Central Oregon Business Services, Inc.

06/12/2019

02/10/2017

Eight common tax time mistakes to avoid

Forget the complexity of the Tax Code – some of the most common problems with tax returns result from simple mistakes like goofs in arithmetic, misspelled names and transposed numbers.

Math Error
These kinds of errors are still the most common mistake made on tax returns. Even if all your calculations are correct, an error in your initial figures can throw everything off.

Misspelled or changed names
Sometimes the easiest portions of a tax return can create the biggest hang-ups with a misspelled name or a changed name that’s not correctly listed.

Wrong Social Security numbers
An incorrect nine-digit Social Security number or forgetting to list numbers for the taxpayer or their dependents can create unexpected problems. Social Security numbers serve as individual tax ID numbers

Correct direct deposit information
Having a refund direct deposited into one or multiple banks is very convenient, but make sure the account numbers are correct on the return, especially if there are multiple accounts listed.

Changes in your filing status
If the taxpayer was married or divorced or their household situation otherwise changed, it may need to be reflected in their official filing status.

The Internal Revenue Service lists five filing status options for all taxpayers: single; married filing jointly; married filing separately; head of household; and qualifying widow(er) with dependent child

Tax deductible charitable contributions
If the taxpayer donated cash or gifts to qualified charities and nonprofit organizations in the last year, they may be able to deduct the value of their contribution – when itemizing their return. Make sure to list the total amount for all charitable contributions and check the math to see if the overall value I correct.

Signing and dating the return
After all, that hard work preparing a tax return, it still can’t be filed until it has been signed by the taxpayer and dated on the bottom line.

Don’t be late
Because the usual deadline day of April 15 falls on a weekend this year and the following Monday is a federal holiday in Washington, D.C., taxpayers have a little more time to file. All returns are due by midnight on Tuesday, April 18. Filing Form 4868 can get a six-month paperwork extension, but any taxes owed are still due on April 18

Happy Friday - Have a great day

04/15/2015

LAST MINUTE TAX TIPS -

You probably are familiar with some of these last-minute tax tips, but might just need a reminder in the heat of the moment. Others may be entirely new to you and your clients.

2. Let Entrepreneurs Wait on Funding SEP Plans
Small business owners and sole proprietors can wait until Oct. 15 to fully fund their simplified employee pension (or SEP) retirement plans -- which allow them to contribute up to 25% of the income on which they pay Social Security tax.

Many people pay their taxes on April 15 and fail to fund their SEP retirement plans because they don't have the money to pay taxes and fund their plan all at the same time

For that very reason, the IRS allows clients to wait until Oct. 15 to fund their SEP plans if they file for an extension. "That is something people don't necessarily realize that one can actually do

Fear Not the Extension
"Everyone is afraid of an extension," says Kyle Brownlee, CEO of Enid, Okla.-based Wymer Brownlee, part of the HD Vest network of tax-focused planning firms. "Everyone is just afraid of the IRS. They think: I am sending in my return late."

But an extension doesn't raise a red flag with the IRS, nor does it really mean clients are "late," he says -- although estimated taxes are still due April 15, even if the full return is not.

"I would much, much rather file an extension and get my ducks in a row and file later," he says, adding that an extension can be for a month or up to six months. "An extension is just no big deal and nothing to be afraid of."

Accelerate Deductions for 2014
Many deductions may expire in the 2015 tax year, including deductions for manufacturing and other business equipment -- a category that includes vehicles of 6,000 pounds in weight, allowing many Land Rovers, GMC Yukons and Toyota Highlanders

These deductions, from Section 179 in the Tax Code, remain in place for the 2014 tax year -- but no one knows if they will be extended or significantly reduced for 2015, Brownlee says. He recommends that high-net-worth business owners in particular accelerate all the deductions they can under this code for the 2014 tax year, rather than take them in increments of one-fifth per year over the next five years and risk the expiration, he says.

"You can elect up to $500,000 to expense on that equipment in 2014," he says.

