Daniel Cullinane CPA p 848-250-9587
A firming housing market and growing consumer confidence, along side nearly five years of steady job creation suggest the US is resilient enough to weather the forces rolling stock prices and hurting commodity producing countries reliant on China as an export market.
Instability in China and concerns about a Federal Reserve rate increase in coming months have caused turbulence in US and other markets. But the turmoil does not mesh with the domestic economy's fundamentals
US consumer confidence rose in August to its highest level since January, reflecting optimism about an improving labor market. New home sales picked up the pace in July, rising 21% from a year earlier. Home builder sentiment is at its highest level since November 2005.
College grads fortunate enough to be starting a full time job, take note: Use part year withholding to boost your paycheck and have less with held. The standard federal tax withholding tables assume you will be working for a full year. the part-year method sets withholding according to what you will actually earn during the portion of the year that you will work. Individuals expecting to work less than 245 days in a year can ask their employers to use this method. It is better to have the cash now than to wait for a refund in 2016
Do not miss out on this tax break, if you use a flex plan for child care costs. You can still claim the dependent care credit to the extent your expenses are greater than the amount you pay through your flexible spending account. The maximum dependent care costs funded through an FSA are $5,000. The credit applies to am much as $6,000 of eligible expenses for filers with two or more children under age 13. In that case you would run the first $5,000 of dependent care costs through the FSA, and the next $1,000 would be eligible for the credit on Form 2441. For most filers, taking the dependent care credit will save an extra $200 in taxes.
If our school age child is going to a summer camp the cost qualifies for the dependent care credit. If you send your child to any special day camps such as those for sports, computers, math or theater, you do not get the credit. Ditto for camps to help with reading or study skills. The costs of summer school and tutoring programs are not eligible for the credit, they are treated as education, not care
A tax planning deadline is approaching if you inherited an IRA last year. The IRA's beneficiaries are set on Sept 30 of the year following the death of an IRA owner. Normally heirs get to take distributions from inherited IRAs over their lifetimes.. If just one beneficiary of the account is not an individual the iRA has to be cleaned out within 5 years of all beneficiaries. The problem can occur when the owner names a charity or college as one of the beneficiaries. Redeeming a nondividual IRAQ interest by Sept 30 can pay dividends. If the charity is paid by then the remaining individual beneficiaries can take distributions over their lives
Capital gains tax rates are back in the news. In light of a plan recently unveiled by Hillary Clinton Clinton would hike rates on the top bracket filers who sell assets owned for 6 years or less. Currently, single who have taxable income over $413,200 and marrieds with incomes $464,850 pay 23.8% and 43.4% if an asset is own for a year or less. The rate would be lowered incrementally to 23.8% for assets held more than 6 years. Her proposal would not affect gains of filers who are not in the 39.6% bracket
CAPITAL GAINS TAX
The dim outlook for profit colleges keeps getting worse. For profit chains are cutting back because of regulatory pressure and declining enrollments. The government's crackdown on questionable marketing claims and high student debt at for profits has already forced Corinthian Colleges to fold. ITT Educational Services faces lawsuits, and Career Education Corp and other for profits are closing campuses. Nationwide for profit enrollment is down 4.9% this year
The industry woes are bad news for graduates. Employers will be skeptical about hiring job applicants who graduated from for profits with tarnished reputations. Still, the better for profit colleges willmanage to survive. Many institutions provide qualtiy education to working sutdents who cannot attend full time schools
Public colleges with troubles of their own are eyeing a juicy revenue source. Out of State students. Out of staters pay higher tuition than in state students, even if lured with scholarships, Look for more public schools to widen their nets, wooing bright students from out of state and the extra tuition that they will bring in. Many are just now catching on to the strategy. Both the University of Alabama and the University of South Carolina are sending recruiters to other states to tempt students with tuition deals.
In store from the next batch of smart watches: Personalized wellness tips. Next generation watches will do more than simply track your pulse or how far you walk, as today's models do. They will provide suggestions on everything from what to eat to which exercise to do next. based on sophisticated new software and enhanced senors now being developed by Apple, Microsoft Garmin and others.
Sensors that can read your mind are in the works too. In the past few years, tech firms have filed thousands of patents on brain wave reading software. Many more are on the way, as companies both large and small race to develop computer programs that can analyze brain impulses for use in medicine, education and many other areas. Some leading patent holders include the Nielsen Co, Medtronic, E and ACcenture
Employers get another reason to gear up early for the health reporting rules: Higher fines for incorrect forms. A new law substantially raised the penalties for firms that file incorrect information returns. The fines range from $50 a return if a mistake is corrected in 30 days of filing to $500 per return for intentional errors. These penalities are not limited to 1099s
The increased fines also apply to health care information returns. Employers with 50 or more full time employees must report 2015 coverage data for each full timer to IRS and workers fon Form 1095-C and give more information to IRS on Form 1094-c Companies that have fewer than 50 employees that self insure will use Form 1095-B and 1094-B for these purposes
Firms will be able to seek filig extensions for the health reporting forms. Employers can get an automatic 30-day extension for Feb 29,2016 deadline . Companies needing extra time can ask the Revenue Service for 30 additional days. IRS will soon announce the procedures for firms that want to extend the Feb 1 date to give 1095 forms to employees. In that case, the maximum extension will be limited to 30 days, businesses must gave a valid reason why the extra time is needed.
