Do you need to think about the alternative minimum tax?

Do you need to think about the alternative minimum tax?

You may not have thought much about the alternative minimum tax, or AMT, since Congress passed a law that permanently fixed the exemption. But the tax, which you calculate separately from your regular tax liability, is still around. Here's how the AMT might apply to your 2016 tax return.

Certain income and deductions, known as preference items, are added to or subtracted from the income shown on your federal income tax return to arrive at your AMT taxable income. For example, certain bond interest that you exclude from your regular taxable income must be included when computing income for the AMT. This is a "preference item" because tax-exempt interest gets preferential treatment under ordinary federal income tax rules.

AMT "adjustments" also affect whether you'll owe the tax. These include personal exemptions and your standard deduction. In the AMT calculation, these taxable-income reducers are not deductible. Instead, they're replaced with one flat exemption, which is generally the amount of income you can exclude from the AMT. For your 2016 return, the AMT exemption is $83,800 when you're married filing a joint return or are a surviving spouse, $53,900 when you file as single, and $41,900 if you're married and file separately. The exemption decreases once your income reaches a certain level.

Finally, only some itemized deductions, such as charitable contributions, are allowed in the AMT calculation. Others, including medical expenses and mortgage interest, are computed using less favorable rules.

Need help determining whether the AMT will apply to your 2016 return? Give us a call.

Couples and money: Five resolutions for 2017

Couples and money: Five resolutions for 2017

Do you have a financial plan that works for both you and your spouse? Here are suggestions that can help.

1. Organize your finances. Get a handle on your income and spending, by both of you individually and as a couple. By reviewing the overall picture of how you spend money, you can focus on potential problem areas.

2. Set goals. How much will you accumulate in bank accounts and investments over the next three years? Five years? Ten years? Have you anticipated future expenses? Say, for example, you're dreaming of a vacation in Europe for your anniversary. You'll want to start saving now so you won't need to finance the trip with credit cards.

3. Build an emergency fund. How much is enough for emergencies? As a general rule, set aside three to six months of your combined gross income in easily accessible accounts, such as savings or money market accounts.

4. Save for retirement. Participate in your employer's retirement plan and contribute at least as much as the amount your employer will match. The earlier you start saving, the more you'll accumulate. It's that simple.

5. Formalize an estate plan. Have an attorney draft a will and set up a financial power of attorney so your assets are distributed according to your wishes in the event of death or incapacity.

For more financial planning advice, contact us.

Tax bracket, tax rate, what's the difference?

Tax bracket, tax rate, what's the difference?

The difference between your tax bracket and your tax rate is more than a trick question. For example, knowing your tax rate gives you an accurate reflection of your tax liability in relation to your total income. Knowing your tax bracket is useful for planning purposes. For instance, you may want to spread a Roth conversion over several years in order to stay within the income limits of a particular tax bracket.

So, what's the difference between the two? The main difference is that a tax bracket is a range of income to which a specific tax rate applies, while your effective tax rate is the percentage of your income that you actually pay in tax. Put another way, not every dollar is taxed at the same rate. Your tax bracket shows the rate of tax on the last dollar you made during the tax year. Your effective tax rate reflects the actual amount you paid on all your taxable income.

For example, say you're single and in the 25% bracket for 2016. That means your taxable income is between $37,650 and $91,150.

Yet the tax you pay is less than 25% of your income.

Why? Because the 25% tax rate only applies to the amount of taxable income within the 25% bracket. The tax on income below $37,650 is calculated using the rate that applies to income in the 10% and 15% brackets.

So, if your 2016 taxable income is $40,000, only $2,350 is taxed at 25%. The remainder is taxed at 10% and 15%, leading to a "blended" overall rate. The result: a tax bracket of 25%, and an effective tax rate of less than that.

Good tax advice can affect both your bracket and your rate. Want to know how? Contact us.

Start smart: Five items to focus on when starting a new business

Start smart: Five items to focus on when starting a new business

Are you starting a new business in the new year? Put these items on your to-do list.

Business plan. Outline who will own the business and what the legal form will be, your qualifications to run the business, the competitive market you face, the products or services you will sell, and how you intend to advertise to prospective customers. How much cash will you need to start up and where will those funds come from?

