• Travel Tax Deductions: 2016 Standard Deduction Mileage Rates Announced

    13 January 2016
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    Drive often for work? There’s a tax deduction for that. The Internal Revenue Service recently announced the inflation-adjusted 2016 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

    Beginning January 1, 2016, the standard mileage rates for the use of a car (or a van, pickup or panel truck) will be:

    • 54.0 cents per mile for business miles driven (including a 24-cent-per-mile allocation for depreciation). This is down from 57.5 cents in 2015;
    • 19 cents per mile driven for medical or moving purposes. This is down from 23 cents in 2015; and
    • 14 cents per mile driven in service of charitable organizations.

    The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. The rate for using an automobile while performing services for a charitable organization is statutorily set and has been 14 cents for over 15 years.

    Taxpayers always have the option of calculating the actual costs of using their vehicle for business rather than using the standard mileage rates. With the extension of the bonus depreciation though 2019, using the actual expense method may be a worthwhile consideration in the first year the vehicle is placed in service. The bonus depreciation allowance adds an additional $8,000 to the maximum first year depreciation deduction of passenger vehicles and light trucks that have an unloaded gross vehicle weight of 6,000 pounds or less.

    However, the standard mileage rates cannot be used if the actual method (using Sec. 179, bonus depreciation and/or MACRS depreciation) has been used in previous years. This rule is applied on a vehicle-by-vehicle basis. In addition, the business standard mileage rate cannot be used for any vehicle used for hire or for more than four vehicles used simultaneously.

    Employer reimbursement – Where employers reimburse employees for business-related car expenses using the standard mileage allowance method for each substantiated employment-connected business mile, the reimbursement is tax-free if the employee substantiates to the employer the time, place, mileage and purpose of employment-connected business travel.

    Employees whose actual employment-related business mileage expenses exceed the employer’s reimbursement can deduct the difference on their income tax return as a miscellaneous itemized deduction subject to the 2%-of-AGI floor. However, an employee who leases an auto and is reimbursed using the mileage allowance method can‘t claim a deduction based on actual expenses unless he does so consistently beginning with the first business use of the auto.

    Faster Write-Offs for Heavy Sport Utility Vehicles (SUVs) – Many of today’s SUV vehicles weigh more than 6,000 pounds and are therefore not subject to the luxury auto depreciation limit rules; so taxpayers with these vehicles can utilize both the §179 expense deduction (up to a maximum of $25,000) and the bonus depreciation (the §179 deduction must be applied first and then the bonus depreciation) to produce a sizable first-year tax deduction. However, the vehicle cannot exceed a gross unloaded vehicle weight of 14,000 pounds. Caution: Business autos are 5-year class life property. If the taxpayer subsequently disposes of the vehicle early, before the end of the 5-year period, as many do, a portion of the §179 expense deduction will be recaptured and must be added back to income (SE income for self-employed individuals). The future ramifications of deducting all or a significant portion of the vehicle’s cost using §179 should be considered.

    If you have questions related to best methods of deducting the business use of your vehicle or the documentation required, please get in touch with us at Dagley & Co. so we can turn your mileage back into money.

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  • January 2016 Tax Due Dates for Individuals

    6 January 2016
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    January

    It’s a new year, and a new month – and with it comes a fresh set of tax due dates and guidelines. Begin the new year on the right track and abide by these to have your best financial year ever.

    January – Time to Call Dagley & Co. for Your Tax Appointment

    January is the beginning of tax season. If you have not yet made an appointment with us to have your taxes prepared, we encourage you do so as soon as you can so we can best work with each other’s schedules.

    January 11 – Report Tips to Employer

    If you are an employee who works for tips and received more than $20 in tips during December, you are required to report them to your employer on IRS Form 4070 no later than January 11.

    January 15 – Individual Estimated Tax Payment Due

    This is the time to make your fourth quarter estimated tax installment payment for the 2015 tax year.

    January 15 – Farmers & Fishermen Estimated Tax Payment Due

    If you are a farmer or fisherman whose gross income for 2014 or 2015 is two-thirds from farming or fishing, it is time to pay your estimated tax for 2015 using Form 1040-ES. You have until April 18, 2016 to file your 2015 income tax return (Form 1040). If you do not pay your estimated tax by January 15, you must file your 2015 return and pay any tax due by March 1, 2016 to avoid an estimated tax penalty.

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  • Everything You Need To Know about the Protecting Americans from Tax Hikes (PATH) Act of 2015

    22 December 2015
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    On Friday, Congress reached a bipartisan agreement on tax extenders, named “Protecting Americans from Tax Hikes (PATH) Act of 2015”. Much to everyone’s surprise, some were made permanent while others were only extended for a period of time. Though the PATH act is not perfect, many are touting the act as a win for local economies and working families. Congress also modified several provisions and added new ones to reduce tax fraud.

