How to Minimize Pricey Medicare Surcharges on your taxes

FROM THINKADVISOR.COM

Adjusted gross income (AGI) plays a powerful role in any client’s tax planning—deductions and credits phase out as income rises. Moderate- to high-income clients face the cost of Medicare surcharges that adds to the client’s Medicare bill. Moderate income clients can lose out on valuable tax benefits without planning to reduce AGI if possible.

AGI Reduction Strategies

Medicare income-based surcharges are determined based on a sliding scale that uses the recipient's modified AGI to determine liability for Medicare premium costs. Five tiers of income levels currently exist, and the amount of an individual's income-based surcharge is determined based upon the tier in which his or her income falls—beginning in 2018, a change in the rules will mean that more moderate income clients will find themselves in the tier that imposes the largest surcharge.

At the most basic level, clients should take advantage of tax-preferred retirement accounts in order to reduce AGI and avoid these surcharges—contributing to a 401(k) plan can reduce AGI by at least $18,000 in 2017 (clients age 50 and older can contribute an additional $6,000 in pre-tax funds to these accounts). 

Clients should also plan to maximize contributions to health savings accounts (HSAs), which can serve to reduce AGI by up to $6,750 per year for a client with family coverage in 2017.  The funds are withdrawn tax-free to cover medical expenses, but upon reaching age sixty-five, the client can withdraw the funds for any purpose without penalty (funds withdrawn for non-medical purposes will increase taxable income in a future year, however). 

Clients who have reached age 70 ½ can reduce AGI by up to $100,000 per year by using their IRA required minimum distribution (RMD) to contribute to charity. The donation must be transferred directly from the IRA to charity in order to qualify.

An Alternative Approach

For some clients, it may actually be better to increase AGI at some point before retirement in order to reduce taxable income (and take advantage of the benefits a lower income can provide) later in life.  This would subject the client to a larger tax bill in a short period of time in order to plan for tax-free income (and a reduced AGI) at a later time.

Frequently, this can be accomplished by converting retirement funds to a Roth account.  Other clients may choose to sell off assets in a single year, pay taxes on the gain and contribute the profits to a Roth that can be accessed tax-free in the future.  Because the new administration is proposing to reduce ordinary income tax rates for high-income clients, the next few years may be an ideal time to take advantage of this strategy. 

However, while compressing income into a short time span can be a valuable strategy, it is important to remember that Medicare uses a two-year look-back period to determine any income-based surcharges, so that a client’s 2015 AGI will be used in determining the client's liability for income-based surcharges today—meaning that as a client approaches Medicare eligibility, he or she will want to ensure that AGI is at its lowest at least two years ahead of time.

Conclusion

Planning to reduce AGI may seem basic, but it can provide substantial tax savings for clients whose high income could generate substantial costs—both in terms of Medicare premiums and phased out tax benefits.

Beware of These 7 Common Income Tax Blunders

FROM http://www.accountingweb.com/

Come April, the annual rite of passage known as filing your income taxes will be upon us, but this year there is some good news for taxpayers.

Because April 15 falls on a weekend and the following Monday is a federal holiday, taxes are due by midnight on Tuesday, April 18.

Preparing taxes is always challenging, whether taxpayers do it on their own or get information ready for their CPA or tax professional. And while using tax-preparation software can make the process less complicated, even one small error or omission can trigger problems and delays in getting a refund.

To ensure a smooth tax-filing process, the Illinois CPA Society provides seven common mistakes to avoid this tax season.

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1. Math errors. Still the most common mistake made on tax returns. Even if all your calculations are correct, an error in your initial figures can throw everything off.

2. Misspelled or changed names. Sometimes the easiest portions of a tax return can create the biggest hang-ups with a misspelled name or a changed name that’s not correctly listed.

3. Wrong Social Security numbers. An incorrect Social Security number or forgetting to list numbers for you or your dependents can create unexpected problems. Social Security numbers serve as individual tax identification numbers.

