Market Volatility and Taxes

The stock market has had a second positive day being up around 2% after the past several dismal weeks. Per CNBC, the S&P 500 has lost almost $2 trillion in market capitalization in the last week and a half alone. The 2008 stock market crash appears to still be fresh in investors’ minds with all the buying and selling. If you choose to make stock market moves, keep in mind this can have several impacts on your tax return:

Getting Out

If panic set in and you sold off your stock portfolio (hopefully before it dropped significantly) you will have short and long term losses.  Short term classification is for investments held less than a year and long term is for all investments held a year or more. These losses are limited to $3,000 a year after they are used to offset current year gains.

Cashing In

Harvesting losses mentioned above is not necessarily a bad thing if you sold stocks at a large gain earlier in the year. These losses could be used to offset past and future gains in the market.

Buying Low

If cash flow is there, there is the temptation to get into the market while it is low. While we are not advising on investment strategy, if you do buy consider how long you hold the stock before selling. Selling appreciated stock before a year is over will result in short term capital gains. Short term capital gains are taxed at ordinary income tax rates like interest income and wages. Long term capital gains receive a preferential rate of 15% (this can fluctuate depending on income tax bracket).

Purchasing Growth versus Income

Buying stocks in the “growth” category typically will not have current tax implications since they are raising capital and not paying large dividends. Income stocks could pay quarterly dividends that will impact your taxes. Be sure to research which stocks you are getting into to determine their growth versus income nature. Buying qualified investments will result in dividends being treated like long term capital gains mentioned earlier at a 15% rate. In general, most regular dividends from US companies with normal company structures (corporations) are qualified.

Work with your investment advisor to pick the stock market strategy that works best for you both financially and from a tax perspective.

Where’s My Refund?

In case you missed it, a postal worker was charged with obstruction for not delivering mail to customers between May 2014 and January 2015. He must have had a sizable garage because the package total came in around 22,000 that were stored and undelivered (he must have watched the Seinfeld episode way back when).  It is unlikely this affected anyone here in North Carolina, but included in that mail were 5 US Treasury refund checks. With the refund process already painfully slow for many of our clients, we can only imagine those five household’s frustration.

With the understaffing situation at the Internal Revenue Service (IRS) and typical delays with the state Department of Revenue, now more than ever we are setting client expectation on when they can expect their refunds. Returns filed electronically with direct deposit are the best option, but sometimes with amendments or other special circumstances that is just not possible. Fortunately there are convenient places to look up the status of a refund for those that are anticipating its arrival:

Federal Tax Returns

Federal Amended Tax Returns

North Carolina Tax Returns

Depending on the time of year (March and April being peak delay times) refunds can take anywhere from 2 to 6 weeks. This is why we recommend getting information in as soon as possible. However, if it has been over 6 weeks and you have not received a refund those websites are great resources to check. Refund checks are typically valid up to one year from issue cashing them upon receipt is important.

Personal Budgeting Tools

As a follow up to last week’s blog about the importance of a personal budget, there are many applications out there that can help assist with tracking spending and monitor personal wealth. Two that I have personal experience with are below:

Personal Capital


Both have phone applications that can be downloaded for instant updates on your cash, investments, loans, and spending habits. Most applications use bank-level security technology for those who worry about their information being compromised. Review the websites for assurances on encryption. Some of the benefits of these applications are below:

Track Your Spending

You can review transactions by category, vendor, or purchase date. This allows you to see where your money is going as well as get notifications about spending compared to the previous month. By seeing spending by category it allows you to track budget performance and see areas where cut backs can be made.

Track Your Investment Performance

Whether it is brokerage or retirement accounts you can track how investments are performing over time. This is especially helpful if you have investments with different companies and different financial management firms. This does not replace the importance of investment management, but can identify problem areas with certain investments.

Stay In The Know

At each login the application is automatically refreshed in real time. You can see an instant picture of your net wealth if all data is entered. By logging in daily, weekly, or monthly it keeps you thinking about your finances. The more you know, the better you can plan for your future.