    Here is a look at some of the key provisions included in the legislation that pertain to individuals, small businesses, and certain energy-related provisions:

    INDIVIDUAL PROVISIONS:

    • Child Credit – This credit was made permanent; it provides a $1,000 credit for each dependent child who is under the age of 17 at year’s end, who lived with the taxpayer for over half of the year and who meets the relationship test. The credit phases out for higher-income taxpayers, and a portion of the credit is refundable for lower-income taxpayers. The changes also include program integrity provisions that prohibit an individual from retroactively claiming the child credit by amending a return (or filing an original return if he or she failed to file) for any prior year in which the individual for whom the credit is claimed did not have an ITIN – generally a Social Security number).

    After 2015, when a taxpayer improperly claims the credit, the legislation includes a disallowance period when no credit is allowed. For fraud, the disallowance period is 10 years, and for reckless or intentional disregard of rules and regulations, the disallowance period is 2 years.

    • American Opportunity Credit (AOTC) – This credit, which was due to expire after 2017, has been made permanent. This is a tax credit equal to 40% of the cost of tuition and qualifying expenses for higher education, with a maximum credit of $2,500. The credit applies to 100% of the first $2,000 and 25% of the next $2,000 of qualifying expenses. The credit offsets any tax liability, and 40% of the credit is refundable even if the taxpayer does not have any tax liability. It also phases out between $160,000 and $180,000 for married taxpayers filing jointly and between $80,000 and $90,000 for others – except for married taxpayers filing separately, who get no credit.

    After 2015, when a taxpayer improperly claims the credit, the legislation includes a disallowance period when no credit is allowed. For fraud, the disallowance period is 10 years, and for reckless or intentional disregard of rules and regulations, the disallowance period is 2 years.

    A provision was added that prohibits an individual from retroactively claiming the AOTC by amending a return or filing a late original return for any prior year when the individual or a student for whom the credit is claimed did not have an ITIN (generally a Social Security number).

    • Earned Income Tax Credit (EITC) – The EITC is a refundable credit allowed to certain low-income workers who have W-2 wages and self-employed income. The credit is larger for taxpayers with children. The credit for taxpayers with children is based upon the number of children; those with three or more children receive the highest credit – as much as $6,269 in 2015. The higher credit for three or more children, which was a temporary provision that was set to expire after 2017, has been made permanent.

    The changes also include added program integrity provisions that prohibit an individual from retroactively claiming the AOTC by amending a return (or filing an original return if the individual failed to file) for any prior year in which the individual for whom the credit is claimed did not have an ITIN (generally a Social Security number). The changes also reduced the marriage penalty by increasing the income phase-out for those filing jointly.

    • Teachers’ $250 Above-the-Line Deduction – This provision, which was available from 2002 through 2014, allows teachers and other eligible educators (levels kindergarten through grade 12) to take an above-the-line deduction of up to $250 for unreimbursed expenses incurred as part of their educational work. This deduction has been made permanent and modified by adjusting the $250 for inflation in years after 2015. In addition, professional development expenses were added to the qualified expenses allowed as part of the $250 deduction.
    • Transit Pass & Parking Fringe Benefit Parity – From 2010 through 2014, the monthly exclusion amount for employer-paid transit passes and qualified parking were temporarily the same. The parity of these two fringe benefits has been made permanent. Thus, for 2015 they will both be $250.
    • Optional Deduction of State and Local General Sales Taxes – Since 2004, taxpayers who itemized their deductions have had the option to deduct the Larger of (1) state and local income tax paid during the year, or (2) state and local sales tax paid during the year. This provision, which had been previously extended through 2014, provides the greatest benefit to those taxpayers who reside in a state that has no income tax (which include Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming). This election has been made permanent.
    • Above-the-Line Deduction for Qualified Tuition and Related Expenses – This above-the-line deduction for qualified higher education tuition and related expenses had been available from 2002 through 2014. The deduction includes adjusted gross income (AGI) limitations; it is not allowed for joint filers with an AGI of $160,000 or more ($85,000 for other filing statuses). This deduction has been retroactively extended through 2016.
    • Tax-Free IRA Distributions For Charitable Purposes – This provision was temporarily added in 2004 and originally expired in 2011; it was not extended until late in the year during the years 2012, 2013 and 2014, thus limiting its application in those three years. The provision allows taxpayers age 70.5 and over to directly transfer (not rolled over) funds from their IRA accounts to a qualified charity. The distribution is not taxable, but it does count toward the individuals’ required minimum distribution (RMD) for the year. The maximum allowable transfer is $100,000 per year. No charitable deduction is allowed, as the distribution is not taxable. This provision has been made permanent; it provides four potential tax advantages:
    1. The distribution is not included in income, thus lowering the taxpayer’s AGI, which in turn helps to avoid various AGI phase-outs and limitations.
    2. Keeping the AGI lower also helps to minimize the amount of Social Security income that is subject to tax for some taxpayers.
    3. Taxpayers using the standard deduction cannot get a charitable deduction, but they are essentially deducting the charitable deduction from their gross income when making contributions this way.
    4. The transferred distribution counts towards the taxpayer’s RMD for the year.
    • Discharge of Qualified Principal Residence Indebtedness – When an individual loses his or her home to foreclosure, abandonment or short sale or has a portion of his or her loan forgiven under the HAMP mortgage reduction plan, that person generally will end up with cancellation of debt (COD) income. COD income is taxable unless the taxpayer can exclude it. A taxpayer can exclude the COD income in the extent that he or she is insolvent (with debts exceeding assets immediately before the event occurs) using the insolvency exclusion.

