Hurricane Season and Tax Records

As June 1st rolled around  this year, we are all reminded that Hurricane Season is upon us.  Safeguarding your personal and business records against such natural disasters are a must. Our CPA Firm Wilmington NC explains a few simple steps you can take to protect all of your records.

Emergency plans should be reviewed on an annual basis.  Over time, your business and personal situations change, and you need to be able to handle them at a moment’s notice.   The most basic step if you still have paper records is by placing them in airtight plastic containers or zip closure bags and moving them out of harm’s way.  Keep an additional set of records by maintaining statements and documents electronically.  Your records can also be scanned into an electronic format.  They can either be backed up to a USB flash drive, burned to a CD or saved to the cloud.

Another step is to prepare with photographs or videotape the contents of your home.  The IRS has a workbook for disaster loss, Publication 584.  This workbook helps taxpayers compile a room by room list of belongings.  You may also consider online backup to ensure your data is fully protected. Online backup services store your files in another region of the country, so if a hurricane or other natural disaster occurs, documents remain safe.  It is important to understand the risks associated with losing all of your financial documentation. All of the documentation you would need for insurance and recovery purposes should be easily obtainable in the aftermath of a natural disaster. Safeguarding your financial information should be part of your overall emergency plan.

Contact Adam Shay CPA Firm Wilmington NC  today. We have helped thousands of customers protect their assets.

NC Renewable Tax Credits Set to Expire in 2015

The North Carolina various renewable-energy tax credit s provides for qualified cost of equipment, construction and installation paid by a taxpayer and placed into service during the tax year.  This credit is expiring December 31, 2015.

 

Program Requirements

Subject to a range of ceilings depending on category and sector of renewable-energy system.  The following credit limits for various technologies and sectors apply:

  • A maximum of $3,500 for non-business solar energy equipment for active space heating, combined active space and domestic water-heating systems, and passive space heating;
  • A maximum of $1,400 for non-business solar water-heating systems, including solar pool-heating systems;
  • A maximum of $10,500 for renewable-energy systems for non-business use;
  • A maximum of $8,400 for geothermal equipment installation;
  • A maximum of $2,500,000 for solar, wind, hydro, geothermal and biomass applications on commercial and industrial facilities, including photovoltaic (PV), day lighting, solar water-heating and space-heating technologies.

The permissible credit may not exceed 50% of a taxpayer’s state tax liability for the year, reduced by the sum of all other state tax credits. Qualifying renewable-energy systems used for a non-business purpose must take the maximum credit amount allowable for the tax year in which the system is installed. If the credit is not used entirely during the first year, the remaining amount may be carried over for the next five years.

For all other taxpayers, the credit is taken in five equal installments beginning with the year in which the property is placed in service. If the credit is not used completely during these five years, the remainder is carried forward over the next five years.

 

Reference:

The North Carolina Renewable Energy Investment Tax Credit.  Retrieved http://c.ymcdn.com/sites/www.energync.org/resource/resmgr/legislative/taxcreditmemo_32515.pdf

Federal Tax Credits for Renewal Energy Property

The federal tax credit for energy property was established by The Energy Policy Act of 2005.  In 2008, there was the Energy Improvement and Extension Ac t of 2008.  This extended eight years of the credit to December 31, 2016.

Taxpayers can claim a credit of 30% of qualified expenditures for a system that serves a dwelling unit located in the US and is owned as used as a residence.  On new homes, there is a “placed in service” date is the date of occupancy by the homeowner.  The home that is served by the system does not have to  be the taxpayer’s principal residence.  If your credit exceeds the tax owed, you can carry the unused portion forward to next year’s tax return.  Form 5695 Residential Energy Credits needs to be filled out and attached to your 2015 Federal tax return.

Solar Electric Property

Systems must be placed in service on or after January 1, 2006, an on or before December 31, 2016. There is no maximum credit for systems placed in service after 2008.

 

Solar Water-Heating Property

Systems must be placed in service on or after January 1, 2006, an on or before December 31, 2016. The equipment must be certified by performance by the Solar Rating Certification Corporation (SRCC) or a comparable entity endorsed by the government of the state in which the property is installed.  The tax credit does not apply to solar water-heating for hot tub or swimming pools.

