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May 26, 2018

The Money Issue

Brilliant deductions: Tax help for individuals and businesses

Jerry Jackson | 9/26/2014

Flex Spending Changes

With the end of 2014 looming, both employers and employees need to be aware of a change in the flexible spending account (FSA) threshold, says Simone Keize, a CPA and assistant professor of accounting at Broward College's Pembroke Pines campus. Under the new tax rules, employees are able to carry over up to $500 of their unused balance in their FSA into the next year. "In prior years, employees were forced to use it or lose it," leaving many scrambling to schedule doctor appointments toward the end of the year. "That era is now over. With proper planning, employees will get the benefit of using their FSA account evenly throughout the year and not have to worry about losing their hard-earned pennies."

Roth IRAs and Children

For children who work, starting them on a savings plan can teach important lessons about saving and comes with big tax advantages, says Terry L. Seaton, a CPA and certified financial planner in St. Augustine. Anyone with income from working, regardless of age, can contribute to a Roth IRA. The maximum annual contribution is $5,500 ($6,500 for taxpayers 50 or older). But Seaton says that many overlook the fact that the money contributed to the Roth does not have to come from the child's earnings - it can come from anyone. "I like to see an arrangement whereby the parent matches each dollar that the child contributes to his or her Roth," he says. "The contributions are not deductible on anyone's tax return, but income and capital gains generated inside the Roth account grow tax free, and all future withdrawals are also tax free."

Same-Sex Filers

The American Institute of CPAs says that new IRS rules allow same-sex couples who are legally married to file federal taxes as married fling jointly or married fling separately. Couples do not have to reside in the state in which they were legally married in order to qualify. That means tax fliers in Florida, which does not allow same-sex marriages, can still file as a married couple if they tied the knot legally in another state. The rule does not apply to domestic partnerships or certain civil unions that fall short of full marriage status. The IRS rule is administrative and for now is not affected by the ongoing litigation over same-sex unions in Florida and other states.

Hurry Up and File. Or Not.

Tax pros and financial planners say electronic fling is the faster, better way to go, but don't hit the send button until just before the April 15 deadline. Yes, it's good to get the taxreturn prepared as early as possible - don't procrastinate is the No. 1 rule - but hold off on sending it in because it's not unusual for taxpayers to receive corrected 1099 forms late in the fling season. Plus, additional deductions may come to mind or misplaced documents might turn up, and changes can reduce the final tax bill. Of course, if you are owed a significant refund, file as early as possible, says Terry Seaton, a member of the Financial Literacy Commission of the American Institute of CPAs. But if the refund is more than just a few bucks, consider adjusting your withholding to avoid giving Uncle Sam a free loan next year.

Happy Campers

One often-overlooked way to reduce the tax bill is to file for credit for summer day camps. The Child and Dependent Care Credit allows a parent or parents to include expenses for summer camp as long as they are working or looking for work. The filer must have earned income or net earnings from self-employment, and in the case of joint filers both must have earned income, such as from wages, salaries or tips. Dependent children under age 13 usually qualify, according to the IRS, which provides more details about the rule in Publication 503, Child and Dependent Care Expenses.

Higher Taxes: Beware the Squeeze

Taxes are going up, and the squeeze is coming from two directions for higher income earners. First, the top federal tax rate has increased from 35% to 39.6%. And a new surtax of 3. 8% for Medicare applies to income from dividends and interest as well as capital gains, says Steven P. Leone, a certified public accountant and managing tax partner for Templeton & Co. In West Palm Beach and Fort Lauderdale. At the same time, personal exemptions and itemized deductions are going down, phasing out for single taxpayers who earn more than $254,200 a year and for couples fling jointly and earning more than $305,050. Facing higher tax rates and fewer deductions, individuals should consider "tax exempt bonds and other income deferral techniques" to minimize the tax squeeze, Leone suggests.

Health Insurance

Health insurance premiums typically are deductible as medical expenses but are subject to a 10% adjusted gross income limitation, which often wipes out the deduction. "There is a way around this limitation," says Rudy Mayoz, a CPA and senior staff accountant at Skoda Minotti business and financial advisers in Tampa. Schedule C filers (sole proprietors) who qualify may deduct health insurance premiums on their individual return. To qualify, the taxpayer's small business must be profitable, Mayoz says, and the insurance plan must be established under the business's name or the name of the self-employed taxpayer. Health insurance premiums include medical care insurance costs for the taxpayer, his or her spouse, and qualifying dependents, long-term care insurance (subject to limitations), and premiums for all parts of Medicare.

Hire Your Children

A parent who owns an unincorporated business can hire his or her children, treat them as employees, and deduct their salaries as a business expense. CPA Rudy Mayoz in Tampa says the key limitations are (A) the children must be under age 18, (B) the business cannot be a corporation, partnership or estate, (C) children can make up to the standard deduction (currently $6,200) and don't need to file a return if it's their only income, and (D) children must actually do some work for the business.

Be on the Lookout for Fraud

The threat to businesses from fraud and embezzlement makes it important for owners to keep a close eye on their financials, says Farlen Halikman, CPA and shareholder in charge of the Orlando office of the accounting and consulting firm Moore Stephens Lovelace. Halikman says he has recently seen an uptick in forensic accounting cases requiring the assistance of certified fraud examiners, and his 40-year-old firm is responding by beefing up its own forensic accounting practice and encouraging employees to pursue the CFE designation.

Penalties

The Internal Revenue Service launched a one-year pilot program in June to help small businesses that have retirement plans but owe penalties for unknowingly failing to file the required reporting documents. Small businesses that file form 5500 and forms for prior years during the pilot program can avoid penalties, which can be as high as $15,000 per return. The IRS says it hopes the program will bring a significant number of small-business owners, who were unaware of the requirement, into compliance. Filing fees are waived during the program that ends July 1, 2015. Businesses that already have been assessed a penalty are ineligible to participate in the grace period. More information is available through the IRS and its Revenue Procedure 2014-32.

Little Things Add Up

The National Federation of Independent Businesses, which represents small businesses in Florida and nationwide, recommends that most small-business owners make quarterly estimated payments for federal taxes, unless they earn just a few hundred dollars a year. Using the previous year's tax bill is a starting point for estimating the quarterly rate. But after the frst six months of the year, double check to see how your business is performing relative to the previous year. The cost of every tank of gas and seemingly small expenses add up, and the NFIB recommends keeping a notebook in your car to record business use - or try out some of the new mileage tracker apps for various smart phones. The NFIB, which has its Florida headquarters in Tallahassee, maintains a tax help section on its website with continually updated tips and tools.

Tags: Banking & Finance, The Money Issue

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