tax returns.

The notice incorrectly indicates the IP PIN issued is to be used for filing the 2014 tax return when the number is actually to be used for the 2015 tax return. The IRS emphasizes the IP PIN listed on the CP 01A notice is valid for the 2015 returns. Taxpayers and their tax professionals should use this PIN number for 2015 tax returns, which the IRS will begin accepting from taxpayers starting January 19, 2016.

The IRS apologizes for the confusion and any inconvenience.

Too Late for 2015 Tax Planning? Guess again.

by NFS | Jan 4, 2016 | Archives

2015 is done, so 2015 tax planning is done too, right? Guess again. Although it’s true that most tax planning strategies are limited after December 31st, there is still a lot you can do to make the tax-filing season cheaper and easier.

Maximize Your Retirement Contributions

If you haven’t already funded your retirement account for 2015, you still have time. Contributions to a Traditional IRA (whether deductible or not) and to a Roth IRA are available until April 15th, 2016 (***See paragraph below for more info on actual 2015 Due Dates). If you are self employed and have a Keogh or SEP-IRA, you have until October 15th, 2016, if you submit an extension of time to file your tax return. Not only will making a deductible contribution lower your tax bill, but your investment will compound tax-deferred. There are specific requirements and limits for each type of account so check with a qualified tax advisor on your specific situation.

Estimated Tax Payments

If you don’t pay enough to the IRS during the year, you may be looking at a hefty tax bill come April. It is possible that you might even owe penalties and interest on top of the tax.  You could avoid any 2015 fourth quarter penalties on underpayment of tax if you submit a payment by January 15th 2016. Try not to over pay the tax however, because the IRS does not pay you any interest on the borrowed money called your refund. It is your money so plan accordingly.

Organization of Your Records

Having your records organized may not save tax dollars, but will make your tax season less stressful. Start by keeping your prior year returns and tax documents in the same place. Collect all of your receipts and documents that may have piled up during the year (hopefully you already have a folder or file called “Taxes” to get you started). When your W2s, 1099s or other tax documents start arriving in the mail, put them all in the same folder and group them together in like categories.  When beginning to prepare your return, work off a checklist or worksheet so you don’t overlook anything.

Take Every Deduction You Are Entitled To

Often times, taxpayers overlook deductions or decide not to take certain deductions because they feel too they are being too aggressive. In order to minimize the amount of tax liability, take every deduction you are entitled to. If your qualified itemized deductions exceed your standard deduction, file with the higher amount. Some well known items that you can itemize are home mortgage interest, real estate taxes and charitable deductions. Other lesser known itemized deductions that you may be entitled to include job hunting expenses, unreimbursed employee expenses, and out of pocket medical expenses. If you are self employed, make sure you write off all of your expenses and be prepared to back these with receipts. One of the items self-employed individuals may be eligible for is the Office-In-Home Deduction. If you conduct business exclusively out of your home office, you may be eligible.

File & Pay On-Time

If you can’t finish your return on time, make sure you file Form 4868 by April 16th, 2015. You will get automatic six-month extension of the filing deadline until October 15th, 2016. On the form, you need to make a reasonable estimate of your tax liability for 2015 and pay any balance due with your request. Requesting an extension in a timely manner is especially important if you end up owing tax to the IRS. If you file and pay late, the IRS can slap you with a late-filing penalty of 4.5 percent per month of the tax owed and a late-payment penalty of 0.5 percent a month of the tax due. The maximum late filing penalty is 22.5 percent and the penalty tops out at 25 percent. By filing Form 4868, you stop the clock running on the costly late-filing penalty.

***A Note Regarding Tax Due Dates This Year

You get three extra days to gather your paperwork and file your federal tax return in 2016. The tax deadline is April 18, 2016.

You can thank Washington, D.C., for the gift. Washington will celebrate Emancipation Day on April 15. The day is treated as a federal holiday, so federal offices – read IRS – will be closed.

Emancipation Day typically is celebrated on April 16. It’s the day President Abraham Lincoln signed into law a bill ending slavery in Washington, D.C. April 16 falls on a Saturday in 2016, so Emancipation Day will be celebrated on April 15.

So…. Tax Day will be pushed back to April 18, 2016.

That doesn’t mean you have to wait until April 18 to visit our office, though.

In Massachusetts & Maine, Patriots’ Day is observed on April 18, 2016. Patriots’ Day is a civic holiday commemorating the anniversary of the Battles of Lexington and Concord, the first battles of the American Revolutionary War. It is observed on the third Monday in April in Massachusetts and Maine, and is a public school observance day in Wisconsin.

Since 1969, the holiday has been observed on the third Monday in April, providing a three-day long weekend, as well as being the first day of public school vacation week in Maine and Massachusetts. Previously, it had been designated as April 19, the actual anniversary of the battles.

Patriots’ Day is also a school holiday for many local colleges and universities, both public and private. In Maine and Massachusetts, when Patriots’ Day falls on a day where income tax returns would otherwise be due for the remainder of the country, residents of those states are given until midnight of the next day (Tuesday) to submit their state tax returns.

So…. Tax Day will be pushed back to April 19, 2016 in Massachusetts & Maine.

Seek Help, If You Need It

Low cost, affordable options to prepare and file your returns exist. If you are comfortable doing your own return, go for it. If you become uncomfortable or get in a jam, call a professional for added confidence and peace of mind. Our office is always available for assistance.