4. Incorrect direct deposit information. Having your refund direct deposited into your bank account is convenient, but make sure your account numbers are correct on your return, especially if you’re listing multiple accounts.

5. Changes to your filing status. If you were married, divorced, or your household situation changed, this may need to be reflected in your official filing status. A tax professional can help you determine the correct and most beneficial status for your situation.

The IRS provides five filing status options for all taxpayers:

Single
Married, filing jointly
Married, filing separately
Head of household
Qualifying widow(er) with dependent child

6. Not keeping tabs of charitable contributions. If you donated cash or gifts to qualified charities and not-for-profit organizations in the past year, you may be able to deduct the value of your contribution when itemizing your return. Make sure to list the total amount for all charitable contributions and check the math to see if the overall value is correct.

7. Don’t forget to sign and date your return. After all the time and effort that went into preparing your return, make sure to sign and date on the bottom line.

And don’t forget, all returns are due by midnight on April 18. Filing Form 4868, Application for Automatic Extension of Time to File US Individual Income Tax Return, can get you a six-month paperwork extension, but any taxes owed are still due on April 18.

Will I Pay a Marriage Penalty on My Taxes?

FROM www.fool.com/

Tax laws treat married couples differently from single people, and in some cases, couples will end up paying more after they marry than they did when they were single. This phenomenon is known as the marriage penalty, and it most often happens when the two spouses each have similar and fairly high amounts of income.

However, as you'll see, there are some instances in which marriage penalties apply even to low- and middle-income taxpayers.



Why the marriage penalty happens

The reason some taxpayers pay a marriage penalty has to do with the way the tax brackets are set up. For the 10% and 15% brackets, the income limits for each bracket for married couples are exactly double the corresponding limits for single filers. However, for the 25% brackets and above, the married amounts are less than double the single amounts. Therefore, if the two spouses were both in the 25% bracket or higher before they married, then there's a chance they'll owe a marriage penalty.

An example can make this clearer. Say that two individuals had taxable income of $100,000 before they married. Their tax will be $21,037 each, for a total of $42,074. However, if they marry, then their combined taxable income of $200,000 will generate tax of $42,986. That adds up to a marriage penalty of $912.

Why does the married couple pay more than $900 in extra tax? The short answer is that a bit more than $30,000 of their combined income gets taxed at a higher 28% rate after they're married, compared with what was in that higher bracket when they did their returns as single filers before they tied the knot.

Other tax laws that can cause a marriage penalty

The tax brackets are the primary reason some taxpayers pay more after they get married. But it's not the only one. In particular, high-income taxpayers have a host of additional considerations to take into account. Consider the following:

Two surtaxes under the Affordable Care Act included a 0.9% surtax on wages and other earned income, as well as a 3.8% tax on investment income. The income thresholds for both of these surtaxes are the same: $200,000 for single filers, and $250,000 for married couples filing jointly. Therefore, singles who both earn between $125,000 and $200,000 can end up getting hit with extra tax after they get married as a result of these provisions. Those who have income above those limits will end up having to pay the tax on a correspondingly larger amount of their combined income.
There are provisions that reduce the amount of itemized deductions and personal exemptions that high-income taxpayers are allowed to claim on their tax returns. As with the ACA-related taxes, these deduction-cutting provisions start to apply at different income thresholds for singles versus couples. For 2016, the point at which these provisions start to increase taxes is $259,400 for single filers and $311,300 for joint filers. If getting married puts you above the latter figure, then you could end up getting penalized for tying the knot.

In addition, there are provisions that create a marriage penalty for those with extremely low levels of income. The most common involves the earned income tax credit, which pays the largest amounts to families with young children. Because of the way the credit is calculated, the income at which a married couple is entitled to take the same credit as a single parent is far less than double the income level for singles. Therefore, getting married can lead to combined income that reduces or entirely eliminates the allowed credit.