Legal form. You can incorporate, or operate as an LLC, a partnership, or a sole proprietorship. Consider both tax and non-tax reasons for selecting a given entity.

Location. If your business will consist only of online sales, your world headquarters can be wherever you are. However, if your business needs foot traffic to thrive, you'll need to research rents and other costs such as utilities, as well as zoning and traffic restrictions.

Taxes. You'll have to work with the IRS, state tax agencies, and local governments to obtain permits and occupational licenses.

Advisors. Create a business financial team that includes a banker, an insurance agent, an attorney, and an accountant. Involve your advisors early and frequently.

Need more suggestions for getting your business off to a good start? Contact us. We're here to help.

You don't have to itemize to claim these deductions on your 2016 return

You don't have to itemize to claim these deductions on your 2016 return

Can't itemize? You can still claim some expenses on your 2016 federal income tax return. Here's how you can benefit.

* IRA and HSA contributions

If you made a contribution to your traditional IRA for 2016, or if you plan to make a 2016 contribution by April 18, 2017, you may qualify to deduct up to the maximum contribution amount of $5,500 ($6,500 if you're age 50 or older). Income limitations apply in some cases, and you can't deduct contributions to Roth IRAs.

Health Savings Accounts (HSAs) are IRA-like accounts set up in conjunction with a high-deductible health insurance policy. The annual contributions you make to your HSA are deductible. Contributions are invested and grow on a tax-deferred basis, and you're allowed to withdraw money in the account tax-free to pay for your unreimbursed medical expenses. For 2016, you can deduct up to the contribution limit of $3,350 if you're filing single and $6,750 when you're married filing jointly. You may also be able to deduct an additional $1,000 if you were age 55 or older and made a catch-up contribution to your HSA.

* Student loan interest and tuition fees

Deduct up to $2,500 of interest on student loans for yourself, your spouse, and your dependents on your 2016 return. For 2016 returns, you can also deduct up to $4,000 of tuition and fees for qualified higher education courses. Income limitations apply, and you must coordinate these deductions with other education tax breaks.

* Self-employment deductions

If you're self-employed, you can generally deduct the cost of health insurance premiums, retirement plan contributions, and one-half of self-employment taxes.

* Other deductions

Alimony you pay, certain moving expenses, and early savings withdrawal penalties are also deductible on your 2016 return, even if you don't itemize. Teachers can deduct up to $250 for classroom supplies purchased out-of-pocket in 2016.

Contact our office for more information on these and other costs you may be able to deduct on your 2016 tax return.

Manage business insurance costs

Manage business insurance costs

Liability, property, vehicles, directors, officers, employees – you can buy an insurance policy for many of the risks your business faces. While going without insurance is generally a penny-wise, pound-foolish decision, considering ways you can reduce the cost of your premiums makes sense. For example, you might ask about higher deductibles. The deductible is the amount you pay in the event of a loss before your insurance company will write a check. For more money-saving tips that can benefit your business, contact us.

Financial scams take more than your money

Financial scams take more than your money

The consequences of being taken in by a scammer include three types of costs, according to a survey by the Financial Industry Regulatory Authority's Investor Education Foundation. In addition to the money lost in the fraud, victims generally incur legal and other fees to clean up financial records in the aftermath. The third cost is the emotional wear and tear. If you've suffered a loss from fraud that's left you feeling vulnerable, seek assistance from community service groups that offer support and counseling specifically designed to address your needs.

Keep up with wage laws

Keep up with wage laws

While the new federal overtime rules that were scheduled to take effect in 2016 have been put on hold, perhaps permanently, other wage laws are still around, including those that establish minimum pay levels. These minimum wage laws vary from state to state, and some have changed beginning January 1. In addition, you may be required to post notices or posters in your workplace, and maintain certain records. Contact us if you have questions.

Be aware of these three new tax filing deadlines

Be aware of these three new tax filing deadlines

As you begin preparing your final payroll tax returns for 2016, take into account earlier due dates for two common information reporting forms and one extended due date for health coverage reporting forms.

Forms W-2 for 2016 are due January 31. The January 31 deadline applies to forms given to employees, as well as those submitted to the Social Security Administration.

Forms 1099-MISC with non-employee compensation in Box 7 are due January 31, 2017. The January 31 due date applies to forms given to the payee, as well as paper and electronic copies filed with the IRS.

