Posts Tagged "income"

A MARRIAGE PENALTY LINGERS IN THE TAX CODE

Posted on Jul 26, 2017

A marriage is worth celebrating, but bringing up the marriage penalty may bring down the celebration. The marriage penalty occurs in the tax code when you pay more tax as a married couple than you would as two single filers making the same amount of money. This occurs throughout the federal tax code. The following are two examples: The tax rate problem If the tax tables did not differentiate between single and married, you could assume the married income required to move to the next highest tax rate would always be double that of a single filer. This is not the case. As an example, when you’re a single filer, income above $91,901 is taxed at 28%. When you file a joint return with your spouse, the 28% rate starts at $153,101. You will notice that the beginning of the 28% tax bracket for married couples ($153,101) is not twice the $91,901 amount applied to each of you when you were single. The outcome is an increase in tax on your combined income over what you would have paid individually. Accelerating the phase-outs Another example of the marriage penalty occurs in the acceleration of phase-outs of personal exemptions and itemized deductions for married couples versus single filers. These deductions begin when your adjusted gross income (AGI) is greater than $313,800 if you’re married filing a joint return and $261,500 when you’re single. Think the marriage penalty only impacts upper income? Even the Earned Income Tax Credit (EITC) phase-outs favor single taxpayers over married taxpayers. A single mother of three can qualify for the EITC with income less than $48,340, where a married couple loses the EITC with combined income over $53,930. Not surprisingly, there are some couples who simply decide not to marry to avoid the penalty, but obviously this option isn’t right for all couples. If you are planning to marry in the near future, do not be caught by surprise with a larger than expected tax bill. Call to review your situation. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and...

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TAX-FREE INCOME

Posted on Jul 12, 2017

Yes, that’s correct, there are some forms of income you receive that may be tax-free. Here is a list of ten common sources of tax-free income. Gifts. Gifts you receive are not taxable income to you. In fact, they are not subject to gift tax to the person giving the gift as long as the gifts received in one year from one person do not exceed $14,000. Rental income. If you rent your home or vacation cottage for up to 14 days, that rental income does not need to be reported. Child’s income. Up to the standard deduction amount ($6,350 in 2017) in earned income (wages) and $1,050 in unearned income (interest) for children is not taxed. Excess earnings above these amounts could be taxed and $2,100 in unearned income is taxed at the parent’s tax rate. Inheritance. In most states, beneficiaries typically do not pay tax on the value of what they inherit. When inherited property is sold by the beneficiary, however, there may be a capital gains tax obligation. Roth IRA earnings. As long as you meet this retirement account type’s rules, earnings in a Roth IRA are not taxed. Life insurance received. The full value of life insurance received is not taxable income. However, the proceeds may be taxable within the estate of the deceased policyholder. Child support revenue. Income you receive as child support is not deemed to be taxable income. On the other hand, alimony received is taxable income. Home sales gains. Up to $250,000 ($500,000 for married filing jointly) in gains on the sale of a qualified principal residence is not taxable. Scholarships/fellowships. Money received to cover tuition, fees, and books for degree candidates is not generally taxable. Refunds. Federal refunds (technically you’ve already accounted for this income) and most state refunds for non-itemizers are also tax-free. This is by no means a complete list of tax-free income, but it’s nice to know that some areas of tax law still benefit taxpayers. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and...

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Making the most of your tax refund

Posted on Feb 6, 2017

If you are expecting a tax refund, you might consider investing your refund or using it to increase your financial security. While everyone’s needs are different, here are some optional uses of your refund that may work for you. Contribute your refund to your employer’s 401(k) plan. If your employer offers a matching contribution, that’s an immediate return on your money in addition to deferring taxes on your contribution. And, funds in the plan grow free of tax until withdrawal. Use your refund to pay down credit card balances – you’ll earn a guaranteed double-digit return. Consider investing your refund in your child’s education. Both Section 529 college savings plans and education savings accounts offer tax-advantaged ways to save for college costs. Take full advantage of your IRA options for retirement savings. Both Traditional and Roth IRAs are great ways to save for retirement. If you’ve maximized your retirement and education savings, and your credit cards are under control, put your refund in diversified investments that make sense for your age and financial situation. Ask yourself if getting a big refund every year is a smart idea. Would you rather invest your money during the year instead of making an interest-free loan to the government? If so, consider filing a updated Form W-4 with your employer. Contact our office if you have questions about getting more out of your tax...