The deduction pertains specifically to portable equipment; in addition to jumbo SUVs, the category includes tractors, heavy vehicles, computers, servers, desks and office equipment. Even heavy manufacturing equipment that may be bolted down, but can be shifted elsewhere in an assembly or manufacturing plan reorganization would qualify, he says.

"Think about it like this," Brownlee says. "It's for any type of non-permanent equipment. If I can pick it up and move it or if I can drive it or ride it or if it's not fixed."

Put Alimony in an IRA
Alimony is considered "earned income" -- which is taxable compensation and, as a result, qualifies for saving in an IRAs, Locus says. That could help some recipients who are retired or otherwise not working, Locus says.

"To make an IRA contribution, you have to have earned income, so even if you have a $5 million portfolio and you have $100,000 in dividends, that doesn't qualify," she explains. "But getting paid alimony qualifies."

"A lot of CPAs don't think about that," she adds. "A lot of people who've gotten divorced don't think about that.

Switch Deductions among Divorced Couples
This tactic might require ex-spouses to work together amicably, but there's a worthwhile payoff, Locus says.

Because the IRS is phasing out certain deductions for high earners who bring in $254,000 or more annually, she explains, formerly married couples may want to switch some deductions from the high-earning parent to the lower-earning one to reduce the total amount paid to the feds.

"Usually the person [in a divorced couple] who has the higher income takes the kids as a deduction exemption," she says, to get the biggest bang for the buck. However, "in 2013, a phase-out for itemized deductions and personal exemptions for high earners began again -- and now people who have an adjusted gross income of $376,000 for a single person or $402,125 for a head of a household don't get any benefit from it. So, it may make sense that the person in the higher tax bracket lets the other spouse take the deduction and the [co-parents] either split the tax benefit or put that money in a 529 college account for a kid."

Failing to swap these deductions means that, she says, "the IRS is just getting more money."

Remind Clients to Max Out 401(k)s
Occasionally, Auslander takes on new clients whose former advisors convinced them that they would do better by not investing as much in their 401(k)s. However, those advisors' aims in giving that advice was entirely self-serving: to keep more assets to manage for themselves, he says.

In reality, clients are always better off putting the maximum amounts into their company's retirement plans, he says.

"The math is so compelling that you'd have to be an absolute fool not to," Auslander says.

Happy Tax Day

04/15/2015

DONT MAKE THE SAME TAX MISTAKES TWICE -

Every year, millions of taxpayers miss out on chances to lower their tax bills. They miss deductions or don’t exploit tax breaks designed to lower the costs of education, retirement, and health care.

The problem is that most smart tax-planning strategies require you to think about taxes long before they’re actually due—by the time you have a 1040 in front of you, it’s too late (with the occasional exception).

But you have plenty of time, right now, to get ahead on next year. Here are some of the strategies that accountants and lawyers say taxpayers most often fail to exploit:

1. Get more organized
The No. 1 way people sabotage themselves is with poor record-keeping, says Kaufman Rossin accountant Meredith Tucker. Taxpayers forget about the charitable contributions they made midyear or legitimate business expenses. Digital apps such as Mint can help keep track of expenses and deductions, Tucker says. Even a low-tech solution—like a shoebox full of receipts—can end up saving money, although some accountants will charge extra to sift through a mess of paperwork.

2. Deduct health-care expenses
Americans are paying for more and more medical care out of their own pockets—about $800 per person per year, according to the latest data from the Health Care Cost Institute. More of these health-care costs could be turned into tax breaks. Pretax contributions to workplace flexible spending accounts (FSAs) or health savings accounts (HSAs) can be spent on medical expenses. Health care is also deductible on your tax return when it exceeds 10 percent of your annual income. For those with lots of medical needs and some flexibility, it can make sense to bunch up your health-care spending in one year.

3. Save on college tuition
The price of college keeps rising. The average cost of tuition and fees for a four-year public school was $18,943 this year, the College Board estimates, up 63 percent since 2000 even after adjusting for inflation. A 529 college savings plan—an investment account that confers a tax break and allows money for tuition to grow tax-free—can help, but fewer than 3 percent of American families have a 529 plan, the U.S. Government Accountability Office estimates.