 

Fuel Cell Property

Maximum credit is $500 per half kilowatt (kW).  The fuel cell must have a nameplate capacity of at least 0.5 kW of electricity using the electrochemical process and an electricity-only generation efficiency greater than 30%.

 

Small Wind-Energy Property

There is no maximum credit for systems placed in service after 2008. Systems must be placed in service on or after January 1, 2006, an on or before December 31, 2016.

 

Geothermal Heat Pumps

Must meet federal Energy Star criteria.

 

A good resource to research and verify information is via the NC Clean Energy Technology Center.

Filing Status and Tax Benefits

The vast majority of our clients that are married file a “married filing jointly” tax return. Deductions and exemptions are combined, the tax brackets can be more favorable, and of course it is more cost effective to file one return instead of two. The determination for filing jointly is whether or not you were married on the last day of the year. The qualifications for being “married” are determined at the state law level. On the reverse side, in North Carolina if you were legally separated at the end of 2014 you could filing a joint return or single return (head of household filing status may apply as well if you meet the requirements).  Overall we would say that filing jointly is the most beneficial, for the most people. However, there are an increasing amount of instances where it would make sense to filing separately:

Student Loans

Income driven loan payment amounts have resulted in many couples filing separately. If a return is filed jointly then both spouses income are considered when determining the ability to pay and loan amount. If filed separately, the loan servicer only considers the individual with the student debt’s income to determine monthly payment. This can make a significant enough difference to offset the tax savings of filing jointly.

Medical and Miscellaneous Deductions

Miscellaneous itemized deductions can only be taken to the extent they exceed 2% of adjusted gross income. Medical deductions are only deductible to the extent they exceed 10% of adjusted gross income (unless 65 or older then the percentage is 7.5%). When couples combine their income a lot of times it makes these deductions impossible to take. If one individual had significant medical or miscellaneous deductions (unreimbursed employee expenses being the most common) it may be more advantageous to file separately with a lower income to take advantage of those.

Unpaid Debts

If one spouse has significant unpaid debts to a governmental organization filing a separately return can protect the other spouse from their tax refunds being seized to satisfy payment. While relief can be requested if this happens filing jointly, it is important to know what debts are out there and how it may affect you. Filing a joint return also makes you liable for everything reported on that return including fraud or misreported information. If there is any question regarding a spouse’s ethics when it comes to taxes, filing separately protects you from their liability.

While these are the exception to the “married filing jointly” rule. They are important options to keep in mind. We can easily process a tax return as “married filing separately” to see if it will benefit our clients.

Filing Status and Tax Benefits

The vast majority of our clients that are married file a “married filing jointly” tax return. Deductions and exemptions are combined, the tax brackets can be more favorable, and of course it is more cost effective to file one return instead of two. The determination for filing jointly is whether or not you were married on the last day of the year. The qualifications for being “married” are determined at the state law level. On the reverse side, in North Carolina if you were legally separated at the end of 2014 you could filing a joint return or single return (head of household filing status may apply as well if you meet the requirements).  Overall we would say that filing jointly is the most beneficial, for the most people. However, there are an increasing amount of instances where it would make sense to filing separately:

Student Loans

Income driven loan payment amounts have resulted in many couples filing separately. If a return is filed jointly then both spouses income are considered when determining the ability to pay and loan amount. If filed separately, the loan servicer only considers the individual with the student debt’s income to determine monthly payment. This can make a significant enough difference to offset the tax savings of filing jointly.

Medical and Miscellaneous Deductions

Miscellaneous itemized deductions can only be taken to the extent they exceed 2% of adjusted gross income. Medical deductions are only deductible to the extent they exceed 10% of adjusted gross income (unless 65 or older then the percentage is 7.5%). When couples combine their income a lot of times it makes these deductions impossible to take. If one individual had significant medical or miscellaneous deductions (unreimbursed employee expenses being the most common) it may be more advantageous to file separately with a lower income to take advantage of those.

Unpaid Debts

If one spouse has significant unpaid debts to a governmental organization filing a separately return can protect the other spouse from their tax refunds being seized to satisfy payment. While relief can be requested if this happens filing jointly, it is important to know what debts are out there and how it may affect you. Filing a joint return also makes you liable for everything reported on that return including fraud or misreported information. If there is any question regarding a spouse’s ethics when it comes to taxes, filing separately protects you from their liability.

