June 2015 Tax Alerts

Don't Overlook FBAR Filing Requirement
Preserve Tax Breaks with MAGI Management
Millions Qualify for Exemption
Make Time for a Mid-Year Payroll Review
myRA Program Now Available
Tax Audits Cut By Budget Issues


Don't Overlook FBAR Filing Requirement

If you hold foreign bank or financial accounts and the total value of your account exceeds $10,000 at any time during the calendar year, you may be required to file a Treasury Department report known as the FBAR. It's easy to overlook this requirement because it's separate from your federal income tax filing, with a different deadline and strict rules.

FBAR refers to "Form 114, Report of Foreign Bank and Financial Accounts." Your 2014 Form 114 must be filed electronically with the Treasury Department no later than June 30, 2015. No filing extension is available. Contact us if you need details or filing assistance.


Preserve Tax Breaks with MAGI Management

How close to the edge are you when it comes to tax phase-outs? As you begin your midyear tax planning, consider the effects of these benefit-limiting provisions. Knowing how close you are to the "edge" can help preserve tax breaks for 2015.

Many phase-outs are based on modified adjusted gross income, or MAGI. MAGI is the adjusted gross income shown on your tax return as "modified" by adding back certain deductions. The "add-backs" vary with specific phase-outs. That means you might have to choose between conflicting opportunities. For instance, if you have a child in college this semester, the American Opportunity Credit and the Lifetime Learning Credit may be on your mind. Both benefits are education-related, yet the qualifying rules differ - including the MAGI threshold.

Here are some common federal tax benefits with MAGI phase-outs.

Education Credits

The American Opportunity Credit is a partially refundable, dollar-for-dollar reduction of your tax bill, with a maximum of $2,500 per student. This year the credit starts to shrink when your MAGI reaches $160,000 and you're married filing jointly ($80,000 when you're single). The credit disappears completely when your MAGI is greater than $180,000 for joint returns ($90,000 if your filing status is single).

For 2015, the Lifetime Learning Credit begins to phase out at $110,000 when you're married filing a joint return and $55,000 when you're single. Once your MAGI reaches $130,000 (married) or $65,000 (single), the credit is no longer available.

Retirement Plans

Phase-outs affect retirement planning too. The deduction for contributions to your traditional IRA is limited when you are eligible to participate in your employer's plan and your MAGI exceeds $98,000 ($61,000 when you're single).

While Roth IRA contributions are not tax-deductible, the amount you can contribute for 2015 begins to phase out when your MAGI reaches $183,000 and you're married filing jointly ($116,000 if you're single).

In addition, the federal "saver's" credit for contributing to retirement plans phases out when your 2015 MAGI is more than $61,000 and your filing status is married filing jointly ($30,500 for singles).

Social Security

The phase-out for the exclusion of social security benefits from taxable income is calculated on the amount of your "combined income" (one half of social security benefits plus other income) over the base amount of $32,000 when you're married filing jointly. The base amount is $25,000 when you're single.

Phase-outs also reduce personal exemptions, itemized deductions, and the alternative minimum tax exclusion. Contact our office for guidance in managing your income for maximum tax breaks.


Millions Qualify for Exemption

According to the Brookings Institution, an estimated 20 million taxpayers will qualify for an exemption from the Affordable Care Act's penalty for failing to have insurance. It's not known how many of those who qualify for the exemption will actually claim it. To check the available penalty exemptions, visit the IRS website at www.irs.gov.


Make Time for a Mid-Year Payroll Review

As the last month of the second quarter, June provides a good opportunity for a midyear payroll review. Here are three areas to assess and update.

Form I-9. Make sure you have a completed Employment Eligibility Verification Form on file for each of your employees. Check that you and your employees signed the right sections and that you met the deadlines for completion. Finally, make sure retention policies are up to date. You're required to keep Form I-9 as long as an employee works for you. For ex-employees, retain the form for three years after the date of hire or one year after the date employment ended, whichever is later.

Retirement plans. Consider introducing your employees to the new myRA, a retirement savings option. These plans allow employees to contribute monthly to a no-fee account that is similar to a Roth IRA. The funds in myRA accounts are invested in a government security and backed by the Treasury Department. As an employer, your only obligation is to facilitate the payroll deduction. You're not responsible for filing forms, making contributions, or tracking assets.

Health insurance law compliance. Verify that you have stopped reimbursing your employees for health coverage. After June 30, 2015, repaying employees specifically for health insurance premiums could subject you to a penalty of $100 per day per employee.

Another health law reminder: Make sure you have procedures in place so you can track information needed to fill out new 1095 forms for health insurance coverage. For 2015, these forms are generally required at year-end when you have 50 or more full-time employees, even if you do not offer coverage.

Contact us for more information and for help completing your midyear payroll review.


myRA Program Now Available

A new simplified Roth IRA is the latest retirement plan. The account is called a myRA (short for "my retirement account"). It's funded by having your employer make direct paycheck deposits to your retirement account. The contributions to your myRA are invested in government-guaranteed Treasury securities. A myRA isn't connected to your employer; it belongs entirely to you and can be moved to any new employer that offers direct deposit capability. The annual contribution limits that apply to regular Roth IRAs apply to myRAs. To find out more about myRAs, contact our office.


Tax Audits Cut By Budget Issues

The IRS reports that its enforcement budget has been cut by $254 million, a 5% reduction from the previous year. As a result, the Agency expects to cut the number of individual and business audits it conducts. In 2014 the IRS audited 0.86% of individual taxpayers and 26% of large corporations. Though audit statistics show a decline in examinations, the IRS contacts many more taxpayers with questions about their returns. Once statistics include these taxpayer contacts, the 2014 return examination rate is closer to 4% or one in every 25 returns filed.