For parents in upper-income brackets, another strategy makes sense, says Greg Rosica, a tax partner at EY and an author of the EY Tax Guide 2015. Rather than selling investments to cover your children’s college tuition, you can give your children the appreciated stock, as much as $14,000 worth without triggering a gift tax. Have your kid sell the stock and pay tuition: His capital-gains tax will be much lower than yours would be.

4. Use your retirement plan at work
About one in five workers don’t take advantage of their 401(k) plans at work, the Center for Retirement Research estimates. These employees aren’t just missing out on tax breaks for retirement plans, they’re usually also forgoing a matching contribution from their employer. Also, everyone—including the half of all private-sector workers who don’t have a work retirement plan—can lower their taxable income by contributing to a tax-deferred individual retirement account, or IRA.

03/30/2015

Questions about Health Care Credits? They think this helps!

Although Republicans are outlining a proposal to provide an “off ramp” for states and consumers to exit the Affordable Care Act, and the Supreme Court is hearing oral arguments on a legal challenge to the federally-operated health exchange, state exchanges have been up and running.

While tax preparers are fielding questions on the ACA, the state health insurance exchanges are also receiving—and answering—tens of thousands of calls every day from consumers as they sign up for health insurance.

For many taxpayers, their first introduction to the ACA may be the Form 1095-A that they receive in the mail, and bring with them—or forget to bring with them—to their tax preparer. Many have questions about the form, and state exchange call centers have been inundated with inquiries.

While some taxpayers might have expected it, many have no idea why they received this form, and what they are supposed to do with it, according to Ferdinand Morales, vice president at Maximus, the firm running contact centers for six state health insurance exchanges.

“Federal law required the forms to be sent out by the end of January, and we’ve been providing consumers support since then,” he said. His employees have been answering tens of thousands of calls each day during this filing season. The top five questions being asked about Form 1095-A are the following, according to Morales:

1. Why did I receive this form?
2. What do certain terms, such as Second Lowest Cost Silver Plan, mean?
3. What do I do with this form once I’ve filled it out?
4. How can I use this form to file my 2014 tax return?
5. Is my 1095-A correct, and what do I do if it’s not?

“It’s a new process for consumers, and also for the Health Insurance Marketplace,” said Morales. “There are two groups of people who get the form. The first group is the people that signed up for health insurance in 2014 through the Health Insurance Marketplace and chose to get financial assistance through the Marketplace. If they received tax credits through the Marketplace, they use the form to reconcile the tax credits on their return with any advance payments they received.”

“The second group who receive Form 1095-A are folks who decided to enroll and purchased their insurance at full cost,” Morales added. “If they forego the credit during the year, they can still claim it on their return.” We explain the form to callers and give them a sense of why they got the form.

It gets a little trickier to explain the meanings of certain terms, especially the Second Lowest Cost Silver Plan (SLCSP), according to Morales.

“The IRS uses this to calculate the tax credits you are eligible for,” he said. It is entered onto the worksheet to determine whether the recipient overpaid or underpaid.”

The premium for the applicable SLCSP is the second lowest silver plan premium offered through the Marketplace that applies to the taxpayer’s coverage family.

”All of the information is prepopulated,” said Morales. “The information gets transferred to Form 8962, which is filed along with Form 1040.”

“Form 1095-A is sent by the Marketplace to the consumer and the IRS,” Morales added. “It stays with the consumers, who use it to complete Form 8962 to determine their premium tax credit eligibility.”

”If the Form 1095-A is incorrect, there is a process in place for the consumer to request a corrected form,” said Morales. “In New York, we contact the New York State Department of Health. They have a staff that works with the issuer to find if there are problems, and if so, they reissue a corrected form for the consumer. So far, it hasn’t been a big issue for us. We anticipate more inquiries about this as we get closer to the filing deadline.”

Although they may be befuddled at first, the majority of taxpayers can deal with the intricacies of the ACA, according to Morales. “Most consumers can grasp the information once we provide the support they need,” he said.

