Changes to IRS taxes for 2014

The extender provisions have gone out and every one of those touches somebody. Among the more popular disappearing breaks is the deduction for tuition and fees. Until the end of the year, couples with less than $160,000 in adjusted gross income can take a deduction if they are paying qualified higher education expenses for a dependent. The deduction, which can reach $4,000 for those with income below $130,000, will be gone in 2014. Teachers will lose out because of the expiration of a provision that lets them deduct up to $250 of their spending on classroom supplies. The National Education Association estimates that teachers spend an average of $400 annually on supplies. Homeowners who have had loans modified or forgiven in the past did not have to include that amount as income, but they will starting in 2014. The provision that lets people 70½ give up to $100,000 of an IRA distribution to charity, thereby avoiding income taxes. The qualified charitable distribution, popular with both retirees and charities, is scheduled to expire at the end of 2013. The ability to itemize and deduct sales taxes from the federal return is also expiring, impacting people living in states without income taxes or those who have made major purchases this year. Many deductions that are expiring, such as certain credits for electric vehicles, affect fewer people. Capital gains in mutual funds could be higher, as mutual fund companies have used the losses they were carrying over from the financial crisis. New taxes on wealthy households, a 3.8 percent Medicare surtax on income above $250,000 for a married couple filing jointly. The surcharge is applied to the lesser of investment income or modified adjusted gross income above that amount. Also an additional 0.9 percent Medicare tax for people above the same income thresholds, applied to wages and other compensation subject to the existing Medicare tax. Combine the new taxes on high earners with a hike in the maximum tax rate to 39.6 percent for couples with income over $450,000. Many business tax breaks will also end. Small businesses will feel the pain when the amount they can deduct for qualified equipment drops from a maximum of $500,000 this year to $25,000 in 2014.

IRS mileage rates for 2014

The Internal Revenue Service today issued the 2014 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. Beginning on Jan. 1, 2014, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be: • 56 cents per mile for business miles driven • 23.5 cents per mile driven for medical or moving purposes • 14 cents per mile driven in service of charitable organizations The business, medical, and moving expense rates decrease one-half cent from the 2013 rates. The charitable rate is based on statute. 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. Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously. These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical, or charitable expense are in Rev. Proc. 2010-51. Notice 2013-80 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan. Remember that the IRS requires a mileage log that includes where you drove, why you went there, the business purpose and the miles. In the event of an audit the IRS also wants to see repair receipts, oil changes or smog certificates that show the odometer readings. The IRS calls this third party verification of the miles the car traveled. You don't want your mileage log to show you drove 15,000 miles and the third party verification shows 10,000 miles for the year. Any questions or more information please call KatTax at 702-796-1040

The IRS warns consumers not to fall for bogus charity scams. Scams often occur in the wake of major disasters like the recent tornadoes in the Midwest or the typhoon in the Philippines. Thieves play on the goodwill of people who want to help disaster victims. They pose as a real charity in order to steal money or get private information to commit identity theft. The scams use different tactics. Offering charity relief, criminals often: • Claim to be with real charities to gain public trust. • Use names similar to legitimate charities. • Use email to steer people to bogus websites that often look like real charity sites. • Contact people by phone or email to get them to ‘donate’ money or give their financial information. The IRS offers the following tips to help taxpayers who wish to donate to victims: • Donate to qualified charities. Use the Exempt Organizations Select Check tool at IRS.gov to find qualified charities. Only donations to qualified organizations are tax-deductible. You can also find legitimate charities at the Federal Emergency Management Agency website, fema.gov. For more information about the kinds of charities that can receive deductible contributions, see Publication 526, Charitable Contributions. • Don’t give out information. Don’t give your Social Security number, credit card and bank account numbers or passwords to anyone. Scam artists use this information to steal your identity and money. • Don’t give or send cash. For security and tax record purposes, don’t give or send cash. Contribute by check, credit card or another way that provides documentation of the donation. • Report suspected fraud. If you suspect tax or charity-related fraud, visit IRS.gov and click on ‘Reporting Phishing’ at the bottom of the home page.

