Do you need to think about the alternative minimum tax?

Do you need to think about the alternative minimum tax?

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 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 your 2016 return? Give us a call.

Couples and money: Five resolutions for 2017

Couples and money: Five resolutions for 2017

Do you have a financial plan that works for both you and your spouse? Here are suggestions that can help.

1. Organize your finances. Get a handle on your income and spending, by both of you individually and as a couple. By reviewing the overall picture of how you spend money, you can focus on potential problem areas.

2. Set goals. How much will you accumulate in bank accounts and investments over the next three years? Five years? Ten years? Have you anticipated future expenses? Say, for example, you're dreaming of a vacation in Europe for your anniversary. You'll want to start saving now so you won't need to finance the trip with credit cards.

3. Build an emergency fund. How much is enough for emergencies? As a general rule, set aside three to six months of your combined gross income in easily accessible accounts, such as savings or money market accounts.

4. Save for retirement. Participate in your employer's retirement plan and contribute at least as much as the amount your employer will match. The earlier you start saving, the more you'll accumulate. It's that simple.

5. Formalize an estate plan. Have an attorney draft a will and set up a financial power of attorney so your assets are distributed according to your wishes in the event of death or incapacity.

For more financial planning advice, contact us.

Tax bracket, tax rate, what's the difference?

Tax bracket, tax rate, what's the difference?

The difference between your tax bracket and your tax rate is more than a trick question. For example, knowing your tax rate gives you an accurate reflection of your tax liability in relation to your total income. Knowing your tax bracket is useful for planning purposes. For instance, you may want to spread a Roth conversion over several years in order to stay within the income limits of a particular tax bracket.

So, what's the difference between the two? The main difference is that a tax bracket is a range of income to which a specific tax rate applies, while your effective tax rate is the percentage of your income that you actually pay in tax. Put another way, not every dollar is taxed at the same rate. Your tax bracket shows the rate of tax on the last dollar you made during the tax year. Your effective tax rate reflects the actual amount you paid on all your taxable income.

For example, say you're single and in the 25% bracket for 2016. That means your taxable income is between $37,650 and $91,150.

Yet the tax you pay is less than 25% of your income.

Why? Because the 25% tax rate only applies to the amount of taxable income within the 25% bracket. The tax on income below $37,650 is calculated using the rate that applies to income in the 10% and 15% brackets.

So, if your 2016 taxable income is $40,000, only $2,350 is taxed at 25%. The remainder is taxed at 10% and 15%, leading to a "blended" overall rate. The result: a tax bracket of 25%, and an effective tax rate of less than that.

Good tax advice can affect both your bracket and your rate. Want to know how? Contact us.

Start smart: Five items to focus on when starting a new business

Start smart: Five items to focus on when starting a new business

Are you starting a new business in the new year? Put these items on your to-do list.

Business plan. Outline who will own the business and what the legal form will be, your qualifications to run the business, the competitive market you face, the products or services you will sell, and how you intend to advertise to prospective customers. How much cash will you need to start up and where will those funds come from?

Legal form. You can incorporate, or operate as an LLC, a partnership, or a sole proprietorship. Consider both tax and non-tax reasons for selecting a given entity.

Location. If your business will consist only of online sales, your world headquarters can be wherever you are. However, if your business needs foot traffic to thrive, you'll need to research rents and other costs such as utilities, as well as zoning and traffic restrictions.

Taxes. You'll have to work with the IRS, state tax agencies, and local governments to obtain permits and occupational licenses.

Advisors. Create a business financial team that includes a banker, an insurance agent, an attorney, and an accountant. Involve your advisors early and frequently.

Need more suggestions for getting your business off to a good start? Contact us. We're here to help.

You don't have to itemize to claim these deductions on your 2016 return

You don't have to itemize to claim these deductions on your 2016 return

Can't itemize? You can still claim some expenses on your 2016 federal income tax return. Here's how you can benefit.

* IRA and HSA contributions

If you made a contribution to your traditional IRA for 2016, or if you plan to make a 2016 contribution by April 18, 2017, you may qualify to deduct up to the maximum contribution amount of $5,500 ($6,500 if you're age 50 or older). Income limitations apply in some cases, and you can't deduct contributions to Roth IRAs.