“By far the other inquiry that people are [most] concerned with is whether or not they have to pay a penalty,” Morales said. “We can help them with the form, but we’re not in the position to decide on the penalty. For that, they have seek a tax professional.”

Have a great day

03/25/2015

The Millennial generation is the most diligent when it comes to filing their taxes early, according to a new survey.

Ninety percent of Millennials filed at least one month ahead of the tax deadline, compared to an average of 77 percent for all other age groups, according to a poll of 500 U.S. adults by the consumer insights firm Instantly.

The survey also found that 33 percent of Millennials plan to save their federal and state tax refunds, compared to only 18 percent of non-Millennials, who are more likely to use their refunds to pay down debt and bills.

The study also found that 17 percent of Millennials feel a sense of civic pride when filing their taxes, while the majority of non-Millennials feel that taxes are just something they have to do.

"Media buzz around tax season tends to focus on last-minute filers, but the study found that most people file early, with Millennials leading the charge," said Instantly chief marketing officer Andy Jolls in a statement.

Instantly also found that more than 82 percent of Americans said they have filed their taxes a month ahead of deadline, while only 4 percent of U.S. adults reported they will wait until April 15 to file their taxes

The survey also revealed that nearly 50 percent of Americans use online tax programs over other filing methods, citing ease of use as the main reason. Twenty percent of respondents said they use a tax preparation service such as H&R Block, while 18 percent still file themselves on paper, and 14 percent rely on an accountant.

In addition, 75 percent of those polled expect to receive less than the average national tax refund of $3,120, or to owe money. Despite the tools and increased convenience available today, there is still plenty of hesitation around filing.

The survey found that 79 percent of respondents were apprehensive about the outcome of filing their taxes. Concerns about filing incorrectly and not getting all the money back that they deserve topped their fears. The biggest usage of tax refund money is paying down bills and debts for 36 percent of Americans.

SEE COMMENTS Below:

What the article failed to mention is that 99% of the millennials only have a W-2 and have no reason to wait to file. I have many clients that are still waiting for the tenth K-1 in some oil & gas deal and tell me to "make them safe" and file an extension. I'm afraid this was a bogus study that proved nothing about one generation vs the last several.

Interesting that the survey did not address the availability of tax documents to allow early filing. Brokers statements have a longer time allowance to be provided to the taxpayer. If you have a W2 and no other sources of income, why would you not file early? It has nothing to do with age of the tax filer.

*************
I thought this was an interesting article.

Have a great day

03/16/2015

FYI -

The Internal Revenue Service issued a consumer alert Friday warning taxpayers to beware of tax preparers who tell clients to give them their health insurance payments.

According to the IRS alert, “reports are coming in from around the country describing unscrupulous preparers who instruct their clients to make individual shared responsibility payments directly to the preparer.”

The IRS reminded individuals who owe the payment that it should be made only with their tax return or in response to a letter from the IRS.

“The payment should never be made directly to an individual or return preparer,” said the IRS. “Most people don’t owe the payment at all because they have health coverage or qualify for a coverage exemption.”

The IRS said it has received several reports of this kind of unscrupulous activity. “In some cases, return preparers have told taxpayers to make the payment directly to them, even though the taxpayer had Medicaid or other health coverage and doesn’t need to make the shared responsibility payment at all,” said the alert. “In some parts of the country, unscrupulous return preparers are targeting taxpayers with limited English proficiency and, in particular, those who primarily speak Spanish.”

Tax preparers are asking for direct payment to them for different reasons, including telling individuals that they must make an individual shared responsibility payment directly to the preparer because of their immigration status, promising to lower the payment amount if the client pays it directly to the preparer, or demanding money from individuals who are exempt from the individual shared responsibility payment.

The IRS told taxpayers that if they have been targeted by an unscrupulous preparer or have been financially affected by a tax return preparer’s misconduct or improper tax preparation practices, they can report it to the IRS.

03/08/2015

Tax filing can be confusing and frustrating for most of us. Even criminals.

