Dear Friends and Clients, January 2017
REED & DAILEY ASSOCIATES’ ANNUAL INCOME TAX UPDATE
“NEW NAME- SAME TEAM”
We are proud to announce our name change effective January 1, 2017. You still have the same team, same place, same great service and the same great coffee and hot cocoa as always. Donald Reed, Sr., Don Reed, Jr. and Matthew J. Dailey still work here with the best team in the region. JoLynn DeVries remains as General Manager, Jill Seidel stays as our all-around expert, and Cathy Kamovitch is still in charge of the front desk and schedule coordinator. We cannot thank you enough for being the greatest friends and clients and we enjoy being able to help you in any way possible. Now, on to…
THE BIG NEWS: THE 2016 PRESIDENTIAL ELECTION. President Donald J. Trump’s surprise victory in November, along with Republican control of the House and Senate offers a two-year window of opportunity for significant tax law changes. The main target: “Obamacare”. As of today, we don’t know if The Affordable Care Act, enacted during President Obama’s term, will be scrapped, altered, replaced, or simply modified. CHANGE WILL OCCUR, that much we know. We predict that the GOP leaders will keep intact certain provisions of the ACA but remove the penalty mandate provisions for not having medical coverage. TAX SIMPLIFICATION has been promised for over 40 years. It’s back on the table, as usual! We think the future will bring a major reduction of itemized deductions (no real estate taxes or state/local taxes?); an increased Standard Deduction to make up for it; the elimination of a 3.8% Net Investment Income Tax on high-incomes; scrapping the 0.9% Additional Medicare Tax on combined earnings over $250,000, fewer tax brackets, and a reduction in Corporate Income Taxes.
“BUT HOW WILL NEW TAX LAWS AFFECT ME?” is what we all want to know. We predict that the average taxpayer with lower- and middle-incomes will see very minor changes, IF ANY, to any new tax laws. We predict that the “top-tier” incomes will see the greatest benefit to any proposed changes. The others will likely pay for many changes (those we could define as income between $200,000-$350,000).
SO WHO PAYS THE MOST INCOME TAX? WHO PAYS THE LEAST? The “Top 1%” of Income Earners (AGI over $465,000) paid 40% of all federal income taxes in 2014. The “Bottom 50%” of Incomes paid only 3% of all federal taxes. Therefore the Top Half paid 97% of the income taxes. Digging deeper: The Top 5% (AGI over $180,000) paid 60% of the taxes and the Top 10% (AGI over $133,000) paid out 70% of federal taxes in 2014, the most recent year for statistics available. These numbers do not reflect payments to Social Security, Medicare, Sales Taxes, Real Estate Taxes, nor other taxes and fees.
IRS HAS NEW WAYS TO HELP REDUCE TAX FRAUD. Here are a few: (1) NO TAX REFUNDS WILL BE ISSUED UNTIL FEBRUARY 15th. (2) No E-filing or paper processing by IRS until January 23rd this year! (3) W2’s must be sent to the SSA by January 31st now, where in prior years employers had until February 28th to send W2’s to the government. (4) Tax preparers and E-filers must use safety procedures including encryption software, anti-virus software, and other technical methods to deter bad guys from stealing refunds and posing as other taxpayers, (5) Dependents claimed must be verified by tax preparers for Child Tax Credits, Additional Child Tax Credits (and EIC, as before).
FILING DEADLINES HAVE CHANGED: NOTE: Due to the calendar and due to the recognition of Emancipation Day in Washington, DC this year’s filing deadline for Individual Tax Returns is April 18th, on a Tuesday.
PARTNERSHIPS AND S-CORPORATIONS must file by March 15th or face substantial penalties for late filing. Formerly Partnerships could file April 15th.
C-CORPORATIONS new deadline is now typically April 15th. The former deadline was March 15th.
LLC’s: Limited Liability Companies can be Individual Sole Proprietorships, Partnerships, S-Corporations, or C-Corporations. Their deadline defers to the type of tax entity that they have chosen. See above for deadlines.
W2’s and 1099’s must now be sent to the government by January 31st instead of February 28th.
