2016 Limits For Retirement Contributions

 

post-it-819682_640No changes to retirement plan contributions for 2016

Retirement plan contribution limits are indexed for inflation, but with inflation remaining low, the limits remain unchanged for 2016:

Type of limit 2016 limit
Elective deferrals to 401(k), 403(b), 457(b)(2) and 457(c)(1) plans $18,000
Contributions to defined contribution plans $53,000
Contributions to SIMPLEs $12,500
Contributions to IRAs $5,500
Catch-up contributions to 401(k), 403(b), 457(b)(2) and 457(c)(1) plans $6,000
Catch-up contributions to SIMPLEs $3,000
Catch-up contributions to IRAs $1,000

 

Nevertheless, if you’re not already maxing out your contributions, you still have an opportunity to save more in 2016. And if you turn age 50 in 2016, you can begin to take advantage of catch-up contributions.

However, keep in mind that additional factors may affect how much you’re allowed to contribute (or how much your employer can contribute on your behalf). For example, income-based limits may reduce or eliminate your ability to make Roth IRA contributions or to make deductible traditional IRA contributions. If you have questions about how much you can contribute to tax-advantaged retirement plans in 2016, check with us.

 

Get a handle on 2015 tax forms and filing deadlines

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Gather your 2015 tax forms. The list includes W-2s for yourself (and your spouse, if married), 1099s reflecting capital gains and losses, dividends, retirement plan and IRA distributions, and business and other investment forms such as K-1s for partnerships.
● Protect yourself against scams. Were you or your spouse or dependents issued an Identity Protection Personal Identification Number (IP PIN) for use with a prior year return? If so, you should have received a new number from the IRS via postal mail in December 2015. Keep your notification because you must include that number on your return. You’ll also need to list the IP PINs of your spouse and any dependents whose social security numbers are on your return.
● Review documentation to secure tax deductions, credits, or other tax benefits. Examples of tax breaks that require enhanced recordkeeping include charitable donations, travel and entertainment expenses, vehicle mileage, and business use of your home. For example, you have to get written acknowledgments from charities for monetary gifts of $250 or more. You may also want to retain bank statements to substantiate estimated tax payments and expenses that you can claim as itemized deductions.
● Mark your calendar to keep track of due dates. Thanks to a federal holiday (Emancipation Day), the first date to circle is April 18, 2016. If you live in a state other than Maine or Massachusetts, that’s the due date for making a deductible contribution to a traditional IRA for 2015, filing your federal individual income tax return, or requesting an extension of time for filing until October 17, 2016. That’s also the last day for making your first estimated federal income tax payment for 2016.
● If you live in Maine or Massachusetts, also mark Tuesday, April 19, 2016, on your calendar. Due to a special rule for another holiday (Patriot’s Day), you get an extra day to file your federal income tax return, apply for an extension, or make a deductible IRA contribution for 2015. However, the extra day does not apply to your first estimated federal income tax payment – that is due April 18.
Remember: Extensions are available only for filing your return, not for paying taxes

Checklist of precautions when giving to a charity

donation-517132_960_720.pngMany charities use your donations wisely. Unfortunately, others spend too much of your contribution on fundraising and administrative expenses. Some even misrepresent themselves and solicit your money for phony causes. In today’s world, investigating a charity before you make a donation is wise.

Here’s a checklist of precautions.

  • Request written documentation about the charity’s mission and how your contribution will be spent. Ask for proof that your donation is tax deductible. If a charity is reluctant to provide information, think twice about making a gift.
  • When you receive a phone solicitation, the caller must provide his or her name, the name of the person or entity on whose behalf the call is being made, and a telephone number or address at which that person or entity can be contacted. If a caller refuses to give you this information, hang up. Report the call to local authorities to help protect others.
  • Be wary about giving your credit card number over the phone. Instead, consider mailing your contribution once you’ve verified that the charity is legitimate and that it represents a cause you’d like to support.
  • Just because an organization gives you a receipt for your records doesn’t mean the organization is tax-exempt or that your contribution is tax-deductible. To find out if an organization is exempt from federal income tax and how much of your contributions to it are tax deductible, visit the IRS website at https://apps.irs.gov/app/eos.

Asking the right questions and obtaining information from and about a charity is the only way you can be sure your contribution will be used to benefit the causes and people you want to support. If we can help you sort the legitimate from the fake, give us a call.

