-Presented by Jacky Sun,CPA-TSBPA. Table of Content: The U.S. Federal Income Taxes Introduction....
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What do you need to know before you file the U.S. Federal Individual Income Tax -Presented by Jacky Sun,CPA-TSBPA
-Presented by Jacky Sun,CPA-TSBPA. Table of Content: The U.S. Federal Income Taxes Introduction. Important Tax Calendar. Tax Forms and which to use? Federal
Table of Content: The U.S. Federal Income Taxes Introduction.
Important Tax Calendar. Tax Forms and which to use? Federal Tax
Calculation Formula. Important Tax Definitions. Some Helpful Tax
Credits & Deductions New Tax Rates for year 2014 (2013
comparison) Whats new for 2014 DIY How to File Federal Tax Return
by yourself Now! Some Helpful Reference Materials For your Tax
Return.
Slide 3
The U.S. Federal Income Tax Introduction The Federal Government
adopted income tax in 1861. The Federal Income Tax on Individuals
was enacted in 1894. The first form of 1040 was due on March 1,1914
under the Rev Act of 1913. Federal Income tax has become increasing
complexity nowadays. Income tax has proved to be a major source of
revenue for the Federal Government.
Slide 4
U.S. Fed Tax Receipt Pie Chart Layout 2013
Slide 5
Dates to remember for Federal Income Taxes-Tax Calendar March
15, 2014 2013 Corporation Income Tax returns due and tax due (for
calendar year filers Form 1120). April 15, 2014 2013 Personal
Income Tax returns due and tax due(Form 1040, 1040A,1040EZ, or Form
4868 plus estimated taxes) October 15, 2014 Extended due date for
2013 Personal Income Tax returns
Slide 6
Tax Forms and which to use? Use Form 1040EZ if you have: Income
from wages, tips, interest only No Adjustments No Dependents Income
is less than $100,000 Use Form 1040A if you have: Income from
wages, interest, dividends, pensions No investment transactions No
business income Income is less than $100,000 Standard deduction
only Use Form 1040 if you have: Income from wages, interest,
dividends, pensions Investment transactions Business income
Itemized deductions Any credits
Slide 7
Fed Tax Calculation Formula Gross Income (Exclusions) Sec.62
(Deductions for AGI) above the line
------------------------------------------------------------
Adjusted Gross Income (AGI) (Standard Deduction) or (Itemized
Deduction) - Deductions from AGI (Personal and Dependency
Exemptions)
------------------------------------------------------------
Taxable Income(TI) x Tax Rate %
------------------------------------------------------------ Gross
Tax Liability (Prepaid Federal Income Tax, Federal Withholding)
(Credits)
------------------------------------------------------------ Net
Tax Refund or Tax Due
Slide 8
Important Tax Definition: Gross Income: Per the Sec.61(a) of
IRC, Except as otherwise provided in this subtitle, gross income
means all income from whatever source derived. Which of the
following should be considered as Gross Income ? a. Receiving the
Alimony or Child Support ruled by the court. b. Receiving a Social
Security Benefits. c. Mr.Wang a CPA helped his neighbor Mr. Li an
immigrant Attorney filed 1040 income tax return for recent years,
and in return Mr.Li helped to file form I- 485, an adjustment for
permanent resident request for Mr.Wang this year. d. Workers
Compensation received due to a work related accident. e. Life
insurance proceeds received by the dependents. f. Group term life
insurance Purchased by the ABC Company providing in favor to its
designated Chief Executives and senior managers. g. Gain from sales
of personal residency home. H. Unemployment benefits received by a
Texas resident.
Slide 9
Important Tax Definition(Conti): Deductions for AGI: IRC. Sec.
62 & partial Sec.162 bus rel. i.e. Alimony Paid, losses on
sales of property, moving expenses etc. Deductions from
AGI(Itemized): i.e. Qualified Charitable organization(% if AGI
threshold), Medical Exp(>10% AGI), State and local taxes,
Casualty Losses, Personal interests etc. Standard Deduction VS.
Itemized Deduction: Choose bigger Deduction amount.
