Spring Paperwork Clean up

As we bounce into spring here is one important step you can take to clean your financial House.

Know how long to keep paperwork

Here’s what to keep, and for how long:

Copies of your tax returns. Keep these forever. “They help in preparing future tax returns and making computations if you file an amended return.

Supporting tax documents and receipts. The IRS recommends keeping supporting documents for as long as you can be audited or held responsible for the filings. Here are a few rules of thumb:

  • The IRS generally audits taxes back three years, so keep records supporting deductions at least three years after a return was due or filed. However, the IRS also says: “If we identify a substantial error, we may add additional years. We usually don’t go back more than the last six years.” So you may want to hold onto records for six years to be sure you’re covered.
  • Keep payroll tax records six years.
  • If you filed a fraudulent tax return, you’re on the hook forever, so hold onto supporting documents.
  • If you failed to report income worth more than 25 percent of the gross amount you reported, you’re liable to the IRS for six years.

2018 Tax Brackets

What the 2018 tax brackets, standard deductions look like under tax reform

2018 Income Tax Brackets:

Old Rate New Rate Individuals Married Filing Jointly
10% 10% Up to $9,525 Up to $19,050
15% 12% $9,526 to $38,700 $19,051 to $77,400
25% 22% 38,701 to $82,500 $77,401 to $165,000
28% 24% $82,501 to $157,500 $165,001 to $315,000
33% 32% $157,501 to $200,000 $315,001 to $400,000
35% 35% $200,001 to $500,000 $400,001 to $600,000
39.6% 37% over $500,000 over $600,000

 

  • Capital Gains – Capital gain rates remain the same as 2017 at 0%, 15% and 20%. However because of the changes in individual tax rates the 2018 thresholds have changed. For 2018, the 0% rate is for taxable income up to $77.200 for married filing jointly, 15% for taxable income between $77,201 and $479,000 and the 20% for taxable income greater than $479,001.

 

Standard Deduction Increased:

For tax years beginning after 12/31/17 and before 1/1/2026, the standard deduction is increased to:

 

Old Rate New Rate  
$12, 700 $24,000 Married Filing jointly
$9,350 $18,000 Head of Household
$6,350 $12,000 All other taxpayers

The 2015 tax extenders legislation — the PATH Act — what is this?

On December 18, the Senate passed the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act). Many popular tax breaks had expired December 31, 2014, so for them to be available for 2015, Congress had to pass legislation extending them. But the PATH Act does more than that. I am here to explain to you all of the benefits this Act has, the drawbacks, and how this applies to you.

Instead of extending breaks for just a year or two, the PATH Act makes many popular breaks permanent and extends others for several years. The PATH Act also enhances certain breaks and puts a moratorium on the Affordable Care Act’s controversial medical device excise tax.

Many of the PATH Act’s provisions provide an opportunity for taxpayers to enjoy significant tax savings on their 2015 income tax returns — but quick action may be needed to take advantage of some of them. The breaks made permanent and the extenders through 2019 all have ramifications on individual and businesses alike.

Some highlights include:

  • IRA distributions to charity
  • Deduction for certain expenses of elementary and secondary school teachers
  • State and local sales tax deduction
  • Small business stock gains exclusion
  • Enhanced child credit

These are just a few of the breaks and extensions in this Act. In order to capitalize on all of the advantages or shelter yourself from the negatives it is important that you sit down with an accountant to learn more. At Doherty & Associates we always say, “We bring peace of mind to your bottom line” but we also keep YOUR money where it belongs, with YOU!

Debbie Doherty

Debbie is Founder and President of Doherty & Associates

Tender Hearts Participates in 7th Annual Delaware Mud Run

Tender Hearts is proud to participate in the Seventh Annual Delaware Mud Run to support Leukemia Research. This team is going down and dirty in the mud to help raise money for cancer warriors. Get yourself on board by supporting this team! We appreciate your support!

Date: Sunday September 20, 2015
Location: Frightland - Middletown, DE

Learn More: https://www.elleevance.com/DEMudRun2015/teamlanding.aspx?teamidc=2006

In Memory of Nelson R. Talbott

Vote for Doherty & Associates

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Once you’re at this link to VOTE–> Click on the people image and look for Accountant/CPA. Voting ends February 28, 2015 at 11:59pm.
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Can’t Pay Your Tax Balance?

Can’t Pay Your Tax Balance?

Your just received you tax return and can’t pay the balance due in full. What do you do?

