Do You Need to File a Tax Return? – Getting this wrong can cost you
Do You Need to File a Tax Return? – Getting this wrong can cost you
Do you need to file a tax return this year? Here are some handy tips to help you decide.
One of the more common tax questions is whether you need to file a tax return this year. The answer is: It all depends. Here are some quick tips to help you determine your answer.
Income
If your gross income is less than the sum of your standard deduction plus the amount of your personal exemption(s) you usually do NOT need to file a tax return. This is because both of these deductions effectively eliminate any taxable income. The amounts for 2015 are:
Married filing joint: $20,600 ($21,850 if one is 65 or older; $23,100 if both are 65 or older)
Head of household: $13,250 ($14,800 if age 65 or older)
Unmarried (single): 10,300 ($11,850 if age 65 or older)
Over age 65
As noted above, if you or your spouse are over the age of 65 the income required to file a tax return goes up by $1,250 (married) to $1,550 (single/Head of Household) for each of you that meets the age threshold.
Exceptions
Like most tax laws, there are exceptions to the income limits mentioned above. Here are some of the more common situations where filing a tax return may make sense.
- You have federal or state withholdings. The ONLY way to get money back that was withheld from a paycheck or 1099 is to file a tax return. If you do not do so within three years, your refund will be absorbed by the government. While the IRS is quick to let you know that you owe them money, there is no such program to let you know that a refund is due to you.
- You are eligible for a refundable credit. Refundable credits will pay you money even if you don’t owe income tax. For example, if you have a tax liability of $750, but you are eligible for a $1,000 tax credit you normally can only receive the $750 tax benefit. But with a refundable tax credit you can receive the additional $250, even without a tax liability. The most common examples of refundable credits are the Child Tax Credit, the Earned Income Tax Credit and the American Opportunity Tax Credit.
- If you are a dependent. Special filing rules apply if you are a dependent on someone else’s tax return. If this is the case, filing rules vary depending on your age, your earned income (like wages) and your unearned income (like interest income). In this case it is usually best to conduct a review of your situation.
- Other reasons. Sometimes filing a tax return can be used for other purposes. This includes using your tax return to obtain financing or to receive college financial aid. Another reason is to limit the amount of time your tax return can be audited. Once a tax return is filed, the audit clock starts. After 3 to 4 years most tax returns can no longer be audited. If the return is not filed, this audit clock never starts.
Planning 2016 Taxes: New Income Levels for Tax Brackets
Planning 2016 Taxes: New Income Levels for Tax Brackets
Here is a quick look at 2016 tax rates and their associated income levels. Using your past tax information, you can plan for your tax obligation next year starting now.
Don’t forget that tax payers in the higher income levels are also subject to an additional .9% Medicare Tax introduced to help pay for the Affordable Care Act. This will impact those with incomes over:
- $200,000 Single filing
- $250,000 Married filing joint
2016 TAX RATES & RELATED INCOME LEVELS
Action Steps
- Review your Adjusted Gross Income and use the chart above to determine your marginal tax rate. This is the income tax rate applied to the last dollar you earned.
- Note whether your next dollar of income will be taxed at a higher rate. The closer you are to the next highest tax rate could identify an opportunity for tax planning.
- If you need to withhold additional money to avoid a large tax bill, review and file a new W-4 with your employer.
- If possible, take steps now to manage next year’s tax obligation. The sooner you get started, the more options you will have.
Number one reason Start ups fail
Number one reason Start ups fail
We, thankfully, have a lot of businesses that come to us and are start ups.
It is very enticing to work for yourself and be your own boss.
The lure of making your own money and potential for growth is a strong draw for the entrepreneurial spirit.
However, What can go wrong?
Points to consider.
Sure there are many start up guides and templates for business plans, and cash flow forecasts.
The more business astute even factor in running costs for the first six months.
But, the main reason that we see for a start up failing is…….
The lack of a worse case scenario that would include an allocation for your own personal expenses.
So many times, people develop the plan and have financially accounted for all business costs and an estimated customer growth that is prudent, but have planned with every penny of their personal money included as capital.
The main thing when starting a business is to prepare a personal cash flow. Decide how much money you need to live on for at least 9 months……. say $4,000 per month for 9 months = $36,000. Then make sure to take this out of the equation of capital available to the company. Because believe me, it won’t be available and you will end up trying to draw what little profit you might have made to spend on personal expenses.
Start up a business by all means, but please start with what you will need to live on, especially if it is the only income for your household.
If you need help with Business Plans or just how to structure your start up for the best tax advantage, call us (813) 283-0642.
We will do our best to try and ensure your Business Succeeds!
Surprise! The Mutual Fund Tax Trap
Surprise! The Mutual Fund Tax Trap
Year end moves by mutual fund managers often causes tax obligations for their fund owners. These surprises come in the form of 1099 DIV and 1099 B forms. Here are some ideas to help manage the problem.
The Coverdell ESA Savings. Lost in the mix?
The Coverdell ESA Savings. Lost in the mix?
Is this long standing tax advantaged education saving account worth the hassle? Perhaps. Here are some things to consider.
