Tax Lawyers Minneapolis

Second Quarter of 2014 IRS Underpayment and Overpayment Interest Rates

On March 14, 2014, the IRS announced that the underpayment and overpayment interest rates will remain the same for the calendar quarter beginning April 1, 2014. The rates will be:

three (3) percent for overpayments [two (2) percent in the case of a corporation];
three (3) percent for underpayments;
five (5) percent for large corporate underpayments; and
one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

Interest factors for daily compound interest for annual rates of 0.5 percent are published in Appendix A of Revenue Ruling 2011-32. Interest factors for daily compound interest for annual rates of 2 percent, 3 percent and 5 percent are published in Tables 7, 9, 11, and 15 of Rev. Proc. 95-17, 1995-1 C.B. 561, 563, 565, and 569.

New Deduction Phase-outs for 2013 Tax Returns

Upper-income US taxpayers should be aware that new deduction phase-out IRS rules in effect for 2013 tax returns to be filed in 2014 may increase their tax liabilities or reduce refunds. Two new important changes for high-earning individuals or couples are the new itemized deduction phase-outs and personal and dependent exemption deduction phase-outs. Because of these changes in the deduction phase-out rules, along with other new IRS rules that we have covered in previous articles, the necessity for proper tax planning will only increase in future years.

This article will briefly explain the changes in the deduction phase-out rules; it is not intended to convey tax or legal advice. Please consult a tax attorney if you have further questions. Sherayzen Law Office, PLLC can assist you in all of your tax and legal needs.

New Itemized Deduction Phase-Out Changes

Under the new US tax rules, the amount of itemized deductions that high-earning individuals or couples may take on Form 1040 is subject to a phase-out limitation. Specifically, allowable itemized deductions will be reduced by 3% of the amount of adjusted gross income (AGI) above the certain income thresholds (however, this reduction will not exceed 80% of the original total amount of a taxpayer’s itemized deductions).

The income thresholds are the following: $250,000 for single individuals, $300,000 for married filing jointly couples, $150,000 for married filing separately couples, and $275,000 for heads of households. As an example, consider a married couple filing jointly with AGI of $500,000, and $50,000 of original itemized deductions for Schedule A. Because their AGI is $200,000 over the income threshold, their allowable itemized deductions will be reduced by 3% of the excess ($200,000 multiplied by 3%, equaling $6,000). Thus, their allowable itemized deductions will be reduced to $44,000.

New Personal and Dependent Exemption Deduction Phase-Out Changes

While under the general IRS rule, the amount that taxpayers may deduct for each applicable exemption increased from 2012 (at $3,800) to 2013 (now $3,900), certain taxpayers may lose some or all of the benefit of their exemptions if their AGI exceeds certain thresholds under the new Personal Exemption Phase-out (PEP). Under this rule, the dollar amount of each personal exemption must be reduced from its original value by 2 percent for each $2,500 or part of $2,500 ($1,250 for married filing separately) that AGI is above the above specified income thresholds.
For 2013 tax year returns, the phase-out starts at the following amounts: $250,000 for single individuals, $300,000 for married filing-jointly couples and qualifying widowers, $150,000 for married filing separately returns, and $275,000 for heads of households. If taxpayer’s AGI exceeds these applicable amounts by more than $122,500 ($61,250 for married filing separately returns), their deductions for exemptions amount will be reduced to zero.

Contact Sherayzen Law Office for Help With Your Tax and Estate Planning

Combined with the new 3.8% Medicare surtax on investment income and the new 0.9% Medicare surtax on salaries and self-employment income earned by certain high-earning individuals, and the increased threshold amount for Schedule A itemized medical expense deductions, the new phase-out rules detailed in this article will dramatically impact many taxpayers. Professional tax planning may help lower your future tax liabilities.

This is why you need to contact the experienced tax law firm of Sherayzen Law Office to help you create a thorough tax plan aimed at taking advantages of the various provisions of the U.S. tax code.

Tax Year 2013 Changes to the Itemized Deduction for Medical and Dental Expenses

US taxpayers who itemize their deductions on Schedule A of Form 1040 should be aware that new IRS rules are in effect for 2013 tax returns to be filed in 2014. Under the new rules, the threshold for unreimbursed medical and dental expenses paid by taxpayers for themselves, spouses or dependents have increased for most individuals.

This article will briefly explain the change in the rules; it is not intended to convey tax or legal advice. Please consult a tax attorney if you have further questions. Sherayzen Law Office, PLLC can assist you in all of your tax and legal needs.

Taxpayers under the Age of 65 in 2014

For married couples, with both spouses under the age of 65, unreimbursed medical and dental expenses will now only be deductible provided that they exceed 10 percent of the couple’s adjusted gross income (AGI) from Form 1040, line 38.

Taxpayers over the Age of 65 in 2014

For taxpayers over the age of 65, or a married couple with one spouse over the age of 65, the existing 7.5 percent threshold is still in effect for tax year 2013. Note however, that the exemption will only apply to tax years beginning after December 31, 2012, and ending before January 1, 2017, if a spouse attained age 65 during or before the tax year.

