JUNE IS HERE - TIPS FOR RECENTLY MARRIED TAXPAYERS

Summer wedding season is in full swing. If you recently got married or are planning a wedding, the last thing on your mind is taxes. However, there are some important steps you need to take to avoid stress at tax time. Here are some tips for newlyweds.

1. Notify the Social Security Administration. Report any name change to the Social Security Administration so your name and Social Security number will match when you file your next tax return. File a Form SS-5, Application for a Social Security Card, at your local SSA office. The form is available on SSA’s website at http://www.ssa.gov.
2. Notify the IRS. If you move and have a new address you should notify the IRS by sending Form 8822, Change of Address. You may download Form 8822 from http://www.IRS.gov.
3. Notify the U.S. Postal Service. You should also notify the U.S. Postal Service when you move so it can forward any IRS correspondence or refunds.
4. Notify your employer. Report any name and address changes to your employer(s) to make sure you receive your Form W-2, Wage and Tax Statement, after the end of the year.
5. Check your withholding. If both you and your spouse work, your combined income may place you in a higher tax bracket. You can use the IRS Withholding Calculator available on http://www.IRS.gov to assist you in determining the correct amount of withholding needed for your new filing status. The IRS Withholding Calculator will give you the information you need to complete a new Form W-4, Employee's Withholding Allowance Certificate. You can fill it out and print it online and then give the form to your employer(s) so they withhold the correct amount from your pay.
6. Choose the best filing status. A person’s marital status on Dec. 31 determines whether the person is considered married for that year. Generally, the tax law allows married couples to choose to file their federal income tax return either jointly or separately in any given year. Figuring the tax both ways can determine which filing status will result in the lowest tax, but usually filing jointly is more beneficial.
7. Don't forget the non tax items such as wills, beneficiaires of pension plans and life insurance policies.
8. Health Insurance. If both parties have health insurance at work or private health insurance you need to look at your options.

HEALTH SAVINGS ACCOUNT FORM

Q:  I made a contribution to my health savings account in 2011. I deducted this on the 2011 return. Now I get a form from my health insurance company Form 5498 – SA. How come we get these so late? Is there anything I need to do?

A:  I am unsure as to why you get these so late. I guess it might have something to do with the fact that you can make your contributions up to April 15, 2012, and still have those count for 2011 and of course April 15 is the due date of your tax return (actually April 17 this year). Really there is nothing to do as long as the amount that is shown as a contribution matches what you reported on your 1040. Don’t stress out over this.

HOW DOES A UNMARRIED COUPLE HANDLE A JOINT ACCOUNT FOR TAX PURP0SES

Q:  I want to open a joint savings account with another person. How do we do this and what is the potential issue with splitting the interest for income tax purposes?

A:  Well, no problem opening the account. The issue is that the bank will want a W-9 which has one of your Social Security numbers. That is the person that will get the 1099 showing the full amount of the interest. If the income is material and you want to split it on the two tax returns, we can do what is called a "Nominee 1099." With this whoever gets the original 1099 reports all the income and then we subtract half of the income and include that half on the other persons return. The nominee 1099 is then filed with both returns and with the IRS.
 

OBAMACARE - WHAT DOES IT MEAN TO YOU

Unless you live in a cave, by now you've heard that the U.S. Supreme Court has upheld the key provisions of the Affordable Care Act, or "Obamacare." In an unexpected twist, the Court ruled that the controversial individual mandate is constitutional, but under the government's power to tax, rather than to regulate commerce.

We don't need to go into the details of the ruling itself -- just turn on your television, and somewhere, somebody is opining on it right now! But we do want to remind you the Court's decision means several new taxes will go into effect as scheduled:

·         On January 1, 2013, the Medicare Tax will go up by 0.9% for individuals earning over $200,000 ($250,000 for joint filers, $125,000 for married individuals filing separately). 

