Personal Income Tax Mary B Pearson, CPA Assistant Professor of Accounting
Topics Discussed: • Filing Status • Dependent Qualifications • Sources of Income • Self Employed Income • Estimated Taxes & Tax Brackets • Required Receipts • Itemized Deductions • Credits • Education Expenses
Filing Status: • Single • Never been married, Divorced or Legally Separated at Dec 31 • Married Filing Joint • Considered married at Dec 31 • Married Filing Separate • Considered married at Dec 31 • Head of Household • Qualifying Widow
Head of Household • You are unmarried or considered unmarried at the end of the year. • You paid more than one half the cost of keeping up a home for the year. • A “Qualifying Person” lived with you in the home for more than half the year. Exception: school absences, dependent parent
Qualifying Widow (er) • Spouse died in prior year, file MFJ • If you have a dependent child and spouse died in last 2 years and you have remained unmarried. You may file with MFJ tax rates.
Sources of Income • W-2 Employee Income: Includes bonuses, tips, commissions, fringe benefits • Interest & Dividend Income • State Tax Refunds: Taxable if deducted as an itemized deduction in a prior year. • Alimony received, not child support • Self Employed/Business Income: Includes child care services, lawn mowing, purchased research, side income.
Sources of Income • Capital Gains & Losses: Sale of Assets • Gains & Losses: Sale of business property • IRA/Pension Distributions • Rental Real Estate Income • Farm Income • Unemployment Compensation
Sources of Income • Disability Income: Taxable if the policy was paid by your employer. • Social Security Benefits: If you are single, part of your social security is taxable if you have taxable earnings are over $25,000, if married over $32,000. • Other Income: Jury duty pay, Canceled Debt Income, Gambling Winnings, Prizes
Self Employed Income • Revenue: Report Cash separate from Credit Card Income • Deductions: • Advertising • Car & Truck Expenses/Mileage = $.55 per mile • Contract Labor • Repairs to Business Assets • Licenses • Bank Fees • Personal Property Taxes paid • Expense or Depreciate Business Assets • Computers/Desks/Equipment/Software
Self Employed Income • Deductions: • Insurances • Interest paid on Credit Cards • Legal and Professional Fees including tax prep fees and advice • Office Expenses • Rental costs for equipment & property, including storage shed fees • Travel Costs including meals and lodging • Supplies • Cell Phone & Internet Costs • Business Use of Home
A CPA had just read the story of Cinderella to his 4 year old daughter for the first time. The little girl was fascinated by the story, especially the part where the pumpkin turns into a golden coach. Suddenly she piped up, “Daddy, when the pumpkin turned into a golden coach, would that be classed as income or a long-term capital gain?”
Deductions from Income • Educator Expenses: k-12 teachers • Health Savings Account Contributions: Maximum contribution for Single is $3050, $6150 Family. Minimum deductible $1200. • Moving Expenses: Must be closely related to work, 50 miles from previous main home, work for 39 weeks • Alimony Paid
Deductions from Income • IRA Deductions: If covered by a retirement plan at work, cannot deduct if AGI is greater than $110,000. Can contribute $5000, if over 50 $6,000. • Student Loan Interest: Can deduct up to $2500 if AGI is less than $75,000 Single, $150,000 MGJ • Roth IRA: Non Deductible • Can contribute up to $179,000 MFJ
Estimated Taxes • Required to pay 90% of the required tax by the due date of the return and the remaining balance when the return is filed. (applicable when a 6 month extension is filed)
Required Receipts • Here are a few things the IRS wants you to know about recordkeeping.1. Generally, you should keep any and all documents that may have an impact on your federal tax return. It’s a good idea to have a designated place for tax documents and receipts. • 2. Individual taxpayers should usually keep the following records supporting items on their tax returns for at least three years: • Bills • Credit card and other receipts • Invoices • Mileage logs • Canceled, imaged or substitute checks or any other proof of payment • Any other records to support deductions or credits you claim on your return • You should normally keep records relating to property until at least three