While these are the exception to the “married filing jointly” rule. They are important options to keep in mind. We can easily process a tax return as “married filing separately” to see if it will benefit our clients.

Tips for Getting Your Tax Documents Together

It’s that time of year again: Tax Time! Here are a few tips and tricks on getting your documents ready for taxes.

1. Using a highlighter is a great way to bring attention to specific items on a page. However, keep in mind that any highlighter color except yellow will show as black line when the document is copied or scanned. This is important for not only tax time, but  any time that you are using a highlighter on important documents.

2. If you are the type that groups your documents together, try to use paperclips verses staples. This will make it easier when you (or us) are copying/scanning your documents at year end.

3. If you like to use summary sheets or organizers, be sure you are not duplicating information. For instance, if you have written the number in two different places within the organizer and also provided receipts, there is now three different places where the number is listed.

4. Along those same lines, if you are providing totals and receipts, make sure you have added the receipts correctly. We recommend using excel verses a calculator. This way, you can see what you have included to check for accuracy and you will have that itemized summary sheet for your records.

5. It is easier if you keep up with income/expenses throughout the year verses sitting down at year end to pull this together. There is more of a chance you would forget legitimate expenses if you are trying to remember the entire year at one time.

We hope that you find this list helpful. If you have any questions, please let us know.

Identify Theft and Tax Returns

Identity theft is still a serious concern for many individuals. We hear about it in the news regarding credit cards when it is Target or another large organization that has a security breach. Social Security numbers can be just as dangerous when that information is stolen from taxpayers. This time of year our clients are trying to get us their information quickly to expedite the completion of their tax returns. While many are careful with their personal information we find that clients will send tax documents with their Social Security numbers on them to us via email. As much as we strive to be a paperless office we recognize the dangers in electronically transferring personal information over an unsecured connection. In our office we utilize Sharefile which allows us and our clients to share information with each other via a secure portal. Each client has an individual login with their email and chosen password. Our custom Sharefile site can be found here:

www.adamshaycpa.sharefile.com

                Tax-related identity theft and fraud is a big concern in our industry. Having helped clients with this issue, we know that it can be a frustrating and time-consuming ordeal to go through. With a stolen name and Social Security number it is all too easy for someone to file your taxes and claim a large refund. Typically the fraud is only discovered when clients go to file their tax return and someone has already filed under their Social Security number. Any refunds due can take a year or more to receive since someone has already claimed it and there is a formal process for proving your identity. With the IRS being understaffed we anticipate those identity theft cases taking even longer now.

The IRS is also trying to avoid future identity theft by instituting a program for Identity Protection Personal Identification Numbers (IP PIN). Currently, only certain individuals are eligible for an IP PIN (see link below). Once registered for an IP PIN that number is required to file the tax return. This helps prevent fraudulent filings since this six-digit IP PIN is not related to the taxpayer’s social security number. Keep in mind that once an IP PIN is applied for it must be used on all tax filings going forward. Each year a new number is received from the IRS. The steps to apply are below for eligible individuals:

http://www.irs.gov/Individuals/Get-An-Identity-Protection-PIN

We encourage our clients to avoid using email to send personal information when possible. The extra time to log on to our Sharefile site or drop by the office can save you countless hours and stress if your identity were to be stolen.

Check Your Mailbox for Tax Documents

This time of the year we do not recommend putting your mail in a stack to review weeks or months later. Tax forms are flooding the postal system this January on their way to taxpayers. Companies and other organizations have a deadline to send those documents by January 31st. Here are a few of the IRS form you are likely to see and will need for tax preparation if they apply to your situation:

·         W-2 – Employers report wages and other earnings and include what you paid in taxes in 2014 on this form.

·         1099-INT and 1099-DIV – Financial institutions or other organizations that paid you interest or dividends file this form to report income that needs to be included on your tax return.

·         1099-B – Proceeds from stock sales as well as your cost basis (depending on the transaction) is reported on this form.

·         1099-C – If any debt was cancelled in 2014 you will receive one of these forms to report on your tax return.

·         1098 – Mortgage interest paid throughout the year is reported on this form. Keep in mind only interest is deductible, not mortgage principal payments.