    Due to the housing market crash, in 2007, Congress added the qualified principal residence COD exclusion, which allowed taxpayers to exclude COD income to the extent that it was discharged acquisition debt. Acquisition debt is debt originally incurred to acquire a home or substantially improve it – not debt used for other purposes, which is called equity debt. However, equity debt is deemed to be discharged first, thus limiting the exclusion when both equity and acquisition debt are involved in the transaction.

    The qualified principal residence COD exclusion had been previously extended but had expired at the end of 2014. This exclusion has been retroactively extended through 2016 (a two-year extension).

    • Mortgage Insurance Premiums – For tax years 2007 through 2014, taxpayers could deduct (as an itemized deduction) the cost of premiums for qualified mortgage insurance on a qualified personal residence (first or second home). To be deductible, the premiums must have been related to acquisition debt incurred after Dec. 31, 2006. However, this deduction phases out for higher-income taxpayers (generally those whose AGI exceeds $100,000). This provision, which had expired after 2014, has been retroactively extended through 2016, a two-year extension.

    BUSINESS PROVISIONS:

    • Research Credit – Tax law provides a tax credit of up to 20% of qualified expenditures for businesses that develop, design or improve products, processes, techniques, formulas or software (and similar activities). The credit has been available off and on since 1981 without being made permanent. It had been extended several times but had expired at the end of 2014. This credit has been retroactively made permanent. In addition, it is not a tax preference for small businesses.
    • 100% Exclusion of Gain – Certain Small Business Stock – Previously, for stock issued after September 27, 2010, and before January 1, 2015, non-corporate taxpayers could exclude 100% of any gain realized on the sale or exchange of “qualified small business stock” held for more than 5 years. In addition, there was no alternative minimum tax (AMT) preference when the exclusion percentage was 100%. Generally, the term “qualified small business” means any domestic C corporation with assets of $50 million or less. This provision has been made permanent.
    • Differential Wage Payment Credit – Through 2014, eligible small business employers – generally those that have an average of fewer than 50 employees and that pay a individual called into active duty military service all or part of the wages that they would have otherwise received from the employer – can claim a credit. This differential wage payment credit is equal to 20% of up to $20,000 of differential pay made to an employee during the tax year. This credit has been retroactively made permanent; for years after 2015, the credit will apply to any size employer.
    • Work Opportunity Tax Credit (WOTC) – Through 2014, employers could elect to claim a WOTC for up to 40% of employees’ first-year wages for hiring workers from targeted groups – not exceeding wages of $6,000 (a maximum credit of $2,400). First-year wages are wages paid during the tax year for work performed during the one-year period beginning on the date when the employee begins work for the employer. This credit has been retroactively extended for five years through 2019; it applies to veterans and non-veterans and adds qualified long-term unemployment recipients to the list of targeted groups for years after 2015.
    • Section 179 Election – Since 2003, the Section 179 election has been temporarily increased from its statutory limit of $25,000 to between $100,000 and $500,000. Since 2010, the expense cap has been $500,000 (or $250,000 on a married-filing-separate tax return), and the investment limit has been $2 million. However, the last extension expired after 2014; without an extension, the cap would have returned to the statutory $25,000 limit in 2015. The statutory expensing limit of $500,000 and the $2 million investment limit have both been made permanent.

    The application of the Section 179 election to “off-the-shelf” computer software, qualified leasehold improvements, qualified restaurant property and qualified retail improvements has also been made permanent.