years after you sell or otherwise dispose of the property. Examples include: • A home purchase or improvement • Stocks and other investments • Individual Retirement Arrangement transactions • Rental property records • 3. If you are a small business owner, you must keep all your employment tax records for at least four years after the tax becomes due or is paid, whichever is later. Examples of important documents business owners should keep Include:Gross receipts: Cash register tapes, bank deposit slips, receipt books, invoices, credit card charge slips and Forms 1099-MISC • Proof of purchases: Canceled checks, cash register tape receipts, credit card sales slips and invoices • Expense documents: Canceled checks, cash register tapes, account statements, credit card sales slips, invoices and petty cash slips for small cash payments • Documents to verify your assets: Purchase and sales invoices, real estate closing statements and canceled checks
Itemized Deductions • Medical and Dental Expenses • Personal Property Taxes on vehicles are not deductible in Utah • Sales Tax vs. State Income Taxes • Real Estate Taxes • Mortgage Interest • Principle Mortgage Insurance Premiums • Charitable Contributions
Itemized Deductions • Unreimbursed Employee Expenses • Income Tax Preparation Fee • Investment Expenses • Gambling Losses
Sales Tax vs. State Income Tax • Deduct the higher of sales tax paid or state and local taxes paid. • For sales tax deduction, you can use allocation in table, plus taxes on motor vehicles.
Real Estate Taxes • Real Estate Taxes on Real Property • Registration and Fees paid on personal vehicles are not deductible because of age based fee assessed in Utah, not tax.
Mortgage Interest • Mortgage Interest is deductible on 1st and 2nd Mortgage or Primary Residence. • Points are only deductible if paid in the current year, if financed in loan must amortize points over life of loan. • Mortgage Interest on 2nd Home also deductible. • Mortgage Insurance Premiums on Home Acquisition Debt acquired after 2006, also deductible.
Charitable Contributions • Out of Pocket Expenses incurred while giving service to a non-profit organization: • Travel Expenses while away from home • Hotel/Lodging/Airfare/Taxi • Meals deductible only if required to stay overnight. • Actual Car & Truck Expenses or $.14 per mile • Uniforms
Charitable Contributions • Can only take a charitable contribution up to 50% of your Adjusted Gross Income. • Cannot deduct the value of a benefit received. EX: Charitable dinner, must deduct the value of the meal. • Cannot deduct value of your time.
Non Cash Charitable Contributions • Deduct the lesser of Fair Value or Amount paid. • Household items, cars, boats, airplanes, homes, real estate…are deductible • Can carry over excess contributions to next five years. • Must keep records and receipts from entity donated to prove deduction. • If over $500 must itemize items
Unreimbursed Employee Expenses • Out of Pocket expenses necessary to maintain current employment position • Unreimbursed Travel Expenses including lodging, meals, airfare • Licenses • Required Education & Training • Supplies & Assets acquired including computers & software • Liability/Malpractice Insurance • Subscriptions/Magazines/Professional Dues
Miscellaneous Deductions • Subject to 2% AGI Floor: • Unreimbursed Employee Expenses • Income Tax Preparation Fees • Investment Expenses • Job Hunting Expenses • Safety Deposit Box Fees • Not Subject to 2% Floor • Gambling Losses • Losses from K-1’s
Credits • Child & Dependent Care Credit • Retirement Savings Credit: Eligible if you contribute to a Retirement Account and AGI is less than $56,500. • Child Tax Credit: $1,000 for each eligible dependent under the age of 17. AGI cannot be greater than $130,000 MFJ. • Residential Energy Credit: Windows, Exterior Doors, Insulation, Energy Efficient Equipment • Adoption Credit
Earned Income Credit Maximum Earned Income Credit = $5,751.00 if MFJ with 3 children and AGI up to $21,800. See Publication 596 for tables and eligibility at www.irs.gov
Questions & Answers • Personal Income Taxes are due Tuesday, April 17, 2012 • Filing Period: Three years from the due date of the return to claim a refund. • EX: Due date April 17, 2012. You have until April 15, 2015 to file or amend a 2011 return for a refund. • Audit Period: Three previous years tax returns.