Slide 10
Important Tax Definition(Conti): FICA Taxes: Federal Insurance
Contributions Act(Social Security Taxes, Medicare Taxes, both
Employer and employee liable) FUTA Taxes: Federal Unemployment Tax
Act(Employer liable)
Slide 11
Some Helpful Tax Credits & Deductions Refundable VS
Non-refundable Credits: Refundable: Taxes withheld on wages, Earned
income credit. Earned Income Credit(EIC): for certain people who
work and have earned income under $51,567. Non-Refundable: Credit
for child care expense, credit for elder and disabled, Foreign tax
credit, adoption expense credit, Child tax credit.
Slide 12
Some Helpful Tax Credits & Deductions-Child Tax Credit
Child Tax Credit: The Child Tax Credit is an important tax credit
that may be worth as much as $1,000 per qualifying child depending
upon your income. Here are 10 important facts from the IRS about
this credit and how it may benefit your family. Amount - With the
Child Tax Credit, you may be able to reduce your federal income tax
by up to $1,000 for each qualifying child under the age of 17.
Qualification - A qualifying child for this credit is someone who
meets the qualifying criteria of six tests: age, relationship,
support, dependent, citizenship, and residence. Age Test - To
qualify, a child must have been under age 17 age 16 or younger at
the end of 2013. Relationship Test - To claim a child for purposes
of the Child Tax Credit, they must either be your son, daughter,
stepchild, foster child, brother, sister, stepbrother, stepsister
or a descendant of any of these individuals, which includes your
grandchild, niece or nephew. An adopted child is always treated as
your own child. An adopted child includes a child lawfully placed
with you for legal adoption.
Slide 13
Some Helpful Tax Credits & Deductions-Child Tax Credit
Conti.. Support Test - In order to claim a child for this credit,
the child must not have provided more than half of their own
support. Dependent Test - You must claim the child as a dependent
on your federal tax return. Citizenship Test - To meet the
citizenship test, the child must be a U.S. citizen, U.S. national,
or U.S. resident alien. Residence Test - The child must have lived
with you for more than half of 2010. There are some exceptions to
the residence test, which can be found in IRS Publication 972,
Child Tax Credit. Limitations - The credit is limited if your
modified adjusted gross income is above a certain amount. The
amount at which this phase-out begins varies depending on your
filing status. For married taxpayers filing a joint return, the
phase-out begins at $110,000. For married taxpayers filing a
separate return, it begins at $55,000. For all other taxpayers, the
phase-out begins at $75,000. In addition, the Child Tax Credit is
generally limited by the amount of the income tax you owe as well
as any alternative minimum tax you owe. Additional Child Tax Credit
- If the amount of your Child Tax Credit is greater than the amount
of income tax you owe, you may be able to claim the Additional
Child Tax Credit.
Slide 14
Some Helpful Tax Credits & Deductions Conti(EIC) Earned
Income Credit(EIC) Req. for All Taxpayers To be eligible for the
earned income credit, taxpayers need to meet the follow criteria:
Must have valid Social Security Numbers; Must be U.S. citizen or
resident alien* for the entire year; Cannot use the married filling
separately filing status; You and your spouse (if married) cannot
be claimed as a qualifying child by someone else. Cannot claim the
foreign earned income exclusion (which relates to wages earned
while living abroad) You and your spouse (if married) are between
the ages of 25 and 64.
Slide 15
Some Helpful Tax Credits & Deductions Conti(EIC) Single,
HH, Q. WidowMaximum EarningsMaximum EIC No Children13,980475 One
Child36,9203,169 Two Children41,9525,236 Three Children45,0605,891
Married Filling Jointly No Children19,190475 One Child42,1303,169
Two Children47,1625,236 Three Children50,2705,891
Slide 16
Some Helpful Tax Credits & Deductions Conti(EIC) Qualifying
Child Rules(EIC) Relationship Your son, daughter, adopted child,
stepchild, foster child or a descendent of any of them such as your
grandchild. Brother, sister, half brother, half sister, step
brother, step sister or a descendant of any of them such as a niece
or nephew Age At the end of the filing year, your child was younger
than you (or your spouse if you file a joint return) and younger
than 19 At the end of the filing year, your child was younger than
you (or your spouse if you file a joint return) younger than 24 and
a full-time student At the end of the filing year, your child was
any age and permanently and totally disabled 3 Residency Child must
live with you (or your spouse if you file a joint return) in the
United States 4 for more than half of the year Joint Return The
child cannot file a joint return for the tax year unless the child
and the child's spouse did not have a separate filing requirement
and filed the joint return only to claim a refund.