  • FILE YOUR RETURN ON TIME.  This avoids the penalties for late filing.
  • RESPOND TO ALL NOTICES.  “Do Not” ignore the taxing authorities.
  • Pay as much as you can when you file the return.  The outstanding balance is subject to interest and late payment penalties.  Paying as much as you can will minimize these charges.
  • The IRS will give you up to an additional 120 days to pay in full.  Interest and penalties still continue to accrue.
  • If you can finance the full balance, the interest charged by your bank or credit card company is usually less than the combination of interest and late payment penalties.
  • You can enter into an installment agreement with the IRS and state taxing authorities.  There is a one-time user fee to set up the IRS installment agreement.  The installment payments can be made by a variety of methods:

o   Direct debit from your bank account;

    • Payroll deduction from your employer;
    • Payment via check or money order;
    • Payment by Electronic Federal Tax Payment System;
    • Payment by credit card via phone or Internet; or
    • Payment by Online Payment Agreement.
  • If your liability cannot be satisfied through any of the methods listed above. You may, repeat may, be eligible for an Offer in Compromise due to doubt as to collectability if your assets and income are less than the full amount of tax liability.  The IRS is stingy in accepting Offers in Compromise, and as such; they should be viewed as a last resort.

 

As always, this is only meant as a brief overview.  If you feel that we can be of further assistance to you, please contact our office to set up an appointment.

Email us at: info@dohertyandassociates.com

Call us at: 302-239-3500

Visit our website: http://www.dohertyandassociates.com

- Doherty & Associates Team

Traditional Individual Retirement Accounts (IRA’s)

Traditional Individual Retirement Accounts (IRA’s)

Who can contribute?

You can open and contribute to a traditional IRA if:

  • You have taxable compensation, and
  • Are under age 70½ at the end of the year

Taxable compensation is generally what you earn from working. This includes wages, salaries, tips, income from self-employment, and other amounts received for your personal services.   Compensation also includes taxable alimony.

How much can I contribute?

The maximum contribution for 2014 is the lesser of $5,500 ($6,500 if you are 50 or older at the end of the tax year) or the amount of your taxable compensation.

When can I contribute?

Contributions must be made by the due date of your tax return, not including extensions. This is usually April 15th.

How much can I deduct?

The amount that you can deduct is based on whether or not you and/or you spouse are covered by a retirement plan where you work.

  • If neither you nor your spouse is covered at work, you can deduct the lesser of $5,500 ($6,500 if you are 50 or older at the end of the tax year) or the amount of your taxable compensation.  The maximum deduction for a married couple is $13,000.
  • If you are single, head of household or married filing separate and did not live with your spouse at any time during the year and covered at work, your allowable deduction begins to phase out when your modified adjusted gross income reaches $59,000.  Once your modified adjusted gross income exceeds $69,000, you are not allowed a deduction.
  • If you are married filing a joint return and both of you are covered at work, your allowable deduction begins to phase out when your modified adjusted gross income reaches $95,000.  Once your modified adjusted gross income exceeds $115,000, you are not allowed a deduction.
  • If you are married filing a joint return, and only one of you is covered at work, your allowable deduction begins to phase out when your modified adjusted gross income reaches $178,000.  Once your modified adjusted gross income exceeds $188,000, you are not allowed a deduction.
  • If you are married filing a separate return and did not live with your spouse at any time during the year and covered at work, your deduction completely phases out when your modified adjusted gross income reaches $10,000.

Can I make nondeductible contributions?

If any or all of your contributions exceed the deductible amount based on the limitations discussed above, these contributions can be designated as nondeductible contributions. This will make a portion of your future distributions nontaxable.  In order to designate these contributions as nondeductible, you must file form 8606.  In certain circumstances, if your income is too high to deduct a traditional IRA or to contribute to a Roth IRA, the use of nondeductible IRA can be a useful planning tool.

As always, this is only meant as a brief overview.  If you feel that we can be of further assistance to you, please contact our office to set up an appointment.

Email us at: info@dohertyandassociates.com

Call us at: 302-239-3500

Visit our website: http://www.dohertyandassociates.com

- Doherty & Associates Team

Roth IRA’s

Roth IRA’s

Roth IRA’s are individual retirement accounts that are subject to the same rules as a traditional IRA with some major distinctions.

  • Roth IRA contributions are not deductible.
  • Qualified distributions are not taxable.
  • You can continue to make contributions after you reach age 70½.
  • There are no required minimum distributions.

Who can contribute?

You can open and contribute to a traditional IRA if:

  • You have taxable compensation, and
  • Your modified adjusted gross income is less than

o   $188,000 if you are married and filing a joint return

o   $127,000 if you are single, head of household or married filing separate and did not live with your spouse at any time during the year.

o   $10,000 if you are married filing separately and you lived with your spouse at any time during the year.

How much can I contribute?

The maximum contribution for 2014 is the lesser of $5,500 ($6,500 if you are 50 or older at the end of the tax year) or the amount of your taxable compensation.  If you contribute to both a traditional IRA and a Roth IRA, your total contribution is limited to $5,500 ($6,500) total for both plans.  The amount that you can contribute depends on your income.

