Category Archives: Individual Tax Issues

Financial Considerations Before Tying the Knot

Pam WilliamsMay 18, 20150 Comment

by Dwayne Murphy marriage

There are a number of things to consider when getting married among them are various financial considerations. Below are just a few items to discuss with financial implications:

Discuss past financial issues and future goals such as:
- Current income, debt and spending habits.
- Career paths and goals – such as are there plans in going back to school, career changes or job relocations.
- Children, how many, and if they will be in day care or if one parent will stay home and if they plan or want to go back to work at some point.
- Whether you might have an older parent living with you in the future and all the financial costs that would be involved.
- Retirement planning and goals – as in your current situation, what your end goal is and how you plan to get there. Then determine if you want to start a combined retirement account or keep your individual retirement accounts separate.
Discuss who will handle the finances:
- While you may want to designate one of you to handle the finances, both of you should be aware of your goals, spending habits and investments. This will make both of you feel responsible for saving and want to help contribute.
Joint or separate accounts?
- Joint Accounts
  - Trust is the key here as this is probably the most convenient as all the money goes in and comes out of one account. However, if one of you makes more money or has more debt than the other then it could seem unfair to share everything.
  - Another option is to share a common account as well as keep separate accounts. The common account would be for common bills and to save for common goals such as a house. The separate accounts would be for individual spending habits. The issue here is how much each of you will contribute to the joint accounts, especially if one of you makes considerably more than the other.
- Separate Accounts
  - This could be the easiest solutions for people with large balances in accounts that would be a hassle to move and not having to worry about opening another credit card in both names. The issue here is who is responsible for what bills and for saving towards common goals.
- Tax considerations
  - First, understand the tax brackets and how your new income will be affected. Then update your withholding form W-4 and applicable state form to adjust the amount of taxes withheld from your paycheck. This hopefully should keep you from getting a shock come tax time.

In conclusion there are a number of things to consider when getting married and lot of them have financial implications. Hopefully by discussing some of the items above it will help to achieve a healthy financial marriage. Contact our office for additional tax advice.

Dwayne ([email protected]) is an Audit Senior with Langdon & Company LLP. He mainly works with various types of non-profit associations.

The Interaction of Pell Grants and Tax Credits

Pam WilliamsApril 1, 20150 Comment

by Rebecca Lunn pell grant

Federally funded Pell Grants assist millions of students annually. However, for students with these scholarships, the process of claiming tax credits is complex and often confusing. As a result, students with the greatest financial need may be foregoing additional tax benefits available.

Based on an IRS publication (see link below), under current law a Pell Grant student can choose to allocate his or her Pell Grant funds either to qualified tuition and related expenses (QTRE) or to living expenses (up to the amount of actual living expenses), which constitutes taxable income. Most students and parents do not understand this option, so often families allocate all QTRE to the Pell Grant funds, leaving little or no QTRE to allocate to an educational tax credit.

For 2014, the American Opportunity Tax Credit (AOTC) provides a 100% credit for the first $2,000 of QTRE and a 25% credit for the next $2,000, for a total credit up to $2,500. As noted in the IRS publication, if a student’s QTRE exceeds scholarships by $4,000, the student would still qualify for the maximum AOTC credit. However, if the QTRE exceeds scholarships by less than $4,000, the student may benefit from including some of the Pell Grant in taxable income in order to claim a larger AOTC. It is important to note that any scholarship that is allocated to living expenses must be included in taxable income on the student’s (not the parent’s) tax return.

If you need additional assistance in understanding how to obtain the maximum tax benefit with a Pell Grant scholarship, the tax department at Langdon & Company LLP is pleased to assist.

Please click here for detailed examples of the interaction of Pell Grants and tax credits.

Rebecca Lunn ([email protected]) is a Senior in our Audit Department working primarily with the non profit, and health care industries.

college diploma

ABLE (Achieving a Better Life Experience) Act – A new way to save for children with disabilities

Pam WilliamsMarch 23, 20150 Comment

by Meagan Bulloch

The ABLE Act amends Section 529 of the IRS Code of 1986 to create tax-advantage savings accounts for individuals with disabilities. The ABLE Act will provide individuals with disabilities the same types of flexible savings tools that all other American have through college savings accounts, health savings accounts and individual retirement accounts. Most importantly this Act will prevent money saved through 529-ABLE accounts from counting against an individual’s eligibility for federal benefits programs.

