Below are some important terms regarding Federal Tax Returns that we believe are critical for individuals and business owners to understand when it comes to their tax returns.
AGI ? Adjusted gross income, or AGI, is found by subtracting those specific deductions allowed from all the income received during the year. Wages, interest, dividends, business income, income from real estate, pensions and capital gains are examples of income. Deductions can include moving expenses, alimony, IRA deductions, student loan interest, and others. Calculating adjusted gross income is one of the first steps taxpayers take to calculate their final federal income tax bill.
MAGI ? Modified adjusted gross income is increasingly being used by Congress to limit a tax deduction or credit to individuals below certain income levels. It can create confusion because the term has different meanings depending on the specific tax credit or deduction. Modified adjusted gross income is used in calculating the following tax benefits: the phase out for education loan interest; the income portion of U.S. bonds redeemed for education expenses; adoption tax credits; education tax credits; and in determining the portion of social security benefits taxable as income.
AMT ? The alternative minimum tax, or AMT, was created by Congress in 1969 to make sure wealthy taxpayers pay federal taxes even if they qualify for enough deductions to eliminate their federal tax bill. Taxpayers find out if they have to pay higher taxes under the AMT rules, which do not allow taxpayers to use certain tax deductions and credits, by recalculating their taxes using the AMT worksheet. Because the law does not index the exemption to inflation, the AMT has ensnared many middle-income taxpayers in recent years.
Credits ? Tax credits are the best tax break you can get. They are subtracted from the amount of tax you owe dollar for dollar. If you owe $1,500 in federal taxes and are eligible for a $500 credit, your tax bill is $1,000 after the credit is applied. Tax credits are available for such things as education and energy conservation expenses. Some credits are limited to the tax you owe, but other credits are refundable, meaning you get a refund even if the credit is greater than the tax you owe, and some may be carried forward to be used in future years.
These are only a few of the terms and processes that are vitally important to a Federal Tax Return. If you find that you, or your company, are in need of Federal Tax Return Assistance please contact our office at 734-469-4406.
The Low Income Taxpayer Clinic program provides partial funding and oversight for Low Income Taxpayer Clinics (LITCs). LITCs are independent from the IRS.
Some clinics serve individuals who need to resolve a tax problem and their income is below a certain level. These clinics provide professional representation before the IRS or in court on audits, appeals, tax collection disputes, and other issues for free or for a small fee.
Some clinics can provide information about taxpayer rights and responsibilities in many different languages for individuals who speak English as a second language.
For more information and to find a clinic near you see the LITC page on www.irs.gov/advocate or IRS Publication 4134, Low Income Taxpayer Clinic List. This publication is also available by calling 1-800-829-3676 or at your local IRS office.
Many clients see their CPA's at tax time, when the main focus is on completing and filing their tax return. As
a result, they
take the opportunity to ask
questions about long-term tax planning or about
other important financial concerns.
The good news is that we are available to you throughout the entire year. We have a full- time, year-round staff of experts with extensive expertise in a broad range of financial areas. We?re ready when you are to take the time to properly review your financial situation, helping you understand your options and make the best decisions. We?re also here in an emergency to help address unexpected financial concerns.
Examples of events that require attention as it pertains to your tax situation:
- Change in employment or marital status
- Starting a business
- New addition to your family
- Loss in your family
- And much more.
These are events in life that we all experience at some point and it is imperative that we have financial and tax experts to assist us with the complex tax details that result from the changes in our lives.
You may not have asked yourself that question in so many words, but you may have wondered what sets CPA's apart from other financial professionals. The answer in short: A lot. We typically begin our careers with years of college and graduate education in order to become licensed tax professionals.
As a part of our licensure we are required to take and pass the demanding Uniform CPA Examination, which tests our knowledge on a wide range of business topics
over a total period of 14
hours. In addition to this test, we have to meet an experience requirement and then be licensed by a State Board of Accountancy
practice our trade.
The educational requirements do not stop there. Once we become Certified Public Accountants, we also must meet continuing education requirements set forth by the State of Michigan to update our knowledge of new business developments as well as commit to a strict code of ethical standards. Armed with this rigorous training, we?re on the job year round, ready to help individuals and businesses address their own unique tax and accounting challenges.
If you want more information about our firm can assist with your accounting and tax management needs please Contact Us, or, call us at (734) 469-4406.
business be in five years?