    • Leasehold and Retail Improvements and Restaurant Property – The class life for qualified leasehold and retail Improvements and restaurant property had been temporarily included in the 15-year depreciation class life, as opposed to the 31-year category. Qualified leasehold and retail Improvements and restaurant property have been retroactively and permanently included in the 15-year MACRS class life.
    • Bonus Depreciation – As a means of stimulating the economy, a 50 percent bonus depreciation was temporarily implemented in 2008 and subsequently extended through 2014. For the period between September 8, 2010, and before January 1, 2012, it was even boosted to 100 percent. Bonus depreciation applies to personal tangible property placed in service during the year for which the original use began with the taxpayer.

    The 50% bonus depreciation has been extended for 2 years (through 2016) for property placed in service before January 1, 2017. This generally applies to property with a class life of 20 years or less, to qualified leasehold improvements and to certain plants bearing fruits and nuts that are planted or grafted before January 1, 2020.

    • Enhanced First-Year Depreciation for Autos and TrucksThis is the so-called “luxury limit” on the deprecation deduction of passenger automobiles and light trucks used for business. For such vehicles placed in service in 2015, the limits are $3,160 and $3,460, respectively. In the past, the bonus depreciation had increased the first-year luxury limits by $8,000. Under the new law, the bonus depreciation applicable to luxury vehicles will be phased out through 2019. Thus, the luxury auto rates will be increased by the following bonus depreciation rates: $8,000 for 2015 through 2017, $6,000 for 2018 and $4,800 for 2019.

    ENERGY PROVISIONS:

    • Residential Energy (Efficient) Property Credit – From 2006 through 2014, a nonrefundable credit had been available for qualified improvements to make the taxpayer’s existing primary home more energy efficient. Qualified improvements generally included insulation, storm windows and doors certain types of energy-efficient roofing materials, and energy-efficient air conditioning and hot-water systems. The credit was equal to 10% of the improvement’s cost (not including installation), with a lifetime credit of $500. The credit has been retroactively extended through 2016 (two years).
    • Credit for Fuel-Cell Vehicles – Through 2014, a taxpayer could claim a credit for vehicles fueled by chemically combining oxygen with hydrogen to create electricity. Generally, the credit was $4,000 for vehicles weighing 8,500 pounds or less (and up to $40,000 for heavier vehicles, depending on their weight). An additional $1,000 to $4,000 credit was available for cars and light trucks to the extent that their fuel economy exceeded the 2002 base fuel economy set forth in the Internal Revenue Code. This credit has been retroactively extended for two years through 2016.

     

    If you have questions related to these or other, less commonly encountered provisions of the new law (Protecting Americans from Tax Hikes Act of 2015), please get in touch with us at Dagley & Co. Benefiting from these provisions for 2015 will require taking action before year’s end, so please call if you need assistance.

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  • Which 1040 Form Is Right For You?

    17 December 2015
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    Benjamin Franklin once said, “Nothing is certain but death and taxes.” He managed to name two of the things that people loathe and fear the most. What makes taxes so unpleasant is the fact that you have to hand over some of your hard-earned money to the government, and the other is that it can be so difficult to figure out how to fill out the forms – and which one to use.

    QUICK LINK: Access the IRS,gov website with all of the 1040 forms and instructions here!

    The rule of thumb for choosing your personal income tax form is to try to go with the one that is easiest to understand, but that being said, you also need to be sure that it is the one that is correct. The government provides three forms – the 1040, the 1040A, and the 1040EZ – and all are meant to help you pay the amount that you owe. Each form has a different purpose, and choosing the wrong one can end up meaning that you either pay more than you owe or pay fines for not paying enough.

    The simplest form is the one known as the EZ, while the long Form 1040 is the most complicated. Though it may be tempting to go for the one that takes the least amount of time to complete, if you simply jump for the fastest way through your filing responsibilities, you may end up cheating yourself of the opportunity to take some of the tax breaks to which you’re entitled. That’s because the more detail the form asks for, the more chances there are for you to provide information that may entitle you to a write-off.

    The Affordable Care Act Might Preclude the Use of the EZ – Many people who were formerly able to file Form 1040EZ may find that they are no longer eligible to use this short form. This is because those who purchase health insurance through a state or federal exchange under the Affordable Care Act have the option to receive advance payment of the premium tax credit, which helps pay some of the costs of the insurance. In order to ensure that you receive the appropriate amount of credit, the taxpayer is required to submit all appropriate information on Form 8962, which cannot be filed with the 1040EZ – it can only be submitted with Form 1040 or 1040a. Though this means that taxpayers have to do a bit more paperwork, but it ensures that the proper amount of credit is taken and also provides the opportunity for the government to reimburse you if not enough of a credit is provided.