IRS is more aggressive in assessing penalties on tax returns. Although the IRS rules and regulations have had the penalties listed and how they were to be applied many times the penalties were not assessed. A prime example is the extension on a tax return. The extension is an extension of time to file the return not an extension of time to pay the tax due. In past years the IRS would charge interest on the tax due from April 15th until it was paid. Currently that same return will also have a failure to pay penalty and a failure to pay proper estimated payments penalty assessed in addition to the interest. Depending on the amount of tax due, the interest is $100 and the penalties are $200. In 2013 the IRS has been agreeable to removing the penalties because of good behavior of paying timely in the past. But you can only use your "Get out of jail free" card once every 3 years. It appears the IRS will be even more aggressive in 2014 with penalties. Most of the penalties will relate to the 2012 and 2013 tax years so you also have one or two years of interest assessed also. Unfortunately the interest is not waived. Any questions please give KatTax a call at 702-796-1040 ext. 105 for Larry or 106 for Kathy

2014 Tax year updates to IRS deductions. Revenue Procedure 2013-35 provides the new inflation adjusted numbers for 2014, which include: • The standard deduction rises to $6,200 for singles and married persons filing separate returns and $12,400 for married couples filing jointly; • The personal exemption rises to $3,950; • The Alternative Minimum Tax exemption amount for tax year 2014 is $52,800 ($82,100, for married couples filing jointly); • Estates of decedents who die during 2014 have a basic exclusion amount of $5,340,000; • The annual exclusion for gifts remains at $14,000; • The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending arrangements (FSA) remains at $2,500; and • The foreign earned income exclusion rises to $99,200 for tax year 2014.

IRS Announces 2014 Pension Plan Limitations; Taxpayers May Contribute up to $17,500 to their 401(k) plans in 2014 WASHINGTON — The Internal Revenue Service today announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2014. Some pension limitations such as those governing 401(k) plans and IRAs will remain unchanged because the increase in the Consumer Price Index did not meet the statutory thresholds for their adjustment. However, other pension plan limitations will increase for 2014. Highlights include the following: • The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $17,500. . The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $5,500. • The limit on annual contributions to an Individual Retirement Arrangement (IRA) remains unchanged at $5,500. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000. • The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $60,000 and $70,000, up from $59,000 and $69,000 in 2013. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $96,000 to $116,000, up from $95,000 to $115,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $181,000 and $191,000, up from $178,000 and $188,000. For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000. • The AGI phase-out range for taxpayers making contributions to a Roth IRA is $181,000 to $191,000 for married couples filing jointly, up from $178,000 to $188,000 in 2013. For singles and heads of household, the income phase-out range is $114,000 to $129,000, up from $112,000 to $127,000. For a married individual filing a separate return, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000. • The AGI limit for the saver’s credit (also known as the retirement savings contribution credit) for low- and moderate-income workers is $60,000 for married couples filing jointly, up from $59,000 in 2013; $45,000 for heads of household, up from $44,250; and $30,000 for married individuals filing separately and for singles, up from $29,500. Below are details on both the unchanged and adjusted limitations. Section 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under qualified retirement plans. Section 415(d) requires that the Secretary of the Treasury annually adjust these limits for cost of living increases. Other limitations applicable to deferred compensation plans are also affected by these adjustments under Section 415. Under Section 415(d), the adjustments are to be made pursuant to adjustment procedures which are similar to those used to adjust benefit amounts under Section 215(i)(2)(A) of the Social Security Act. Effective January 1, 2014, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $205,000 to $210,000. For a participant who separated from service before January 1, 2014, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2013, by 1.0155. The limitation for defined contribution plans under Section 415(c)(1)(A) is increased in 2014 from $51,000 to $52,000. The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of Section 415(b)(1)(A). After taking into account the applicable rounding rules, the amounts for 2014 are as follows: The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) remains unchanged at $17,500. The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $255,000 to $260,000. The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan is increased from $165,000 to $170,000. The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5 year distribution period is increased from $1,035,000 to $1,050,000, while the dollar amount used to determine the lengthening of the 5 year distribution period is increased from $205,000 to $210,000. The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) remains unchanged at $115,000. The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $5,500. The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $2,500. The annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost of living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken into account, is increased from $380,000 to $385,000. The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at $550. The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts remains unchanged at $12,000. The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations remains unchanged at $17,500. The compensation amount under Section 1.61 21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation purposes is increased from $100,000 to $105,000. The compensation amount under Section 1.61 21(f)(5)(iii) is increased from $205,000 to $210,000. The Code also provides that several pension-related amounts are to be adjusted using the cost-of-living adjustment under Section 1(f)(3). After taking the applicable rounding rules into account, the amounts for 2014 are as follows: The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for married taxpayers filing a joint return is increased from $35,500 to $36,000; the limitation under Section 25B(b)(1)(B) is increased from $38,500 to $39,000; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $59,000 to $60,000. The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for taxpayers filing as head of household is increased from $26,625 to $27,000; the limitation under Section 25B(b)(1)(B) is increased from $28,875 to $29,250; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $44,250 to $45,000. The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for all other taxpayers is increased from $17,750 to $18,000; the limitation under Section 25B(b)(1)(B) is increased from $19,250 to $19,500; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $29,500 to $30,000. The deductible amount under Section 219(b)(5)(A) for an individual making qualified retirement contributions remains unchanged at $5,500. The applicable dollar amount under Section 219(g)(3)(B)(i) for determining the deductible amount of an IRA contribution for taxpayers who are active participants filing a joint return or as a qualifying widow(er) is increased from $95,000 to $96,000. The applicable dollar amount under Section 219(g)(3)(B)(ii) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $59,000 to $60,000. The applicable dollar amount under Section 219(g)(3)(B)(iii) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0. The applicable dollar amount under Section 219(g)(7)(A) for a taxpayer who is not an active participant but whose spouse is an active participant is increased from $178,000 to $181,000. The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(I) for determining the maximum Roth IRA contribution for married taxpayers filing a joint return or for taxpayers filing as a qualifying widow(er) is increased from $178,000 to $181,000. The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(II) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $112,000 to $114,000. The applicable dollar amount under Section 408A(c)(3)(B)(ii)(III) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0. The dollar amount under Section 430(c)(7)(D)(i)(II) used to determine excess employee compensation with respect to a single-employer defined benefit pension plan for which the special election under Section 430(c)(2)(D) has been made is increased from $1,066,000 to $1,084,000.