Would strategic budget cuts in some areas improve your
Are there ways you can boost revenue?
If you?re nearing retirement, is
there a buyer
successor in the wings?
These are the types
questions that keep many business owners awake
at night. Fortunately, as your business CPA in Michigan, we can probably help you sleep a little easier. Our firm is
made up of highly
qualified and educated business tax professionals
who work with commercial clients like your company all year long, serving as trusted business advisers. We act as coaches, guides and trainers for our business clientele, helping them chart
best route to success.
We encourage you to Contact Us, or, call us at (734) 469-4406 with questions related to the management and planning of your business taxes.
What does your tax return say about your financial situation?
The fact is, the tax return that you
file each year offers excellent information about how you are managing your money?and about areas
might be wise to make changes
your financial habits. If you have questions
about your financial situation,
remember that we can help.
Our CPA firm is made up of highly qualified and educated professionals who work with clients like you all year long, serving as trusted business and tax advisors. So whether you are concerned about budgeting; saving for college, retirement or another goal; understanding your investments; reducing your tax liabilities; starting a business; or managing your debt, you can turn to the team at Beneson & Zeleji CPA, P.L.L.C. for objective answers to all your tax and financial questions.
The recession has left many people in Southeast Michigan wrestling with
debt, including the monthly mortgage bill. If you happen to be one of them, you should be
aware that relief may be available through the Home Affordable Modification Program, also known as HAMP.
Earlier this year, the government expanded the eligibility criteria to include more homeowners in metro Detroit, Michigan. If you originated a loan on or before January 1, 2009, are behind on your mortgage payments, or are in danger of falling behind on your home mortgage payments, and meet a range of other criteria, you may be eligible for assistance.
If you believe you may qualify for HAMP assistance, or if you have any other questions about dealing with debt or money management issues, we strongly encourage you to contact us because the team at Beneson and Zejeli CPA, P.L.L.C can help you address these and other tough financial topics.
When was the last time you reviewed your will? People generally make wills to guarantee the proper disposition of their money and property, which is why it?s a good idea to consult your CPA when it?s time to create or update your will.
We recommend that you revisit your will every time you experience a major life event, such as marriage, the birth of a child, retirement or other significant milestones. Even if there is no meaningful change in your life, it?s smart to review the document every couple of years to ensure it still addresses all your estate concerns and reflects your wishes. Changes in the value of your investments?such as a stock portfolio or real estate?may also require adjustments in your estate plans.
Reviewing your will may raise questions about various areas of your financial life, including your
retirement or estate planning, college savings or other financial concerns.
Be sure to turn to us for the perspective and advice you need to make the best choices regarding all your financial concerns.
Does the new investment income surtax apply to you?
As of January 1, there is a new 3.8% net investment income tax on some categories of passive investment income for individuals, trusts and estates that exceed certain income thresholds. As a result, it is in your best interest to identify these income sources and adopt strategies to lower your modified adjusted gross income or your net investment income to avoid the surtax. If you think the new tax may apply to you, we can explain your choices and help you pick the best strategy to help reduce your tax bill.
Some items that are considered to be investment income are:
- Short Term Capital Gains
- Long Term Capital Gains
- Royalty Income
Some items that are not considered to be investment income are:
- Self employment income
- Proceeds from Life Insurance
- Social Security Benefits
- Veterans Benefits
- IRA and Roth Distributions
Normally, when companies sell properties, they must pay taxes on any gain they receive. Like-kind exchanges, transactions in which companies trade properties, may be carried out without any immediate tax consequences. They must satisfy Internal Revenue Service rules, however, which include:
The properties must have the same ?nature or character,? as set forth in IRS guidance.
- The exchanges can be business or investment properties put to a productive use.
- The exchanges can?t involve inventory, most securities and some other assets.
- Taxes must be paid on any cash or non-similar property that is part of the deal.
Keep in mind that like-kind exchanges are tax-deferred transactions, not tax free. When a company eventually sells the property it received in an exchange, it must pay tax on any gain from its original investment. In the meantime, though, the business or company can use the funds it would have paid in taxes and it has acquired a new property that may better suit its needs without necessarily making a cash outlay.
Want more information about whether like-kind exchanges can be a good strategy for your business and insights on their tax impact? We can help. Contact us today for expert advice on the best ways to address your business tax planning needs.