ESTIMATED TAX PAYMENTS must be paid to Federal, State, and Locals when you expect to owe money to them. PENALTY ENFORCEMENT IS UP NOW due to technology, and due to information sharing among government agencies. DUE DATES are not logical dates. They are 04/15, 06/15, 09/15, and then 01/15 to finish the “four quarterlies”. TO REDUCE HASSLES some people want to “pay once and be done”, in advance, so as to not to be worried about missing payment due dates. Example: You are to make 4 payments to PA for $100 each for the year. You may elect to pay one payment of $400 in the 1st Quarter instead of having to write out 4 checks during the year. It’s your choice. If you do this, pay it in the First Quarterly so as to avoid penalties for not paying early. No discounts are given for early payment- convenience is the only reward.
EXPLAINING CAPITAL LOSS DEDUCTION LIMITS is a tricky matter. Are losses limited to $3,000 a year? No, and Yes. As long as you have current year Capital Gains (and Capital Gain Distributions from taxable Mutual Fund accounts) you may offset 100% of current year gains with 100% of current year Capital Losses and Capital Loss Carryovers from prior years. Plus you may deduct $3,000 more of unused losses in the current year. Any more unused losses are carried forward and applied 100% to future gains, plus $3,000 more of a deduction each year, until the losses are used up, for a maximum of a 20-year carryover period per loss year. Confusing enough? Read on…
LONG TERM CAPITAL GAINS (LTCG) and QUALIFIED DIVIDEND INCOME is a case where investment income is rewarded with special tax loopholes for everyone. The holding period for Long Term is over one year long, and Long Term Gains are taxed at a lower tax rate than other income. (1) If you are in the 15% Tax Bracket or lower, the LTCG is taxed at 0%! This amazing tax loophole also applies to most Dividend Income. Many Retirees receiving Dividend Income find they pay $-0- income tax on their Stock Dividends and $-0- income tax on Capital Gains when they sell their stocks. (2) Those fortunate enough to be in the top 39% Tax Bracket get LTCG and Dividend Income taxed at a 20% tax rate. (3) The rest of those in the 25%, 28%, or 33% brackets get Capital Gains and Dividends taxed at 15%, which is still a bargain.
HERE ARE NUMBERS OF INTEREST for 2016 Tax Returns: -Standard mileage rate is $0.54/mile business; $0.14 charitable mileage rate; $0.19 for medical or for moving. -Personal Exemptions are $4,050 each. -Standard Deductions are $6,300 Single plus add $1,550 at age 65 or blind (each); $12,600 Married/Joint plus $1,250 at age 65 or blind (each); Head of Household is $9,300 plus $1,550 at age 65 or blind (each).
-The Section 179 maximum is up to $510,000 for expensing assets. -IRA and Roth IRA limits are $5,500 plus $1,000 extra at age 50 for a total of $6,500 max. -Annual Gift Limit $14,000 with no reporting; Lifetime Gift Limit is $5,490,000 before Gift Taxes kick in. -Social Security Wage Base was $118,500 in 2016 but increases to $127,200 in 2017. -Taxable Income Limits for the 15% Tax Bracket are $37,650 Single; Married/Joint is $75,300; Head of Household limit is $50,400. The next tax bracket is 25% BUT ONLY FOR THE INCOME ABOVE THESE AMOUNTS. *Remember: Taxable Income is Adjusted Gross Income less the Standard Deduction or Itemized Deductions, less Personal Exemptions. See above for Standard Deduction and Personal Exemption amounts.
“MY SON IN COLLEGE FILED HIS OWN TAX RETURN. IS THAT A PROBLEM?” Well…probably. Johnny goes to school and his friend Dexter uses tax software for his own taxes and Dexter tells Johnny “I can file that for you for free”. Here’s The Problem: Johnny always forgets that he is claimed as a dependent on his parents’ tax return and instead “claims himself”. When parents file their taxes their tax return is “bounced” because Johnny already “claimed himself” and parents lose out on thousands of dollars of credits and tax benefits. Amended returns are needed and additional fees are incurred because Johnny just can’t wait to get that little $138 refund as fast as possible. PLEASE TELL YOUR STUDENT CHILDREN NOT TO FILE THEIR OWN TAX RETURNS UNTIL AFTER YOU HAVE FILED YOUR OWN. This saves so much time and trouble for all.