Health Savings Accounts (HSAs) are IRA-like accounts set up in conjunction with a high-deductible health insurance policy. The annual contributions you make to your HSA are deductible. Contributions are invested and grow on a tax-deferred basis, and you're allowed to withdraw money in the account tax-free to pay for your unreimbursed medical expenses. For 2016, you can deduct up to the contribution limit of $3,350 if you're filing single and $6,750 when you're married filing jointly. You may also be able to deduct an additional $1,000 if you were age 55 or older and made a catch-up contribution to your HSA.

* Student loan interest and tuition fees

Deduct up to $2,500 of interest on student loans for yourself, your spouse, and your dependents on your 2016 return. For 2016 returns, you can also deduct up to $4,000 of tuition and fees for qualified higher education courses. Income limitations apply, and you must coordinate these deductions with other education tax breaks.

* Self-employment deductions

If you're self-employed, you can generally deduct the cost of health insurance premiums, retirement plan contributions, and one-half of self-employment taxes.

* Other deductions

Alimony you pay, certain moving expenses, and early savings withdrawal penalties are also deductible on your 2016 return, even if you don't itemize. Teachers can deduct up to $250 for classroom supplies purchased out-of-pocket in 2016.

Contact our office for more information on these and other costs you may be able to deduct on your 2016 tax return.

Manage business insurance costs

Manage business insurance costs

Liability, property, vehicles, directors, officers, employees – you can buy an insurance policy for many of the risks your business faces. While going without insurance is generally a penny-wise, pound-foolish decision, considering ways you can reduce the cost of your premiums makes sense. For example, you might ask about higher deductibles. The deductible is the amount you pay in the event of a loss before your insurance company will write a check. For more money-saving tips that can benefit your business, contact us.

Financial scams take more than your money

Financial scams take more than your money

The consequences of being taken in by a scammer include three types of costs, according to a survey by the Financial Industry Regulatory Authority's Investor Education Foundation. In addition to the money lost in the fraud, victims generally incur legal and other fees to clean up financial records in the aftermath. The third cost is the emotional wear and tear. If you've suffered a loss from fraud that's left you feeling vulnerable, seek assistance from community service groups that offer support and counseling specifically designed to address your needs.

Keep up with wage laws

Keep up with wage laws

While the new federal overtime rules that were scheduled to take effect in 2016 have been put on hold, perhaps permanently, other wage laws are still around, including those that establish minimum pay levels. These minimum wage laws vary from state to state, and some have changed beginning January 1. In addition, you may be required to post notices or posters in your workplace, and maintain certain records. Contact us if you have questions.

Be aware of these three new tax filing deadlines

Be aware of these three new tax filing deadlines

As you begin preparing your final payroll tax returns for 2016, take into account earlier due dates for two common information reporting forms and one extended due date for health coverage reporting forms.

Forms W-2 for 2016 are due January 31. The January 31 deadline applies to forms given to employees, as well as those submitted to the Social Security Administration.

Forms 1099-MISC with non-employee compensation in Box 7 are due January 31, 2017. The January 31 due date applies to forms given to the payee, as well as paper and electronic copies filed with the IRS.

Forms 1095-B and 1095-C are due to recipients on March 2, 2017, instead of January 31. There is no change to the February 28 due date for filing paper forms with the IRS, nor the March 31 due date for filing electronically.

Update your mileage rate reimbursements for 2017

Update your mileage rate reimbursements for 2017

If you intend to use your vehicle for business, charitable activities, medical appointments, or moving during 2017, be aware that the optional standard mileage rates for computing the deductible costs have changed. Here are the rates to use to calculate reimbursements and deductions this year.

Business. Starting January 1, 2017, the rate is 53.5¢ per mile when you use your vehicle for business purposes.

Charitable. The standard per-mile rate for charitable service remains at 14¢.

Medical and moving. The rate for medical and moving mileage is 17¢ per mile.

Do you need to revise your final estimated payment?

Do you need to revise your final estimated payment?

The last installment of your 2016 estimated federal income tax is due January 17, 2017. As a general rule, to avoid penalties you need to pay in the lesser of 90% of your 2016 estimated tax liability or 100% of the tax shown on your 2015 return when your adjusted gross income (AGI) is less than $150,000. When your AGI is over $150,000, you're required to prepay the lesser of 90% of your 2016 estimated tax liability or 110% of your 2015 tax liability. What if you haven't paid in enough? Increase your last installment to make up for the underpayment. Contact us for help with the calculation.