You may not have thought much about the alternative minimum tax, or AMT, since Congress passed a law that permanently fixed the exemption. But the tax, which you must calculate separately from your regular tax liability, is still around. Here’s how the AMT might apply to your 2016 tax return.
Certain income and deductions, known as preference items, are added to or subtracted from the income shown on your federal income tax return to arrive at your AMT taxable income. For example, certain bond interest that you exclude from your regular taxable income must be included when computing income for the AMT. This is a “preference item” because tax-exempt interest gets preferential treatment under ordinary federal income tax rules.
AMT “adjustments” also affect whether you’ll owe the tax. These include personal exemptions and your standard deduction. In the AMT calculation, these taxable-income reducers are not deductible. Instead, they’re replaced with one flat exemption, which is generally the amount of income you can exclude from the AMT. For your 2016 return, the AMT exemption is $83,800 when you’re married filing a joint return or are a surviving spouse, $53,900 when you file as single, and $41,900 if you’re married and file separately. The exemption decreases once your income reaches a certain level.
Finally, only some itemized deductions, such as charitable contributions, are allowed in the AMT calculation. Others, including medical expenses and mortgage interest, are computed using less favorable rules.
Need help determining whether the AMT will apply to you? Give us a call.
Students – Don’t be in such a hurry to file your return that you cost your parents!
Students that work part-time jobs often have more tax withheld from their paychecks than the actual tax assessed when they file their return. They are then, understandably, in a hurry to file their return to get some spending money from their refund.
However, if they don’t fill their return out correctly and claim a personal exemption for themselves, their parents won’t be able to claim them. The parents often, not knowing the consequences of their student filing their return in January or February, rightfully claim the student as a dependent. Since this results in both parent and student claiming the same person (and SSN), the parents return is adjusted so that they don’t get credit for the refund. This could cost the parent approximately $1,500 to $2,000 depending on their tax bracket. Amended returns for both parent and student can be prepared but this is costly and no one wants to file amended returns if they don’t have to.
A better solution is to make sure the student holds off in filing their return until the parents file their own return or at least have a professional tax preparer determine that it is ok for the student to file.
Students that work part-time jobs often don’t earn enough to require filing a tax return but still have federal and state income taxes withheld from their paychecks. This can present a situation where they have to file a tax return just to get their money back. Often the cost of paying someone to prepare their return is more than they might get refunded so they don’t file a return at all (which is legal to do).
A better solution is to elect not to have any taxes (other than social security and Medicare which are not optional) withheld from their pay.
To make this election, request form W-4 from your employer for federal taxes and write EXEMPT in box 7. In order to be eligible to be EXEMPT from withholding, you basically must not have had any taxes owed the prior year and do not expect to have any taxes due for the current year.
For Georgia taxes, request form G-4 from your employer and read instructions on page 2 of the form and if eligible, check the box on line 8.
Of course, if it turns out that the student earned more than anticipated, a return might have to be filed and it is possible some taxes would be due. However, if that doesn’t happen the student will be able to keep all of their hard earned money and will not have to file a tax return JUST to get back income taxes that were withheld.
Hawkinson Muchnick & Associates adds a new location in north-central Georgia, opening an additional office in Paulding County.
January 2017 – Douglasville – Hawkinson Muchnick & Associates is proud to announce the opening of a new office in Hiram, Georgia. Officially opening its doors in early January, the Hiram office brings high quality tax, accounting and business advisory services to businesses and individuals in an expanded area, adding convenience for clients in Paulding County and the region and allowing the firm to serve an expanding client base.
Paul Hawkinson describes the need for expansion saying, “HMA has been experiencing rapid growth for several years now. It made sense to add an additional location to better serve the clients who rely on us.”
His partner, Dan Muchnick, agrees. “Our clients are geographically diverse,” he reports. “As business owners ourselves, we know how important it is to be able to meet with the professionals you depend on at a location that’s convenient so you don’t spend too much time travelling. Having an office in Hiram lets us make it easier and faster for them to get the services and advice they need close to home.”
As longtime residents of the area, both Muchnick and Hawkinson are deeply involved in the business communities of both Douglas and Paulding counties as well as the broader region. Their intimate understanding of the economic conditions that drive business, job growth and government allows them to bring critical insight to business owners and individuals throughout this portion of the state.
“Paulding County has seen so much growth in recent years,” says Hawkinson. “It’s important for business leaders and others with an economic involvement in the region to work with professionals who really understand the changing conditions and dynamic environment there. We are able to bring that kind of insight to decision makers and investors, so they can reach their goals more efficiently.”
Shaping up your finances in 2017 may seem like a big goal, perhaps even too daunting. But if you take one small step at a time, these small steps will add up. Here are a few suggestions to help you get started.
Shift out of automatic. Have you established automatic bill pay at your bank or service provider, or automatic charges to your credit card?
Small step: Look for payments for goods or services you no longer use, such as recurring monthly subscriptions, and cancel them.
Big goal: Reduce total expenses and increase savings.
Take the urgency out of emergency. Sure, you know that having an account with enough funds specifically earmarked for emergencies is a good idea. But the amount you need to save seems overwhelming. The good news is you don’t have to immediately fund six months of living expenses.