What to do

The only way to avoid marriage-penalty issues is to consider them in your decision about getting married. Your marital status as of the end of the tax year is determinative for figuring out your filing status, so in some cases, a delay or acceleration in tying the knot can make a year's difference. Longer-term, though, couples have to face the rather unromantic prospect of changing their marriage plans if tax planning is that much of a priority.

Are you hiring someone to do your taxes? Read this before you get caught up in tax fraud

I’m recapping important tips by the Internal Revenue Service on hiring a tax preparer so you don’t get caught in a tax-fraud scheme.

Tax fraud can involve preparers filing false income-tax returns for their clients by claiming inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions. Preparers might, for example, manipulate income figures to fraudulently obtain tax credits such as the Earned Income Tax Credit.

Why would someone do this? They might set their fee based on a percentage of the refund. The higher the refund, the more they would get paid. (See tip below on avoiding preparers who charge a percentage, rather than a flat fee.)

In some situations, the client, or taxpayer, might not know of the false expenses, deductions, exemptions and/or credits shown on his or her tax return.

However, when the IRS detects a fraudulent return, the taxpayer — not the return preparer — must pay the additional taxes and interest and could be subject to penalties.

While most preparers provide honest services to clients, the IRS urges taxpayers to be careful when choosing a preparer — as careful as they would be choosing a doctor or lawyer. Even if someone else prepares a tax return, the taxpayer is ultimately responsible for all the information on the return.

For that reason, taxpayers should never sign a blank tax form. And they should review the return before signing it and ask questions on entries they don’t understand.

Also, the IRS suggests that taxpayers:

▪ Be cautious of preparers who claim they can obtain larger refunds than other preparers.

▪  Avoid preparers who base their fee on a percentage of the refund.

▪  Use a reputable tax professional who signs the tax return and provides a copy.

▪  Consider whether the individual or firm will be around to answer questions about the tax return months or even years after it has been filed.

▪  Check the person’s credentials. Only attorneys, certified public accountants (CPAs) and enrolled agents can represent taxpayers before the IRS in all matters, including audits, collections and appeals. Other return preparers can only represent taxpayers for audits of returns they actually prepared.

▪  Find out if the preparer is affiliated with a professional organization that provides its members with continuing education and resources and holds them to a code of ethics.

Reputable preparers will ask to see receipts and will ask questions to determine whether expenses, deductions and other items qualify.

If you suspect any kind of fraud, call 800-829-3676 or visit the IRS web site at http://www.irs.gov/.

Read more here: http://www.miamiherald.com/news/local/crime/article130095119.html#storylink=cpy

The Top Income Tax Refund Myths

As millions of people begin filing their tax returns, the IRS is reminding taxpayers about some basic tips to keep in mind about their refunds.

During the early parts of the tax season, early filers are anxious to get details about their tax refunds. And in some social media, this can lead to misunderstandings and speculation about refunds. The IRS offers some tips to keep in mind.

Myth 1: All Refunds Are Delayed

While more than 90 percent of federal tax refunds are issued in the normal timeframe – less than 21 days – it is true some refunds may be delayed – but not all of them. Recent legislation requires the IRS to hold refunds for tax returns claiming the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC) until mid-February. Other returns may require additional review for a variety of reasons and take longer. For example, the IRS, along with its partners in the state’s and the nation’s tax industry, continue to strengthen security reviews to help protect against identity theft and refund fraud. The IRS encourages taxpayers to file as they normally would.

Myth 2: Calling the IRS or My Tax Professional Will Provide a Better Refund Date

Many people mistakenly think that talking to the IRS or calling their tax professional is the best way to find out when they will get their refund. In reality, the best way to check the status of a refund is online through the “Where’s My Refund?” tool at IRS.gov or via the IRS2Go mobile app.

Taxpayers eager to know when their refund will be arriving should use the "Where's My Refund" tool rather than calling and waiting on hold or ordering a tax transcript. The IRS updates the status of refunds once a day, usually overnight, so checking more than once a day will not produce new information. “Where’s My Refund” has the same information available to IRS telephone assistors so there is no need to call unless requested to do so by the refund tool.