    How Using The EZ May Be A Mistake – In some cases, using the 1040EZ can end up costing you money. This is because the short form, which is often the one selected by taxpayers who believe that their uncomplicated finances make it the most appropriate for them, does not provide the opportunity to take advantage of tax breaks you may be entitled to. For example, a recent college graduate who was just hired by his first employer would naturally assume that his taxes are so simple that there’s no need to fuss with a longer form. But doing so eliminates the possibility of taking a write-off for any interest that he paid on a student loan. Similarly, if he was wise and started setting aside money into a traditional IRA upon learning that his new employer offered no retirement plan, then his contributions would be deductible – but the short form doesn’t even ask that question. He might end up in a lower tax bracket by using the long form and would be able to pay just fifteen percent on taxes rather than 25 percent, simply based on these two deductions. Another deduction that can be taken on a 1040 or 1040A but not on a 1040EZ is the Lifetime Learning tax credit for courses taken to improve job skills – and there are many more. Form 1040EZ has the advantage of being simple, but it can end up working against you if you want to get the greatest possible deduction.

    Reviewing the Three Tax Returns – It can be difficult to know which of the three tax returns is the right one for you and your particular situation. Here is some basic information on each one to provide you with a better sense of which you should choose.

    Form 1040EZ – This simplest of all of the IRS forms is open to people who meet the following criteria:

    • You are filing as either single or as married filing jointly
    • You are younger than 65. If you are filing a joint return with your spouse, then your spouse must also be younger than 65. If your 65th birthday (or your spouse’s 65th birthday) falls on January 1 of the tax year, then you are considered to have turned 65 in the previous year, and will become ineligible to use the form.
    • Neither you nor your spouse (if filing jointly) can have been legally blind during the tax year.
    • You cannot have dependents and use this form.
    • Your interest income must be less than $1,500.
    • Your income (or joint income if filing with your spouse) must be less than $100,000.

    Though the 1040 EZ does make things easier by being just one page long, it minimizes the amount of deductions that you are able to take. The 1040EZ limits taxpayers to taking just the earned income tax credit, and it may end up cheating you of deductions to which you are entitled. For that reason, it makes sense to consider the other forms that are available.

    Form 1040A – Form 1040A is available regardless of what the taxpayer’s filing status is. Those who file as single, married filing either separately or jointly, head of household, or qualifying widow or widower can all use this form. In addition to having this advantage, it also provides the opportunity to claim more than just the earned income tax credit. Taxpayers are also able to take advantage of tax credits for their children, education, dependent care, retirement savings credits, and elderly or disabled care. All of these deductions are available using the 1040A, but not the 1040EZ. Additional criteria for using the 1040A include:

    • You must have taxable income (or combined incomes) below $100,000.
    • You cannot itemize deductions.
    • You can have capital gain distributions but cannot have capital losses or gains.

    There are other adjustments allowed for those using Form 1040A. These are known as above-the-line deductions, and they reduce the total gross income counted against you for tax purposes. By using these adjustments, you are able to reduce your overall tax burden. These adjustments include some IRA contributions, educator expenses, college tuition and fees, and student loan interest.

    Form 1040 – For those who have higher incomes, need to itemize their deductions, or have investments and income that require a more complicated tax preparation, the appropriate form is the 1040. The 1040 generally requires additional documentation and forms, but using it is often the only way to get the additional savings that are due to the taxpayer. Some of these credits include deductions for taxes paid in a foreign country, deductions for the cost of adopting a child, and a number of above-the-line deductions that are not available with the other forms. The purpose of having these other adjustments available is to provide people with the greatest opportunity to reduce their gross income, thereby reducing the overall tax burden. People who use Form 1040 are able to take deductions for self-employment taxes that have been paid, moving taxes, alimony payments, and more. There is no need to use a form Schedule A, as the available deductions are already listed on the front page of the 1040 – however, certain forms or schedules may need to be completed and attached.

    Although any taxpayer can use the 1040, it is most generally used by taxpayers:

    • Who itemize their deductions,
    • Who are self-employed, or
    • Who have capital gain income from the sale of stocks or other assets.

    If you are still uncertain as to which form is most appropriate for you, IRS Publication 17 provides many answers and details, including special circumstances and specific examples.

    It is important to remember that just because a form was appropriate for you in the past, it may not be in the future, and there is no requirement that you use it again. It may be appropriate for you to consult with a professional tax preparer, like us at Dagley & Co., to ensure you receive all the tax breaks and benefits you are entitled to.

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  • December 2015 Tax Due Dates for Individuals

    8 December 2015
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    December

    Have a merry month – and not a stressful month – with these December tax deadline tips from Dagley & Co! Image via public domain.