$30 Off Tax Prep – New Client Discount

Happy New Year From NFS

by NFS | Jan 1, 2016 | Archives

2016 Standard Mileage Rates for Business, Medical and Moving Announced

by NFS | Dec 31, 2015 | Archives

WASHINGTON — The Internal Revenue Service today issued the 2016 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2016, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 54 cents per mile for business miles driven, down from 57.5 cents for 2015
• 19 cents per mile driven for medical or moving purposes, down from 23 cents for 2015
• 14 cents per mile driven in service of charitable organizations

The business mileage rate decreased 3.5 cents per mile and the medical, and moving expense rates decrease 4 cents per mile from the 2015 rates. The charitable rate is based on statute.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical or charitable expense are in Rev. Proc. 2010-51. Notice 2016-01 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

How Do I Compute Payroll Taxes as an Employer

by NFS | Dec 30, 2015 | Archives

A business that has employees must withhold income taxes on payments to each employee. Each employee must first fill out Form W-4, Employee’s Withholding Allowance Certificate, and provide it to the employer. On the form the employee can claim exemptions, such as the personal exemption or an exemption for a spouse or child, and determine the number of withholding allowances for the employee. Based on that information, the employer calculates the employee’s income tax withholding for the year.

The employer next must select a withholding method. The amount of taxes withheld can be determined using the percentage method; the wage bracket method; the alternative formula table method; or any other method that produces substantially the same amount as the wage bracket method. These methods are based upon tables produced by the IRS and available in IRS publication Circular E, Employer’s Tax Guide.

Percentage Method

The employer must select one of eight tables, based on the payroll period used by the employer, such as weekly, monthly, annually, etc. If the employer does not use a payroll period, it should use the daily or miscellaneous table. Each table is divided into two parts: one for single people, and one for married people.

After determining the appropriate table, the employer must determine the amount of wages to use as the base calculation. This amount is determined by subtracting the number of withholding allowances from the employee’s total gross wages for the payroll period. The result is net wages subject to withholding. The result is used in the withholding tables to determine the withholding amount.

Wage Bracket Method

For each employee, the employer again must determine the payroll period, wages paid during the period, withholding exemptions, and marital status. The wage bracket tables calculate the income tax to deduct and withhold by using gross wages, with no deduction for an exemption amount. This method is supposed to produce similar results to the percentage method.

The wage bracket method cannot be used if the payroll period is quarterly, semiannual, or annual, because there are no tables for these periods.

Other methods

The third method—alternative formula tables—is for employers using computerized accounting systems. The fourth method is allowed if it produces substantially similar results to the wage bracket method. The IRS provides a table for determining whether a result is substantially similar.

Other Employment Taxes

Employers must also determine FICA (Federal Insurance Contributions Act [Social Security]) and Federal Unemployment Tax Act (FUTA) taxes.

FICA consists of two taxes: the old-age, survivors and disability insurance (OASDI) tax, equal to 6.2 percent on both the employer and employee; and the hospital insurance (HI) tax, equal to 1.45 percent on both the employer and the employee. FICA taxes thus have a combined rate of 7.65 percent. The OASDI tax is subject to a wage limit, set at $118,500 for 2015 and 2016, but subject to increase. Wages above that limit are exempt from the OASDI tax. However, there is no limit on the HI tax; all wages are taxed 1.45 percent. The IRS provides tables to determine FICA taxes.

If the employee has wages in excess of $200,000, the employer must also withhold the Additional 0.9 percent Medicare tax from all wages above that threshold.

FUTA tax is 6 percent of all wages paid during the calendar year, up to a $7,000 wage limit. These amounts are owed by the employer and are not deducted from the employee’s wages. The employer can claim a credit for contributions to state unemployment insurance funds. The maximum credit is 90 percent of the 6 percent rate, or 5.4 percent.

If you need any assistance with the above info or if you need assistance in setting up or administering your small business payroll, contact our office.

Top Year-End IRA Reminders

by NFS | Dec 29, 2015 | Archives

Individual Retirement Accounts, or IRAs, are important vehicles for you to save for retirement. If you have an IRA or plan to start one soon, there are a few key year-end rules that you should know. Here are the top year-end IRA reminders:

• Know the contribution and deduction limits.  You can contribute up to a maximum of $5,500 ($6,500 if you are age 50 or older) to a traditional or Roth IRA. If you file a joint return, you and your spouse can each contribute to an IRA even if only one of you has taxable compensation. You have until April 18, 2016, to make an IRA contribution for 2015. In some cases, you may need to reduce your deduction for your traditional IRA contributions. This rule applies if you or your spouse has a retirement plan at work and your income is above a certain level.
• Avoid excess contributions. If you contribute more than the IRA limits for 2015, you are subject to a six percent tax on the excess amount. The tax applies each year that the excess amounts remain in your account. You can avoid the tax if you withdraw the excess amounts from your account by the due date of your 2015 tax return (including extensions).
• Take required distributions.  If you’re at least age 70½, you must take a required minimum distribution, or RMD, from your traditional IRA. You are not required to take a RMD from your Roth IRA. You normally must take your RMD by Dec. 31, 2015. That deadline is April 1, 2016, if you turned 70½ in 2015. If you have more than one traditional IRA, you figure the RMD separately for each IRA. However, you can withdraw the total amount from one or more of them. If you don’t take your RMD on time you face a 50 percent excise tax on the RMD amount you failed to take out.
• IRA distributions may affect your premium tax credit. If you take a distribution from your IRA at the end of the year and expect to claim the PTC, you should exercise caution regarding the amount of the distribution.  Taxable distributions increase your household income, which can make you ineligible for the PTC.  You will become ineligible if the increase causes your household income for the year to be above 400 percent of the Federal poverty line for your family size. In this circumstance, you must repay the entire amount of any advance payments of the premium tax credit that were made to your health insurance provider on your behalf. 

If you need assistance in making an IRA contribution or setting up a new IRA plan, please contact our office for help.