·         1098-E – Student loan interest can be tax deductible (depending on income levels) and amount paid is provided on this form. Holding multiple loans will result in multiple 1098-Es being issued.

·         1098-T – Educational institutions report tuition payments received throughout the tax year on this form for yourself or your dependents.

Many of these forms will be available electronically in advance of the mailings so be sure to check online as well. Also, review the forms as mistakes can be made. The employer or issuing organization is required to correct them if you discover an error. If you need a complete list of items needed for tax preparation feel free to contact us.

Tax Season Delay?

There is less than a week to go before the tax filing season opens on January 20th. We already have a lot of individuals and businesses reaching out to us about getting the preparation process started. The IRS Commissioner John Koskinen recently advised that “realistically we have no choice but to do less with less” due to the recent budget cuts. The IRS is understaffed and that can have a variety of impacts on this tax season.

  • Delayed RefundsThis

    will especially be true for taxpayers that elect to paper file their return. Our firm requires electronic filing unless there is a section of the return that prevents it. The Commissioner estimates it could take an additional week or longer for refunds to be processed.

  • Increased Wait Time on Telephone InquiriesWhile telephone calls were never answered quickly before, there will be an even longer wait time. During high volume call times taxpayers may be asked to call back later and that their phone call cannot be answered.
  • Delayed IRS CorrespondenceWe have seen this recently with current clients, but the IRS needs additional time to process requests on appeals and other items due to low staffing. This can result in unresolved tax issues dragging out for months at a time. However, it is important to keep current with the status of any IRS requests to make sure an extension of time either for the taxpayer or the IRS is in place.
  • IRS ShutdownsWhile this is unlikely to happen during the January to April tax season the IRS is planning for at minimum one shutdown this year.
  • Decreased Audit ResolutionsFor existing audits this means that less will be resolved this year. There is no official comment on new audits, but it is reasonable to assume that with less staff there will be fewer audits in 2015.

While the above issues are prevalent in most tax seasons, this year is predicted to be worse. We are recommending now more than ever getting in early to file.

Afforable Care Act and 2014 Tax Filings – What to Expect

Affordable Care Act 2014

A very hot topic for both the tax professional and the taxpayer leading into the 2015 year is the Affordable Care Act and how it should be treated on the tax return. To refresh, the Affordable Care Act requires the taxpayer to have one of the following: (1) have minimum essential health coverage, (2) qualify for an exemption, or (3) make an individual shared responsibility payment with the filing of your 2014 tax return.

For the Taxpayer:

Form 1095-A: If you purchased coverage through the Marketplace, the 1095-A will be sent to you showing your coverage. You should receive this by the end of January. You will need to give this to your tax preparer.

Here are a list of additional pages that could be in your 2014 tax return relating to “ACA” (if you purchased health care through the Marketplace):

Form 8962 Premium Tax Credit: This credit helps taxpayers with moderate income afford the health insurance coverage required by the Affordable Care Act. In essence, the  government pays part of the taxpayers health coverage with an advance payment and the taxpayer covers the rest by making monthly premium payments. If applicable, this form will be included in your 2014 tax return and will be where the tax credit is claimed as well as to reconcile those advance payments. If you overpaid, you could get a refund. Whereas, if you underpaid, you may owe additional tax. To reiterate, you would only see this form IF you went through the Marketplace to receive health care coverage.

Form 8965 (will need to be completed for each person in the household). This form is where you would report a coverage exemption granted by the Marketplace or to claim a coverage exemption on the taxpayers tax return. Note: “tax household” would include taxpayer, spouse, dependents, individuals that CAN be claimed as a dependent but that are not (unless they are claimed on another person’s return). Household income is taxpayers Modified Adjusted Gross Income and Modified Adjusted Gross Income of dependents (in regards to tax household).

Here are examples of additional questions that your tax preparer may ask:

1. Did you (and your household) have full year coverage?

2. Was the coverage through the Marketplace (the Exchange)?

3. If you have dependents listed on your tax return and they were required to file a tax return, you must list their “Adjusted Gross Income” (AGI).

The new Affordable Care Act health care regulations can be confusing. If you have question, be sure to reach out to your Wilmington, NC CPA or visit healthcare.gov.