Forms 1095-B and 1095-C are due to recipients on March 2, 2017, instead of January 31. There is no change to the February 28 due date for filing paper forms with the IRS, nor the March 31 due date for filing electronically.

Update your mileage rate reimbursements for 2017

Update your mileage rate reimbursements for 2017

If you intend to use your vehicle for business, charitable activities, medical appointments, or moving during 2017, be aware that the optional standard mileage rates for computing the deductible costs have changed. Here are the rates to use to calculate reimbursements and deductions this year.

Business. Starting January 1, 2017, the rate is 53.5¢ per mile when you use your vehicle for business purposes.

Charitable. The standard per-mile rate for charitable service remains at 14¢.

Medical and moving. The rate for medical and moving mileage is 17¢ per mile.

Do you need to revise your final estimated payment?

Do you need to revise your final estimated payment?

The last installment of your 2016 estimated federal income tax is due January 17, 2017. As a general rule, to avoid penalties you need to pay in the lesser of 90% of your 2016 estimated tax liability or 100% of the tax shown on your 2015 return when your adjusted gross income (AGI) is less than $150,000. When your AGI is over $150,000, you're required to prepay the lesser of 90% of your 2016 estimated tax liability or 110% of your 2015 tax liability. What if you haven't paid in enough? Increase your last installment to make up for the underpayment. Contact us for help with the calculation.

Know when to sell

Know when to sell

Deciding when to buy a stock is often easier than determining when to sell. As you're reviewing your portfolio at year-end, consider these situations that may indicate the right time to sell.

When there are no tax consequences. If you hold stock in a retirement fund, you may want to reap gains with no tax impact.

To take money off the table. If a stock has had a nice run, you could sell a portion to recoup part of your investment. You can continue to invest in the stock but with locked-in gains.

A shift in fundamentals. Consider selling if the economy changes or an entire industry becomes vulnerable due to negative news.

When you've given up on a stock. If a stock has been declining or flat-lining for an extended period, selling low now can save you from having to sell even lower later on.

To take a contrarian position. If the market has gotten frothy and all the news is optimistic, choosing to harvest your gains could be a wise move.

When cash becomes attractive. A gloomy economic outlook could be reason to increase your cash reserves.

Having a disciplined selling strategy means giving as much thought to the sale of a stock as to the purchase. Contact us. We're here to help.

How social security benefits are taxed

How social security benefits are taxed

Are you wondering if your social security retirement, survivor, and disability benefits will be subject to federal income tax on your 2016 return? Generally, when these benefits are taxed is determined by your "provisional income."

Provisional income (PI) is the product of a formula used for no other purpose than figuring out the taxable percentage of social security benefits. To compute your provisional income, total your adjusted gross income, any tax-exempt interest or similar nontaxable revenue, and one-half of your social security retirement benefits for the year. How much of your benefits are taxed depends on this "base amount."

– Joint filers with PI below $32,000 ($25,000 for single filers) owe no tax on benefits.

– Joint filers with PI between $32,000 and $44,000 ($25,000 and $34,000 for single filers) are taxed on a sliding scale that tops out at 50% of benefits received.

– Joint filers with PI over $44,000 ($34,000 for single filers) are taxed on more than 50% and up to 85% of benefits.

Note that supplemental security income payments (SSI) are not taxable. For answers to questions about your benefits, contact us.

Avoid hiring mistakes in your start-up

Avoid hiring mistakes in your start-up

Staffing errors can spell disaster for your start-up. Here are three to watch out for.

1. Staffing the firm with friends and family. While this strategy may work in some circumstances, hiring pals and relatives often spells trouble. For one thing, friends and family members often expect – even subconsciously – to be treated differently from other employees. A double standard, whether real or perceived, can hurt morale and productivity. As a general rule, focus hiring decisions solely on the needs of your firm and applicant qualifications.

2. Trusting in a handshake. Spell out employee arrangements in writing. This can be as simple as drafting employee offer letters that cover compensation, rights to intellectual property, and bonus arrangements. Employee handbooks are also a good way to spell out the responsibilities of your firm and staff.