Take the crook who stole Seth Rouse's personal information and filed fake federal and state tax returns in the legitimate Chicago taxpayer's name.

The felonious filer, however, made a big mistake. He didn't change the address to which the fraudulent refund was to be sent.

IRS refund check filed by crooks but sent to real taxpayer

So instead of going to the fraudster, the $5,571 check showed up at Rouse's home.

The federal refund arrived just a day after Rouse discovered his identity had been stolen for nefarious tax purposes.

No word yet on whether the confused crook made the same error on Rouse's fake Illinois filing.

Dealing with a stolen identity: The identity thief's ineptitude saved Uncle Sam a nice chunk of change. Rouse, however, still has to refile his returns under the federal and state identity theft recovery protocols.

In case you find yourself in similar unfortunate circumstances, the Federal Trade Commission suggests you:

Credit reporting agencies phone numbersPlace a fraud alert on your credit report. You only have to ask one of the three with the three credit reporting agencies -- Equifax, Experian or TransUnion -- to take action. The agency you call must tell the other two companies. An initial fraud alert, which lasts for 90 days but can be renewed, can make it harder for an identity thief to open more accounts in your name.
Order your credit reports. You're entitled to a free credit report from each of the three credit reporting companies. Be sure to ask the company to show only the last four digits of your Social Security number on your report. If you discover accounts that have been tampered with, contact the related businesses. Talk to someone in the fraud department, and follow up in writing. To create a record of your communications, send your letters by certified mail and ask for a return receipt.
Create an identity theft report. Start by filing a complaint with the FTC and printing your Identity Theft Affidavit. Use that to file a police report. The resulting identity theft report will help you deal with credit reporting companies, debt collectors, and businesses that gave the identity thief credit or opened new accounts in your name.

Tell the IRS, too: Now to the tax specifics of identity theft. The Internal Revenue Service has a special group, the Identity Protection Specialized Unit or IPSU, to help taxpayers whose IDs have been used to file fake refunds.

Call IPSU toll-free at 1-800-908-4490.

You'll also need to fill out the IRS Identity Theft Affidavit, Form 14039.

Also check out the IRS' identity theft Web page. It has links to other information, both within the agency and outside resources, about coping with identity theft.

And don't forget about your state taxes. Contact your state tax department about what steps you need to take to get any fake filing corrected.

Stay Alert when filing.

Have a good day

02/27/2015

FYI
The Internal Revenue Service will not try to collect additional taxes from those taxpayers who have already filed their taxes after receiving incorrect information from the federal health insurance marketplace, Healthcare.gov.
Last week, the Centers for Medicare and Medicaid Services announced that approximately 800,000 taxpayers who received coverage via Healthcare.gov and qualified for premium tax credits had received the wrong information on a Form 1095-A, “Health Insurance Marketplace Statement,” sent to them in the mail (see 800,000 Taxpayers Received Wrong Tax Info from Health Insurance Marketplace). They were asked to wait to file their taxes until March when a corrected form will be sent to them.
In a statement Tuesday, an unidentified Treasury Department spokesperson said that those who have already filed their tax returns will not be subject to additional taxes once the correct information is available and they do not need to file an amended tax return.
“Treasury estimates that approximately 50,000 tax filers (or less than 0.05% of total tax filers) already have filed their taxes using these incorrect form 1095As,” said the statement. “We have concluded that these individuals do not need to file amended returns. The IRS will not pursue the collection of any additional taxes from these individuals based on updated information in the corrected forms.”
The incorrect information that appeared on the 1095-A specified the premium amount for the “second lowest cost Silver plan” in the taxpayer’s area. The amount is supposed to represent the benchmark plan used to determine the amount of the premium tax credit the taxpayer is eligible to receive. That information was calculated incorrectly for many taxpayers, although CMS stressed that it won’t be an issue for the majority of people who received health coverage through Healthcare.gov.
Still, some taxpayers and their tax preparers may want to file amended tax returns anyway. “Nonetheless, some individuals may choose to file amended returns,” said the Treasury spokesperson. “A tax filer is likely to benefit from amending if the 2015 monthly premium for his or her second lowest cost Silver plan (or ‘benchmark’ plan) is less than the 2014 premium. For example, if a filer’s original form lists a benchmark premium of $100 and her updated form lists a premium of $200, it may be in her interest to refile. Individuals may want to consult with their tax preparers to determine if they would benefit from filing amended returns. As CMS announced last week, affected individuals who have not yet filed their taxes should wait to file until they receive their corrected forms.”

