Tax Tips - Darshi Kasotia, CPA

Darshi Kasotia, CPA February 14, 2017

401k and Retirement Plan Limits for the Tax Year 2017

On October 27, 2016, the Internal Revenue Service announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2017.

Highlights of Limitations That Remain Unchanged From 2016

The contribution limit for employees who participate in 401k, 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $18,000.
The catch-up contribution limit for employees aged 50 and over who participate in 401k, 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $6,000.
The limit on annual contributions to an 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.

Chart of Select Limits

401k Plan Limits for Year	2017	2016	2015	2014	2013	2012	2011
401k Elective Deferrals	$18,000	$18,000	$18,000	$17,500	$17,500	$17,000	$16,500
Annual Defined Contribution Limit	$54,000	$53,000	$53,000	$52,000	$51,000	$50,000	$49,000
Annual Compensation Limit	$270,000	$265,000	$265,000	$260,000	$255,000	$250,000	$245,000
Catch-Up Contribution Limit	$6,000	$6,000	$6,000	$5,500	$5,500	$5,500	$5,500
Highly Compensated Employees	$120,000	$120,000	$120,000	$115,000	$115,000	$115,000	$110,000

Non-401k Related Limits
403(b)/457 Elective Deferrals	$18,000	$18,000	$18,000	$17,500	$17,500	$17,000	$16,500
SIMPLE Employee Deferrals	$12,500	$12,500	$12,500	$12,000	$12,000	$11,500	$11,500
SIMPLE Catch-Up Deferral	$3,000	$3,000	$3,000	$2,500	$2,500	$2,500	$2,500
SEP Minimum Compensation	$600	$600	$600	$550	$550	$550	$550
SEP Annual Compensation Limit	$270,000	$265,000	$265,000	$260,000	$255,000	$250,000	$245,000
Social Security Wage Base	$127,200	$118,500	$118,500	$117,000	$113,700	$110,100	$106,800

Filed Under: 401 K, IRA, Roth IRA, Tax Tips, Traditional IRA

Darshi Kasotia, CPA August 30, 2013

Tax Tips – Individuals Selling Their Home

If you’re selling your main home this summer or sometime this year, we have some helpful tax tips for you. Even if you make a profit from the sale of your home, you may not have to report it as income.

Here are some tips to keep in mind when selling your home.

If you sell your home at a gain, you may be able to exclude part or all of the profit from your income. This rule generally applies if you’ve owned and used the property as your main home for at least two out of the five years before the date of sale.
You normally can exclude up to $250,000 of the gain from your income ($500,000 on a joint return). This excluded gain is also not subject to the new Net Investment Income Tax, which is effective in 2013.
If you can exclude all of the gain, you probably don’t need to report the sale of your home on your tax return.
If you can’t exclude all of the gain, or you choose not to exclude it, you’ll need to report the sale of your home on your tax return. You’ll also have to report the sale if you received a Form 1099-S, Proceeds From Real Estate Transactions.
Use IRS e-file to prepare and file your 2013 tax return next year. E-file software will do most of the work for you. If you prepare a paper return, use the worksheets in Publication 523, Selling Your Home, to figure the gain (or loss) on the sale. The booklet also will help you determine how much of the gain you can exclude.
Generally, you can exclude a gain from the sale of only one main home per two-year period.
If you have more than one home, you can exclude a gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is usually the one you live in most of the time.
Special rules may apply when you sell a home for which you received the first-time home buyer credit. See Publication 523 for details.
You cannot deduct a loss from the sale of your main home.
When you sell your home and move, be sure to update your address with the IRS and the U.S. Postal Service. File Form 8822, Change of Address, to notify the IRS.

Further Reference:

Publication 523, Selling Your Home
Questions and Answers on the Net Investment Income Tax
Form 8822 Change of Address
U.S. Postal Service

IRS YouTube Videos:

Selling Your Home – English | Spanish

IRS Podcasts:

Selling Your Home – English | Spanish

Filed Under: 1040, Deductions, Tax Tips

Darshi Kasotia, CPA August 29, 2013

Tax Tips – Give Withholding and Payments a Check-up

Some people are surprised to learn they’re due a large federal income tax refund when they file their taxes. Others are surprised that they owe more taxes than they expected. When this happens, it’s a good idea to check your federal tax withholding or payments. Doing so now can help avoid a tax surprise when you file your 2013 tax return next year.

Here are some tips to help you bring the tax you pay during the year closer to what you’ll actually owe.

Wages and Income Tax Withholding

New Job. Your employer will ask you to complete a Form W-4, Employee’s Withholding Allowance Certificate. Complete it accurately to figure the amount of federal income tax to withhold from your paychecks.
Life Event. Change your Form W-4 when certain life events take place. A change in marital status, birth of a child, getting or losing a job, or purchasing a home, for example, can all change the amount of taxes you owe. You can typically submit a new Form W–4 anytime.
IRS Withholding Calculator. This handy online tool will help you figure the correct amount of tax to withhold based on your situation. If a change is necessary, the tool will help you complete a new Form W-4.

