2014 Gear Up 1040 Individual Tax - Checkpoint Learning · Cheat sheets • Health insurance ......

2014 Gear Up

1040 Individual Tax

Melanie Mogg CPA

MelanieMogg

Melanie Mogg, MBA, CPA

Melanie Mogg, MBA CPA is the proud owner of her own firm since 2000. Previously she worked for one of the Big 4 as well as several large local CPA firms.

She is a former full-time professor at a private college and currently an adjunct faculty member at the University of Minnesota.

This is my 14th year with Gear Up!

Today’s Topics

• Cheat sheets • Health insurance mandate • Wages & the .9% • IRS Issues • Retirement accounts • Education

Cheat Sheets

2014 2015 2016 Personal Exemptions $3,950 $4,000 Standard Deduction Single $6,200 $6,300 Married Jt. & QW $12,400 $12,600 Married Filing Sep. $6,200 $6,300 Head of Household $9,100 $9,250 Additional Deductions for Elderly and Blind Single $1,550 $1,550 Married (each) $1,200 $1,250 Dependent of Another Greater of $350 or ??? but not in excess of Std

$1,000

$1,050

1

$4,050

$6,300 $12,600

$6,300

$1,550 $1,250

$1,050

$9,300

hhhh

Cheat Sheets

2014 2015 2016 Social Security Information based on SSA Estimates FICA Wage Base $117,000 $118,500 Age 62-64 SS Limit $15,480 $15,720 Age 65 – FRA Limit $41,400 $41,880 Kiddie Tax $2,000 $2,100 Child Tax Credit $1,000 $1,000 Standard Mileage Rate Business 56.0¢ 57.5¢

Depreciation per mile 22.0¢ 24.0¢ Charitable 14.0¢ 14.0¢

Medical & Moving 23.5¢ 23.0¢ Qualified Parking $250 $250

$118,500 $15,720

$2,100

.0¢

.0¢ 14.0¢

$255

1

$41,880

.0¢

$1,000

Cheat Sheets

1

2014 2015 2016 Comm. Veh. & Transit Bus Pass

$245 $130

Luxury (Non-electric) Auto Depreciation Limits First Year Bonus Depr $8,000 $0 Year 1 $3,160 $3,160 Year 2 $5,100 $5,100 Year 3 $3,050 $3,050 Year 4 and After $1,875 $1,875

$130

$0 $3,160 $5,100 $3,050 $1,875

Cheat Sheets

2014 2015 2016 IRC Section 179 Depreciation $500,000 $25,000 Investment Limitation $2 Mil $200,000 SUV Limitation $25,000 $25,000 Estate Tax Unified Cr $5.34 Mil $5.43 Mil Annual Gift Exclusion $14,000 $14,000 IRA Base Contribution $5,500 $5,500 Age 50 Catch Up $1,000 $1,000 Simple IRA Base Contribution $12,000 $12,500 Age 50 Catch Up $2,500 $3,000

2

$25,000 $200,000

$25,000 $5.45 Mil

$14,000

$5,500 $1,000

$12,500 $3,000

l

Cheat Sheets

2

2014 2015 2016 401(k), 403(b), and 457 Plans Base Contribution $17,500 $18,000 Age 50 Catch-Up $5,500 $6,000

Defined Cont. Limit $52,000 $53,000 Defined Ben. Limit $210,000 $210,000 IRC 415 Comp. Limit $260,000 $265,000

$18,000 $6,000

$53,000 $210,000 $265,000

Cheat Sheets

2

2014 2015 2016 HSA Limitations Self Plan $3,300 $3,350 $3,350 Family-Plan $6,550 $6,650 $6,750 Age 55 Catch Up $1,000 $1,000 $1,000 Min. Deductible-Sgl. $1,250 $1,300 $1,300 Min. Deductible-Fam. $2,500 $2,600 $2,600 Max. Deductible-Sgl. $6,350 $6,450 $6,550 Max Deductible-Fam. $12,700 $12,900 $13,100

Cheat Sheets

Page 002

2014 2015 2016 Long Term Care Deduction Limitations Age 40 or Younger $370 $380 Age > 40 but < 50 $700 $710 Age > 50 but < 60 $1,400 $1,430 Age > 60 but < 70 $3,720 $3,800 Age > 70 $4,660 $4,750

$380 $710

$1,430 $3,800 $4,750

Cheat Sheets

Page 003

2014 2015 2016 Itemized Deduction Phase-Out & Personal Deductions Single $254,200 $258,250 Married $305,050 $309,900 MFS $152,525 $154,950 Head of Household $279,650 $284,050 AMT Exemption Single & HOH $52,800 $53,600 Phase Out Begins $117,300 $119,200 Married $82,100 $83,400 Phase Out Begins $156,500 $158,900