 

Don’t overlook disability-related tax breaks for you or your family

downloadMedical deductions are one example of tax breaks you may be eligible for if you or a family member has disability-related income or expenses. Here are others:
● ABLE accounts. Achieving a Better Life Experience (ABLE) accounts can help you save and pay for disability-related expenses without losing Medicaid eligibility or Supplemental Security Income (SSI). The account holder and designated beneficiary must have been disabled before age 26.
Maximum annual contributions to ABLE accounts may not exceed the gift tax exclusion ($14,000 for 2016). Funds in the accounts accumulate tax-free and distributions are exempt as long as they’re applied to qualifying disability expenses.
● Business benefits. If your business incurs expenses to provide access for disabled persons pursuant to the Americans with Disabilities Act, you may qualify for the disabled access credit. Are you an employer? You may qualify for the work opportunity tax credit when you hire SSI recipients, vocational rehabilitation referrals, or veterans with disabilities. If you pay to remove physical, structural, or transportation barriers to accommodate people with disabilities, you may be able to deduct these expenses.
● Credit for the elderly or disabled. You can claim this tax credit even if you’re under age 65, provided you’re retired due to permanent and total disability.
● Dependency benefits. As a parent, you can generally claim permanently and totally disabled children as dependents regardless of your child’s age. If you pay someone to provide home care for a dependent or spouse who is unable to care for themselves, you may be able to claim the dependent care credit, regardless of the disabled person’s age.
● Earned income credit. If you work and are disabled and between ages 25 and 65, you may qualify for the earned income credit whether or not you have children. This credit can result in a refund even if you owe no taxes. Earnings that qualify for the credit include taxable benefits received from your employer’s disability retirement plan.
● Gross income. Certain disability-related income is nontaxable, such as SSI and allowances paid by the Department of Veterans Affairs.
● Impairment-related work expenses. If you’re an employee with a physical or mental disability that functionally limits your employment, you may be able to claim business deductions for attendant care and other workplace expenses that help keep you employed.
● Standard deduction. Are you legally blind? A higher standard deduction is available.
Call us for an appointment to discuss these and other tax breaks that can help reduce your tax bill.

post-it-819682__180Dear Clients and Friends,
On December 17, the House passed a bipartisan agreement on tax extenders—i.e., the 50 or so temporary tax provisions that are routinely extended by Congress on a one-or two-year basis—and numerous other tax provisions in the “Protecting Americans from Tax Hikes (PATH) Act of 2015” (the Act). The agreement, which makes permanent many of the individual and business extenders, is expected to be quickly passed by the Senate and signed into law by the President.

Key individual tax breaks in the Act:
1. The Child Tax Credit (CTC) allows taxpayers to claim a $1,000 tax credit for each qualifying child under age 17 that the taxpayer can claim as a dependent. The CTC phases out when taxpayers’ income exceeds certain thresholds. The Act makes the CTC permanent by setting the threshold dollar amount for purposes of computing the refundable credit at an unindexed $3,000. This change is effective for tax years beginning after the date of enactment.
2. The Hope Scholarship Credit is a credit of $1,800 (indexed for inflation) for various tuition and related expenses for the first two years of post-secondary education. It phases out for adjusted gross income (AGI) starting at $48,000 (if single) and $96,000 (if married filing jointly), with indexing for inflation. Under pre-Act law, through 2017, the American Opportunity Tax Credit (AOTC; essentially a modified version of the pre-existing Hope credit) increased the above credit to $2,500 for four years of post-secondary education, and increased the beginning of the phase-out amounts to $80,000 (single) and $160,000 (married filing jointly). The Act makes the AOTC permanent.
3. The Act permanently extends the educator expense deduction and, for tax years beginning after Dec. 31, 2015, modifies the deduction by (i) indexing the $250 amount for inflation, and (ii) treating professional development expenses as expenses eligible for the deduction.
4. Effective for tax years beginning after 2014, the Act retroactively revives and makes permanent the option to claim an itemized deduction for State and local general sales taxes in lieu of an itemized deduction for State and local income taxes.
5. Effective for distributions made in tax years beginning after Dec. 31, 2014, the Act retroactively revives and permanently extends the ability of individuals at least 70½ years of age to exclude from gross income qualified charitable distributions from IRAs of up to $100,000 per year.
6. Effective for tax years beginning after Dec. 31, 2014, the Act retroactively extends through 2016 the above-the-line deduction for qualified tuition and related expenses for higher education.

Key business tax breaks in the Act:
1. The Act makes the following changes to the Code Sec. 179 expensing election:
a. The $500,000 expensing limitation and $2 million phase-out amounts are retroactively extended and made permanent.
b. For any tax year beginning after 2015, both the $500,000 and $2 million limits are indexed for inflation.
c. For tax years beginning after Dec. 31, 2015, air conditioning and heating units are eligible for expensing.
2. Effective for property placed in service after Dec. 31, 2014, the Act retroactively extends and makes permanent the inclusion of qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property in the 15-year MACRS class.
3. The Act extends bonus depreciation for qualified property acquired and placed in service during 2015 through 2019 (through 2020 for certain longer-lived and transportation property). Eligible taxpayers will be able to claim:
a. (1) a 50% bonus depreciation allowance for qualified property placed in service in 2015 through 2017 ;
b. (2) a 40% bonus depreciation allowance for qualified property placed in service in 2018; and
c. (3) a 30% bonus depreciation allowance for qualified property placed in service in 2019.
4. After 2015, additional first-year depreciation is allowed for qualified improvement property without regard to whether the improvements are property subject to a lease, and there is no requirement that the improvement must be placed in service more than three years after the date the building was first placed in service.
5. For property placed in service after Dec. 31, 2015 and before Jan. 1, 2018, the Act provides that the Code Sec. 280F limitation for a passenger auto or light truck or van that is qualified property is increased by $8,000. For an auto or light truck or van placed in service in 2018, the Code Sec. 280F limitation is increased by $6,400. For an auto or light truck or van placed in service in 2019, the Code Sec. 280F limitation is increased by $4,800.