Taxpayers Turning 65 in 2014

For taxpayers who turn 65 in the year 2014, (assuming they are not married to a spouse who is already 65), the 10 percent threshold should be used for calculating allowable medical and dental expenses for their 2013 tax returns. When such taxpayers turn 65 years old in 2014, the 7.5 percent threshold may then be used for filing the next year’s tax return. (Further, as noted above, beginning with the tax year 2017 return and years following, the 10 percent threshold must be used).

Taking the Medical and Dental Expenses Deduction

Generally, taxpayers may deduct medical and dental expenses paid for themselves, their spouses and their dependents. (See IRS Publication 502, “Medical and Dental Expenses” for more information). Taxpayers should keep sufficient records for each medical expense consisting of amount and date of each payment, and the name and address of each medical care provider that received payment. Also, taxpayers are advised to keep statements and/or invoices showing who received medical treatment for the claimed expense, a description of the type of medical care received, and the nature and purpose of all medical expenses.

According to the IRS, “Medical care expenses must be primarily to alleviate or prevent a physical or mental defect or illness.” Such expenses generally include, “[P]ayments for legal medical services rendered by physicians, surgeons, dentists, and other medical practitioners. They include the costs of equipment, supplies, and diagnostic devices needed for these purposes.” Accordingly, expenses that are “merely beneficial to general health, such as vitamins or a vacation” (as well as expenses such as teeth whitening, health club dues, and cosmetic surgery) are not deductible.

Contact Sherayzen Law Office for Help With Your Tax and Estate Planning

As the new tax law changes are being implemented in 2013 and subsequent years, the necessity for proper tax planning will only increase with each year. Such planning should be conducted by an experienced tax attorney. This is why you are advised to contact the experienced tax law firm of Sherayzen Law Office to help you create a thorough tax plan aimed at taking advantages of the various provisions of the U.S. tax code.

2013 Minnesota Income Tax Rates

Below, I list the information provided by the Minnesota Department of Revenue with respect to 2013 Minnesota Income Tax Rates. Notice, the new 9.85% tax bracket that was created last year and introduced a radical new change to 2013 Minnesota Income Tax Rates. Taxpayers who file estimated taxes may use this information to plan and pay taxes beginning in April 2013.

Single

For income between $ 0- 24,270: 5.35%
For income between $ 24,271-79,730: 7.05%
For income between $ 79,731-150,000: $7.85%
For income $150,001 and above: 9.85%

Married Filing Jointly

For income between $ 0-35,480: 5.35%
For income between $35,481-140,960: 7.05%
For income between $140,961-250,000: 7.85%
For income $250,000 and above: 9.85%

Married Filing Separately

For income between $ 0-17,140: 5.35%
For income between $17,741-70,480: 7.05%
For income between $ 70,481-125,000: $7.85%
For income $125,001 and above: 9.85%

Head of Household

For income between $ 0- 29,880: 5.35%
For income between $ 29,881- 120,070: 7.05%
For income between $ 120,071- 200,000: $7.85%
For income $200,001 and above: 9.85%

Retirement Savings Contributions Credit 2013

You may be eligible for a tax credit if you make eligible contributions (other than rollover contributions) to an employer-sponsored retirement plan or to an individual retirement arrangement.

Eligible Plans

The eligible plans for the retirement savings contribution credit include: traditional and Roth IRAs, 401(k), 403(b), governmental 457, SEP, SIMPLE, 501(c)(18)(D) and contributions to a qualified retirement plan as defined in section 4974(c) (including federal Thrift Savings Plan).

Additional Requirements and Limitations

Other important eligibility requirements and limitations include:

1. Income Limitations

You cannot exceed the following income limits in order to be able to take the Retirement Savings Contributions Credit (these are 2013 numbers):

• Single, married filing separately, or qualifying widow(er), with income up to $29,500

• Head of Household with income up to $44,250

• Married Filing Jointly, with income up to $59,000

2. Age Limitation

To be eligible for the Retirement Savings Contributions Credit you must have been born before January 2, 1996.

3. Full-Time Students Not Eligible

You cannot have been a full-time student during the calendar year if you wish to claim the Retirement Savings Contributions Credit (there are some specific definitions regarding the “student” status).

4. Cannot Be a Dependent on Another Person’s Tax Return

If you were claimed as a dependent on someone else’s 2013 tax return, you cannot take the Retirement Savings Contributions Credit.

5. Distributions are Deducted From Contributions

When figuring the Retirement Savings Contributions Credit, you generally must subtract the amount of distributions you have received from your retirement plans from the contributions you have made. This rule applies to distributions received in the two years before the year the credit is claimed, the year the credit is claimed, and the period after the end of the credit year but before the due date – including extensions – for filing the return for the credit year.

Credit amount

If you make eligible contributions to a qualified IRA, 401(k) and certain other retirement plans, you may be able to take a credit of up to $1,000 or up to $2,000 if filing jointly. The credit is a percentage of the qualifying contribution amount, with the highest rate for taxpayers with the least income.

Also note that the Retirement Savings Contributions Credit is a benefit in addition to other tax benefits which may result from the retirement contributions. For example, most workers at these income levels may deduct all or part of their contributions to a traditional IRA.