Self-Employment and Other Income

Estimated tax. This is how you pay tax on income that’s not subject to withholding. Examples include income from self-employment, interest, dividends, alimony, rent and gains from the sale of assets. You also may need to pay estimated tax if the amount of income tax withheld from your wages, pension or other income is not enough. If you expect to owe a thousand dollars or more in taxes and meet other conditions, you may need to make estimated tax payments.
Form 1040-ES. Use the worksheet in Form 1040-ES, Estimated Tax for Individuals, to find out if you need to pay estimated taxes on a quarterly basis.
Change in Estimated Tax. After you make an estimated tax payment, some life events or financial changes may affect your future payments. Changes in your income, adjustments, deductions, credits or exemptions may make it necessary for you to recalculate your estimated tax.
Additional Medicare Tax. A new Additional Medicare Tax went into effect on Jan. 1, 2013. The 0.9 percent Additional Medicare Tax applies to an individual’s wages, Railroad Retirement Tax Act compensation and self-employment income that exceeds a threshold amount based on the individual’s filing status. For additional information on the Additional Medicare Tax, see our questions and answers.
Net Investment Income Tax. A new Net Investment Income Tax went into effect on Jan. 1, 2013. The 3.8 percent Net Investment Income Tax applies to individuals, estates and trusts that have certain investment income above certain threshold amounts.

Further Reference:

IRS YouTube Videos:

IRS Withholding Calculator – English | Spanish

IRS Podcasts:

IRS Withholding Calculator – English | Spanish

Filed Under: 1040, Deductions, Tax Tips

Darshi Kasotia, CPA August 14, 2013

Tax Tips – College Tax Credits

Going to college can be a stressful time for students and parents. The following tips regarding College Tax Credits that can help offset some college costs and maybe relieve some of that stress.

American Opportunity Tax Credit. This credit can be up to $2,500 per eligible student. The AOTC is available for the first four years of post secondary education. Forty percent of the credit is refundable. That means that you may be able to receive up to $1,000 of the credit as a refund, even if you don’t owe any taxes. Qualified expenses include tuition and fees, course related books, supplies and equipment. A recent law extended the AOTC through the end of Dec. 2017.

Lifetime Learning Credit. With the LLC, you may be able to claim up to $2,000 for qualified education expenses on your federal tax return. There is no limit on the number of years you can claim this credit for an eligible student.

You can claim only one type of education credit per student on your federal tax return each year. If you pay college expenses for more than one student in the same year, you can claim credits on a per-student, per-year basis. For example, you can claim the AOTC for one student and the LLC for the other student.

You can use the IRS’s Interactive Tax Assistant tool to help determine if you’re eligible for these credits. The tool is available at IRS.gov.

Student loan interest deduction. Other than home mortgage interest, you generally can’t deduct the interest you pay. However, you may be able to deduct interest you pay on a qualified student loan. The deduction can reduce your taxable income by up to $2,500. You don’t need to itemize deductions to claim it.

These education benefits are subject to income limitations and may be reduced or eliminated depending on your income.

For more information, visit the Tax Benefits for Education Information Center at IRS.gov. Also, check Publication 970, Tax Benefits for Education. The booklet’s also available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Further Reference:

Tax Benefits for Education Information Center
Am I Eligible to Claim an Education Credit? – Interactive Tax Assistant tool
Publication 970, Tax Benefits for Education

IRS YouTube Videos:

Education Tax Credits and Deductions – English | Spanish

IRS Podcasts:

Education Tax Credits and Deductions – English | Spanish

Filed Under: 1040, Tax Tips

Darshi Kasotia, CPA August 9, 2013

Tax Tips for Filing an Amended Tax Return

The Internal Revenue Service

What should you do if you already filed your federal tax return and then discover a mistake? You have a chance to fix errors by filing an amended tax return. This year you can use the new IRS tool, ‘Where’s My Amended Return?’ to easily track the status of your amended tax return. Here are 10 facts you should know about filing an amended tax return.

Use Form 1040X, Amended U.S. Individual Income Tax Return, to file an amended tax return. An amended return cannot be e-filed. You must file it on paper.
You should consider filing an amended tax return if there is a change in your filing status, income, deductions or credits.
You normally do not need to file an amended return to correct math errors. The IRS will automatically make those changes for you. Also, do not file an amended return because you forgot to attach tax forms, such as W-2s or schedules. The IRS normally will send a request asking for those.
Generally, you must file Form 1040X within three years from the date you filed your original tax return or within two years of the date you paid the tax, whichever is later. Be sure to enter the year of the return you are amending at the top of Form 1040X.
If you are amending more than one tax return, prepare a 1040X for each return and mail them to the IRS in separate envelopes. You will find the appropriate IRS address to mail your return to in the Form 1040X instructions.
If your changes involve the need for another schedule or form, you must attach that schedule or form to the amended return.
If you are filing an amended tax return to claim an additional refund, wait until you have received your original tax refund before filing Form 1040X. Amended returns take up to 12 weeks to process. You may cash your original refund check while waiting for the additional refund.
If you owe additional taxes with Form 1040X, file it and pay the tax as soon as possible to minimize interest and penalties.
To use either ‘Where’s My Amended Return’ tool, just enter your taxpayer identification number (usually your Social Security number), date of birth and zip code. If you have filed amended returns for more than one year, you can select each year individually to check the status of each.