25 Accounting Terms You Should Know for QuickBooks

25 Accounting Terms You Should Know It’s back-to-school time. Why not take a page from the kids’ books and do some learning of your own? QuickBooks is easy to use, intuitive and flexible. But it is not an accounting manual or class or tutorial. If your business is exceptionally uncomplicated, you might get by without knowing a lot about the principles of bookkeeping. Still, it helps to understand the basics. Here’s a look at some terms and phrases you should understand. Account. You’ll set up financial accounts like checking and savings in QuickBooks, but in accounting terms, this refers to the accounts in your Chart of Accounts: asset, liability, owners’ equity, income and expense. QuickBooks Chart of Accounts Accounts Payable (A/P). Everything that you owe to vendors, contractors, consultants, etc. is tracked in this account. Accounts Receivable (A/R). This account tracks income that hasn’t been realized yet, like outstanding invoices. Accrual Basis. This is one of two basic accounting methods. Using it, you record income as it is invoiced, not when it’s actually received, and you records expenses like bills when you receive them. Using the other method, Cash Basis, you would report income when you receive it and expenses when you pay the bills. Asset. What physical items do you own that have value? This could be cash, office equipment and real estate. In QuickBooks you’ll be managing two types. Current Assets are generally used within 12 months (or you could convert them to cash in that length of time). Fixed Assets refers to belongings like vehicles, furniture and land, property that you probably won’t use up in a year and which usually depreciates in value. Depreciation is very complex; you may need our help with that. Average Cost. This is the inventory costing method that programs like QuickBooks Pro and Premier use to calculate the value of your stock. QuickBooks provides a Statement of Cash Flows report. Cash Flow. This refers to the relationship between incoming and outgoing funds during a specific time period. Double-Entry Accounting. This is the system that QuickBooks uses – that all legitimate small business accounting software uses. Every transaction must show where the funds came from and where they went. Each has a Credit (decreases asset and expense accounts) and Debit (decreases liability and income accounts) which must balance out (other types of accounts can be affected). Equity. This refers to your company’s net worth. It’s the difference between your assets and liabilities. General Journal. QuickBooks handles this in the background, so it’s unlikely you’ll ever be exposed to it. We sometimes have to create General Journal Entries, transactions required for various reasons (errors, depreciation, etc.) that contain debits and credits. Please leave that to us. Item Receipt. You’ll create these when you receive inventory from a vendor without a bill. Job. QuickBooks often associates customers with multi-part projects that you’ve taken on, like a kitchen remodel. Net income. This is your revenue minus expenses. Non-Inventory Part. When you purchase an item but don’t sell it or you buy something and resell it immediately to a customer, this is what it’s called. It’s merchandise that isn’t stored by you for future sales. Payroll Liabilities Account. QuickBooks tracks federal, state and local withholding taxes, as well as Social Security and Medicare obligations, that you’ve deducted from employees’ paychecks and will remit to the appropriate agencies. QuickBooks helps you track and remit Payroll Liabilities. Post. You won’t run into this term in QuickBooks. It simply refers to recording a transaction within one of your accounts. Reconcile. QuickBooks helps you with this. It’s the process of making sure your records and those of your financial institutions agree. Sales Receipt. This is how you record a sale when payment is made in full during the transaction. Statement. You’ll generally use invoices to bill customers in QuickBooks, but you can also send statements, which contain transaction information for a given date range. Trial Balance. This standard financial report tells you whether your debits and credits are in balance. Should you run this report and find a problem, let us know right away. Vendor. With the exception of employees, QuickBooks uses this term to refer to anyone who you pay as a part of your business operations. These are just a few of the terms you should recognize and understand. We hope you’ll contact us when you need help understanding how the accounting process fits into your workflow.