HEALTH CARE REPORTING
Getting a 1099 form does not mean you have income for that year. A retired football player helped co-found and operate a nonprofit organization. He charged personal expenses on the charity credit card. when he left the group, it sent him a 1099 for that year reflecting that he had taxable income from charges incurred several years earlier that he had not paid back. According to the Tax Court, the unpaid advances , but only for the tears in which they were not repaid. Since the 1099 was issused well after that it is invalid So in all likelihood the Service will not be able to collect tax on the unpaid advances. because the statute of limitations had run out.
IRS computers are not programmed to sniff out only undereported income. They flag over reported income.. A low income filer with very little wage income claimed she made a $17,000 profit from a side business. selling used clothing at a flea market. The $2100 self employment tax on her profit was dwarfed by the $8,000 in additional child tax credit and earned income credit tha the extra income made her eligible for. The IRS computers froze her refund and she could not substintiate a large chunk of her profit, so the Tax Court decided she was entitled to take jut $700 in credits
A Uber driver is an employee of the company a state agency decides. The firm claimed the driver should be treated as an independent contractor because she used her own vehicle to transport customers. The company asserted that supplying the driver with leads of people needing transportation did not indicate that it excercised control over her activities. The agency said the firm had control over her because it screens prospective driver and requires them to use vehicles that are 10 years old or less. Since the driver is an employee, Uber must reimburse her for mileage and tolls. The decision is on appeal
The US economy emerged from its winter lull with a moderate spring rebound, but the historically sluggish expansion looking even more sluggish as it enters year seven . Gross domestic product, the broadest measure of goods and services produced across the economy, grew at a 2.3% seasonally adjusted rate in the second quarter the Commerce Depart reported. The economy actually expanded at a .6% pace in the first quarter, an upward revision from a previously reported .2% contraction.
Businesses that sell marjuana have a heavy tax burden, as this case shows. They are taxed on their income but cannot write off their business expenses, such as rent A taxpayer in Calf. ran a center where users of medical marijuana could purchase and consume the drug and socialize. Even though it is legal in Calif to sell and use medical marijuana an appeals court said US tax law bars write offfs for sellers of controlled substances that are illegal under federal law. The only exception is that these firms can deduct the cost of the marijuana.
Make sure to use your gift tax exclusion. This year you can give up to $14,000 to a child, or other person without gift tax consequences. If you are married, your spouse also can give $14,000 to the donee, doubling the tax free amount to $28,000. The exclusion is going to remain $14,000 next year too. If you do not use up the full exclusion amount this year, any shortfall is lost. Some other gift giving strategies pack an additional bang for the buck. Direct tuition payments for students get two tax breaks. They do not count against your estate and they do not count against the gift tax exclusion. The same rule applies for direct payments of a person's medical expenses
Turbocharge your donations to charity by giving away appreciated assets, such as stocks. The appreciation escapes capital gains tax and you get a deduction for the full value in most cases, as long as you owned the asset for more than a year. Do not donate an asset that has declined in value, the capital loss is wasted. you are better off selling the asset and donating the proceeds.
Uncle Sam will struggle to pay for what figures to be a busy wildfire season in Western States, where drought has put woodlands at high risk of burning. The Forest Service will have to shell out 2.5 billion for equipment such as air tankers. Unlike other agencies, the service can not tap disaster emergency funds to pay the bills. That means punting on key fire mitigation work. To fight this year's blazes the Forest Service will need to dip into accounts for work such as controlled burning and forest thinning, precautionary steps that can reduce the severity of future fires.
Sometimes crime really does pay, or at least for tax purposes. A fraudster's restitution payment is deductible, the IRS privately rules. The taxpayer, who was a partner in a consulting firm that was prosecuted by the feds for criminal activity, pleaded guilty, served prison term and paid a fine for his actions related to the wrong doing. He was also separately required to pay restitution to the US government. Since the payment merely compensated the US for its loss and was not punitive, he could write off on Schedule C as a business expense. That is because the payment resulted from his performance of services for his firm.
