Gabrielle M. Luoma, CPA, PLLC

Tax Tips for Newlyweds

Getting married involves hundreds of details and decisions, from wedding planning to house hunting to joint checking accounts. Although taxes may not be high on your priority list, it’s important to consider how you will file your annual returns as newlyweds. With tax season less than a year away, it’s a great time to look at some of the changes you may need to make for the IRS.
Here are some basic tips:
• Know Your Deductions: If you get married before December 31, you may file as a couple. The IRS allows for deductions from your income before determining the amount of taxes you’ll be required to pay. For non-itemized returns, there is a standard deduction of $5,700 for an individual, or $11,400 for a couple. Start by estimating your deductions; if you’re sure they will be more than the standard deduction, it’s in your best interests to itemize your return. Many newlyweds end up owing money the first year. To avoid this, you and/or your spouse may need to adjust your withholdings to prevent any unpleasant surprises in April. Contact your employer’s HR department to make any necessary changes on your IRS W-4 forms.
• Consider Your IRA Account: With Roth IRAs, there is an income limit for contributors. For singles, the limit is under $105,000 and the amount you can contribute disappears as your income reaches $120,000. For married couples, those thresholds are $166,000 and $176,000— less than double the individual threshold. If you’ve contributed this year, make sure you are still under the income allowed for couples.
• Don’t Forget Your Student Loans: Once you’re married, there are a few changes here, too. Even if you use the short 1040 form and don’t itemize, you are eligible for a student loan deduction. A single individual making under $60,000 a year is currently eligible to receive up to a $2,500 deduction against the interest paid on school loans. The deduction disappears as your income approaches $75,000. For married couples, those thresholds are doubled: a $120,000 combined income for the full $2,500 and $150,000 combined income at the deduction cap. On the downside, couples are not eligible for both of the $2,500 deductibles they may have been receiving as two single individuals. The IRS only allows for one of these $2,500 deductions per tax return.
As you begin your life together as newlyweds, be sure to all of the necessary changes in your financial lives as well. We’ve only covered a few of the most common considerations; as always, it’s best to check with a qualified tax consultant to discuss your specific circumstances.

Additional modifications to health care are anticipated for 2013 and 2014. (See Healthcare Changes for Small Business, part 1: 2010-2011 for the first installment.)

Changes starting in 2013

Beginning in 2013, the itemized medical expense deduction floor will be raised from 7.5% to 10% in order to limit tax-subsidized medical expenses.

Estates and trusts will be required to pay a Medicare contribution tax of 3.8% on the lesser of either their undistributed net investment income, or of their adjusted gross income in surplus of $11,200 (the current highest tax bracket threshold).

In addition, a tax of 0.9% will be instated on earned income over $200,000 (for individuals) or $250,000 (for families). Individuals and families with income over these limits will be required to pay a Medicare contribution tax of 3.8% on the lesser of either their net annual investment income (including interest, royalties, dividends, rent, trade or business income, self-employment income, estates, trust and property), or of the amount of their annual gross income exceeding the $200,000 or $250,000 limit.

Starting in 2014

Beginning in 2014, small business owners will be able to buy health insurance for groups of over 100 employees via the SHOP insurance programs set up in 2011 (see Healthcare Changes for Small Business, part 2: 2010-2011). In 2014 and 2015 only, small businesses that purchase group health insurance plans through SHOP will receive a tax credit of 50% on these contributions.

Meanwhile, companies with over 50 employees will be penalized $2,000 annually for every employee who ends up on a government-subsidized health care plan rather than being covered by an employee plan. Most people who are not eligible for Medicaid, Medicare, other government-sponsored coverage, or some form of employer-provided health insurance will be required to maintain their own minimal coverage or pay a penalty.

Low income households – those with income levels between 100% and 400% of the Federal Poverty Line – will qualify for a refundable health insurance premium tax credit. The Federal Poverty Line is current set at $10,830 for an individual, $3,740 per additional person and $22,050 for a family of four.

Finally, corporations with assets of over $1 billion will be required to pay higher estimated tax payments in July, August, and September of 2014 as this figure is raised to 15.75%.

Believe it or not, we’re just a few short weeks away from the start of the 2009 tax filing season. One of the biggest taxpayer concerns—after “how much will my refund be?”—is the risk of making a mistake on a tax return.

It can happen to even the most meticulous filer: after sending off your e-return to the IRS or dropping it in the mail, you notice an error. After the initial flurry of panic, you can relax—your return may technically be out of your hands, but it’s not set in stone just yet.

The IRS has factored in a margin of error for busy taxpayers by providing the Form 1040X. The “X-file” allows you to specify what you reported on your original return, where the error was made, and what the correct figures are. You can even use the form to add or remove dependents or change your filing status. The IRS allows you to file an amendment up to three years after the original filing date.

