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

 A Happening List badge for your website

- See more at: http://northdelawhere.happeningmag.com/happeninglist/frequently-asked-questions/#sthash.KOtpXCVw.dpuf


Voting is at this link:

http://northdelawhere.happeningmag.com/happeninglist/people-accountantcpa-2015/

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.
Note:  
Voters will need to provide a VALID email address. If that email address is found to be invalid, the vote will not be counted.

One vote per email address - See more at:http://northdelawhere.happeningmag.com/happeninglist/frequently-asked-questions/#sthash.4zzPMTXT.dpuf

We would appreciate it if you and your staff could vote for Doherty & Associates for this contest.  Perhaps you can compete in your category as well…let us know and we can vote for you as well.

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

Doherty & Associates - Bookeeping

Can’t Pay Your Tax Balance?

You 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

 

 

 

Doherty and Associates CPO - Tax - IRS Logo

Are you taking advantage of the tax deductions on your settlement sheet?

If you are a landlord, most items on a settlement sheet have to be capitalized and amortized over the life of the mortgage, however:

  • Interest expense from the time of settlement until your first mortgage payment is deductible.
  • The amounts that you reimburse the seller for property taxes, utilities, homeowner’s association dues, etc. are deductible rental expenses to you.
  • Likewise, any of these items that you have to pay because the seller did not are also deductible to you.
  • Additionally, amounts paid in advance such as mortgage insurance and homeowner’s insurance are also deductible.

If you are purchasing a principal residence or a second home, then only mortgage interest and property taxes are deductible.

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