College Tax Savings: 2014 Edition
College Tax Savings: 2014 Edition – Every little break helps
College move in day is just around the corner. While you consider how to pay for this tremendous expense, do not forget to account for the best tax breaks possible. Here are some of the more common educational tax breaks for those in college.
Social Security tax problems
Beware the Tax Torpedo – Large retirement account balances can cause Social Security tax problems
A big surprise can occur when you see your Social Security Retirement Benefits being subject to income tax. This “tax torpedo” is often triggered by Retirement Account distributions. Are you prepared for this?
Age (not death!) and Taxes – Age does matter, when it comes to tax obligations
Age (not death!) and Taxes – Age does matter, when it comes to tax obligations
The tax code is filled with age triggers. Some are beneficial, while others can create a tax increase surprise. Outlined here are some of the important age triggers everyone should know.
Surprises That Tax Us – I did not owe that last year!
Surprises That Tax Us – I did not owe that last year!
Too often we think our upcoming tax bill will be similar to the one last year. When it is not AND when it is a higher tax bill, the surprise can be problematic. Outlined here are some common areas that create these unpleasant surprises.
Picture this; for the past few years you have picked up your tax return and have had a small but nice refund. Now imagine your surprise, when next year, you are required to send in a fairly big check to settle your tax bill. Believe it or not, this message is almost as hard to deliver to a taxpayer as it is to hear it. Here are some tips to help ensure tax changes do not come as a surprise to you.
A spouse passes away. The tax surprise related to this event tends to hit older taxpayers the hardest. In the year of death the tax impact in not usually felt. The year following death, the tax surprise hits hard because of the following tax changes:
- You lose standard deductions
- You lose an exemption
- You move from a joint filing status to single (or head of household)
A child is no longer eligible. Just when you think you have it figured out, a child who generated a tax break for you no longer does. Here are some age requirements for popular tax benefits:
- Dependent Care Credit: under age 13
- $1,000 Child Tax Credit: under age 17
- Earned Income Tax Credit: under age 19 (24 if a qualified student)
Earnings with social security benefits. If you are recently retired, collecting Social Security Benefits, and then start working part-time, you are also in for a tax surprise. These extra earnings could not only make your benefits taxable, it could result in a reduction of benefits received.
Other life events. Other life events could provide a tax surprise for you. While some may have positive tax consequences, like a new birth, or becoming head of household, others might surprise you and result in additional tax. Other common life events include retirement, death, and entering/leaving school.
Capital gains surprises from mutual funds. Often sales of investments are a planned event. Unfortunately, many mutual funds sell assets and then you receive a capital gain statement with a surprise taxable event.
New tax laws. 2014 tax law changes create special complications. A number of tax breaks expired at the end of 2013. This includes the educator deduction, state general sales tax deduction, tuition deduction and mortgage insurance deduction. If you took any of these tax deductions in 2013 you can expect a change to your tax return next year unless Congress acts to reinstate any of these provisions.
Want to avoid these surprises? Spend some time now reviewing your anticipated tax situation for 2014. By doing so, perhaps a planned “pleasant” surprise can be in store for you next year.
Small Businesses: Plan for Lower Section 179 Expense
Small Businesses: Plan for Lower Section 179 Expense
Effective in 2014, the amount of capital purchases that can be expensed versus depreciated over time is much lower. Here are some things to consider.
Top-line: In 2014, the annual expense limit for Section 179 is now $25,000, down from $500,000 in 2013. You will need to plan accordingly.
Background
Section 179 of the tax code allows businesses to immediately expense qualified capital purchases versus depreciating (recovering) their cost over time. Qualified purchases can be new or used equipment and certain software placed in service during the year. This benefit can be maximized as long as total qualified asset purchases by your business do not exceed $200,000 (formerly $2 million) during your 2014 tax year.
What’s the Problem?
For years the threshold for qualified purchases was much higher than the lower Section 179 amount in 2014. The old Section 179 provision allowed for small businesses to upgrade equipment while lowering their current year tax obligation. Many small businesses like dentist offices, veterinarians, chiropractors and others used this provision in the tax code to help manage their cash flows through reduced taxes while purchasing needed equipment.
Time to Plan
Users of Section 179. If your business currently uses Section 179 as a tax planning strategy, you need to review your anticipated capital purchases for the year. Consider prioritizing your needs to ensure the most important capital purchases are at the top of your list.
Delay your Purchases? There is a slight possibility that Congress will act during the year to increase the Section 179 limits once again. This retroactive nature in Congress has been in place for the past number of years, so this is not out of the question. Consider delaying purchases until later in the year if you think this might happen.
Is Section 179 for you? Please remember that taking advantage of this provision in the tax code only changes the timing of expensing your capital purchases and not the over all deduction of your purchase. If you think Congress will continue to raise taxes to help balance the budget, your future income could be exposed to a higher tax rate. By using standard recovery periods for your capital purchases (typically three, five, or seven years), you are saving some expense for later (higher tax) years. In this case using Section 179 expensing may not be the right decision for your business.
Feel free to call (813) 283-0642 for help to review your situation, especially if you are planning major capital purchases in the near future.