You’ve finished college, landed a great job, and have identified the perfect starter home. But as you examine your finances, you find you do not have sufficient funds in your bank account to buy a house, and with a minimum down payment, your monthly take home pay is a bit too low to cover the mortgage payments at this stage in your career. Discussing your disappointment with your parents, they offer to give you $100,000 which is just enough to help make the home affordable.
Is the $100,000 gift subject to gift tax?
In 2015, your parents can give you a total of $28,000 cash ($14,000 from each) and not worry about having to file a 2015 gift tax return. But if they give you more than $28,000 in 2015, they are required to file a gift tax return to report the total amount of the gifts they each made during the year. Assuming each parent is giving you half of the total amount, or $50,000, they will each file a gift tax return reporting the $50,000 cash gift to you. The first $14,000 is not a taxable gift; however, the remaining $36,000 is a taxable gift.
In 2015, the first $5,430,000 of assets gifted during a person’s lifetime (and/or transferred on death) is exempt from estate or gift tax. If your parents have not previously made any taxable gifts, then the gift tax return will report a taxable gift of $36,000 which reduces the $5,430,000 exemption amount for future gifting or transfers at death to $5,394,000 ($5,430,000 – $36,000).
So your parents will have to file a gift tax return to report the $100,000 gift to you, but they will not pay gift tax on this transfer, and will not pay gift tax on future transfers, until they have given away more than their remaining available exemption of $5,394,000.
By Pamela Wheeler, EAPosted on May 27 2015 by admin
The IRS announced that criminals used taxpayer-specific data acquired from non-IRS sources to gain unauthorized access to information on approximately 100,000 tax accounts through the IRS “Get Transcript” application. This data included Social Security information, date of birth and street address. These third parties gained sufficient information from an outside source before trying to access the IRS site, which allowed them to clear a multi-step authentication process, including several personal verification questions that typically are only known by the taxpayer.
The matter is under review by the Treasury Inspector General for Tax Administration as well as the IRS’ Criminal Investigation unit, and the “Get Transcript” application has been shut down temporarily. The IRS will provide free credit monitoring services for the approximately 100,000 taxpayers whose accounts were accessed. In total, the IRS has identified 200,000 total attempts to access data and will be notifying all of these taxpayers about the incident.
As always, the IRS takes the security of taxpayer data extremely seriously, and they are working aggressively to protect affected taxpayers and continue to strengthen our protocols.
The IRS notes this issue does not involve its main computer system that handles tax filing submission –that system remains secure.
By Melinda Nelson, CPAPosted on May 26 2015 by admin
The American Institute of Certified Public Accountants (AICPA) has recently been participating in U.S. House of Representatives, Committee on Small Business hearings on tax reform with the goal of ensuring that main street isn’t left behind. One area of focus in this regard has to do with rules relative to the cash method of accounting and proposals to either expand its use or further restrict who may use the cash method of accounting including service businesses.
The cash method of accounting is simpler in application than the accrual method, has fewer compliance costs, and does not require taxpayers to pay tax before receiving the income. These characteristics make it a popular method for taxpayers to use when allowed by IRS rules. Conversely, when it comes to accelerating tax revenues, further restrictions on the use of the cash method of accounting is a known tool in lawmakers’ tool chest to at least accelerate government revenues.
However, the AICPA reminded lawmakers in their belief that limiting the use of the cash method of accounting for service businesses would:
- Discourage their natural business growth;
- Impose an undue financial burden on their individual owners;
- Impose complexities and increase their compliance burden; and
- Treat similarly situated taxpayers differently (because income is taxed directly on
their owners’ individual returns).
As the AICPA has previously stated to Congress, further restricting the long-standing use of the cash method of accounting by thousands of U.S. businesses (e.g. sole proprietors, personal service corporations, and pass-through entities) that currently utilize it, would be detrimental and work on the side of discouraging business growth in the U.S economy.
By Dale F. Jensen, CPAPosted on May 21 2015 by admin
It has recently been discovered that there is a widespread number of taxpayers that are encountering errors with the Form 1095-A (Health Insurance Marketplace Statements). The types of errors that are occurring consist of incorrect information on the form or a delay in receiving the form. Another error is erroneously receiving the form when you have not enrolled in a qualifying plan during 2014. This could have caused someone to claim the premium tax credit when they were not eligible or may cause the return to be inaccurately filed and inadvertently, would have produced an incorrect tax liability. An extension also may have been filed that was inaccurate due to being unable to calculate the correct amount of payment to include with the filed extension.
If you have encountered any errors or delays with your marketplace statements, you may be eligible for a recently released exemption to avoid any late payment or underpayment penalties. To qualify, your tax return must have been timely filed, including extensions, and was affected by an error or delay of your Form 1095-A (Health Insurance Marketplace Statement). This includes any inaccuracies that may have occurred or incorrect calculations for payments. This exemption is applicable to the 2014 tax year.
To request this exemption for 2014 and relief from a failure to pay notice and penalties, you can simply respond to the notice by stating “I am eligible for the relief granted under Notice 2015-30 because I received an incorrect or delayed Form 1095-A”. You can do the same thing to claim relief from an accuracy-related penalty and can submit a response stating your eligibility. To request relief from an estimated tax penalty, you can check box A on Form 2210, Part II and include the form with your tax return. A statement should be included stating you “Received an incorrect or delayed Form 1095-A”.