			

Poor recordkeeping means lost deductions

receiptsWhat’s worse than keeping records? Losing tax deductions because you didn’t keep records. Tax court cases routinely deal with “unsubstantiated” expenses – business costs that taxpayers claim but cannot prove – and taxpayers routinely lose. Every legitimate and supported deduction can save you tax dollars. As the end of the year approaches, take time to make sure your records are in order. Don’t want to deal with reams of paper? Software programs and apps can ease the burden. Give us a call for suggestions on how to improve your recordkeeping.

Get a head start on your form 1099 reporting

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No matter what type of business you operate, January is busy. You’re trying to get your business off to a good start in the New Year, you’re closing the books on last year, and you have to complete payroll and 1099 forms by month-end. Why not make time this month to get a head start on at least one of those chores?

You can lay the groundwork now for a common information return known as “Form 1099-MISC, Miscellaneous Income.” You use Form 1099-MISC to report payments to non-employees. The list of payments includes fees to independent contractors for services, such as consulting, web designing, accounting, and legal. Generally, you don’t need to report amounts you pay to corporations, but there are exceptions. For example, you must report payments to all law firms, whether the firm is incorporated or not.

Here’s the information you need to start assembling to complete Form 1099-MISC: the name and address of vendors you paid in the course of your business, the taxpayer identification number of each vendor, and verification of corporate status. The best way to collect this information is to use “Form W-9, Request for Taxpayer Identification Number (TIN) and Certification.” Send a copy to all vendors and ask them to complete and return the form to you. When you get the form back, keep it with your records. The IRS doesn’t need a copy.

In order to save time in the future, establish a policy to request Form W-9 from a new vendor whenever you sign a contract.

Contact our office if you need more information.

 

How To Prevent The Financial Hangover From Holiday Spending

despair-Exchanging gifts, entertaining family and friends, and extending goodwill to others are the activities that make holidays joyful. But sometimes the enjoyment is followed by financial headaches. January’s bank statements and credit card bills bring the unhappy realization that you lost control of your finances.

How can you prevent this financial hangover? Start with a budget. Estimate the cost of what you plan to purchase. Include gifts, holiday decorations, entertaining, and special events. If the total cost is manageable, stick to your budget as you shop.

But what if the cost grows – and grows some more? There’s no need to resort to miserly behavior to trim that out-of-control gift list. One option is to draw names of family members and give one nice gift to each person, rather than multiple small gifts to everyone. Elderly relatives might appreciate “gift certificates” that can be redeemed for your help with home or garden chores. Other cost-saving ideas: make or bake gifts instead of buying them; give combined gifts from parents and children instead of individual gifts; agree on a spending limit with close friends.

While you no doubt want to splurge on the kids during this time of year, don’t feel you have to give your children every gift they ask for. When they make their list, have them prioritize the things they really want. At the store, take a lesson from your own childhood, when your favorite gifts were simple toys that encouraged you to use your imagination.

Remember, too, the holidays are more than gift-receiving time. Create a family tradition of choosing and wrapping a present for those less fortunate. Encourage your children to make gifts for family and friends. Arrange family outings and fun activities so the holidays become a series of enjoyable events.

An emphasis on holiday experiences in place of shopping extravaganzas will let you enjoy the season more – both this month and next, when the bills come due.

Avoid a 50% penalty: Take retirement plan required minimum distributions by December 31

post-it-819682_640After you reach age 70½, you must take annual required minimum distributions (RMDs) from your IRAs (except Roth IRAs) and, generally, from your defined contribution plans (such as 401(k) plans). You also could be required to take RMDs if you inherited a retirement plan (including Roth IRAs).

If you don’t comply — which usually requires taking the RMD by December 31 — you can owe a penalty equal to 50% of the amount you should have withdrawn but didn’t.

So, should you withdraw more than the RMD? Taking only RMDs generally is advantageous because of tax-deferred compounding. But a larger distribution in a year your tax bracket is low may save tax.

Be sure, however, to consider the lost future tax-deferred growth and, if applicable, whether the distribution could: 1) cause Social Security payments to become taxable, 2) increase income-based Medicare premiums and prescription drug charges, or 3) affect other tax breaks with income-based limits.

Also keep in mind that, while retirement plan distributions aren’t subject to the additional 0.9% Medicare tax or 3.8% net investment income tax (NIIT), they are included in your modified adjusted gross income (MAGI). That means they could trigger or increase the NIIT, because the thresholds for that tax are based on MAGI.

For more information on RMDs or tax-savings strategies for your retirement plan distributions, please contact us.