June Individual Tax Deadlines

With the famous April 15th deadline passed there is a tendency to put taxes on the back burner until 2016. However, there are several important deadlines in June that should not be missed:

June 15th

2nd Quarter Individual Estimated Tax Payment Deadline

This deadline is important for individuals who owed a significant amount of taxes for 2014 or typically pay in quarterly.   We would recommend paying in estimated tax payments throughout the year to avoid underpayment penalties for 2015 taxes, as well as to avoid a large tax bill.  In general, the underpayment penalty will only apply if you fail to pay at least the smaller of:

(1)     90% of your 2015 tax

(2)    100% of your 2014 tax

If you decide not to pay in estimated tax payments, the following are the applicable 2015 interest and penalty rates for both Federal and state:


Federal – 3% annual interest rate on underpayments (rate as of 4/30/2015 subject to change)

NC – 5% annual interest rate on underpayments (rate as of 6/30/2015 subject to change)


June 30th

FBAR Filing Deadline

The FBAR form, Report of Foreign Bank and Financial accounts (FinCEN Report 114) is required to be filed by all United States individuals if:

(1)       the United States person had a financial interest in or signature authority over at least one financial account located outside of the United States; and

(2)    the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year reported.


There are exceptions to this filing, but if you have foreign financial accounts it is important to discuss your filing requirements to avoid penalties for failing to file.

Property Damage Tax Deduction (Casaulty Theft and Loss)

If you have lived in Wilmington, North Carolina for a substantial amount of time, you are familiar with the damage hurricanes can cause. If you suffer damage to your home, you may be able to deduct the losses that you incur.

What is a casualty? A casualty is a sudden, unexpected or unusual event. This could include hurricanes, tornadoes, floods, but also fires, accident, thefts and vandalism. This would not include the normal wear and tear of your home including termite damage.

One other thing to keep in mind, is that if your insurance covers this damage, you must reduce the loss by what was reimbursed.

After determining the loss, you must reduce each instance by $100. If your home got broken into two different times, you would subtract the $100 from each instance. Note, this is not involving pieces of property but actual instances.  You will then reduce the amount of the casualty loss by 10% of adjusted gross income (AGI). AGI is the last number on the first page of your tax return, Form 1040. You will report the loss on Form 4684, but it will flow to Schedule A (itemized deductions). If you do not itemize and this loss is not enough to push you over the threshold to itemize, you will not actually see this loss on the tax return.  If you have suffered casualty losses and need help with the preparation of your tax return, be sure to contact a professional to ensure that you are reporting properly.

Tax Refund Offsets

Federal and state income tax refunds are not always protected from debt collectors. We have seen increased instances, especially from North Carolina, to reduce refunds to pay outside debts. Here are the most common reasons Federal or state refunds may be offset:

(1)    Prior year income tax obligations outstanding

(2)    Child support payments are unpaid

(3)    Student loan debt default

(4)    Medical bills outstanding

(5)    Parking tickets or other local citations outstanding

What can be pulled from refunds at the state level is determined by each state’s law. If an agency puts in a claim against the refund you will be notified by the appropriate agency who intends to seize the refund, the amount to be offset, and steps to appeal if you believe it is inaccurate.

We see this come as a surprise with couples who are filing jointly for the first time. Their refunds can be offset due to unknown debt that their spouse has. The IRS does provide relief for spouses who were not responsible for the debt. By filing Form 8379 you can claim “injured spouse” and request that the portion of refund due be returned.

In all of the above cases outstanding debt can reduce or delay the refund process. If it has been more than 6 weeks and you have not seen a refund we would advise checking with the IRS or Department of Revenue regarding any outstanding debt that may be causing the delay.

Same Sex Marriage and NC Taxes

One of the bigger changes for 2014 in North Carolina on a personal level was the legalization of “same sex marriage”.