$259,400 $311,300 $155,650 $285,350

$53,900 $119,700 $83,800

$159,700

$$9,275 $$37,650 $$91,150

$$190,150 $$413,350 $$415,050

$18,550 $75,300

$151,900 $231,450 $413,350 $466,950

$13,250 $50,400

$130,150 $210,800 $413,350 $441,000

$927.50 $5,183.75

$18,558.75 $46,278.75

$119,934.75 $120,529.75

$1,855.00 $10,367.50 $29,517.50 $51,791.50

$111,818.50 $130,578.50

$1,325.00 $6,897.50

$26,835.00 $49,417.00

$116,258.50 $125,936.00

Cheat Sheets

4

Limitations significantly impact our taxpayers with here today gone tomorrow benefits

Cheat Sheets

Page xliii-xlvi

Graphic Phase-Out Charts – In Front of Table of Contents

Chapter 1: IRS Update – Page 5

Miscellaneous stuff that the IRS is “up to” which affects our practices

and our clients.

Chapter 2: The Individual Mandate & the PTC – Page 17

We have a lot of work to do here and we only know what we

learned in 2014.

New draft forms: Form 1095-A State Marketplace provides (also 2014)

Form 1095-B Issued by insurance companies (new)

Form 1095-C by ALE (Applicable Large Employers) (new)

Form 8965 – Exemptions issued by State Market Place

www.irs.gov/draftforms For forms and instructions in draft format

http://www.irs.gov/draftforms

2015 draft 1040

Health Insurance coverage Form 1095-A

Health Insurance coverage Form 1095-B

22

Health Insurance coverage Form 1095-B

23

Employer coverage Form 1095-C

24

Form 8965: Exemptions

8962 Part 1 - Contribution

Part 2 – PTC & Reconciliation

Part 3 – Repayment of Excess PTC

Shared responsibility penalty V. C. page 27

Line 61 penalty lessor of:

Bronze plan

Penalty

Shared responsibility penalty V. D.

Penalty is the Greater of:

Flat penalty

% of income

Shared responsibility penalty V. E.

Flat penalty is lessor of:

Sum of individual penalties

300% of single penalty

All three C. D. & E.

Sum

300%

Penalty lesser

% of income Bronze

Penalty Greater

Lesser

Sum $695

300% $2,085

Penalty lesser $695

2.5% of income $2,700 Penalty greater $2,700

Lesser

Example 1 2016 – page 28

Bronze $2,800

Penalty on Line 61 is $2,700

Sum $325

300% $975

Penalty lesser $325

2% of income $2,200 Penalty greater $2,200

Lesser

Example 2015 – page 28

Bronze $2,800


695 X 3 + (1/2x2)= 2,780

300% of Max penalty 695 x3= 2,085

Penalty lesser 2,085

2.5% of inc 250,000 -24,000 x .025= 5,650

Penalty greater $5,650

Lesser

Example for 2016 – page 28

Bronze $13,000


Sum $325 x 3+(1/2x2)= 1,300 300% 325 x3=975

Penalty lesser $975

2% of inc 250,000 -24,000 x .02= 4,520

Penalty greater 4,520

Lesser

Example for 2015 – page 28

Bronze $13,000

Penalty on Line 61 is $ 4,520

Chapter 3: Retirement Resources – Page 35

Social Security is still a component in most retirement

plans.

WSJ Article: Current income $100,000 Less: SS (8,000) 401k (22,000) Wk Exp (5,000) Adjusted income $65,000 SS (25,000) Need $40,000 Times 20 = $800,000

SS and Medicare rates:

Tax Rates 2015 Employee: 7.65% Social Security Portion 6.20% Medicare Portion * 1.45% Employer: 7.65% Social Security Portion 6.20% Medicare Portion 1.45%

36

SS continued: Self-employed: 15.30% Social Security Portion 12.40% Medicare Portion* 2.90% Maximum Social Security Taxable Earnings

$118,500

Maximum Social Security Tax: Employee $ 7,347 Self-employed $14,694

Some history: 1935 FDR signed Social Security Act 1939 Added survivor’s benefits 1940 First monthly benefits paid 1956 Added disability benefits 1965 Johnson signed Medicare Act 1966 First beneficiary of Medicare 2003 Medicare part D enacted

Status of SS 3:1 ratio of workers to recipients 65 year old has a life expectancy 17+ yrs 2012 the first boomer turned 66 10,000 BB eligible each DAY! 2015 maximum* $2,663 per month or

$31,956 per year * born 1949 retired 2015 at 66, max

earnings subject to SS

Social Security Facts Primary Insurance Amount (PIA) Typical high-earner worker = $31,956 Spouse with 50% benefit = $15,978 Total $47,934 2 high-earner workers = $63,912

Solution for SS Proposition 62a: To solve the Social Security/Medicare

system you vote to: a) Raise tax rate b) Lower benefits c) Broaden the tax base d) Reduce life expectancies?