·         Also on January 1, there will be a new "Unearned Income Medicare Contribution" of 3.8% on investment income, for those earning more than $200,000 ($250,000 for joint filers). 

·         Beginning on January 1, 2014, there will be a new $2,500 limit on tax-free contributions to flexible spending account.

·         Also beginning January 1, 2014 employers with more than 50 employees will face a penalty of $2,000 per employee for not offering health insurance to full-time employees.  

·         Finally, the threshold for deducting medical and dental expenses rises from 7.5% of adjusted gross income to 10%. This will make these expenses even harder to deduct without help from advanced strategies like Health Savings Accounts or Medical Expense Reimbursement Plans.

That’s not all.  On January 1, 2013 the so called “Bush Rates” are repealed and we go back to the “Clinton Tax Rates.”  This change impacts every taxpayer.  So, while the constitutional issues of Obamacare may be settled, several planning challenges certainly remain. We'll be following developments carefully in order to help you navigate these new challenges. If you have any questions, don't hesitate to call us at 402.362.6636.  In addition, now that the Supreme Court has ruled we will be planning a local seminar and/or webinar to keep you informed.

TAXPAYER SAVES $5,000 BY NOT GETTING AN APPRAISAL BUT IT COST HIM $2 MILLION IN TAX

When it comes to large charitable gifts the IRS and the courts are very strict on following the law. As the following couple found out, even if they should undervalue the gift; therefore, cheating themselves of a tax deduction ($4 million), they could lose big time by not paying attention to the rules. The penalty for not properly documenting donations properly is, in most cases, a complete disallowance of the deduction.

The most recent Tax Court case shows the folly of a “sophisticated” taxpayer not following the rules costing them a charitable deduction in excess of $4 million..

Here is a summary of the facts. The taxpayer owned several pieces of property located in the Sacramento, CA area. In 2003, the taxpayers created a charitable remainder trust and donated the property to the trust. In preparing their income tax return, the taxpayer did not get a qualified appraisal for the property. The IRS audited the return and disallowed the charitable donation claimed. The Tax Court just ruled that the IRS was correct.

The interesting part of this case is that the IRS really did not have an argument with the valuation done by the taxpayer. As a matter of fact, they basically conceded that the value was most likely higher than what the taxpayer claimed. However, the taxpayer filled out the form, did not read the instructions and had his entire donation amount disallowed. A qualified appraisal would have probably cost the taxpayer about $5-10,000. This would have allowed the donation and probably saved the taxpayer easily $2 million or more in taxes.

WILL THE BUSH TAX BREAKS REALLY EXPIRE?

Q: You have showed how much it will cost me if the Bush tax cuts are repealed and we go back to the Clinton rules. Any chance Bush will be extended for everyone?

A: President Obama will be campaigning to allow the Bush tax rate cuts to expire for upper income taxpayers. The people that seem to be in the know don't think that this will happen. Believe it our not, there may be a little compromise in Washington.

In exchange for keeping the Bush rates will require the GOP to concede on continuing the payroll tax cut for workers, a debt limit hike, and more spending on jobless benefits and other items.

The compromise will give the next Congress time to start serious work on tax reform, and the results of the November elections will be a big factor in how the overhaul plays out.

WATCH SIMPLE CONTRIBUTIONS FOR EMPLOYEES WITH ANNUAL SALARY

Every time I think that I have a good grasp on the tax law I read something that humbles me.

Recently I read a article on SIMPLE IRA plans which surprised me. Matches must be based on a participant’s annual salary, according to IRS, even if the employee joins or leaves the plan in midyear.

For example if a worker with a salary of $60,000 joins the plan on Oct. 1 and contributes $2,000 for the rest of the year,the plan’s matching payin is $1,800...3% of $60,000 (most SIMPLEs have a 3% match). The matching contribution isn’t based on the $15,000 the employee was actually paid. If the worker in this example only put in $1,500, the match would fall to $1,500.