By Kelsey OlsenPosted on May 20 2015 by admin
May is National Military Appreciation Month, and the Internal Revenue Service wants members of the military and their families to know about the many tax benefits available to them.
Each year, the IRS publishes Publication 3, Armed Forces Tax Guide, a free booklet packed with valuable information and tips designed to help service members and their families take advantage of all tax benefits allowed by law. This year’s edition, geared to the 2014 return, is posted on IRS.gov. Available tax benefits include:
- Combat pay is partly or fully tax-free.
- Reservists whose reserve-related duties take them more than 100 miles from home can deduct their unreimbursed travel expenses on Form 2106 or Form 2106-EZ, even if they don’t itemize their deductions.
- Eligible unreimbursed moving expenses are deductible on Form 3903.
- Low-and moderate-income service members often qualify for such family-friendly tax benefits as the Earned Income Tax Credit, and a special computation method is available for those who receive combat pay.
- Low-and moderate-income service members who contribute to an IRA or 401(k)-type retirement plan, such as the federal government’s Thrift Savings Plan, can often claim the saver’s credit, also known as the retirement savings contributions credit, on Form 8880.
- Service members stationed abroad have extra time, until June 15, to file a federal income tax return. Those serving in a combat zone have even longer, typically until 180 days after they leave the combat zone.
- Service members may qualify to delay payment of income tax due before or during their period of service. See Publication 3 for details including how to request relief.
Service members who prepare their own return qualify to electronically file their federal return for free using IRS Free File. In addition, the IRS partners with the military through the Volunteer Income Tax Assistance program to provide free tax preparation to service members and their families at bases in the United States and around the world.
By Scott W. Clouse, CPAPosted on May 19 2015 by admin
Finding work for young adults that are eligible for employment can be very stressful. In recent years, the economy has created a culture which makes graduating college and taking that next step into the work force one that is not pleasant and incredibly nerve wracking. The family business may be the only place for some kids to find work or to find their first jobs. There is good news for family business owners – employing a child may generate tax benefits regardless of how the family business is organized.
Income shifting – Regardless of how a business is organized, its owners may be able to turn some of their high-taxed income into tax-free or low-taxed income by employing their children. The work done by the children must be legitimate, and the amount that the enterprise pays them must be reasonable for the wages to be deductible. Family taxes are cut even if the child’s earnings exceed his or her standard deduction. That’s because the unsheltered earnings will be taxed to the child beginning at a rate of 10%, instead of being taxed at the parent’s higher rate.
Kiddie tax implications – The kiddie tax applies to the child if he or she does not file a joint return for the tax year and (1) hasn’t reached age 18 before the close of the tax year or, (2) his or her earned income doesn’t exceed one-half of the support and the child is age 18 or is a full time student age 19-23. Thus, employing a child age 18 or a full-time student age 19-23 could cause his or her earned income to exceed more than half of his or her support. This, in turn, could help to avoid the kiddie tax on the child’s unearned income (there is no earned income escape hatch from the kiddie tax for children under age 18).
Even if the kiddie tax applies, it only causes a child’s investment income in excess of $2,100 (for 2015) to be taxed at the parent’s marginal rate. It has no impact, however, on the child’s wages and other earned income, which can be sheltered by the child’s standard deduction.
Retirement plan savings – Additional savings are possible if the child is paid more (or works part-time past the summer), and deposits the extra earnings into a traditional IRA. For 2015, the child can make a tax-deductible contribution of up to $5,500 to his or her own IRA. The business also may be able to provide the child with retirement plan benefits, depending on the type of plan it uses and its terms, the child’s age, and the number of hours worked.
By Daniel BlackwellPosted on May 14 2015 by admin
ADOR released Arizona Transaction Privilege Tax TPT Notice TPN 15-1 hoping to assist contractors with their numerous questions related to the taxability of services involving modification or alteration of real property under the Prime Contracting classification after January 1, 2015. TPN 15-1 can be found on the AZDOR.gov website under TPT Simplification (TPN 15-1).
TPN 15-1 includes 26 FAQ’s and describes:
- “maintenance,” “repair,” “replacement,” and “alteration” activities and “modification” activities;
- who can be considered to be an “owner of real property” under the prime contracting classification;
- Ariz. Rev. Stat. Ann. § 42-5008.01 liability – when a TPT licensed contractor who purchases tangible personal property exempt from tax and uses that property in performing an MRRA project is subject to an amount equal to retail TPT on the purchase price of the tangible personal property).
- Licensing; who is a contractor, who is and who is not required to obtain a TPT license under the prime contracting classification;
- Materials; are materials incorporated into a modification project subject to TPT at the time of purchase;
- Subcontractors/certificates; what does a taxable prime contractor need to do if hiring a contractor without a TPT license as a subcontractor on a taxable project;
- Reporting; if a contractor cancels its TPT license on February 15, 2015, and has materials on hand at the time of the cancellation.