Income $ Pre-retire

Social Security

%

Private / pension

%

Total need %

30,000 59 31 90

50,000 51 30 81

70,000 42 35 77

90,000 36 42 78

Social Security replacement ratios:

•

Estimating the amount of benefit

A. The SSA suspended sending the annual statement automatically.

1. Resumed for those aged 60+ 2. Now have an on-line statement available 3. New – Form 7004

B. On-line and downloadable calculators

Page 37

XIV. Retirement Benefits 64

Source: ssa.gov

Vanquard Quote: Primary Annuitant -- Birth date:

07/30/1948 Sex: M Joint Annuitant -- Birth date: 07/30/1948 Sex: F Benefit Commencement Date: 07/26/2014 State of Residence: MN Payments per Year: 12 Initial Payment Amount: $3,485.00 Inflation Adjusted Quote

Total Premium Amount for Fixed Joint and 66.67% Survivor Annuity with inflation adjustments: $717,777.44

Great resource

Chapter 4: Retirement Savings – Page 47

We have moved from a defined benefit to a defined contribution

environment. The risk of retirement savings is now in the

hands of the worker.

TIGTA Report May 7, 2010 295,141 individuals made excess

contributions in 2006 & 2007 $94 million lost excise tax and $17

million lost income tax

AGI Limitations

Traditional 2015 2016

Joint Filer - PP $98K - $118K $98K - $118K Joint Filer – No P $183K- $193K $184K - $194K Single, HOH $61K - $71K $61K - $71 K MFS – Lived with Spouse $0K - $10K $0 K - $10 K

50

ROTH AGI Limitations

Traditional 2015 2016

MFJ – Roth limitations $183K- $193K $184K - $194K *(Traditional) MFJ – No P $183K- $193K $184K - $194K Single, HOH $116K - $131K $117K - $132K MFS – Lived with Spouse $0K - $10K $0 K - $10 K

51

Marginal Rate Issue

Tony’s marginal rate is 28%. His net cash flow from contributing $10,000 to his 401(k) is $7,200.

If he changes it to a non-deferred account, his net cash flow will decrease $2,800.

Marginal Rate Issue

Jon’s marginal rate is 15%. His net cash flow from contributing $10,000 to his 401(k) is $8,500.

If he changes it to a non-deferred account, his net cash flow will decrease $1,500.

66% of NEW jobs are created in small businesses

36% of private sector employees work at company’s employing less than 100 (This does not count the self-employed)

80% of employees in firms employing less than 100 have no retirement plan

Retirement Plans

Ideal plan (for owner) is like a three-legged stool.

Discriminates

Discretionary

Doesn’t cost anything

77

From myra website: • No cost to open an account. No fees. • Contribute to savings through regular

payroll direct deposit. • Individual decides how much to

contribute every payday ($50, $25, $7 – any amount!)

• myRAs will earn interest at the same variable rate as the Government Securities Investment Fund in the Thrift Savings Plan for federal employees

From myra website: • myRAs will not be limited to one

employer – the account will be portable.

• myRA contributions can be withdrawn tax free.

• Earnings can be withdrawn tax free after five years and the saver is 59½.

• Account holders can build savings for 30 years or until their myRA reaches $15,000 – whichever comes fi t Aft th t RA b l ill

Dabney v Commissioner: T.C. Memo 2014-108

Self-directed IRA at Schwab wired $114,000 to Title company for land purchase.

Accidently put in individual name. Dabney checked box on distribution request

“early distribution no known exceptions” Property sold $127,226 (net) and funds wired

back to Schwab.

55

Dabney v Commissioner: T.C. Memo 2014-108

Net proceeds $127,226 Cost 114,000 Gain 13,226 Ordinary tax on 114,000 distribution 10% early withdrawal penalty $11,400 Total $42,431

“The flaw was not in Mr. Dabney’s intent but in his execution.”

He had researched and consulted with

others with some knowledge. Penalty was removed.