Were you aware that hiring a veteran can have a positive impact on your 2012 tax obligation? If you hire a veteran who begins work before January 1 of next year, you may be eligible for a credit as high as $9,600 if you are a for-profit employer and as high as $6,240 if you are a qualified tax-exempt organization. The VOW to Hire Heroes Act of 2011 expanded the categories of veterans who qualify and allowed not-for-profits to use the credit against the employer?s share of Social Security tax. Employers must certify that the veteran qualifies under Internal Revenue Service regulations by filing IRS Form 8850 (found at www.irs.gov) no more than 28 days after the veteran begins work.
The credit you receive would depend on numerous factors. Your CPA firm can explain the rules to you and help you ensure that you qualify for the credit, which will have a dollar-for-dollar impact on the tax you pay (or on your Social Security taxes if a not-for-profit).
That?s why this is a great time to engage in tax planning that will minimize the impact of any potential future tax changes. Be sure to contact us to discuss not only your current tax return but also the best ways to reduce your tax burden in the future.
If you are looking for peace of mind regarding your tax planning, or, you simply need help with personal finances; we encourage you to contact our office for professional advice.
1099 Deadline for Michigan Businesses
your small business is required to file Form 1099's, then there?s no time to
waste. These forms are used to report miscellaneous income that businesses pay
to a variety of individuals or businesses, including independent contractors,
vendors, landlords, attorneys and medical professionals, legal professionals, and many others. You must
file your Forms 1099 with the Internal Revenue Service?and send them to the
people or companies you?ve paid?no later than January 31. If you?re not certain
if you?re required to file Form 1099s, or if you need help filing them, be sure
to contact us.
Filing a Late 1099?
Businesses that are late in filing 1099's can complete Form 8809 that will allow them to apply for a 30 extension. However, please be aware that there are penalties for 1099 Forms that are not submitted in a timely manner. If you find that your business is in need of professional tax advice regarding its 1099 policies, please contact us.
Filing Status Implications For Michigan Tax Payers
For married taxpayers, the implications of filing a joint or separate return extend beyond tax rates and the standard deduction. Like many aspects of income taxation, there is usually more than one approach to finding the optimal solution. We have listed some of the more common implications of filing either a joint or separate return. Although not an exhaustive list, it highlights several issues to consider.
Some of the implications of filing a joint return include (among others):
The implications of filing a separate return include (among others):
There you have it: the implications for married taxpayers filing jointly or separately. Please contact us to discuss the most advantageous filing status or any other tax compliance or planning issue.
Retirement Contribution and Other Limitations for 2013
The IRS has announced cost-of-living adjustments affecting the dollar limitations for retirement plans, deductions, and other items. Several of the limitations are higher for 2013 because the increase in the cost-of-living index met the statutory threshold. However, some limitations did not meet that threshold and remain unchanged from 2012.
The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan increased from $17,000 in 2012 to $17,500 in 2013. The catch-up contribution limit for those age 50 and over remains unchanged at $5,500.
The contribution limit for both Roth and traditional IRAs has increased $500 from 2012. You can contribute up to $5,500 ($6,500 if you are age 50 or older by year-end) to your IRA in 2013 if certain conditions are met (i.e., sufficient earned income). For married couples, the combined contribution limits are $11,000 ($5,500 each) and $13,000 ($6,500 each if both are age 50 by year-end) when a joint return is filed, provided one or both spouses had at least that much earned income.
Keep in mind that contributions to traditional IRAs may be tax-deductible, subject to specific limitations that increase for 2013. When you establish and contribute to a Roth IRA, contributions are not deductible, but withdrawals are tax-free when specific requirements are satisfied. In addition, there are no mandatory distribution rules at age 70 1/2 with a Roth IRA, and you can continue to make contributions past age 70 1/2 if you meet the earned income requirement.
The 2013 limitation for SIMPLE retirement accounts increased $500 to $12,000. However, the SIMPLE catch-up contribution for those age 50 by year-end is unchanged from 2012 at $2,500.
The 2013 contribution limit for profit-sharing, SEP, and money purchase pension plans is the lesser of (1) 25% of the employee's compensation-limited to $255,000, an increase of $5,000 from 2012 or (2) $51,000, an increase of $1,000 from 2012.
The social security wage base, for computing the social security tax (OASDI), increases to $113,700 in 2013, up from $110,100 for 2012. The additional $3,600 for 2013 represents an increase of 3.3% in the wage base.