Below are a few CPA-recommended tips for filing the Form 1040X:

• Indicate the year of the return you’re correcting and include detailed explanations on the back of the form.
• Be sure to include any additional forms or scheduled associated with the change you’re making.
• If you’re amending multiple returns, use a separate form for each year and mail them in separate envelopes.
• Check to make sure your correction doesn’t affect your state taxes; if so, you’ll need to file a separate correction.
• There’s no need to file a Form 1040X if you made a mathematical error on your return; this will be automatically detected and adjusted by the IRS.

Depending on the nature of your error, filing an amended return with the 1040X may work in your favor or could end up costing you. If you neglected to include a source of income in the original return, you’ll probably wind up paying more or receiving less of a refund. But if you’re using the Form 1040X to include an overlooked deductible, you’ll end up reaping some monetary rewards.

Either way, you’re legally bound to correct any errors. It can be tempting to let them slip by, but it’s likely that the IRS will find them sooner or later, and you could face steep interest fees.

There are some additional stipulations and exceptions surrounding tax return amendments. To make sure you cover all your bases, it’s best to consult with your CPA if you discover an error.

Year-End Tax Planning

As we head into the heart of December, it’s time to start planning year-end tax strategies. There are several ways to maximize your 2009 savings by minimizing your taxable income through smart deductions. Below are a few tips:

• Retirement contributions: If you haven’t already reached the limit, now is the time to max out your contribution to your corporate 401K account. If you don’t work for a company, you might also consider contributing to a traditional IRA or SEP (self-employed) IRA. Your CPA can help you identify which retirement plans must be funded before the end of 2009, and which can be funded after the New Year.
• New vehicle deductions: Are you planning to buy a new car, truck, motorcycle, or RV in the coming year? If you complete the purchase before the New Year, you may be eligible to write off the sales tax as a deduction, depending on the amount of your total household income.
• Homebuyer and homeowner credit: In 2009, legislature was passed that granted first-time home buyers up to $8,000 in tax credits. This deduction is limited to taxpayers who have not bought a home in the last three years and whose incomes are below the maximum limit. If you’re planning to purchase a home in the near future, doing so before the end of the year will increase your 2009 tax savings. In addition, current homeowners may be eligible to deduct up to $6,500 in tax credits.
• Eco-friendly appliances: Federally funded programs are offering special rebates for appliances—furnaces, dishwashers, refrigerators, and washers and dryers, among others—that have earned an Energy Star rating for environmentally friendly design. Rebate values vary by state, ranging from $50-$200 per product, so be sure to check with your CPA for details.
• Business expenses: If you own a business or do independent consulting work, now’s the time to tally up your receipts and determine the amount that can be deducted as work-related expenses. If you’re anticipating any large business purchases in the coming months, you might consider making them now to boost your deductions. Your CPA can also help you analyze how depreciation schedules might impact your tax situation.

Remember, every situation is different, and this is just a sampling of end-of-year tax considerations. To make sure you’re taking advantage of all eligible tax deductions, it’s best to consult with a qualified tax professional. With the proper planning and guidance, you can kick off the New Year with some extra cash to spare.

Whether you run a big corporation, a small start-up, or a busy household, your main tax concern is likely minimizing the amount you have to pay and maximizing the return you receive at the end of the year. One of the best ways to accomplish this is enlisting the services of a Certified Tax Professional, who can clue you into potential tax benefits. Below are just some of the breaks that are often overlooked by those who file their own returns:

1. Medical expenses: If your annual medical bills add up to over 7.5% of your income, they can be written off as a tax deduction. While you can’t count portions that were paid by an insurance policy, any non-covered costs are eligible, including associated expenses like insurance premiums and mileage to and from a treatment facility.
2. Property taxes: As of 2008, married couples filing jointly can enter a standard deduction of up to $1,000 for real estate taxes, and single homeowners can deduct up to $500—even if they don’t have enough deductions to file an itemized return on a Schedule A.
3. Moving costs: It’s one of the most stressful ordeals a family can go through, but at least you can reap a tax benefit if the move was related to a job transfer. Your CPA can identify which moving costs are eligible to serve as deductions, such as mileage, truck rental, and storage fees.
4. Child care: You’ve already resigned yourself to this inevitable expense—but did you know that any child care, preschool, or even summer day camp fees qualify as tax credits if your children attend during your work hours?
5. Working from home: Even if you don’t feel comfortable writing off the corner of the bedroom as home office space, you can deduct any purchases you make that support the work you do at home, such as a laptop, planner, pens and notebooks, business cards, and possibly even Internet access.
6. Job hunting: With rampant layoffs and longer periods of unemployment, this oft-overlooked tax break can mean considerable savings for workers who are seeking a new position within the same field. Keep track of printing costs, travel expenses, recruiters’ agency fees, and any expenses related to your job hunt.

When you work with a CPA, you’ll enjoy the peace of mind that comes with having a fresh (and highly trained) pair of eyes to evaluate your financial situation. After all, wouldn’t you rather be focusing on your business or family than crunching numbers? Let a professional chase down hidden tax deductions, saving you valuable time and money.