  • If you are single, head of household or married filing separate and did not live with your spouse at any time during the year, your allowable contribution begins to phase out when your modified adjusted gross income reaches $112,000.  Once your modified adjusted gross income exceeds $127,000, you are not allowed to make a contribution.
  • If you are married filing a joint return, your allowable contribution begins to phase out when your modified adjusted gross income reaches $178,000.  Once your modified adjusted gross income exceeds $188,000, you are not allowed a contribution.
  • If you are married filing a separate return and did not live with your spouse at any time during the year and covered at work, your contribution completely phases out when your modified adjusted gross income reaches $10,000.

When can I contribute?

Contributions must be made by the due date of your tax return, not including extensions.  This is usually April 15th.

Distributions

A qualified distribution is not included in your taxable income.  To be considered a qualified distribution, the payments must meet certain requirements.

It must be made after the five year period that begins when you make the first contribution to your Roth IRA account, and

o   You have reached age 59½, or

o   You are disabled, or

o   It is paid after you death, or

o   It meets the requirements for a first home purchase.

 

As always, this is only meant as a brief overview.  If you feel that we can be of further assistance to you, please contact our office to set up an appointment.

Email us at: info@dohertyandassociates.com

Call us at: 302-239-3500

Visit our website: http://www.dohertyandassociates.com

- Doherty & Associates Team

 

 

Repairs or Improvements – the new tangible property regulations for small business.

The IRS has released the final regulations, effective January 1, 2014, that govern when you must capitalize and when you can deduct expenses related to tangible property.

Here we will discuss some of the provisions for small businesses (generally those without audited financial statements).

Generally you should assume that all tangible property, except inventory, must be capitalized and depreciated.  However, as usual, there are exceptions to that rule.

Materials & Supplies

The final regulations define materials and supplies as tangible property that is used or consumed in the taxpayer’s business operations that is not inventory and is generally used or consumed within 12 months and costs less than $200.  Items that meet these safe harbor criteria may be deducted instead of capitalized.

Repairs & Maintenance

Under the new routine maintenance safe harbor rules, payments are deductible if they are for recurring expenditures that keep an item in efficient operating condition.  The activities are considered routine if you plan to perform the activities more than once during the class life of the item.  This safe harbor also applies routine maintenance on buildings if you plan to perform this maintenance at least twice during a ten year period.

Amounts Paid for the Acquisition of Tangible Property

Under the new safe harbor rules, businesses without an applicable financial statement can elect to deduct up to $500 per item.  This is an all or nothing proposition.  If the cost of an item exceeds $500, the entire amount must be capitalized and depreciated.  If your business has an applicable financial statement, this threshold can rise as high as $5,000.

Amounts paid for the Improvement of Tangible Property

The final regulations continue to require that improvements to tangible property be capitalized and depreciated.  Improvements are defined as, betterments, restorations, and adapting the unit of property to a different use.  There is an exception for small taxpayers who own buildings.  Under this exception, you are not required to capitalize improvements if the total amount spent for maintenance, repairs, and improvements does not exceed the smaller of $10,000 or 2% of the buildings original cost.  In order to take advantage of this exception, an annual election must be made on a timely filed (including extensions) tax return.

The new regulations are extremely complex and this summary just scratches the surface.  If you would like to discuss how these regulations affect your business, please contact our office to set up an appointment.

Email us at: info@dohertyandassociates.com

Call us at: 302-239-3500

Visit our website: http://www.dohertyandassociates.com

- Doherty & Associates Team

 

How are Children Taxed? The Kiddie Tax on Investment Income.

There are a set of rules that apply to the taxation of children and investment income.  This set of rules is known as the Kiddie Tax.  The Kiddie Tax applies to children with investment (unearned) income who are under age 19 or under age 24 and a full-time student.  For purposes of this discussion, we will ignore other types of income, such as wages, which are taxed under the same rules that apply to everyone.

The Kiddie Tax is essentially a 3-tiered structure.

  1. The first $1,000 of investment income is tax free.
  2. The next $1,000 is taxed at the child’s rate.
  3. Any investment income over $2,000 is taxed at the parent’s rate.  This computation is made on Form 8815.

If the child’s investment income is less than $10,000, the parents can elect to report the child’s income on their personal income tax return.  This is done by completing Form 8814.  The tax calculations should be run both ways to assure that the lowest possible tax is paid.  One note of caution; including the child’s income on the parent’s return may result in a loss of deductions and/or credits due to various phase outs as income increases.

As always, this is only meant as a brief overview.  If you feel that we can be of further assistance to you, please contact our office to set up an appointment.

Email us at: info@dohertyandassociates.com

Call us at: 302-239-3500

Visit our website: http://www.dohertyandassociates.com

- Doherty & Associates Team