As of December 19, 2014 this was signed into law by President Barack Obama.

What you should know (Adapted from NDSS):

529-ABLE accounts are “tax-advantage” savings accounts for individuals with disabilities and their families. Income earned by these accounts will not be taxed. Also the money will not be considered an asset when determining eligibility for government supported benefits.
Who is eligible – Any individual with significant disabilities with an age of onset before 26 years of age is eligible. Eligible individuals can be over the age of 26, but must have documentation of disability that indicates age of onset before the age of 26.
How much money can be saved – Under current tax law, an individual can contribute a maximum of $14,000 into an ABLE account and not be subject to gift taxes. The total limit over time that can be made into an ABLE account will be subject to the individual state and their limit for education-related 529 savings accounts. The first $100,000 in ABLE accounts will be exempt from the SSI $2,000 individual resource limit. If the ABLE account exceeds $100,000, the beneficiary would be suspended from eligibility for SSI benefits, but would continue to be eligible for Medicaid.
What expenses qualify – A “qualified disability expense” is considered an expense incurred as a result of the beneficiary living with their disability. These would include education, housing, transportation, employment training and support, assistive technology, personal support services, health care expenses, financial management and administrative services and other expenses which will be developed in 2015 by the Treasury Department.
Can I have more than one ABLE account – No, the Act limits the opportunity to one ABLE account per eligible individual.
How is an ABLE account different from other options – ABLE accounts allow more choice and control for the beneficiary and their families. The cost of opening an account will be considerably less than setting up either a Special Needs Trust or Pooled Income Trust. The ABLE account will also be less complicated to set up and owners will have the ability to control their funds. This new approach also offers individuals living with a disability the ability to work and contribute to their own support and save for their own future with fear of losing necessary support and services.

Meagan Bulloch ([email protected]) is an audit manager at Langdon & Company LLP focused primarily on non-profit clients.

NC 2014 Tax Law Changes

Pam WilliamsMarch 16, 20150 Comment

by Leonora Bowman

Yea! North Carolina reduced the individual income tax rate beginning in 2014. That means that I will pay less tax to NC when I file my 2014 Form D-400, right? Like all tax questions the answer is “It depends.”

The following was taken from the North Carolina Department of Revenue’s Instructions for Individual Returns Form D-400:

What’s New :

For information about any additional changes to the 2014 tax law or any other developments affecting Form D-400 or its instructions, go to www.dornc.com.

Session Law 2013-316, House Bill 998, An Act to Simplify the North Carolina Tax Structure and to Reduce Individual and Business Tax Rates, was signed into law on July 23, 2013. The individual income tax rate was reduced, the N.C. standard deduction was increased, and many deductions and tax credits are no longer available for tax years beginning on or after January 1, 2014.

Change in tax rate.

The individual income tax rate is reduced to a flat 5.8 percent for tax years beginning on or after January 1, 2014 and to 5.75 percent for tax years beginning on or after January 1, 2015. N.C.

Standard Deduction or N.C. Itemized Deductions. You may continue to claim either the N.C. standard deduction or N.C. itemized deductions, however, both have changed. (See Page 8)

• N.C. standard deduction has increased for each filing status,

• No additional standard deduction is available for taxpayers age 65 or older, or blind.

• N.C. itemized deductions are no longer identical to federal itemized deductions and are subject to certain limitations.

N.C. Itemized Deductions.

• Qualified home mortgage interest and real estate property taxes are allowed as deductions. The sum of those deductions cannot exceed $20,000,

• Charitable contributions allowed as a deduction on the federal return are allowed without limitation.

Deduction for Other Retirement Benefits.

There are no longer deductions available to certain taxpayers for up to $4,000 for federal, state, or local government retirement benefits or up to $2,000 for private retirement benefits.

Deduction for Net Business Income that is Not Considered Passive Income.

There is no longer a deduction available to certain taxpayers for up to $50,000 of net business income included in federal adjusted gross income.

Deduction for Contributions to N.C. College Savings Program.

There is no longer a deduction for contributions made during the taxable year to an account in the Parental Savings Trust Fund of the State Education Assistance Authority (North Carolina’s National College Savings Program – N.C. 529 Plan).