On IRS's wish list for the future, Offering taxpayers more online services. For example, givng them the ability to access their accounts electronically to rerview of they have a balance due, check their tax history and make on line payments. Letting them self-correct their returns and update their names and addresses online. Allowing them to send secure electronic correspondence to the IRS & vice versa
IRS WISH LIST
IRS FORM 1099
Firms that reimburse workers for health coverage want Congress to help. They are pleading for a reprieve from the $100 a day per employee excise tax. I have previously noted that businesses with arrangements to reimburse employees for premiums paid for individual health insurance policies or Medicare could be nailed by this stiff tax. The Service temporary waived the tax for firms with fewer than 50 full time equivalent employees, but this relief expired June 30, and the agency has yet to announce any more waivers. S Corporations are in the clear for now. They can continue to reimburse premiums for their more than 2% owners without fear of the excise tax
IRS has a penalty abatement program for first time late filers. Under its First Time Abatement program, if a filer has paid or arranged to pay the tax due and has been tax compliant for the past three years, IRS will OK a onetime waiver of the late payment and late filing penalties. The penalty for late payroll tax deposits is also covered, and the Service has extended the program to delinquent excise taxes. The abatement is not provided automatically, taxpayers have to ask relief.
IRS has a penalty abatement program for first time late filers. Under its First Time A
A health-related tax break for retired public safety officers comes with a twist. A 2006 law allows them to exclude from income up to $3,000 a year of pension payouts that are used to pay for medical insurance or for premiums on long term care policies. To qualify, retirees must opt for the premiums to be deducted from their distributions and paid directly by the plan to a third party insurer. Folds whose former employees do not offer the election are not eligible for tax tree treatment.
TThe Securities and Exchange Commission is shining a spotlight on executive pay. Proposed SEC rules would require disclosure of compensation packages. They would slso require standardized reporting of pay in public proxy statements along with information that would allow comparison with the top pay of competitors. Plus the regulations would compare top executive pay and total shareholder returns. The disclosure rules grew out of the 2010 Dood Frank financial services overhaul.
Look for crude oil prices to remain bearish through the rst of the year despite robust demand for gasoline and other refined fuels. Indeed, totoal petroleum demand is the US is about 3% higher now than it was a year ago. US oil output which had been soaring has leveled off. Traders are fretting about various global developments including the strengthening dollar versus other currencies, the economic slowdown in China and the prospect of Iranian oil flowing again on oil markets if sanctions are lifted. After a brief rally in late summer, I expect crude prices to slip back in late fall to around $50 a barrel For motorists cheap oil spells cheap gasoline. The national price of regular unleaded gas is about $2.70 per gallon. It will hover around there in coming weeks before falling to $2.50 as the summer driving seaqson winds down.
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Though consumer sentiment is on the rise, credit card use will stay muted. After tumbling during the recession, the credit card balances folds carry are rising at an annual clip of only 3% to 4%. That threathens to hold back spending on all sorts of everyday purchases that would normally fuel brisker economic growth
Part of the shift is generational consumers who grew up during the recession will be more likely to reain wary abouth their finances and keep credit casrd debt low, much as people who grew up durint the Great Depression look askance at debt. Part is the reult of changing spending patterns. Folks now spend more on autos and education, and the loans needed to finance them Car sales will not slow until 2017 at the earlierst, and young people will continue to view education as the key to landing a good job. That means more auto and school loans and less plastic
The next steps in fostering commercial ties: Loosening limits on US travel to Cuba, which is already up 35% in 2015. More charter flights are likely, and the feds have signed off on ferry service connecting Florida and Cuba for the first time in 54 years. Commercial flights should be approved in a year. Easier shipping US law bars foreign ships that have docked in Cuba from calling on a US port for 180 days. the Treasury Dept often grants waivers to ships carrying foodstuffs, and will soon do likewise for other vessels to encourage more trade with Cuba
Bigger trade changes need to wait longer. Only Congress can fully lift the embargo. Other nations are scrambling to expand in Cuba before the US does. Russia China and the European Union are especially keen.. Visitors to Cuba now find hotels owned by Spanish and Canadian firms and computers made in China. The EU wants to sign a trade pact with Cuba by year end. China has inked 29 deals with Havana on credit and trade and is now Cuba's second source of imports after Venezuela. Russia has written off most of Cuba's Soviet era debts and is letting Havana repay the rest by developing Russian projects on the island
Living in a casino does not mean you are necessarily a professional gambler. A taxpayer who worked full time as a tunned agent in NJ and had no permanent home spent his off hours gambling and staying over night in casinos. He deducted his meals and other gambling related costs on Schedule C. The Tax Court nixed his write offs because he did not conduct his gambling activity in a business like manner. In essence the Court decided his gambling was more hobbya than a business, taking into account his full time job and long string of annual losses.
Many folks who got advance premium credits are in danger of losing them for 2016. IRS says that 710,000 taxpayers who received advanced credits did not file for 2014, violating the rule that they must reconcile the advance payment with the actual credit they are entitled to.. Congress fears that many of these nonfilers owe tax because they got excess advance credits,. IRS is sending the nonfilers letters telling them that unless they file, they will be ineligible for advance payments in 2016