2014 YEAR END CLIENT LETTER
IMPORTANT 2014 YEAR END TAX LETTER
Once again a new year is behind us and income taxes are coming. In this most unusual tax season of 2015, all Americans will be seeing changes on their tax returns. Congress continues to discuss last minute income tax bills as of the date of this letter, and you can be assured we stay abreast of all the latest changes as they occur!
We will once again be sending out your annual tax organizer in early January. If you have not used one in the past, please, at a minimum answer the questionnaire at the front of the organizer. While extremely detailed, completion of these questions gives us the information we need to ensure we are considering all possible deductions and credits for which you are eligible. Additionally, please pay close attention to the Affordable Care Act related worksheets. If you received an organizer last year, we will mail this year’s organizer to the same address. The tax organizer may not be enough however, and we wanted to bring some special items to your attention below.
Business and Rental Property Owners
Please complete the additional 1099 information return, personal use of auto and automobile personal use statements. We have also included a list of additional items we will need to complete your business returns. Please refer to this list when preparing your documents for us.
Tangible Property Capitalization Regulations – The IRS has issued regulations that provide guidance on the treatment of amounts paid to acquire, produce or improve tangible property. If you operate a business or own rental property, you should have a written policy outlining an accounting method for these expenditures that is in compliance with the new regulations. If you would like additional information or a sample capitalization policy, please contact our office. Compliance with the new regulations may add to our time and your tax preparation bill in 2014.
Affordable Care Act
All Americans will be affected in some manner by the Affordable Care Act from 2010 (some people call it Obamacare) 5 new tax forms were released by the IRS as a result of this act for 2014. If you received a Form 1095 from any issuer or agency, we MUST have all copies to prepare your tax return. If you did not receive a 1095, we must ask you a number of additional questions about insurance coverage so that we can help you avoid any penalties for failure to have health insurance. The new 5 forms will create an increase to this year’s tax preparation bill, courtesy of the Affordable Care Act and the estimated 1-3 hours of additional time on our part to get things right.
Health Care Deductions
Last year’s tax bill reduced your deduction for medical costs, including health insurance for 2014. We will see very few deductions available for medical costs now unless you have substantial bills. The amount of your medical expenses in most cases must now be more than 10% of your income before we can deduct anything, so weigh carefully whether to go to the trouble of summarizing these costs. If you are self-employed, we still need to know how much you paid for health insurance.
ALL deductions of any amount must have a receipt. Any individual contribution over $250 must also have an acknowledgement letter from the charity, and the letter must be dated by the date we file your return. The letter should show the date and amount of any individual contribution over $250 and should also state that no goods or services were received in return for the contribution.
If you have read any news in the last year, you know that the IRS is looking closely for offshore accounts. If you have an account, retirement account, or business interest with a value over $10,000 in a foreign country, or a foreign business ownership (not through a mutual fund), please let us know as some special rules will apply to you. There are substantial penalties for failure to disclose these items.
We must obtain Form 1098 from you when you pay mortgage interest. Additionally we must obtain refinancing closing statements, and if you drew money out on a home mortgage or refinancing we must have general information on the use of the money according to the IRS.
Children/Student Tax Returns
We do not recommend that your dependent children or college students file their own returns this year. We must file their return because of the Affordable Car Act. Allowing a child to file their own return, particularly a student, can cost the child and parent literally thousands of dollars in Health Care penalties and/or credits.
If you own rental property, this year the IRS has demanded substantially more information. We now need, FOR EACH PROPERTY SEPARATELY, the physical location, the type of property (single-family, duplex, etc), and Forms 1099-K received, and a record, by property, of the number of days rented and the number of days used for personal purposes.
Roth IRA Conversions
You will be continue to hear from lots of “experts” this year that you need to convert your retirement accounts to Roth IRAs. While there are a number of advantages to conversions, there are an equal number of disadvantages that carry some major tax consequences. Please do not convert your accounts in 2014 without coming in to see us for an appointment to discuss both the positives and negatives. All conversions for 2014 must be completed by December 31, 2014.
Effective 1/1/2013, the amount you may give to one person in one year without any return filing requirements was increased to $14,000. Very, very few Americans need to worry about Federal estate taxes because of changes in the estate tax limit at the Federal level.
If you are in what the press has called the 2% club, be aware that the rest of America will soon be joining you! When the surtaxes on this group of Americans were passed, Congress purposefully did not adjust the thresholds for inflation, and in 6 years, over 50% of all Americans will pay these surtaxes based on estimated inflation rates. Begin planning now whether you are a 2% club member or not by -in order- maximizing 401-k contributions; utilizing employer-sponsored cafeteria plans to their fullest limit; investigating and using employer sponsored fringe benefits such as child care and education; turn in job expenses for reimbursement; and consider your marital status as your income increases because of the incredible marital penalty built in to the surtaxes.
There is still time to setup an appointment for year-end tax planning by December 31. We recommend a meeting if you have had any major changes during 2014 or are expecting major financial changes in 2014 or 2015, such as retirement, inheritances, etc.
Future Income Tax Rates & Other
We highly recommend that when you are getting your information to us for your 2014 Federal tax return, that you set an appointment for an after tax season “Tax Tune Up” to examine tax and estate planning strategies. If your income is over $200,000, it is almost mandatory that we meet for future tax planning because of surtaxes.
If you receive any Form 1099-k, please be sure to bring it to us. It may have a direct impact on your return.
There are literally hundreds of other changes, extensions and deletions that we will consider this year while preparing your return. Because of these changes, we are requesting everyone to try to have their tax information in to us at least two weeks earlier than normal, and no later than March 21, 2015. Those clients who bring in their information after this date will likely need to be extended. Please rest assured that we will utilize our best resources to once again provide you with timely, complete and accurate service while keeping your tax burden to the lowest legal amount. Thank you again for your continued support.