N.C. Standard Deduction Amounts for Most Taxpayers:

Filing Status Standard Deduction

Single $ 7,500

Married Filing Jointly/Qualifying Widow(er) $15,000

Married Filing Separately $ 7,500

Head of Household $12,000

N.C. Personal Exemption Allowance.

You may no longer claim a personal exemption for yourself, your spouse, children, or any other qualifying dependents.

Credit for Children.

Amounts are increased from $100 to $125 per qualifying child for some taxpayers. If you are allowed a federal child tax credit under section 24 of the Code you are allowed a tax credit for each dependent child for whom a federal credit was allowed. The credit amount is based on your filing status and adjusted gross income, as calculated under the Code.

Child and Dependent Care Credit.

North Carolina no longer allows a tax credit for child and dependent care expenses.

Earned Income Tax Credit.

North Carolina no longer has a State earned income tax credit.

N.C. Education Endowment Fund:

Contribute to the N.C. Education Endowment Fund by making a contribution or designating some or all of your overpayment to the Fund.

Analysis of these changes:

So who will pay higher taxes? “It depends.” Families who could pay more are as follows:

Retirees can no longer deduct a portion of their retirement benefits.

Small business owners who were previously allowed to deduct the first $50,000 of self-employment income from their NC taxable income. For a married couple, who both have self-employment income that equals or exceeds $50,000, they will now be taxed on an additional $100,000 previously excluded. The tax on that is $5,800. Whether their NC tax will be higher or lower depends on their other taxable income and the other changes in deductions allowed.

Young families will no longer receive a child and dependent care credit or an earned income tax credit.

All wage earners in NC were required to resubmit withholding allowance forms to their employers in January, 2014 which would adjust the amount of state income tax withholdings typically taken from their pay. The intent by the state Department of Revenue was that the new allowances would better align with the law changes, however each individual taxpayer’s circumstances is different. NC taxpayers will have a better idea of how their state income tax withholdings match their actual income tax liability with the filing of their 2014 NC Individual Income Tax Returns. Should adjustments be necessary to increase state income tax withholdings in 2015, revised withholding allowance requests may be filed by employees with their employers at any time or alternatively quarterly estimated tax payments may be scheduled.

The Tax Team at Langdon & Company LLP will be happy to discuss these NC tax law changes with you. Please contact our office if you have additional questions.

Leonora “Lee” Bowman ([email protected]) is a Manager in our Accounting Services practice. She has over 25 years of experience in taxation and also specializes in multi-dimensional corporate accounting across various states.

Premium Tax Credit Reporting

Pam WilliamsMarch 5, 20150 Comment

by Kendall Tyson

Beginning in 2014, individuals and families with low or moderate income could purchase health insurance through the Health Insurance Marketplace, also known as the Exchange. The premium tax credit is an advanceable, refundable tax credit designed to help those individuals and families. The credit could be paid in advance to insurance companies to lower the monthly premiums or the credit could be claimed with the individual tax return. If the credit was paid in advance, individuals must reconcile the amount paid in advance with the actual credit computed on the individual’s tax return.

Reporting and Claiming:

Will I have to file a federal income tax return to get the premium tax credit?

For any tax year, if you receive advance credit payments in any amount or if you plan to claim the premium tax credit, you must file a Form 8962, Premium Tax Credit (PTC) and attach it to your federal income tax return for that year. If you receive any advance credit payments, you will use your return to reconcile the difference between the advance credit payments made on your behalf and the actual amount of the credit that you may claim. This filing requirement applies whether or not you would otherwise be required to file a return. If you are married and you file your tax return using the filing status Married Filing Separately, you will not be eligible for the premium tax credit unless you meet the criteria in Notice 2014-23, which allows certain victims of domestic abuse to claim the premium tax credit using the Married Filing Separately filing status for the 2014 calendar year.

Will I be eligible for the premium tax credit if I’m married but I file my tax return using the filing status Married Filing Separately?

If you are married and you file your tax return using the filing status Married Filing Separately, you will not be eligible for the premium tax credit unless you meet the criteria in section 1.36B-2T(b)(2) of the Temporary Income Tax Regulations, which allows certain victims of domestic abuse and spousal abandonment to claim the premium tax credit using the Married Filing Separately filing status. Taxpayers may claim this relief from the joint filing requirement for no more than three consecutive years.