Slide 17
Some Helpful Tax Credits & Deductions Conti American
Opportunity Tax Credit: Depending on your income, you may receive
up to $2,500 of the cost of qualified tuition and course materials
paid during the taxable year. The student must be enrolled at least
half- time for at least one academic period. This credit is
available on a per-student basis. Lifetime Learning Credit:The
Lifetime Learning Credit may be as high as $2,000 per eligible
student. For 2013 the full credit is available to eligible
individual taxpayers who make $52,000 or less, or married couples
filing jointly who make $104,000 or less.
Slide 18
Some Helpful Tax Credits & Deductions Conti Child and
Dependent Care Credit: It's available to people who must to pay for
childcare for dependents under age 13 in order to work or look for
work. (up to 35 percent of qualifying expenses) Health Savings
Account: Health savings accounts (HSA) are tax-deductible savings
plans that allow a taxpayer to save pre-tax dollars for future
healthcare expenses. HSA are paired with high-deductible health
insurance plans. Contributions to an HSA are tax-deductible.
Earnings, such as interest and dividends, in the health savings
account are tax-exempt at the federal level. Withdrawals from a
health savings account are tax-free as long as the funds are used
for qualified medical expenses.
Slide 19
Some Helpful Tax Credits & Deductions Conti Health Savings
Account(HSA) Conti Annual contribution limitation. For calendar
year 2013, the annual limitation on deductions under 223(b)(2)(A)
for an individual with self-only coverage under a high deductible
health plan is $3,250. For calendar year 2013, the annual
limitation on eductions under 223(b)(2)(B) for an individual with
family coverage under a high deductible health plan is $6,450. High
deductible health plan. For calendar year 2013, a high deductible
health plan is defined under 223(c)(2)(A) as a health plan with an
annual deductible that is not less than $1,250 for self-only
coverage or $2,500 for family coverage, and the annual
out-of-pocket expenses (deductibles, co-payments, and other
amounts, but not premiums) do not exceed $6,250 for self-only
coverage or $12,500 for family coverage.
Slide 20
Some Helpful Tax Credits & Deductions Conti Qualified
Moving Expenses If you moved due to a change in your job or
business location, or because you started a new job or business,
you may be able to deduct your reasonable moving expenses but not
any expenses for meals. You can deduct your moving expenses if you
meet all three of the following requirements: Your move is closely
related to the start of work You meet the distance test You meet
the time test
Slide 21
Some Helpful Tax Credits & Deductions Conti Qualified
Moving Expenses Conti. The distance test: Your new workplace must
be at least 50 miles farther from your old home than your old job
location was from your old home. If you had no previous workplace,
your new job location must be at least 50 miles from your old home.
The time test: If you are an employee, you must work full-time for
at least 39 weeks during the first 12 months immediately following
your arrival in the general area of your new job location. If you
are self-employed, you must work full time for at least 39 weeks
during the first 12 months and for a total of at least 78 weeks
during the first 24 months immediately following your arrival in
the general area of your new work location. There are exceptions to
the time test in case of death, disability and involuntary
separation, among other things.
Slide 22
Some Helpful Tax Credits & Deductions Conti Traditional
Individual Retirement Accounts(IRAs) A traditional IRA is a way to
save for retirement that gives you tax advantages. Contributions
you make to a traditional IRA may be fully or partially deductible,
depending on your circumstances, and Generally, amounts in your
traditional IRA (including earnings and gains) are not taxed until
distributed(deferred tax). For the year 2013, the dollar limits for
IRA contributions are: $5,500 if you are age 49 or younger $6,500
if you are age 50 or older *Withdrawal before 59.5 year, subject to
10% early withdraw penalty.
Slide 23
Some Helpful Tax Credits & Deductions Conti 401(k) Plan:
Qualified profit-sharing plan: A 401(k) is a feature of a qualified
profit-sharing plan that allows employees to contribute a portion
of their wages to individual accounts. Elective salary deferrals
are excluded from the employees taxable income. Employers can
contribute to employees accounts. Distributions, including
earnings, are includible in taxable income at retirement.
Traditional 401(k) /Safe harbor 401(k)/SIMPLE 401(k) plans.