Myth 3: Ordering a Tax Transcript a “Secret Way” to Get a Refund Date

Ordering a tax transcript will not help taxpayers find out when they will get their refund. The IRS notes that the information on a transcript does not necessarily reflect the amount or timing of a refund. While taxpayers can use a transcript to validate past income and tax filing status for mortgage, student and small business loan applications and to help with tax preparation they should use “Where’s My Refund?” to check the status of their refund.

Myth 4: “Where’s My Refund,” Must be Wrong Because There’s No Deposit Date Yet

Where's My Refund? ‎on both IRS.gov and the IRS2Go mobile app will be updated with projected deposit dates for early EITC and ACTC refund filers a few days after Feb. 15. Taxpayers claiming EITC or ACTC will not see a refund date on Where's My Refund? ‎or through their software package until then. The IRS, tax preparers and tax software will not have additional information on refund dates.

The IRS cautions taxpayers that these refunds likely will not start arriving in bank accounts or on debit cards until the week of Feb. 27 -- if there are no processing issues with the tax return and the taxpayer chose direct deposit. This additional period is due to several factors, including banking and financial systems needing time to process deposits. Taxpayers who have filed early in the filing season, but are claiming EITC or ACTC, should not expect their refund until the week of Feb. 27. The IRS reminds taxpayers that President’s Day weekend may impact when they get their refund since many financial institutions do not process payments on weekends or holidays.


Myth 5: Delayed Refunds, those Claiming EITC and/or ACTC, will be Delivered on Feb. 15

By law, the IRS cannot issue refunds before Feb. 15 for any tax return claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC). The IRS must hold the entire refund, not just the part related to the EITC or ACTC. The IRS will begin to release these refunds starting Feb. 15.

These refunds likely won’t arrive in bank accounts or on debit cards until the week of Feb. 27. This is true as long as there is no additional review of the tax return required and the taxpayer chose direct deposit. Banking and financial systems need time to process deposits, which can take several days. .

More Information About “Where’s My Refund”

“Where’s My Refund?” can be checked within 24 hours after the IRS has received an e-filed return or four weeks after receipt of a mailed paper return. "Where’s My Refund?" has a tracker that displays progress through three stages: (1) Return Received, (2) Refund Approved and (3) Refund Sent.

Users who access “Where’s My Refund?” on IRS.gov or the IRS2Go app must have information from their current, pending tax return to access their refund information. The IRS reminds taxpayers claiming the EITC or the ACTC that recent legislation requires the IRS to hold those refunds until mid-February. Keep in mind that only a small percentage of total filers will fall into this situation. The change helps ensure that taxpayers get the refund they are owed by giving the IRS more time to help detect and prevent tax fraud.

The IRS continues to strongly encourage the use of e-file and direct deposit as the fastest and safest way to file an accurate return and receive a tax refund. More than four out of five tax returns are expected to be filed electronically, with a similar proportion of refunds issued through direct deposit.


The IRS reminds taxpayers they have a variety of options to get help filing and preparing their tax return on IRS.gov. Taxpayers can also, if eligible, receive help from a community volunteer. Go to IRS.gov and click on the “Filing” tab for more information.

Seventy percent of the nation’s taxpayers are eligible for IRS Free File. Commercial IRS partners offer free brand-name software to about 100 million individuals and families with incomes of $64,000 or less.

Online fillable forms provides electronic versions of IRS paper forms to all taxpayers regardless of income that can be prepared and filed by people comfortable with completing their own returns.

Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) offer free tax help to people who qualify. Go to irs.gov and enter “free tax prep” in the search box to learn more and find a nearby VITA or TCE site, or download the IRS2Go smartphone app to find a free tax prep provider.

The IRS also reminds taxpayers that a trusted tax professional can provide helpful information and advice about the ever-changing tax code. Tips for choosing a return preparer and details about national tax professional groups are available on IRS.gov.