Note: Generally, a married taxpayer who lives apart from his or her spouse for the last six months of the taxable year is considered unmarried if he or she files a separate return, maintains as the taxpayer’s home a household that is also the main home of a dependent child for more than half the year, and furnishes over half the cost of the household during the taxable year.

For purposes of the relief from the joint filing requirement for certain victims of domestic abuse and spousal abandonment, how are domestic abuse and spousal abandonment defined?

Domestic abuse includes physical, psychological, sexual, or emotional abuse, including efforts to control, isolate, humiliate, and intimidate, or to undermine the victim’s ability to reason independently. All the facts and circumstances are considered in determining whether an individual is abused, including the effects of alcohol or drug abuse by the victim’s spouse. Depending on the facts and circumstances, abuse of the victim’s child or other family member living in the household may constitute abuse of the victim.

A taxpayer is a victim of spousal abandonment for a taxable year if, taking into account all facts and circumstances, the taxpayer is unable to locate his or her spouse after reasonable diligence.

If I get insurance through the Marketplace, how will I know what to report on my federal tax return?

If you purchased coverage through the Health Insurance Marketplace you should receive Form 1095-A, Health Insurance Marketplace Statement from your Marketplace by early February. This form provides information you will need when completing Form 8962. If you have questions about the information on Form 1095-A for 2014, or about receiving Form 1095-A for 2014, you should contact your Marketplace directly. The IRS will not be able to answers questions about the information on your Form 1095-A or about missing or lost forms.

Filing electronically is the easiest way to file a complete and accurate tax return. Electronic Filing options include free Volunteer Assistance, IRS Free File, commercial software and professional assistance.

How is the amount of the premium tax credit determined?

The law bases the size of your premium tax credit on a sliding scale. Those who have a lower income get a larger credit to help cover the cost of their insurance. In other words, the higher your income, the lower the amount of your credit.You will figure your credit on Form 8962. You must complete this form to claim the premium tax credit and reconcile any advance credit payments with the premium tax credit you are eligible to claim on your return. Form 1095-A from your Marketplace provides information you will need when completing Form 8962.(see question 14) Filing electronically is the easiest way to file a complete and accurate tax return. Electronic Filing options include free Volunteer Assistance, IRS Free File, commercial software and professional assistance

Additionally, the premium tax credit is a refundable tax credit. This means that if the amount of the credit is more than the amount of your tax liability, you will receive the difference as a refund. If you owe no tax, you can get the full amount of the credit as a refund. However, if you receive advance payments of the credit, you will reconcile the advance payments with the amount of the actual premium tax credit that you calculate on your tax return. If your actual allowable credit on your return is less than your advance credit payments, the difference, subject to certain caps, will be subtracted from your refund or added to your balance due. If your actual allowable credit is more than your advance credit payments, the difference will be added to your refund or subtracted from your balance due.

This excerpt and additional Q&A information on the Premium Tax Credit can be found on the IRS website: http://www.irs.gov/Affordable-Care-Act/Individuals-and-Families/Questions-and-Answers-on-the-Premium-Tax-Credit#.VNO4_QFEocQ.gmail

Kendall Tyson ([email protected]), a Tax Manager at Langdon & Company LLP. She specializes in physician/dentist practices, multi-state and nonprofit returns.

College Tax Credits 2014

Pam WilliamsFebruary 10, 20150 Comment

by Cody Taylor

college-debt There is often confusion surrounding who can claim college tax credits and for how much. The two college tax credits are the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit. You can only claim one of these credits per student on your federal tax return. The American Opportunity Tax Credit is worth up to $2,500 per qualifying student for up to four years and is currently available through 2017.

Everyone wants to be able to claim a college tax credit but there are various rules, income limitations and exclusions that apply for each credit. The source of the money used to pay for qualified tuition expenses matters in determining whether you can qualify for one of the college tax credits. For example, 529 college savings plans are utilized by many taxpayers to plan for college expenses, but expenses that were used to calculate the tax-free portion of a distribution from a 529 plan may not also be used to calculate the American Opportunity Tax Credit. There are ways to claim the AOTC in the same year as a tax-free distribution from a 529 plan is made, but it takes planning.

