Below are a few tax planing items that may be of interest to you before year end.....
Affordable Care Act (ACA) – Due to the implementation of reporting requirements and future enforcement by the IRS, there will be additional questions asked of all of our clients so that we may correctly reflect your health care insurance situation. In some instances we will require a questionnaire to be completed by you to assist us in recognizing the reporting requirements of the individual or business. If you have questions or need additional information, please contact our office.
Classification of Workers: Are they Independent Contractors or Employees? – This question has become even more important with the health care reform requirements. Independent contractors that really should be reclassified as employees may put an employer above the full time employee equivalent level which would cause the employer to be subject to providing health care insurance to its employees. The IRS has a 20-factor test that it uses in classifying workers. If you would like to review these requirements, please contact our office for a copy of the 20-factor test. If you find that you may have been misclassifying workers, the IRS has a voluntary settlement program to bring the employer into compliance with limited federal employment tax liability for past non-employee treatment. If you are interested in exploring this option, please contact our office as there are specific criteria which must be met to participate.
Foreign Income and Reporting Requirements – For many years, the IRS and Treasury Department have been aggressively pursuing taxpayers who willfully conceal foreign bank accounts and/or foreign income. In addition to the FIN CEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR) which must be filed each year by June 30 (no extensions available), there may be additional forms required. If you have any of the following situations and are unclear as to whether you have a filing requirement, please contact our office.
- Ownership of or transactions with foreign corporations
- Ownership interests in and/or income from a passive foreign investment
- Ownership of any part of assets of a foreign trust
- Received a distribution from a foreign trust
- Received a gift or bequest from a nonresident alien or foreign estate
The aggressiveness of the IRS and Treasury Department continues and could result in high penalties.
Arizona sales tax changes “Simplification†– Starting 1/1/15, the State of Arizona has changed the process for collecting and remitting sales taxes. Starting at the end of 2014, businesses will receive an annual license application to update their contact information and renew their license each year. By 2016, all cities in Arizona will be reported on one form to the State of Arizona. For 2015, some changes have been made in determining the sales tax amount to be charged and remitted for certain contracting activities. Also, some sourcing rules for personal property sales in state, out of state, and out of the country have changed. If you would like additional information please contact our office or visit the State of Arizona’s website and select the TPT Simplification tab on the left side of the page.
State of Arizona Individual Charitable Contribution Credits – The State of Arizona still offers a dollar for dollar reduction of your State Income tax with the following credits:
Public School Tax Credit
Private School Tuition Tax Credit
Qualifying Charitable Organizations Credit
Military Family Relief Fund
2015 Pension Plan Limitations – The Pension Plan limitations for 2015 are as follows: 401(k) employee deferral contribution maximum has increased to $18,000 with a maximum catch-up contribution for employees 50 or older of $6,000; SIMPLE plan employee contribution maximum has increased to $12,500 with a catch-up contribution for employees 50 or older of $3,000; and maximum total profit sharing plan contribution (including 401k deferrals) increases to $53,000 from $52,000.
2015 Social Security Wage Base – The Social Security (FICA) wage base will increase to $118,500 from $117,000 in 2014. As a reminder, the 0.9% Medicare surtax is charged by the employer on any employee’s wages exceeding $200,000.
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. If you feel that you may have been targeted, please alert the IRS by reporting the scam at their website.
Is it a Business or a Hobby? – On your return you must report any income you earn from a hobby activity, examples of this would be stamp and coin collecting, craft making, horsemanship, etc... The rules used to report the income and expenses depend on whether the activity is a hobby or a business. A key feature to show that the activity is a business is that it makes a profit. In addition to this rule, there are nine factors to consider if the activity is a hobby or business. If the activity is determined to be a hobby, necessary and ordinary expenses are deductible up to the amount of the hobby income. Hobby expenses are reported on Schedule A, Itemized Deductions, therefore you must itemize to be able to recognize hobby expenses.
Congress “Lame-Duck†Session 2014 – As of the writing of this newsletter the House and Senate have approved a one-year extender package (retroactive 1/1/14) that has included many helpful and popular business and individual provisions of the internal revenue code which expired at the end of 2013. We are waiting for the President's signature, but it appears as if these extenders are back for 2014, expiring again for 2015.
Record Retention Guidelines - Our office gets many inquiries as to the length of time it is necessary to keep company and personal records. As a helpful tool, we have comprised a general guideline for the retention of many records with the holding periods. You can view a copy of the guidelines here or find a copy on our website under the References tab.
We hope that you find this information helpful and urge you to contact us if you have any questions. As always, we 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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