Estate Planning Guide: How Can a Man Protect Himself and His Family After Death?

FROM https://goodmenproject.com

Nobody wants to think about the fact that they’ll die one day, but a responsible guy considers how his family and friends will suffer after he’s gone. You want them to properly mourn your passing, not spend the entire time trying to figure out your chaotic finances. When you plan for your death, you’re performing a loving act for your family as well as one that lets you retain control even after death. You don’t need to have an estate to do your estate planning. You don’t even need to have tons of assets for wills and estate planning. You don’t have to wait until you’re getting older than you are. In fact, you should start thinking about getting estate planning in order as early as in your 30s.


What is Basic Estate Planning?
At its simplest, estate planning is a set of legal documents that help your family make decisions for you based on your desires in life. For example, if there’s been an accident, you may not wish to remain on life support. These medical decisions can be dictated into legal documents for your family to follow. While you might not have a fortune to worry about, you could have some sentimental gifts you’d like to give to others when you pass. The binding documents will detail your medical, financial and legal choices to be implemented during a crisis.

Considerations When Gathering Information
Before you can make these decisions, you should sit down and really ponder some basic questions. If you are unable to make your own decisions, do you have someone you trust to do that for you? This person should be willing to follow your directions even if they don’t necessarily agree with them. You don’t want to appoint your parents to pull the plug on life support if you know they’ll struggle and fight against it.

A father will want someone to take care of his children after death. Even if you’re married, you should both have documents detailing who will become the guardian of the children. If you pass together, this could become a problem when there are two wills with different guardians. When you’re in the planning stages, it’s vital to discuss this with others too. Find out who will take your children. Talk to your parents about whether they’d pull the plug on life support if you were in a coma. This kind of decision can’t be sprung unexpectedly on loved ones.

Life insurance beneficiaries should be detailed in the legal documents too. While the policy will list the person, you’ll want to be thorough in how you’d like that money distributed.

Estate Planning Terms
If you’ve been a bit confused about the terms that are tossed around in estate planning, this should help.

Estate

This is the entirety of your legal documents and decisions. It’s what’s used to define your wishes after a medical crisis or death.

Testate or Intestate

When someone dies with a will, they are said to have died testate. The opposite is true of intestate, which means they don’t have a will. The state will decide what happens to your assets.

Probate


This is the legal process of settling the estate, which can involve the court system.

Executor or Administrator

The person who is responsible for settling your estate is the executor or administrator of your estate. That person will carry out your wishes after death.

Trust

The money and assets you’ve accumulated can be placed with a third party for an express purpose. You might need to have someone take care of a child’s needs before they’re old enough to be given the assets.

Documents and Choices
These are the basic documents you’ll need to consider when you’re planning your estate. Many of these choices will require professional help from an estate planning lawyer especially if you have complicated finances.

Will

This is the document that details the way you’d like your assets distributed after death. If you’d like your brother to get all your baseball cards, this is where you’ll list them. The will is filed with the court after your death, and the proper procedures are followed.

Living Will

Many people wonder “How do I make a living will?” and it’s not that difficult. You’ll need to consider what you’d like to happen in the event that you’re not able to make medical decisions for yourself. When there’s no hope of recovery, would you like to remain on life support? You might wish to be an organ donor, and a living will details all those health care decisions prior to you being incapacitated.


Health Surrogate

This person can be called something different in each state, but basically, it’s the person who will make all your medical decisions when you can’t.

Power of Attorney

This document will give financial power to someone you’ve listed on it. It’s much like the health surrogate except this person makes legal and financial decisions when you can’t make them.

DIY Estate Planning: Is it Right for You?
This is a personal decision. Some details are easy for you to do yourself. Things like making a living will can be a bit more complicated, but you have to decide for yourself how you’d like to proceed. A complicated financial history, purposely leaving a person out of your will or multiple properties can be confusing if you’re doing your own estate planning. Make a will online if you have a few assets that you’d like given to specific individuals. Otherwise, it’s best to get advice from a professional.