You should receive a Form 1098-T from your school in the mail. This and other related costs (often textbooks) should be supplied to your tax professional along with your other tax information so that they can help adopt the best college tax credits for your particular situation. Proper planning ahead of time can save you money in the long run. A tax professional can help you discuss college tuition planning so that when the time comes for you or your child to go off to college, you will be able to claim the maximum credit allowable to you.

Langdon & Company LLP has a tax department full of experience to help you make the right choice for this deduction. Please feel free to contact our office for more information.

Cody Taylor ([email protected]) is a tax staff who specializes in various issues related to individuals and their businesses.

Six IRS Tips for Year-End Gifts to Charity

Pam WilliamsDecember 12, 20140 Comment

by Susan Dean

Many people give to charity each year during the holiday season. Remember, if you want to claim a tax deduction for your gifts, you must itemize your deductions. donations There are several tax rules that you should know about before you give. Here are six tips from the IRS that you should keep in mind:

Qualified charities. You can only deduct gifts you give to qualified charities. Use the IRS Select Check tool to see if the group you give to is qualified. Remember that you can deduct donations you give to churches, synagogues, temples, mosques and government agencies. This is true even if Select Check does not list them in its database.
Monetary donations. Gifts of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. You must have a bank record or a written statement from the charity to deduct any gift of money on your tax return. This is true regardless of the amount of the gift. The statement must show the name of the charity and the date and amount of the contribution. Bank records include canceled checks, or bank, credit union and credit card statements. If you give by payroll deductions, you should retain a pay stub, a Form W-2 wage statement or other document from your employer. It must show the total amount withheld for charity, along with the pledge card showing the name of the charity.
Household goods. Household items include furniture, furnishings, electronics, appliances and linens. If you donate clothing and household items to charity they generally must be in at least good used condition to claim a tax deduction. If you claim a deduction of over $500 for an item it doesn’t have to meet this standard if you include a qualified appraisal of the item with your tax return.
Records required. You must get an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. Additional rules apply to the statement for gifts of that amount. This statement is in addition to the records required for deducting cash gifts. However, one statement with all of the required information may meet both requirements.
Year-end gifts. You can deduct contributions in the year you make them. If you charge your gift to a credit card before the end of the year it will count for 2014. This is true even if you don’t pay the credit card bill until 2015. Also, a check will count for 2014 as long as you mail it in 2014.
Special rules. Special rules apply if you give a car, boat or airplane to charity. For more information visit IRS.gov.

This article is an excerpt from the IRS Special Edition Tax Tip 2014-23. For more information, please visit, here, or call our office for additional details.

Susan ([email protected]) is a tax manager at Langdon & Company LLP. As an Enrolled Agent she focuses primarily on the non-profit industry, trust income tax reporting and multi-state filings.

Should you be filing FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR)?

Pam WilliamsOctober 29, 20140 Comment

by: Brittany Craig

According the to the IRS’ FBAR guidance [1], the foreign currency list of U.S. persons who may be required to report their foreign bank and financial accounts annually to the United States Treasury include, but is not limited to the following who have a financial interest or signature authority in a foreign account or asset:

U.S. citizens
Resident aliens
Trusts
Estates
Certain domestic entities

The Department of the Treasury indicates that if the aggregate value of all foreign account(s) or asset(s) is at least $10,000 in U.S. dollars at any time during the calendar year, then the maximum value of the financial account(s) maintained by a financial institution physically located in a foreign country should be reported.

While the reporting threshold is $10,000, some U.S. persons may choose to report their foreign bank and financial account(s) even if they are below the aforementioned threshold in an effort to instill good faith with the Department of Treasury.

Form 114 must be received by the U.S. Department of Treasury no later than June 30, via FinCEN’s BSA E-Filing System. Note, this report is not filed with a federal tax return and there are no extensions of time. In addition, if the report is not filed on time non-willful penalties may be up to $10,000 and willful penalties may be up to the greater of $100,000 or 50% of account balances. Criminal penalties may apply, too.

Our tax department is incredibly knowledgeable about miscellaneous forms and other tax issues. Please feel free to contact our office for more information.

Brittany ([email protected]) is a tax senior at Langdon & Company LLP. She has experience in tax planning for a variety of clients including corporate and pass-through to individuals.

[1] http://www.irs.gov/pub/irs-utl/IRS_FBAR_Reference_Guide.pdf