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NOTICE TO RESIDENTS OF MARYLAND

We are NOT affiliated with the State of Maryland. If you are looking for information about Maryland income taxes, please go to www.marylandtaxes.com.


Useful Links:

FindAGoodCPA.com - Not a healthcare professional?  Find a CPA or EA who understands the tax issues specific to you.

Nanny Taxes - Find out what's involved with complying with the Nanny Tax Rules

IRS Web Site - for tax forms, publications, and general tax information.

Exchange Authority - New England's first authority for IRC 1031 Exchanges

Cost Segregation Studies - Accelerate tax depreciation deductions on new and existing buildings through cost segregation studies

Social Security - find out the latest rules or your projected retirement benefit.

The Company Corporation offers fast, reliable & affordable incorporation and LLC services.


MONTHLY TAX NEWSLETTER

May 2017

THIS YEAR'S MOST INTERESTING TAX-SEASON OBSERVATION

by Andrew D. Schwartz, CPA

At some point during each tax season, there is a moment when I notice a recurring trend or theme that is unique and fascinating to that specific tax season. So what is this year's most interesting trend? 

For the 2017 tax season, what I found most fascinating is the number of clients who installed solar panels on their home during 2016. People who added solar property to their homes are eligible to claim a federal tax credit equal to 30% of the costs incurred. 

Remember, a tax credit is a dollar for dollar reduction in the taxes you owe. Spending $40k on solar panels for your home, therefore, translates to a $12k reduction in the federal income taxes you'll pay that year. You report this valuable tax break on a Form 5695.

Many states allow taxpayers to claim a Solar tax credit as well.  For example, Massachusetts allows a tax credit of up to $1,000 while New York allows up to $5,000 in tax savings for installing solar.

According to the Instruction of Form 5695:

Qualified solar electric property costs. Qualified solar electric property costs are costs for property that uses solar energy to generate electricity for use in your home located in the United States. No costs relating to a solar panel or other property installed as a roof (or portion thereof) will fail to qualify solely because the property constitutes a structural component of the structure on which it is installed. The home doesn't have to be your main home.

Qualified solar water heating property costs. Qualified solar water heating property costs are costs for property to heat water for use in your home located in the United States if at least half of the energy used by the solar water heating property for such purpose is derived from the sun. No costs relating to a solar panel or other property installed as a roof (or portion thereof) will fail to qualify solely because the property constitutes a structural component of the structure on which it is installed. To qualify for the credit, the property must be certified for performance by the nonprofit Solar Rating Certification Corporation or a comparable entity endorsed by the government of the state in which the property is installed. The home doesn't have to be your main home.

Please note that the solar credit has been extended through 2021.  However, the full 30% tax credit applies only through 2019, then the credit decreases to 26% of eligible costs incurred for 2020, and then decreases again to 22% for 2021.

Prior Years Trends and Observations

Here are the most interesting trends that I observed during the prior 5 tax seasons:

2016: The number of clients who instructed me to allocate $3 of their tax liability to the Presidential Election Campaign Fund, due primarily to the craziness brought on by the Presidential Election.

2015: The year of the energy efficient tax credit with lots of my clients purchasing solar panels, electric cars, and even re-charging stations for those electric cars, including my long-time Dr. Jim who purchased all three.

2014: With a variety of tax hikes taking hold in 2013, the trend that tax season was higher taxes on lower income for high-income taxpayers, with many clients getting stuck paying obscenely high balances due.

2013: This was the first tax season that I noticed a sizable uptick in the number of individuals taking advantage of Health Savings Accounts.

2012: Record low interest rates meant that many homeowners refinanced their home mortgages at least once during 2011, including all but one or two of my clients who had a mortgage.

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BIG TAX CREDITS FOR ELECTRIC CARS

by Michael Bohigian CPA

Considering the purchase of a new fuel-efficient car in 2017? If you are, the IRS still offers tax credits up to $7,500 on all-electric and plug-in hybrid cars that you would claim on your 2017 tax return.  

The IRS defines the vehicle requirements as follows: “This is a new vehicle with at least four wheels that Is propelled to a significant extent by an electric motor that draws electricity from a battery that has a capacity of not less than 4 kilowatt hours and is capable of being recharged from an external source of electricity.”

The U.S. Dept of Energy maintains a comprehensive list of qualifying cars by make and model that you can view:
 
As expected, there are some items in the fine print to note:
  • The vehicle must have a gross weight of less than 14,000 pounds.
  • You must be the owner of the vehicle to claim the tax credit.  If you’re leasing a car, the credit stays with the manufacturer that’s offering the lease, so you won’t be claiming that tax credit on your return.  You should benefit as a consumer regardless, as the manufacturer generally factors the credit into reduced lease payments.
  • Conventional hybrids and clean diesel cars at one time qualified for tax credits, but no longer do.
  • The IRS does phase out credits for particular models as sales volume increases, so it’s always smart to make sure your make and model still qualifies before making a purchase with a tax credit in mind.
Please review this list out the qualifying electric vehicles by manufacturer that the IRS maintains to confirm that your dream electric vehicle qualifies for a valuable tax break.