Have a great day

02/18/2015

Most Outrageous Tax Deductions of 2015

Creative Investments
The loss on the sale of a personal house, while unfortunate, does not qualify as an investment by the IRS.

Expansive Home Office Expenses
Deductions on a home office are limited to the portion of the home dedicated to the business. Clients have attempted to do more though, from the cost of groceries to the mortgage.

Boats
Want smooth sailing on your tax return? Then you should not deduct your boat as a "water computer," as one CPA had to inform their client.

Hunting Trips Because You "Talk Business"
That weekend of hunting with friends is generally not deductible, no matter how often you talk about your boss

Questionable Dependents
Attempting to claim "Fido" as a dependent is popular amongst clients with pets. One CPA reported a woman tried to claim her unborn child as a dependent.

A Daughter's Wedding
Sure, weddings are entertaining. But deducting the full cost as an entertainment expense does not make for a good relationship with the IRS.

The Cost of Speeding Tickets
Even if it's because you were late for a business meeting, speeding tickets are fines and therefore, not deductible on your tax return.

Misinterpretations of Charitable Donation
Charity can take on many forms. But for one CPA's client, a vehicle that was impounded by the police was not deemed a qualifying deduction.

Hobbies
The IRS does not allow deductions for hobby expenses. One client learned that when he attempted to take deductions on his horse ranch.

Keeping Up Appearances
While some professions may require a certain appearance, the cost of haircuts, plastic surgery, massages and salon expenses are generally not deductible.

Have a great day

03/11/2014

For those of you that claim Home in Office Deductions:

The Internal Revenue Service reminded home-based businesses and their tax preparers Friday about a new simplified option for claiming the home office deduction that is available for the first time this year, allowing home businesses to deduct up to $1,500 from their taxes.

In tax year 2011, the most recent year for which figures are available, approximately 3.3 million taxpayers claimed deductions for business use of a home, commonly referred to as the home office deduction, totaling nearly $10 billion.

The new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will reduce the paperwork and recordkeeping burden on small businesses by an estimated 1.6 million hours annually. The IRS and the Small Business Administration announced the new option in January of last year, but it wasn’t available until this tax season (see IRS Offers Simpler Option for Calculating Home Office Tax Deduction).

The new option is available starting with the 2013 return taxpayers are filing now. Normally, home-based businesses are required to fill out a 43-line form (Form 8829), which often involves complex calculations of allocated expenses, depreciation and carryovers of unused deductions. Instead, taxpayers claiming the optional deduction can complete a short worksheet in the tax instructions and enter the result on their return this year.

Self-employed individuals can claim the home office deduction on Schedule C Line 30, while farmers can claim it on Schedule F Line 32 and eligible employees claim it on Schedule A Line 21.

While homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method.

Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees, are still fully deductible.

Long-standing restrictions on the home office deduction, such as the requirement that a home office be used regularly and exclusively for business and the limit tied to the income derived from the particular business, still apply under the new option.

Further details on the home office deduction and the new option can be found in Publication 587, posted on IRS.gov.

Have a Great Day in Central Oregon!

02/26/2014

Just a little information to have with your coffee.....

What’s changed since last year?

• There are new benefits for same-s*x married couples. For the first time ever, the tax law has been harmonized to treat same-s*x married couples the same as other married couples. Following the Supreme Court’s landmark decision in U.S. v. Windsor, the IRS issued new rules allowing same-s*x married couples to file joint returns and enjoy equivalent treatment in all areas of federal income, gift and estate tax law. In fact, all couples with valid marriages, whether same s*x or not, must file as a married couple in 2013, either married filing jointly or married filing separately.