    December  – Time for Year-End Tax Planning

    December is the month to take final actions to affect your 2015 taxes. Taxpayers with substantial increases or decreases in income, changes in marital status or dependent status, and those who sold property during 2015 should get in touch with us at Dagley & Company for a tax planning consultation appointment. In case you need more reasons, do read our special post from Black Friday about why we may be the perfect accounting firm for you!

    December 10 – Report Tips to Employer

    If you are an employee who works for tips and received more than $20 in tips during November, you are required to report them to your employer on IRS Form 4070 no later than December 10. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.

    December 31 – Last Day to Make Mandatory IRA Withdrawals

    Last day to withdraw funds from a Traditional IRA Account and avoid a penalty if you turned age 70½ before 2015. If the institution holding your IRA will not be open on December 31, you will need to arrange for withdrawal before that date.

    December 31 – Last Day to Pay Deductible Expenses for 2015

    Last day to pay deductible expenses for the 2015 return (doesn’t apply to IRA, SEP or Keogh contributions, all of which can be made after December 31, 2015). Taxpayers who are making state estimated payments may find it advantageous to prepay the January state estimated tax payment in December (Please call the office for more information).

    December 31 – Where did the time go?! Last Day of the Year!

    If the actions you wish to take cannot be completed on the 31st or a single day, you should consider taking action earlier than December 31st.

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  • Save on Black Friday: Hire Dagley & Company!

    27 November 2015
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    Daley & Co

    On this hot, hot hot shopping and sales weekend, you may be looking everywhere for the best Black Friday and Small Business Saturday deals. There’s another way to save yourself a lot of money – potentially thousands of dollars – and that is by hiring an accountant from Dagley & Company to do the taxes of you, your family, and/or your small business.

    For starters, our founder, Dan Dagley, has an exceptional track record with taxes and clients. He was a top-10 CPA with TurboTax’s Pro program, which is currently undergoing a makeover. You can read hundreds of his glowing reviews on our testimonials page. If you miss this TurboTax Pro service, Dagley & Company can help fill your need. Get started by getting in touch with us; you’ll find our contact information at the bottom of this screen.

    If you’re one of those people who has never filed for taxes and hasn’t heard from the IRS, then it’s probably because you’re leaving money on the table. Each year, the IRS reports about $1 billion in unclaimed refunds for individuals who did not file a tax return – and about half of them are for amounts greater than $600! You could literally turn a profit simply by dropping us an email, so what are you waiting for?

    Many people are handy at filing their own taxes, but our clients who decide to pivot to our team are consistently amazed at the money they save. It’s unlikely that you know all of the tax credits and benefits you are entitled to! There are credits for those who generate their own renewable energy, there are credits for those paying for education, there are credits for those who are taking care of elderly/disabled relatives, there are tax deductions for start-up businesses, and so many more. Let us sit down with you to see just how much of your own money you’re entitled to keep this year.

    Finally, Dagley & Company is about as convenient as it gets. Yes, we are located in Washington, D.C., but we serve clients all over the United States, as well as a few scattered all over the globe. Best case scenario for you and us is you keep good records on Quickbooks or another digital program, and we can help you file the most accurate, succinct tax forms you’ve ever seen. Whether you prefer email or a personal phone call, we’re here to work with you to save you time and money.

    We hope this has helped you make a decision about the best way to file your taxes – and happy shopping on this Black Friday!

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  • How To Claim a Disaster Loss On Your Taxes

    18 November 2015
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    It’s been a wild year, weather-wise! With flooding on the East Coast and the wild fires and draught in the West, we have had a number of presidentially declared disaster areas this year. If you were an unlucky victim and suffered a loss as a result of a casualty, your luck may change as you may be able to recoup a portion of that loss through a tax deduction. If the casualty occurred within a federally declared disaster area, you can elect to claim the loss in one of two years: the tax year in which the loss occurred or the immediately preceding year.

    By taking the deduction for a 2015 disaster area loss on the prior year (2014) return, you may be able to get a refund from the IRS before you even file your tax return for 2015, the loss year. You have until the unextended due date of the 2015 return to file an amended 2014 return to claim the disaster loss. Before making the decision to claim the loss in 2014, you should consider which year’s return would produce the greater tax benefit, as opposed to your desire for a quicker refund.

    If you elect to claim the loss on either your 2014 original or amended return, you can generally expect to receive the refund within a matter of weeks, which can help to pay some of your repair costs.

    If the casualty loss, net of insurance reimbursement, is extensive enough to offset all of the income on the return, whether the loss is claimed on the 2014 or 2015 return, and results in negative income, you may have what is referred to as a net operating loss (NOL). When there is an NOL, the unused loss can be carried back two years and then carried forward until it is all used up (but not more 20 years), or you can elect to only carry the unused loss forward.