Small step: Set up a separate account with automatic deposits of $5 or $10 per paycheck, perhaps with funds you’ve redirected from those unused recurring monthly subscriptions.
Big goal: Build an emergency fund with enough cash to cover six months of expenses.
Give yourself credit. Maybe you intend to pay off your credit card debt. But do you have a plan? Knowing where you stand is the first step in getting to where you want to be.
Small step: Make a list of your cards, the balances, the minimum payments, and the interest rates.
Big goal: Eliminate finance charges by being able to pay off your balance each month.
Retire your excuses. Does your employer offer a retirement plan? If so, you may be leaving money on the table.
Small step: Find out what amount is on offer as “matching” funds. That’s money your employer will add to your account when you make contributions.
Big goal: Maximize your retirement contributions.
Small steps can lead to big improvements in your financial well-being. Contact us for more tips that make it easy to get into great financial shape, one step at a time.
Tax return filing season has arrived, which means it’s time to mark your calendar for these 2017 tax deadlines.
January 17 – Due date for the fourth and final installment of 2016 estimated tax for individuals (unless you file your 2016 return and pay any balance due by January 31).
January 31 – Employers must furnish 2016 W-2 statements to employees, and send copies to the Social Security Administration (both paper and electronic).
January 31 – Payers must file all copies of 2016 Forms 1099-MISC with non-employee compensation in Box 7. For these forms, the January 31 due date applies to both paper and electronic filing.
January 31 – Employers must generally file 2016 federal unemployment tax returns and pay any tax due.
February 28 – Payers must file information returns (except certain Forms 1099-MISC) with the IRS. (Except for certain Forms 1099-MISC, March 31 is the deadline if filing electronically.)
Did you spot the new due dates on the tax calendar? As you begin your January payroll preparation, take into account earlier due dates for two common information reporting forms.
Forms W-2 for 2016 are due January 31 for all copies. In the past, you had to provide Forms W-2 to your employees by January 31. Now the January 31 deadline also applies to copies submitted to the Social Security Administration.
The due date for filing all copies of 2016 Forms 1099-MISC with non-employee compensation in Box 7 is January 31, 2017. For these forms, the January 31 due date also applies to both paper and electronic filing.
Please contact our office right away if you would like assistance with filing these forms.
Have you noticed the price of gas? So has the IRS – and the reimbursement rate for business mileage has gone down as a result. The new rate for 2017 is 53.5¢ per mile, down from the 2016 rate of 54¢ per mile.
The rate for medical and moving mileage also decreased. Effective January 1, the standard rate is 17¢ per mile, down from last year’s 19¢. The charitable mileage rate remains 14¢.
Here’s a quick review of some of the rules you can expect to encounter when you get ready to prepare your 2016 federal income tax return.
Income tax rates. For 2016, ordinary federal income tax rates range from 10% to 35% unless your taxable income exceeds $415,050 when you’re single or $466,950 if you’re married filing jointly. The rate on income above those amounts is 39.6%.
Tax breaks that are now permanent. Three tax breaks you’ll be able to take on your 2016 return, and on future returns: 1) The optional deduction for state and local sales tax in lieu of state and local income tax; 2) the $250 deduction for classroom supplies if you’re an educator; and 3) IRA-to-charity transfers of up to $100,000 when you’re 70½ or older.
Itemized deductions and personal exemption phase-outs. For 2016, itemized deductions and personal exemptions are limited when you file as single and your adjusted gross income (AGI) is above $259,400. The limitation begins with AGI above $311,300 for married couples filing jointly.
Alternative minimum tax. The exemption amount for 2016 is $53,900 for singles and $83,800 for married filing jointly.
Capital gains and dividends. Long-term gains are generally taxed at 15%. The rate is zero percent if you’re in the 10% and 15% ordinary income brackets, and 20% when you’re in the 39.6% ordinary income bracket.
Affordable Care Act surtaxes. You’ll pay a Medicare surtax of 0.9% on wages and self-employment income exceeding $200,000 when you’re single and $250,000 when you’re married filing jointly. For unearned income, you’ll pay the 3.8% net investment income tax when you’re single and your modified AGI exceeds $200,000. If you’re married filing jointly, the net investment income tax is imposed when your modified AGI exceeds $250,000.
If you have questions about your 2016 tax return, please call our office and we’ll help you find the answers you need.
For 2017, the wage base for withholding social security tax from wages has increased to $127,200, up from $118,500 in 2016. The “wage base” is the amount of wages on which employers and employees must pay the 6.2% social security tax. The increased wage base means an additional $8,700 of your income is taxed.
The wage base does not affect the 1.45% Medicare payroll tax. Medicare tax is assessed on all wages and net income from self-employment, including amounts above the base. The 0.9% Additional Medicare Tax is not affected either. That tax applies to your compensation in excess of $250,000 when you’re married filing jointly ($200,000 when you’re single).
The federal payroll tax rate for employers and employees remains 7.65%, with social security tax withheld and paid at 6.2%, and Medicare tax withheld and paid at 1.45%.