3. Bringing in a partner for the wrong reasons. Downside risks of bringing in a partner include surrendering a portion of your company and control over important management decisions to someone else. Before selling part of your company, ask yourself what the partner will contribute besides money. Can you find other ways to fill gaps in your team? Choosing wisely can help you avoid ending up in the business equivalent of divorce court.

For assistance with issues facing your start-up business, give us a call.

Don't include the IRS on your gift list

Don't include the IRS on your gift list

Suppose a relative gives you an expensive painting. Several years later, your relative dies and you decide to sell the painting. Your accountant says you'll owe capital gain tax on the sale, and asks for your basis in order to reduce the amount on which you'll pay tax. What's your answer?

When you sell property received as a gift, the general rule is that your basis is the donor's cost basis. If you sell at a loss, your basis is the lower of the donor's basis or the fair market value on the date you received the gift. These numbers are adjusted in some cases. But without cost records, you have no way of proving the donor's basis and no way of saving yourself tax dollars.

If asking for records of the cost when you receive a gift seems inappropriate, explain why you want to know to help make the conversation less awkward. No one likes to pay unnecessary taxes. Having the same conversation about the cost of valuable gifts you received in prior-years is also worthwhile.

If you're the gift-giver, offer the additional gift of presenting the cost records to the recipient at the same time. Otherwise, you may end up giving an unintended gift to the IRS in the form of unnecessary taxes.

Having problems keeping employees?

Having problems keeping employees?

Is retention of good employees a priority for your business? Consider conducting "stay" interviews. These meetings between managers and valued employees can provide insight into why your employees like their jobs, which in turn lets you know how to retain the employees. Conducted on a regular basis, generally more than once a year, stay interviews tell employees you're serious about accepting feedback and keeping them on the job.

Complete these retirement plan steps before year-end

Complete these retirement plan steps before year-end

December 31 is the last day you can benefit from certain retirement tax breaks. For example, if you haven't put the maximum amount allowed in your 401(k) – $18,000 in 2016 – increasing your contributions can save you money. If you're over age 50, you can make a catch-up contribution to a 401(k) of an additional $6,000. If you're age 70½ or older, remember to take required minimum distributions from retirement plans to avoid a penalty. For more tips on managing your retirement plans, contact us.

Are you part of the "sharing" economy?

Are you part of the "sharing" economy?

The IRS defines the "sharing" economy as economic activity generated through the use of technology that lets you earn money from your assets, such as a car. Income from these activities, including room rentals and car rides, is taxable, and you may be able to deduct related expenses. Depending on the work you do, special tax rules can apply. Contact us for information about how to report your sharing activity income.

Your suddenly dead mobile phone may be a sign of fraud

Your suddenly dead mobile phone may be a sign of fraud

According to the Federal Trade Commission, in a growing type of fraud known as a "SIM swap" scam, fraudsters take over your mobile account in order to steal your identity. The SIM, or subscriber identity module, card in your phone is the memory chip that stores information identifying the phone to a network. Thieves contact your phone company, claiming to be you, and request activation of a new SIM card with your existing phone number. Your phone goes dead, and the thief can then intercept phone calls and text messages that allow access to financial accounts. As a safeguard, consider adding a password that must be activated before your phone account can be changed.

Clean your financial house for the New Year

Clean your financial house for the New Year

Out with the old, in with the new. No matter whether you apply the expression to changes in attitude or to life adjustments, the end of the year is a great time to assess your household finances and prepare for new opportunities. Here are suggestions.

Review your credit report. Request a free copy of your credit report from each of the three major credit bureaus. If the reports contain errors, get them corrected.

Make or update your home inventory. Go through your house and make a video describing what you see, along with information such as purchase dates, prices, and estimated values. Your home inventory can be vital for getting insurance claims approved in case of disaster.

Calculate your net worth. Your net worth is the value of your assets, including your house, personal property, bank accounts, car, and investments, minus liabilities such as your mortgage, credit card balances, and loans. This is a great yardstick for measuring your household's financial growth (or shrinkage) from year to year.

Increase your savings. If you get a year-end raise, consider contributing a portion of the extra money to your 401(k) plan or other savings account.

Purge financial records. If you're a financial packrat with stacks of old cancelled checks and bank statements that are no longer needed for an IRS audit or your own use, shred them.

Need help? Contact our office.