Prior to being married, same sex couples should have filed two tax returns, both filing with “single” status. Now that same sex marriage is legal in North Carolina and if a couple was legally married in 2014, the couple can file together on the federal and state tax return for tax year 2014.

Because the couple is legally married, the filing option of “single” is no longer applicable. There will now be two other choices. The couple can either file as “married filing joint” or “married filing separately”. Typically, “married filing joint” is going to be the most beneficial. In fact, depending on the situation, there will likely be a much higher refund in 2014.

Here is a link to the IRS frequently asked questions that we feel is a helpful resource:

If you have questions pertaining to this topic, please contact us.

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

Health Insurance and Premium Tax Credits

Health Insurance in 2014

As you know, health insurance is now mandatory. If you have not applied for coverage, you should in order to avoid penalties. You can do this by visiting “The Health Insurance Marketplace” at Open enrollment began November 15, 2014 and will remain open through February 15, 2015.

The Premium Tax Credit

The premium tax credit will be new for 2014 and is a refundable credit. It was designed to help both individuals and families with low or moderate income to be able to afford the newly government mandated health insurance if you purchased it through the “Health Insurance Marketplace”. You could either have the credit paid in advance to your health insurance company to lower your monthly out of pocket payments or you can claim the credit when you file your 2014 tax return. For those of you who may not have previously been required to file a tax return, if you are claiming this credit, you must file your tax return this year.

Making Changes

If you have enrolled in health insurance coverage through the Health Insurance Marketplace, you must report any changes that would impact your eligibility for the advance payments or premium tax credits as they happen. Circumstances would include events such as increase/decrease in income, marriage or divorce, birth of child, starting a new job that has health coverage, etc.

If you have questions, is a great resource to get help.

5 Tax Breaks Still Set to Expire in 2014

Teachers’ Deduction for Out-of-pocket Expenditures

I do not know about all states, but in North Carolina, teacher pay and budget cutbacks has been a hot topic. In order to have the supplies that they need, some teachers would pay for expenses with their own money. The federal government allowed an adjustment of up to $250 on the personal tax return. The adjustment would have been located on the front half of your tax return. Although it was small, every little bit helps. If you had previously been benefiting from this adjustment, you may notice a slight increase in tax once it disappears.


2. Exclusion of Income From Forgiven Mortgage Debt

Most of the time, when debt is forgiven, the individual has to take this amount back in as income on their personal tax return. When the housing market bubble burst, many Americans found themselves in situations where they could no longer afford their homes and resorted to programs where the mortgage was modified. In these scenarios, some of the debt was forgiven. The federal government enacted provisions to temporarily make this type of forgiveness exempt from income. With the interest rates down and individual mortgage situations ironing themselves out, we won’t see this happen as often as it did in years past. However, if this provision goes away and the individual finds themselves in this situation, there will be a tax liability now associated with the forgiveness if the provision disappears.


3. Deduction for State and Local Sales Taxes

This deduction was enacted in 2004 to help the individuals living in states that do not impose income tax. Individuals could choose between taking the “state and local tax” or “state income tax withholding” for their Schedule A deduction (whichever is higher). If this disappears, who will feel this the most? The folks that will be impacted are individuals living in states that do not have state income tax and/or individual that do not have state income tax withholdings (on your W-2 or estimated tax payments). You will no longer be able to choose “state and local sales tax”. This could result in little to no deduction in that category if this applies to you. This could be the difference between itemizing and taking the standard deduction.


4. The Deduction for Private Mortgage Insurance (PMI)

Usually, individuals will pay Private Mortgage Insurance if they put down little or nothing towards the initial purchase of their home. Starting in 2007, the government allowed the taxpayer to deduct this just as you would mortgage interest on Schedule A. If this provision disappears, your itemized deduction (Schedule A) would be lower resulting  in higher income tax.


5. Section 179

In 2013, the amount of the accelerated depreciation called Section 179 was up to $500,000. In 2014, this amount will drop substantially down to $25,000 per year. This will make a huge impact on business that were purchasing capital assets and previously benefiting from this provision.