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Time to plan for inflation-adjusted 2017 tax numbers

Posted on Feb 2, 2017

Each year, certain tax figures are adjusted for inflation. While most figures are unchanged versus 2016, there is more than a 7% increase to the maximum earnings subject to social security tax. Take note of these numbers to use in your 2017 planning.   The maximum earnings subject to social security tax in 2017 is $127,200. The earnings limit for those under full retirement age increases to $16,920 for 2017.   The “nanny tax” threshold remains $2,000 in 2017. If you pay household employees $2,000 or more during the year, you’re generally responsible for payroll taxes.   The “kiddie tax” threshold remains $2,100 for 2017. If you have a child under the age of 19 (under age 24 for full-time students) who has more than $2,100 of unearned income, such as dividends and interest income, the excess could be taxed at your highest rate in 2017.   The maximum individual retirement account (IRA) contribution you can make in 2017 remains unchanged at $5,500 if you are under age 50 and $6,500 if you are 50 or older.   The maximum amount of wages employees can contribute to a 401(k) plan remains at $18,000, with an additional $6,000 if you are 50 or older. The 2017 maximum contribution for SIMPLE plans is $12,500 and and an additional $3,000 if you are 50 or older.   The maximum you can contribute to a health savings account in 2017 is $3,400 for individuals and $6,750 for families. The catch-up contribution if you’re age 55 or older is...

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Does your business make use of your financial statements?

Posted on Dec 18, 2014

Many small business owners pay too little attention to their financial statements. This is due in part to not understanding just what the statements have to offer. In fact, many may not be able to tell you the difference between a Balance Sheet and an Income Statement. Think of them this way. The Balance Sheet is like a still picture. It shows where your company is at on a specific date, at month-end, or at year-end. It is a listing of your assets and debts on a given date. So Balance Sheets that are a year apart show your financial position at the end of year one versus the end of year two. Showing how you got from position one to position two is the job of the Income Statement. Suppose I took a photo of you sitting behind your desk on December 31, 2013. And on December 31, 2014, I took a photo of you sitting on the other side of your desk. We know for a fact that you have moved from one side to the other. What we don’t know is how you got there. Did you just jump over the desk or did you run all the way around the building to do it? The Income Statement tells us how you did it. It shows how many sales and how much expense was involved to accomplish the move. To see why a third kind of financial statement called a Funds Flow Statement is useful, follow this case. A printer has started a new printing business. He invested $20,000 of his own cash and borrowed $50,000 from the bank to buy new equipment. After a year of operation, he has managed to pay off the bank loan. He now owns the equipment free and clear. When he is told his net profit is $50,000, he can’t believe it. He might tell you that he took nothing out of the business and lived off his wife’s wages for the year. And since there is no cash in the bank, just where is the profit? The Funds Flow Statement will show the income as a “source of funds” and the increase in equipment is an “application of funds.” The Funds Statement is even more useful when you have several assets to which funds can be applied and several sources of funds such as bank loans, vendor payables, and business profit or loss. Don’t be afraid to ask your accountant questions about your financial statements. The more questions you get answered, the more useful you will find your financial statements. Accounting is sort of a foreign language. Learn to speak a little of it. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in the McLean and Tysons Corner, VA. Gilliland & Associates specializes known for our superior knowledge and aggressive interpretation and application of tax laws, we help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and...

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