Slide 24
Some Helpful Tax Credits & Deductions Conti 401(k) Plan:
Qualified profit-sharing plan Conti.. Deferral limits for 401(k)
plans The limit on employee elective deferrals (for traditional and
safe harbor plans) is: $17,500 (in 2013 and 2014)/12, 000(SIMPLE)
Catch-up contributions for those age 50 and over If permitted by
the 401(k) plan, participants who are age 50 or over at the end of
the calendar year can also make catch-up contributions. The
additional elective deferrals you may contribute is: $5,500 to
traditional and safe harbor 401(k) plans (in 2013 and 2014) $2,500
to SIMPLE 401(k) plans (in 2013 and 2014)
Slide 25
Some Helpful Tax Credits & Deductions Conti Your 401K
Match.- Typically, you only receive a contribution into your 401(k)
plan if you make a contribution yourself. When you save some of
your paycheck by putting money into your 401(k), your company does
as well. But if you fail to save a dollar, than your company match
goes away too. i.e. There are companies offer 50% match up to the
first 6%; dollar for dollar match up to 5%... How much do your
company offer the 401K match???? Beware of the Vest- No matter when
or how you terminate employment, the money you contribute to your
401(k) plan is yours to keep. However, the contributions made by
your employer may be subject to a vesting schedule. Make sure you
understand your vesting program before you quit your job!
Slide 26
Tax Rates for the Year 2014---Single Single OrdinaryLong Term
GainsTaxable Income Tax Rate overto 10%0%09,075(8,925-2013)
15%0%9,07536,900(36,250) 25%15%36,90089,350(87,850)
28%15%89,350186,350(183,250) 33%15%186,350405,100(398,350)
35%15%405,100406,750(400,000) 39.60%20%406,750--
Slide 27
Tax Rates for the Year 2014---MFJ Married Filing Jointly
OrdinaryLong Term GainsTaxable Income Tax Rate overto 10%0%018,150
(1.67%) 15%0%18,15073,800 25%15%73,800148,850 28%15%148,850226,850
33%15%226,850405,100 35%15%405,100457,600 39.60%20%457,600--
Slide 28
Tax Rates for the Year 2014---MFS Married Filing Separately
OrdinaryLong Term GainsTaxable Income Tax Rate overto
10%0%09,075(1.67%) 15%0%9,07536,900 25%15%36,90074,425
28%15%74,425113,425 33%15%113,425202,500 35%15%202,500228,800
39.60%20%228,800--
Slide 29
Tax Rates for the Year 2014--HH Head of Household OrdinaryLong
Term GainsTaxable Income Tax Rate overto 10%0%012,950(1.67%)
15%0%12,95049,400 25%15%49,400127,550 28%15%127,550206,600
33%15%206,600405,100 35%15%405,100432,200 39.60%20%432,200--
Slide 30
Whats new for 2014 In addition to the federal income taxes on
ordinary income, there are other taxes that may apply to personal
income: Social Security Tax at a rate of 12.4% on wages and self-
employment income up to the annual Social Security Wage base of
$117,000 (it had been at 10.4% for 2011 and 2012). Medicare Tax at
a rate of 2.9% on wages and self-employment income. Additional
Medicare Tax at a rate of 0.9% on wages and self- employment income
over the following thresholds: Married Filing Jointly: $250,000
Single or Head of Household or Qualifying Widow(er): $200,000
Married Filing Separately: $125,000
Slide 31
Whats new for 2014 Conti Affordable Care Act Tax: (OBAMA CARE)
Open Enrollment for the Health Insurance Marketplace: The open
enrollment period to purchase health care coverage through the
Health Insurance Marketplace for 2014 began Oct. 1, 2013 and runs
through March 31, 2014. When you get health insurance through the
marketplace, you may be able to get advance payments of the premium
tax credit that will immediately help lower your monthly premium.
