Below are a few tax planning items that may be of interest to you…
State of Arizona Individual Charitable Contribution Credits – The state of Arizona offers a dollar for dollar reduction of your State Income tax with the following credits:
Private School Tuition Organization (Maximum $1,034 Married Filing Joint (MFJ), $517 Single) – If you contribute the maximum for the Original Private School Tuition Credit, you are eligible for an additional $1,028 MFJ ($514 single) credit with the new Overflow/Plus Tax Credit.
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Public School (Maximum $400 MFJ, $200 Single)
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Assistance to the Working Poor (Maximum $400 MFJ, $200 Single) – see NEW FOR 2013 below
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Military Family Relief Fund (Maximum $400 MFJ, $200 Single)
NEW FOR 2013 Qualified Foster Charitable Organization (QFCO) – Contributions to a QFCO allows taxpayers to double the Assistance to the Working Poor Credit (Maximum $800 MFJ, $400 Single). Click here for more information.
These credits are a great way to re-direct your Arizona tax dollars to organizations closest to you and your family. If you would like to take advantage of any or all of these Arizona Charitable Contribution Tax Credits for 2013, these amounts should be paid to the respective organizations on or before December 31, 2013. The Private School Tuition Organization Credits can be completed by April 15, 2014, to qualify for the 2013 tax year for Arizona taxes; however, it is only deductible as a Federal Charitable Itemized Deduction in the year paid. When making these contributions, insist the organization give you a receipt which shows the amount contributed is eligible for the Arizona Tax Credit. These non-refundable credits carry forward to future years if in excess of your Arizona Tax Liability. Check out the website links below for specific information about each of the credit available.
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For both Private and Public school credits, click here.
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Click here for information about the Working Poor Credit.
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For information on the Arizona Military Family Relief Fund, click here.
AZ Gross Income Subtraction for Net Long-Term Capital Gains – Beginning in 2013, individuals may subtract from Arizona gross income 10% of any net long-term capital gain derived from assets acquired after December 31, 2011. This percentage increases to 20% in 2014, and 25% in 2015.
2014 Pension Plan Limitations – The maximum Pension Plan limitations for 2014 are as follows: 401(k) employee deferral contribution maximum remains at $17,500; Catch-up Contribution for employees age 50 and over remains at a maximum of $5,500; SIMPLE plan employee contribution maximum remains at $12,000; and Total Profit Sharing Plan contribution (including 401k deferrals) increases to $52,000 from $51,000.
2014 Social Security Wage Base – The Social Security (FICA) wage base will increase to $117,000 from $113,700 in 2013. As a reminder, the 0.9% Medicare surtax is charged by the employer on any employee’s wages exceeding $200,000.
Delay in Start of the 2014 Filing Season (2013 tax year) – The Internal Revenue Service announced a delay of approximately one to two weeks to the start of the 2014 filing season due to the time lost during the 16-day federal government closure. According to the IRS, the final date will be set in December. This delay will impact the filing of individual returns, the issuance of related refunds, and is necessary to allow for adequate time for the IRS to program and test 2014 tax processing systems for the 2013 calendar tax year filings.
Patient Protection Act (Tax Impacts) – Personal Exemptions – starting with AGI of $300,000 MFJ ($250,000 single), the exemptions will phase out 2% for each $2,500 of additional AGI over this threshold. At $422,500 MFJ ($372,500 single) all personal exemptions are fully phased out.
Itemized Deductions – starting with AGI of $300,000 MFJ ($250,000 single), itemized deductions will phase out 3% of the excess AGI over the threshold but not more than 80% of allowable itemized deductions.
3.8% Medicare Tax on Net Investment Income – 3.8% Medicare Tax on Net Investment Income will be assessed for those taxpayers with Modified Adjusted Gross income in excess of $250,000 MFJ ($200,000 single). Net investment income does not include active trade or business income, distributions from IRA’s or other qualified retirement plans, or any income taken into account for self-employment tax purposes. Passive Trade or Business activities may be subject to the additional tax. For the 2013 tax year, it would be beneficial to re-evaluate your participation in your passive activities to determine if these activities are subject to the tax.
From 1099-K – The IRS continues to require all credit card payment settlement entities (Visa, MasterCard, etc.) to report payments made to merchants during the calendar year. The IRS is looking at the information they have received over the past two years and are starting audits based on a “Possible Income Underreportingâ€. The IRS looks at the percentage of credit card payments received over a merchant’s total gross receipts. If this percentage is not in range with other merchants in the same industry, the IRS may contact the merchant to explain the difference. The IRS is not requiring a merchant reconcile to their credit card deposits with the Form 1099-K, but is using this tool in an attempt to locate merchants that may be underreporting their income overall.
Bad Debts – A deduction is allowed for any debt that becomes worthless within the taxable year. The inability to collect money due to a breach of contract may allow the taxpayer a bad debt deduction. However, prior to taking the deduction, the taxpayer must determine:
1. Is the debt actually worthless? 2. Is it genuinely a “bona fide†debt?
3. Is the debt factually a capital contribution? 4. Is the debt a business bad debt?
5. Is the debt a non-business bad debt?
Reporting the bad debt on the tax return requires an explanatory statement attached to return, showing:
1. the nature of the debt (including the amount),
2. the name of the debtor and any business or family relationship to the taxpayer,
3. the date the debt became due,
4. the efforts made to collect the debt, and
5. the reason for determining the debt to be worthless.
Also helpful is securing a copy of the promissory note and payment records showing when the payments stopped.
IRS Phone and Phishing Scams – The IRS continues to be advised of various types of scams. Please remember the IRS usually first contacts people by mail, not by phone about unpaid taxes. Many scammers use fake IRS badge numbers; fake caller IDs to appear as if the IRS is calling; send bogus emails where email addresses appear as if from the IRS; or may call a second time claiming to be the police or DMV to support the original caller’s claim. The IRS would never ask for payment using a pre-paid debit card, wire transfer or ask for a credit card number over the phone.
E-Mail/Contact Information – Do you currently receive paper tax organizers and engagement letters but would rather receive them via email? If so, please contact our office or email info@pescatorecooper.com to let us know how you would like to be included on our email distribution list for organizers and engagement letters. We strive to keep our contact information updated for our clients. If your information has changed, please take a moment to email info@pescatorecooper.com with your name, address, phone numbers and email addresses, so we can update our records.
We hope you find this information helpful! As always, we greatly appreciate your business and welcome any questions or concerns you may have.
Thank you,
Tony Pescatore and Rachel Cooper
Pescatore-Cooper, PLC
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