    Determining the more beneficial year in which to claim the loss requires a careful evaluation of your entire tax picture for both years, including filing status, amount of income and other deductions, and the applicable tax rates. The analysis should also consider the effect of a potential NOL.

    Ordinarily, casualty losses are deductible only to the extent they exceed $100 plus 10% of your adjusted gross income (AGI). Thus, a year with a larger amount of AGI will cut into your allowable loss deduction and can be a factor when choosing which year to claim the loss.

    For verification purposes, keep copies of local newspaper articles and/or photos that will help prove that your loss was caused by the specific disaster.

    As strange as it may seem, a casualty might actually result in a gain. This sometimes occurs when insurance proceeds exceed the tax basis of the destroyed property. When a gain materializes, there are ways to exclude or postpone the tax on the gain.

    If you need further information on casualty and disaster losses, your particular options for claiming the loss, or if you wish to amend your 2014 return to claim your 2015 loss, please get in touch with us at Dagley & Co.

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  • November 2015 Business Due Dates

    1 November 2015
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    It’s hard to believe the end of 2015 is near! Before we list out the tax due dates for businesses, we want to take a moment to remind you to set up a meeting or a phone call with a member of our team at Dagley & Co. so you can get your 2015 taxes squared away. Still not convinced? Read our hundreds of testimonials, compiled by TurboTax from real clients over the last few years.

    November 2 – Social Security, Medicare and Withheld

    Income Tax File Form 941 for the third quarter of 2015. Deposit or pay any undeposited tax under the accuracy of deposit rules. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until November 10 to file the return.

    November 2 – Certain Small Employers

    Deposit any undeposited tax if your tax liability is $2,500 or more for 2015, but less than $2,500 for the third quarter.

    November 2 – Federal Unemployment Tax

    Deposit the tax owed through September if more than $500.

    November 10 -Social Security, Medicare and Withheld Income Tax

    File Form 941 for the third quarter of 2015. This due date applies only if you deposited the tax for the quarter in full and on time.

    November 15 – Social Security, Medicare and Withheld Income Tax

    If the monthly deposit rule applies, deposit the tax for payments in October.

    November 15 – Nonpayroll Withholding

    If the monthly deposit rule applies, deposit the tax for payments in October.

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  • Taking Advantage of 2015 with Dagley & Co.

    28 October 2015
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    All of us at Dagley & Co. have filed away our October 15 extended tax deadline clients, and now we’re looking at finishing the year off strong. Now is a great time to make sure you have your accounting up-to-date, as it sure will make “tax season” easier for everyone!

    If you’re in need of a an accountant for your personal or business finances, think about setting an appointment with Dagley & Co. Don’t just take our word for it: read all of our glowing reviews from our clients over the last two years!

    Solid tax savings can be realized by taking advantage of tax breaks that are still on the books for 2015.

    For individuals and small businesses, these include:

    • Capital Gains and Losses – You can employ several strategies to suit your particular tax circumstances. If your income is low this year and your tax bracket is 15% or lower, you can take advantage of the zero percent capital gains bracket benefit, resulting in no tax for part or all of your long-term gains. Others, affected by the market downturn earlier this year, should review their portfolio with an eye to offsetting gains with losses and take advantage of the $3,000 ($1,500 for married taxpayers filing separately) allowable annual capital loss allowance. Any losses in excess of those amounts are carried forward to future years.
    • Roth IRA Conversions – If your income is unusually low this year, you may wish to consider converting your traditional IRA into a Roth IRA. Even if your income is at your normal level, with the recent decline in the stock markets, the current value of your Traditional IRA may be low, which provides you an opportunity to convert it into a Roth IRA at a lower tax amount. Thereafter, future increases in value would be tax-free when you retire.
    • Recharacterizing a Roth Conversion – If you converted assets in a traditional IRA to a Roth IRA earlier in the year, the value of those assets may have declined due to this summer’s market drop; and, as a result, you will end up paying more taxes than necessary on the higher conversion-date valuation. However, you may undo that conversion by recharacterizing it, which is accomplished by transferring the converted amount (plus earnings, or minus losses) from the Roth IRA back to a traditional IRA. This must be done via a trustee-to-trustee transfer. You can later (generally after 30 days) reconvert to a Roth IRA.
    • Don’t Forget Your Minimum Required Distribution – If you have reached age 70 1/2, you must make required minimum distributions (RMDs) from your IRA, 401(k) plan and other employer-sponsored retirement plans. Failure to take a required withdrawal can result in a penalty of 50% of the amount of the RMD not withdrawn.
    • Take Advantage of the Annual Gift Tax Exemption – Although gifts do not currently provide a tax deduction, you can give up to $14,000 in 2015 to each of an unlimited number of individuals without incurring any gift tax. There’s no carryover from this year to next year of unused exemptions.
    • Expensing Allowance (Sec 179 Deduction) – Businesses should consider making expenditures that qualify for the business property expensing option. For tax years beginning in 2015, the expensing limit is $25,000. That means that businesses that make timely purchases will be able to currently deduct most, if not all, of the outlays for machinery and equipment. Note: There is a good chance the Congress will increase that limit before year’s end and after this newsletter has gone to press, so watch for further developments.
    • Self-employed Retirement Plans – If you are self-employed and haven’t done so yet, you may wish to establish a self-employed retirement plan. Certain types of plans must be established before the end of the year to make you eligible to deduct contributions made to the plan for 2015, even if the contributions aren’t made until 2016. You may also qualify for the pension start-up credit.
    • Increase Basis – If you own an interest in a partnership or S corporation that is going to show a loss in 2015, you may want to increase your investment in the entity so you can deduct the loss, which is limited to your basis in the entity.