Finally, the annual exclusion for gifts increased by $1,000 and is $14,000 in 2013.
For more information, or, for a confidential tax assessment please contact us at 734-469-4406.
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Filing Options for Your Final Form 1040 in Michigan
Although we can't escape death or taxes, we may be able to minimize the federal income taxes due on our final Form 1040. Filing a tax return after we die (we are then known as the "decedent") is probably not something most of us think much about. But, a final Form 1040 generally must be filed for the year of our death and, just as in life, is typically due by April 15th of the following year. Normal tax accounting rules regarding the recognition of income and deductions generally apply for this final return. And, as is the case during life, tax planning opportunities are available both when death is imminent and after death. For instance, several decisions can affect the income or deductions reported on that final return. However, as we will discuss below, a major decision for married individuals concerns whether to file a joint return for the year of death.
When a married taxpayer dies and the surviving spouse does not remarry during the year, the spouse may file a joint return with the decedent for the year of death, but is not required to do so. The joint return will include income and deductions for the decedent prior to the date of death and the surviving spouse's income and deductions for the entire year. If the surviving spouse remarries before the close of the tax year that includes the date of death, the spouse may not file jointly with the decedent. Instead, a separate return must be prepared for the decedent. Listed below are some of the advantages and disadvantages for joint filers to consider when filing that final return.
Advantages of Filing a Joint Tax Return in MI
Since the surviving spouse's tax year does not end upon the death of the decedent, it may be possible to reduce their combined income tax liability by accelerating or postponing income or deductions to maximize use of the joint tax rates. Some other benefits include, but are not limited to: (a) use of one spouse's excess deductions against the income of the other spouse (e.g., excess charitable contributions); (b) an increase in the IRA contribution limit (because of the spousal IRA rules); and (c) the ability of the decedent's net operating loss (NOL), capital loss, and passive activity loss (subject to the limitation) carryovers to offset income of the surviving spouse. Note that any NOL or capital loss carryover of the decedent that is not used on the final return (whether separate or joint) will expire unused.
Disadvantages of Filing a Joint Tax Return in MI
Filing a joint return with the surviving spouse is not always the best option. One disadvantage of filing a joint return for the decedent's final tax year is that the decedent's estate and the surviving spouse are jointly and severally liable for any tax, interest, and penalties due on the joint return. In addition, when the surviving spouse is not the sole beneficiary of the estate, the decedent's personal representative may not be willing to expose the estate to potential unknown liabilities (e.g., tax on the surviving spouse's unreported income). Potentially, this exposure may be avoided because of the innocent spouse rules. Also, filing a joint return can negatively impact the amount of the decedent's deductions that are subject to adjusted gross income (AGI) limitations (e.g., medical, casualty, miscellaneous itemized) since AGI is based on joint income rather than separate income. Finally, the surviving spouse must cooperate with the decedent's personal representative by sharing the information necessary to prepare the return and by signing the return once it is prepared.
Planning for that final 1040 is something we may not think much about, but it is a good idea all the same.
Maximizing the Deduction for Business Start-up Expenses
Individuals starting a new business or acquiring the assets of an existing business often incur start-up expenses, which can be considerable, in the investigation and acquisition phase before actual business operations begin. Most start-up expenditures can be segregated into two broad categories: (a) investigatory expenses and (b) business pre-opening costs.
Taxpayers can immediately deduct up to $5,000 of start-up expenses in the year when active conduct of a business begins. However, the $5,000 instant deduction allowance is reduced dollar for dollar by cumulative start-up expenses in excess of $50,000 for the business in question. Start-up expenses that cannot be immediately deducted in the year a business begins must be capitalized and amortized over 180 months on a straight-line basis. In many cases, start-up expenses for small businesses will be modest enough to qualify for immediate deduction under the $5,000 instant deduction allowance in the year when active conduct of business commences.
Example: Claiming the deduction for start-up expenses.
Suzie (a calendar-year taxpayer) incurs $4,200 of start-up expenses in 2012 before opening her new car wash in November of 2012. Suzie's 2012 deduction is $4,200. Since her start-up expenses did not exceed $50,000, she can deduct the entire $4,200 in 2012.Note: A taxpayer is not considered to be engaged in carrying on a trade or business until the business has begun to function as a going concern and has performed the activities for which it was organized.