Learn more at HealthCare.gov.HealthCare.gov Premium Tax Credit: If
you get insurance through the Marketplace, you may be eligible to
claim the premium tax credit. You can elect to have advance
payments of the tax credit sent directly to your insurer during
2014, or wait to claim the credit when you file your tax return in
2015. If you choose to have advance payments sent to your insurer,
you will have to reconcile the payments on your 2014 tax return,
which will be filed in 2015. If youre already receiving advance
payments of the credit, you need do nothing at this time unless you
have a change in circumstance. Change in Circumstances: If you're
receiving advance payments of the premium tax credit to help pay
for your insurance coverage, you should report life changes, such
as income, marital status or family size changes, to your
marketplace. Reporting changes will help to make sure you are
getting the proper amount of advance payments. Individual Shared
Responsibility Payment: Starting January 2014, you and your family
must have health care coverage, have an exemption from coverage, or
make a payment when you file your 2014 tax return in 2015. Most
people already have qualifying health care coverage and will not
need to do anything more than maintain that coverage throughout
2014
Slide 32
Whats new for 2014 Conti OBAMA CARE -The Penalty fee in 2014
and beyond The penalty in 2014 is calculated one of 2 ways. Youll
pay whichever of these amounts is higher: 1% of your yearly
household income. (Only the amount of income above the tax filing
threshold, $10,150 for an individual, is used to calculate the
penalty.) The maximum penalty is the national average yearly
premium for a bronze plan. $95 per person for the year ($47.50 per
child under 18). The maximum penalty per family using this method
is $285. The way the penalty is calculated, a single adult with
household income below $19,650 would pay the $95 flat rate. A
single adult with household income above $19,650 would pay an
amount based on the 1 percent rate. (If income is below $10,150, no
penalty is owed.) The penalty increases every year. In 2015 its 2%
of income or $325 per person. In 2016 and later years its 2.5% of
income or $695 per person. After that it's adjusted for inflation.
If youre uninsured for just part of the year, 1/12 of the yearly
penalty applies to each month youre uninsured. If youre uninsured
for less than 3 months, you dont have to make a payment.
Slide 33
Whats new for 2014 Conti Personal Exemptions. The personal
exemption amount is $3,950 in 2014, up from $3,900 in 2013.
Phase-outs for personal exemption amounts (sometimes called PEP)
begin with adjusted gross incomes (AGI) of $254,200 for individuals
and $305,050 for married couples filing jointly; the personal
exemptions phase out completely at $376,700 for individual
taxpayers ($427,550 for married couples filing jointly.) Federal
Gift Tax Exclusion. The annual exclusion for gifts remains at
$14,000 for 2014. Individual Retirement Account Contributions. The
$5,500 limit on IRA contributions remains the same in 2014.
Slide 34
Do it yourself(DIY)Tax Preparation IRS sponsored Free Tax
Return: http://www.youtube.com/watch?v=26ESO1dqip0
http://www.irs.gov/Individuals/Free-Tax-Return-
Preparation-for-You-by-Volunteers : VITA or TCE
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Slide 35
Do it yourself(DIY)Tax Preparation- Conti IRS Free File:
http://www.irs.gov/uac/Free-File:-Do-Your-Federal-Taxes-for-Freehttp://www.irs.gov/uac/Free-File:-Do-Your-Federal-Taxes-for-Free
http://www.youtube.com/watch?v=ldZcsSGA3Cs&list=PL2A3E7A9BD8A8D41D
IRS recommended Free File Software: TurboTax: Adjusted Gross
Income: $30,000 or less, or $58,000 or less for Active military, or
Eligible for the Earned Income Tax Credit, and Live in any state
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Slide 36
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Slide 37
References resources: IRS tax resources-help yourself:
http://www.youtube.com/watch?v=XAZX8kjpalI&list=
PLvDH25MKBe1eDq4jxQ3FxuvKyVhstJ45c When will I get my refund?
http://www.youtube.com/watch?v=AnC8tt1wdhI&list
=PLvDH25MKBe1eDq4jxQ3FxuvKyVhstJ45c
http://www.youtube.com/watch?v=AnC8tt1wdhI&list
=PLvDH25MKBe1eDq4jxQ3FxuvKyVhstJ45c IRS Dirty Dozen-TAX FRAUD!
http://www.youtube.com/watch?v=4Q85-NghrsY
Slide 38
How long to keep your tax return and supporting docs? IRS
documentation requirements: 3 years statue of limitationIRS
recommended you to keep your returns and any supporting documents.
However: if you under reported income by 25%, the IRS can go back
for 6 years(7 years if you claim loss for bad debt or worthless
securities). IRS may have no statue of limitation, if you dont file
tax return, or if you filed a fraudulent return. Jackys
Recommendation: keep your return as long as possible!