    Also keep in mind when considering year-end tax strategies that many of the tax breaks allowed for calculating regular taxes are disallowed for alternative minimum tax (AMT) purposes. These include deduction for property taxes on your residence, state income taxes, miscellaneous itemized deductions, and personal exemption deductions. Other deductions, such as for mortgage interest, are calculated in a more restrictive way for AMT purposes than for regular tax purposes. As a result, accelerating payment of these expenses that would normally be made in early 2016 to 2015 should – in some cases – not be done.

    We hope you will consider Dagley & Co. as the tax season approaches. You’ll find our contact information at the bottom of this screen.

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  • What Happens When Your Spouse Is A Non-Resident

    22 October 2015
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    With the internet, businesses going global and worldwide travel being so easy,more and more often we see marriages occurring between a U.S. citizen or U.S. resident alien and a resident of another country. These marriages trigger significant tax consequences, but it’s nothing a CPA like Dan Dagley can’t fix!

    First, let’s get the lingo straight: U.S. resident aliens are individuals who have become permanent U.S. residents but are not U.S. citizens. To be classified as a U.S. resident alien, the individual must be a “green card” holder or meet a “substantial presence test” that is based on time spent in the U.S in the current and prior two years. For U.S. income tax purposes, a resident alien is treated the same as a U.S. citizen and is taxed on worldwide income.

    Being married to a nonresident alien complicates the selection of a filing status for U.S. tax return purposes and requires the couple to make one of two possible elections:

    • Married Filing Jointly –For a citizen/resident to file a joint return with a nonresident spouse, the taxpayers must include and pay U.S. taxes on the worldwide income of both spouses on their joint U.S. tax return, or
    • Married Filing Separately – If they choose not to file jointly, then the citizen/resident spouse files a married separate return without the income of the non-resident spouse and pays U.S. taxes on only his or her worldwide income. If the non-resident spouse has U.S. source income, the non-resident spouse may also have to file a U.S. income tax return using the married filing separate status on that return.

    The choice of filing status has significant tax implications. If filing jointly, the taxpayers enjoy the lower tax rates of the married filing jointly filing status, have a higher standard deduction ($12,600 for 2015, as opposed to $6,300 for married individuals filing separately), and are able to claim the $4,000 personal exemption for both spouses. On the other hand, if the non-resident spouse has significant income, especially non-U.S. source income, it may be a better choice for the U.S. citizen/resident to file married filing separately without the non-resident spouse’s income.

    Higher income taxpayers with investment income are subject to a 3.8% surtax on net investment income; this surtax has an income threshold of $250,000 for married taxpayers filing jointly and $125,000 for those filing as married filing separately. However, individuals filing as non-resident aliens are not subject to this surtax. Therefore, when weighing the pros and cons of making the election to treat a non-resident alien spouse as a U.S. resident, the effect of the 3.8% tax on the couple’s total tax picture must be analyzed.

    Another issue to consider is that when one spouse is a non-resident alien, the earned income tax credit can only be claimed on a joint return.

    To make the election to file jointly, both parties must make the election by attaching the required statement, signed by both spouses, to the joint return for the first tax year for which the choice applies. Generally this will require obtaining an individual taxpayer identification number (ITIN) for the non-resident spouse because the non-resident spouse generally will not qualify for a Social Security number.

    Determining your best course of action for tax purposes when married to a non-resident alien can be complicated. If you need assistance in making the decision of whether or not to treat your non-resident spouse as a resident and/or obtaining an ITIN for your spouse, please get in touch with us at Dagley & Co.

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