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SPRING CLEAN UP: CLEAN OUT YOUR TAX FILES AND RECORDS

With the April 15th deadline still a recent memory, most of us probably still have our tax records piled up somewhere in our homes.  Why not take this opportunity to shred all the documents that you no longer need to keep?

How long do you need to hold onto your tax records? According to the IRS:

Well organized records make it easier to prepare a tax return and help provide answers if your return is selected for examination, or to prepare a response if you receive an IRS notice.

  • What to Keep - Individuals. In most cases, keep records that support items on your tax return for at least three years after that tax return has been filed. Returns filed before the due date are treated as filed on the due date. Examples include bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks or other proof of payment and any other records to support deductions or credits claimed. You should typically keep records relating to property at least three years after you've sold or otherwise disposed of the property. Examples include a home purchase or improvement, stocks and other investments, Individual Retirement Account transactions and rental property records.
  • What to Keep - Small Business Owners. Typically, keep all your employment tax records for at least four years after the tax becomes due or is paid, whichever is later. Also, keep records documenting gross receipts, proof of purchases, expenses, and assets. Examples include cash register tapes, bank deposit slips, receipt books, purchase and sales invoices, credit card charges and sales slips. Forms 1099-Misc, canceled checks, accounts statements, petty cash slips and real estate closing statements. Electronic records can included databases, saved files, e-mails, instant messages, faxes and voice messages.

There is no period of limitations to assess tax when a return is fraudulent or when no return is filed. If income that you should have reported is not reported, and it is more than 25% of the gross income shown on the return, the time to assess is 6 years from when the return is filed.

For filing a claim for credit or refund, the period to make the claim generally is 3 years from the date the original return was filed, or 2 years from the date the tax was paid, whichever is later. For filing a claim for a loss from worthless securities the time to make the claim is 7 years from when the return was due.

For more information from the IRS, check out:

More spring cleaning projects for your personal finances can be found in our May 2013 newsletter.

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TAX AND FINANCIAL PLANNING CALENDAR FOR MAY 2017

Month

Income Taxes

Saving and Investing

 

 May

  • Good time to make charitable donation of clothing and household items gathered during your spring cleanup
  • Before summer kicks in, take a look at your asset allocation of all your retirement and non-retirement accounts, and consider rebalancing your accounts.

 TOP


2016 & 2017 TAX FACTS

  • For 2016, the standard deduction for a single individual is $6,300 and for a married couple is $12,600. A person will benefit by itemizing once allowable deductions exceed the applicable standard deduction. Itemized deductions include state and local income taxes (or sales taxes), real estate taxes, mortgage interest, charitable contributions, and unreimbursed employee business expenses.
  • For 2016, the personal exemption is $4,050. Individuals will claim a personal deduction for themselves, their spouse, and their dependents. 
  • The maximum earnings subject to social security taxes is $127,200 for 2017, up from $118,500 for 2015 and 2016.
  • The standard mileage rate is $.535 per business mile as of January 1, 2017, down from $.54 for 2016.
  • The maximum annual salary deferral into a 401(k) plan or a 403(b) plan is $18,000 in 2015, 2016 and 2017, up from $17.5k in 2014.  And if you'll be 50 or older by December 31st, you can contribute an extra $6,000 into your 401(k) or 403(b) account this year.
  • The maximum annual contribution to your IRA is $5,500 for 2014 through 2017.  And if you turn 50 by December 31st, you can contribute an extra $1,000 that year.  You have until April 15, 2017 to make your 2016 IRA contributions.

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Need Help With Your Nanny Payroll?
 

This Month's Topics

This Year's Most Interesting Tax-Season Observation

Big Tax Credits For Electric Cars

Spring Clean Up: Clean Out Your Tax Files And Records

The FICA Refund for Medical Residents 

2016 & 2017 Tax Facts

Tax and Financial Planning Calendar for May 2017

 

NEWSLETTER ARCHIVES
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WHAT'S NEW WITH THE FICA REFUND?

In a shocking development, the IRS recently announced that they will be honoring the FICA tax refunds submitted by residency programs and individual doctors.  The catch is that only FICA taxes paid prior to 4/1/05 qualify.

For more information, go to our April 2010 Newsletter, our January 2009 Newsletter, or our February 2001 Newsletter or read through the IRS' Chief Counsel Advice Memorandum on this issue.

Let's work together to keep current on this hugely valuable tax break.  Please post whatever you read or hear regarding this FICA issue on our new Message Board we set up just for this topic.

 

 
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