TPN 15-1 also includes an explanation of 23 different scenarios and whether the facts cause the contractor to be a prime contractor or subject to retail TPT.
Arizona contractors will welcome this additional information from ADOR.
By Melinda Nelson CPAPosted on May 13 2015 by admin
If you are anything like me, you have probably heard of a 529 plan but haven’t really let the reality of what it is or what it can do for you sink in. The benefits of having a 529 education savings plan are tremendous in helping you pay for your child’s education. But more than that is the benefit that the contributing taxpayer receives in Arizona tax-savings for contributions.
In addition, anyone can contribute to the 529 plan once it is set up. This allows the parents, grandparents, aunts, uncles, or anyone who contributes to receive these great tax-saving benefits as long as they are Arizona taxpayers. What a great motivator to get others to help you save for your child’s education. Like the adage goes, “It takes a village to raise a child.” Truly, it takes a village to help pay for a college education these days.
Here are some benefits to having an Arizona 529 education savings plan both now and in to the future:
- Arizona taxpayers’ contributions to a 529 plan are tax deductible at the state-level up to $4,000 per year for married filing jointly or $2,000 for single filers.
- Contributions to 529 accounts grow on a tax-deferred basis.
- Qualified distributions are exempt (tax-deferred forever!) from Federal and Arizona income taxes.
- You have the ability to change account beneficiaries at any time.
- Assets are not considered when determining Arizona financial aid awards.
- Savings can be used on all qualified college expenses including tuition, fees, and room and board at all U.S. DOE accredited universities, colleges, private colleges and vocational schools.
By Stacy RedmondPosted on May 12 2015 by admin
Sending a child off to college can be a tough situation, emotionally and mentally, for many different reasons. Creating a 529 plan to save money and pay for your child’s college tuition is very important, but what about all the other costs? There are hidden expenditures that arise when each kid goes to college which creates more of a need to withdraw money from the 529 plan in order to cover those costs that are more than just tuition. On February 26, The House passed a new bill that enhanced 529 college tuition plans.
The bill improves 529 plans by:
- Allowing payments from qualified tuition programs for the purchase of computer or peripheral equipment, computer software, or internet access and related services to be used primarily by the beneficiary while enrolled in an eligible educational institution.
- Eliminating the requirement that distributions from a plan be aggregated for purposes of determining the amount includible in a taxpayer’s income (i.e., where a beneficiary has received multiple distributions from a plan in the tax year, the portion of a distribution that represents earnings would be determined on a distribution-by-distribution basis, rather than an aggregate basis);
- Allowing a tax-free recontribution to a plan of amounts refunded to a student by an eligible education institution if the recontribution is made no later than 60 days after the date of such refund and doesn’t exceed the refunded amount.
By Daniel BlackwellPosted on May 7 2015 by admin
The Arizona legislature has established a pro rata income tax credit for an S corporation that donates to a school tuition organization (STO) for tax years beginning on or after 1/1/2015.
To qualify for the credit, the aggregate amount of the contribution in the tax year must be at least $5,000 and the statutory requirements regarding tax credits for contributions by corporations to STOs must be met. These instructions can be found on the Arizona Department of Revenue website at CorporateTuitionTaxCredits.
Co-owners of the S corporation may each claim a pro rata share of the credit based on their ownership interest, but the total amount of credits allowed to all owners may not exceed the amount that would have been allowed to a sole owner of the corporation.
Unused credits may be carried forward for up to five years.
The credit is not allowed if: (1) the S corporation or a shareholder designates the contribution to the STO for the direct benefit of any dependent of a shareholder of the S corporation claiming a credit or if the S corporation or a shareholder designates a student beneficiary as a condition of the contribution to the STO; and (2) the S corporation or a shareholder, with the intent to benefit a shareholder’s dependent, agrees with one or more other taxpayers to designate reciprocal contributions to STOs for the direct benefit of the other taxpayer’s dependent.
By Melinda Nelson, CPA-- Older Entries »
There is nothing more complex than the world of taxes. We know this and yet we chose careers where we face these issues everyday. We get questions day in and day out about new tax laws, forms and news items and how they affect everyday people and businesses. Well, here at Henry & Horne, LLP we have set out to do what we do best; help everyday people understand what is going on in the world of state, local, federal, estate and international taxation. We will provide these weekly posts and we encourage you to give us feedback on those posts as well as letting us know what else you would like to know more about. Welcome to "Tax Insights." We hope you find this blog informative and worthy of your time.
Before posting a comment on a blog post please be aware that we do not give free tax advice to non-clients by email, comment response, or phone. Thank you!
- Mom and Dad, help! I want to buy a house!
- IRS Online “Get Transcript” Service Gets Hacked
- Pushing for Tax Reform – Cash Method of Accounting
- Exemption Due to Marketplace 1095-A Error
- IRS Marks National Military Appreciation Month
- Tax Benefits of Hiring Children to Work in the Family Business
- ADOR Provides Additional Guidance on Prime Contracting Classification
- Benefits of a 529 Plan for Arizona Taxpayers
- Bill Passed to Enhance College Tuition Plans
- AZ Expands School Tuition Organization Credit to S Corps