PA TAXPAYERS are reminded to keep perfect records for mileage, meals, tools, and other employee business expenses. PA Department of Revenue has been auditing taxpayers at a frantic pace because they know many fail to keep proper records. This has led to an enormous amount of work for both taxpayers and for preparers.
TOP TEN TAX TIDBITS: (1) Don’t forget to send 1099’s to non-employees paid $600 or more for the year by Jan. 31st. (2) The IRS does not allow “estimates” of Travel and Entertainment. Keep actual mileage and hotel receipts at the time incurred. (3) The annual Gift Tax Exclusion is $14,400; (4) If you exceed the annual Gift Tax Exclusion you must report it on a Gift Tax Return, but no tax is due unless you gift over $5,400,000+ in your lifetime. (5) Gifts are not subject to Income Taxes. (6) Seek tax advice before you act, not after the fact. (7) IRA Required Minimum Distributions (RMD) can be taken from one account or from several accounts in a year. It is your choice. (8) You might be able to claim Medical Expenses for a medically dependent relative, even if you do not claim them as a dependent. (9) Rollover mistakes cost taxpayers THOUSANDS OF DOLLARS each year. Call us first to avoid penalties and unnecessary taxes with proper planning. (10) We offer FREE INCOME TAX SERVICE to COMBAT ZONE military families.
DO YOU NEED HELP WITH YOUR INVESTMENTS, IRA’S, ROLLOVERS, COLLEGE SAVINGS, OR LUMP SUM MONEY? Donald Reed, Jr. and Matthew J. Dailey are Financial Advisers with Cetera Investment Advisers LLC and Cetera Financial Specialists, LLC. If you need help with your financial and retirement planning goals and are a resident of PA, OH, or MD please call anytime. (These services are not affiliated with Reed & Dailey Associates, Inc.; Securities offered by Cetera Financial Specialists, LLC, member FINRA/SIPC; Branch Office 475 S. Buhl Farm Drive, Hermitage, PA 16148. Advisory services offered through Cetera Investment Advisers, LLC. Cetera is under separate ownership from any other named entity).
APPOINTMENTS: Please call us ASAP for appointments. Should you wish to DROP-OFF your information, please don’t call ahead of time to DROP-OFF. Jot down questions- we will call you back. WE HAVE ALL TAX FORMS ON COMPUTER SOFTWARE (Federal, State, and Local) so don’t wait for those to come in the mail.
REFERRALS are greatly appreciated! We say THANK YOU for sending great people our way. Please tell a friend if you are pleased with our service. We strive to offer you the best possible experience with our friendly staff!
MAY THE LORD BLESS YOU IN 2017 AND BEYOND
Donald G. Reed, Enrolled Agent Don Reed, Jr., CPA Matthew J. Dailey, CPA, MBA
JoLynn DeVries, General Manager Jill Seidel, Senior Staff Accountant
Cathy Kamovitch, Front Office Coordinator Carol Kamovitch, Collation/Quality Control
STAFF TAX PREPARERS:
Gail Moore, Lynn Mathieson, Walt Bedich, Thomas Kuester, CPA
Mary Hatton, Jamie Dailey, Cheryl Whalen, Beth Luther,
Kathy Murphy, Melody Perdian, Michelle Parker, LeaAnne Dumars
PLEASE FILL IN THE 2016 CLIENT INFORMATION SHEET FOUND ON THE REVERSE SIDE OF THIS FORM
AND BRING IT WITH YOU, OR SEND IT IN ALONG WITH YOUR INCOME TAX INFORMATION.
PHONE: 724-981-7779 FAX: 724-981-3199
Tax/Accounting email: firstname.lastname@example.org Tax/Accounting Website: www.reedtax1.com
Office Hours: Monday-Thursday 8:00AM- 8:00PM Friday & Saturday: 8:00AM- 4:00PM