• Higher-earning individuals face higher taxes. For the first time in more than a decade, Congress raised individual tax rates. Individuals earning more than $400,000 and couples earning more than $450,000 are now subject to a 39.6 percent top rate. The top capital gains and dividend rates also went up from 15 percent to 20 percent, not including the new Medicare tax. Finally, the personal exemption phaseout (PEP) and “Pease” phaseout of itemized deductions are back in 2013. Both phaseouts complicate tax planning and return preparation while raising taxes.

• A new tax comes due. Another first for your 2013 returns is the calculation and payment of the 3.8 percent Medicare tax on net investment income. The tax became effective at the beginning of 2013 and imposes a 3.8 percent tax on investment income, like dividends, rents, royalties, interest, capital gains and annuities. Passive income from a trade or business in which you do not materially participate is also subject to the tax.

• Alternative Minimum Tax indexed for inflation. Congress didn’t eliminate the AMT, as many had hoped. As part of New Year’s Eve legislation in 2012, lawmakers did decide to index the tax for inflation for the first time. Previously, Congress had simply “patched” the AMT for one or two years at a time.

It’s not too late to make changes. While the books have closed on a taxpayer's income, gain and loss at the end of 2013, there are still ways to reduce tax liability, such as contributing to a traditional individual retirement account or converting to a Roth IRA.

• Contribute to an IRA. Taxpayers can still get an above-the-line deduction on their 2013 returns by contributing to an IRA now, before filing their income tax return. Taxpayers who don’t have an IRA can set one up today, fund it, and still take advantage of the deduction. Contribution limits for 2013 are $5,500 plus a $1,000 catch-up for those 50 years old and older. If the taxpayer was an active participant in their employer’s retirement plan, contributions to an IRA offer deductions only at income levels below $112,000 for joint filers and $68,000 for singles.

• Reconsider a Roth IRA rollover. In 2010, Congress eliminated the $100,000 income limit on rollovers from an IRA or 401(k) to a Roth IRA. Rolling over allows you to pay tax on the conversion in exchange for no taxes in the future (if withdrawals are made properly). These rollovers have been very popular. They should become even more popular in the future because, unlike distributions from a regular IRA, distributions from a Roth IRA do not increase a taxpayer's AGI—which is used in determining the new Medicare tax and the amount of the PEP and “Pease” phaseouts.

• Make a grouping election. The new 3.8 percent Medicare tax on net investment income will generally apply to any income received from a business in which the taxpayer does not materially participate. While it’s too late to go back and change the amount of participation in a business last year, taxpayers may be able to make a grouping election when they file their returns to combine their activities for various business interests and satisfy the material participation tests.

• Make the 65-day election. Like individuals, most trusts are also subject to the new 3.8 percent tax on net investment income. “Complex trusts” are subject to the new tax in 2013 to the extent their undistributed investment income exceeds $11,950. By making a distribution of the income within 65 days of the end of 2013 (March 6, 2014), the trustee can elect to have the distribution treated as if it were made in 2013, shifting the income for tax purposes to the beneficiary. If the beneficiary is in a lower tax bracket than the trust, the election can reduce the overall tax burden.

Lawmakers have debated tax reform for years, and 2014 may present the best opportunity for Congress to dramatically change our tax laws. But, will reform be a benefit to individual taxpayers? It’s hard to tell. The top individual rates have risen to 39.6 percent, and Congress has discussed lowering corporate rates from their current peak of 35 percent. That could influence whether a business is organized as a pass-through entity, like a partnership or limited liability company, or as a corporation. After all, the greater the disparity in corporate and individual rates, the more opportunity to change the entity classification of your business.

• Materially participate in your business. The 3.8 percent Medicare tax on net investment income is imposed on passive income. For example, an individual taxpayer who doesn’t “materially participate” in a business will see that income taxed at a higher rate, due to this tax. By materially participating in the business, that investor can eliminate the 3.8 percent tax. Doing so can be tricky, but especially for family businesses that have relatives as owners, it makes sense to look into how to materially participate in the business.

Have a Great Day!