Combined Limits 2015:

Under age 50 • $18,000 -

employee • 25% of

compensation -employer

• $53,000 max or 100% of Comp

Age 50+ • $24,000 -

employee • 25% of

compensation -employer

• $59,000 max or 100% of comp

Page 61

Chapter 5: Retirement Distributions – Page 63 Keeping our clients safe from

penalties that occur if distributions are taken too early or a RMD is

not taken as required.

TIGTA Report May 7, 2010 255,948 individuals did not take

RMD in 2006 & 2007 $174 million lost income tax

75

Other IRAs Example: Frank is ineligible to contribute to a

ROTH or a deductible IRA and but has an old IRA with $3,000.

He made a $3,000 non-deductible IRA contribution.

In 2015 when IRA2 account is valued at $3,500 he coverts the original $3,000 to a ROTH.

Other IRAs Example: $1,800 is includable in income:

3,000 X 3,000 = $1,200 basis 7,500

Roth IRA Distributions

65

Exception 1 – Five Years OR 59 ½, OR deceased, OR disabled, OR first time home-buyer


65

Exception 2 – Five years AND 59 ½, OR deceased, OR disabled, OR first time home-buyers


65

Exception 3 – Five years AND 59 ½, OR deceased, disabled, first time home-buyer, education, medical expenses, health insurance or periodic payments

Stepmother Snatches 401k from Stepchildren”

– headline Participant remarried after

naming 3 adult children as beneficiaries – then dies 6 weeks later (Cajun Industries LLC v. Beth Bennett Kidder et al.)

76

Spousal Consent Solutions Get spousal consent prior to re-

marriage Rollover to IRA prior to re-marriage

(note IRAs are not subject to spousal consent rules)

Spousal consent – Wayne Lee Second spouse named Lois Lee his

spousal beneficiary. However he was still married to Cleta Lee upon his marriage to Lois.

Both women filed for spousal benefits but Appeals court rejects Lois as beneficiary

How is the IRS going to know?

87

50% OUCH PENALTY When the taxpayer has reasonable cause a request can be

made for waiver of the penalty. To make the request - insert RC on line 52 of Form 5329

subtracting the amount of the waiver request from the amount due

77

RC ($)

Penalty Provisions for Traditional IRA and Qualified

Retirement Plans

79

Chapter 9: Penalty Exceptions and Non-Qualified Annuities

Petitioner (Bobrow) position:

April 14 $65,064 from TPH IRA to checking.

June 10 $65,064 from TPH checking to TPH IRA.

June 6 $65,064 from TPH Rollover IRA to checking.

August 4 $65,064 from Joint checking to TPH rollover IRA.

July 31 $65,064 from TPW traditional IRA to checking.

September 30 $40,000 wired from Joint checking to TPW IRA. But had requested earlier.

Distribution Repayment

IRS position in Bobrow






September 30 $40,000 wired from Joint checking to TPW IRA.


Bobrow T.C. Memo 2014-21






September 30 $40,000 wired from Joint checking to TPW IRA.


2nd rollover

Too late!

… As previously noted, section 408(d)(3)(B) applies a one-year waiting period for individuals who have received a nontaxable distribution from “an individual retirement account or individual retirement annuity”.

Had Congress intended to allow individuals to take nontaxable distributions from multiple IRAs per year, we believe section 408(d)(3)(B) would have been worded differently…

Chapter 6: Educational Planning – Page 91

“As a parent, a former faculty member , a current trustee of a

college and a taxpayer – I think I know a thing or two about the

problem.”

collegeboard. com

Chapter 7: Wages & Other Income – Page 119

Final regulations were issued late November 2013 on the .9%

additional Medicare

2013 – New Taxes

1) Additional Medicare Tax on high wage and self employment income

2) Net investment income tax on

investment income for high AGI taxpayers

New .9% Rate Applies to taxpayers

with higher earned income:

Thresholds NOT

indexed for inflation

Joint $250,000

Head of Household

$225,000

Single $200,000

Chapter 8: NOL & 1040X – page 127

TIGTA reports the IRS is spending millions in interest

expense by not processing NOL carry-back claims timely.

What is business vs non-business?

127

Business Non-Business

W-2 $1,225 Interest $425 Schedule C -$5,000 Long Term $2,000 Short Term -$1,000 Std. Deduction -$9,250 Pers. Exemp. -$12,000

$1,225 $425

-$5,000 $2,000

-$1,000 -$9,250

-$12,000 NOL = $1,775 TI = $(23,600)

Chapter 9: Deferred Compensation – Page 135

Wish I had gone to work for Google, Microsoft or Apple when I

was younger (and if I had been talented).

Great read for you tax wonks:

2014 Gear Up 1040 Individual Tax - Checkpoint Learning · Cheat sheets • Health insurance ......

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