When you’ve gotten divorced, remarried or had a child, you will want to update your documents to include or remove someone from your will. This estate planning guide should have answered some basic questions regarding the process. You should consult with a professional when you have complicated finances or need extra help.

Average Tax Preparation Fees Hit $273 for 1040 and One State

FROM http://www.cpapracticeadvisor.com/

How much does your firm charge to prepare a 1040? How about other forms? What about the accounting and business advisory services you offer? When was the last time you checked to see if your prices were appropriate?

A new survey from the National Society of Accountants (NSA) shows detailed data about business practices, client fees, and spending for tax and accounting professionals. The 2016-17 NSA Income and Fees of Accountants and Tax Preparers in Public Practice Survey Report offers useful benchmarks for firms to use in billing, fee increases, engagement practices and other operations.

Business Mix and Revenue

Surveyed firms reported that on average 57.3% of gross income comes from tax-return preparation, 15.4% from write-up work, 8.9% from payroll services, 7.0% from tax services, 3.6% from QuickBooks/bookkeeping, 2.6% from financial statement presentation, and 5.2% from other services.

Firms split fairly evenly regarding billing methods for accounting services, with about a third billing by fixed fee (35.3%), hourly (31.2%) or a combination of the two (31.8%). Most bill for tax preparation by form (39.5%), hourly (8.4%), by a combination of fixed and hourly fees (25.0%) or by fixed fee only (23.2%).

Fees

The average fee charged to prepare an itemized Form 1040 with Schedule A and a state tax return is $273, and the cost for a Form 1040 without itemized deductions and a state return is $176.

Nearly half (49.8%) of tax and accounting practices increase tax preparation fees annually while 33.7% increase these fees every other year. For accounting fees, 37.4% increase fees annually, while 34.4% increase fees every other year.

Surveyed firms expected to increase their accounting service fees by an average of 6.1% in 2017, up from an actual increase of 5.3% in 2016.

Tax-preparation fees were expected to rise by higher percentages. Surveyed firms expected to increase tax-prep fees by an average of 6.4% in 2017, up from an actual increase of 6.0% in 2016.

Nearly three quarters (71%) charge an added fee for disorganized or incomplete files. Another 33% charge an additional fee for file extensions, 22% charge an additional fee for information received after a set deadline, and 24% charge an additional fee to expedite returns.

Average hourly fees for various client services include:

*             Offers in Compromise – $177

*             Estate/Financial Planning – $163

*             Audit of Financial Statements – $157

*             Financial Services – $144

*             Tax Services – $145

*             Management Advisory Services – $146

*             Elder Care Financial Services – $131

*             Financial Statement Presentation – $134

*             QuickBooks or Bookkeeping Advisory Services – $97

*             Write-up Work – $93

*             Payroll Services – $83



Average fees to prepare forms include:

*             $273 for a Form 1040 with a Schedule A and state return

*             $176 for a Form 1040 (non-itemized) and a state return

*             $184 for a Form 1040 Schedule C (business)

*             $124 for Schedule D (gains and losses)

*             $135 for Schedule E (rental)

*             $180 for Schedule F (farm)

*             $656 for a Form 1065 (partnership)

*             $826 for a Form 1120 (corporation)

*             $809 for a Form 1120S (s corporation)

*             $482 for a Form 1041 (fiduciary)

*             $733 for a Form 990 (tax exempt)

*             $69 for a Form 940 (federal unemployment)

*             $1,563 for a Form 706 (estates)

*             $413 for a Form 709 (gift tax)

*             $242 for a Form 8824 (like-kind exchanges)

*             $532 for a Form 5500 (pension/profit-sharing plans)

*             $282 for a Form 3115 (application for change in accounting method)

*             $59 for a Form 8962 (premium tax credit calculation)

*             $53 for a Form 8965 (health coverage exemptions)

*             $58 for a Form 1095‐A (health insurance marketplace statement)

*             $57 for a Shared Responsibility Payment Calculation