By: Gary M. DellaPosta, CPA

Got kids? They may have an impact on your tax situation. Here are eight tax credits and deductions that can help lower your tax burden.

1. Dependents: In most cases, a child can be claimed as a dependent in the year they were born. Be sure to let us know if your family increased this year and we'll take a look at whether you can claim the child as a dependent this year.
   
   
2. Child Tax Credit: You may be able to take this credit on your tax return for each of your children under age 17. If you do not benefit from the full amount of the Child Tax Credit, you may be eligible for the Additional Child Tax Credit. The Additional Child Tax Credit is a refundable credit and may give you a refund even if you do not owe any tax.
   
   
3. Child and Dependent Care Credit: You may be able to claim this credit if you pay someone to care for your child under age 13 while you work or look for work. Be sure to keep track of your child care expenses so we can claim this credit accurately.
   
   
4. Earned Income Tax Credit: The EITC is a benefit for certain people who work and have earned income from wages, self-employment, or farming. EITC reduces the amount of tax you owe and may also give you a refund.
   
   
5. Adoption Credit: You may be able to take a tax credit for qualifying expenses paid to adopt a child.
   
   
6. Coverdell Education Savings Account: This savings account is used to pay qualified expenses at an eligible educational institution. Contributions are not deductible; however, qualified distributions generally are tax-free.
   
   
7. Higher Education Credits: Education tax credits can help offset the costs of education. The American Opportunity and the Lifetime Learning Credit are education credits that reduce your federal income tax dollar for dollar, unlike a deduction, which reduces your taxable income.
   
   
8. Student Loan Interest: You may be able to deduct interest you pay on a qualified student loan. The deduction is claimed as an adjustment to income so you do not need to itemize your deductions.
   
   

As you can see, having children can make a big impact on your tax profile. Make sure that you're getting the appropriate credits and deductions by speaking to a tax professional today.


Gary DellaPosta is a CPA and founder of the firm: Gary M DellaPosta, CPA's & Business Advisors.   A graduate of Bryant University, he is a member of the American Institute of CPA's as well as the Massachusetts Society of CPA's.  In addition to providing accounting, tax and advisory services to individuals and businesses, he also provides litigation support to attorneys and has been recognized as an expert in numerous Massachusetts' courts.  Mr. DellaPosta serves on the Board of the Barnstable County Mutual Insurance Co., where he serves on the audit, investment and employee benefit committees.  He is a Director at The Cooperative Bank of Cape Cod, where he serves on audit, governance, and personnel committees, and is a former director of Eastern Bank and Plymouth Savings Bank. He also serves as the Treasurer of the Community Health Center of Cape Cod and is a trustee of Heritage Museum & Gardens.  

By: Gary M. DellaPosta, CPA

If you, your spouse or dependents had significant medical or dental costs in 2015, you may be able to deduct those expenses when you file your tax return. Here are eight things you should know about medical and dental expenses and other benefits.

1. You must itemize. You can only claim medical expenses that you paid for in 2015, and only if you itemize on Schedule A on Form 1040. If you take the standard deduction, you can't claim these expenses.

2. Deduction is limited. You can deduct all the qualified medical costs that you paid for during the year. However, you can only deduct the amount that is more than 10 percent of your adjusted gross income. The AGI threshold is still 7.5 percent of your AGI if you or your spouse is age 65 or older. This exception will apply through December 31, 2016.

3. Expenses must have been paid in 2015. You can include medical and dental expenses you paid during the year, regardless of when the services were provided. Be sure to save your receipts and keep good records to substantiate your expenses.

4. You can't deduct reimbursed expenses. Your total medical expenses for the year must be reduced by any reimbursement. Costs reimbursed by insurance or other sources do not qualify for a deduction. Normally, it makes no difference if you receive the reimbursement or if it is paid directly to the doctor or hospital.

5. Whose expenses qualify. You may include qualified medical expenses you pay for yourself, your spouse and your dependents. Some exceptions and special rules apply to divorced or separated parents, taxpayers with a multiple support agreement, or those with a qualifying relative who is not your child.

6. Types of expenses that qualify. You can deduct expenses primarily paid for the diagnosis, cure, mitigation, treatment or prevention of disease, or treatment affecting any structure or function of the body. For drugs, you can only deduct prescription medication and insulin. You can also include premiums for medical, dental and certain long-term care insurance in your expenses. And, you can also include lactation supplies.

7. Transportation costs may qualify. You may deduct transportation costs primarily for and essential to medical care that qualifies as a medical expense, including fares for a taxi, bus, train, plane or ambulance as well as tolls and parking fees. If you use your car for medical transportation, you can deduct actual out-of-pocket expenses such as gas and oil, or you can deduct the standard mileage rate for medical expenses, which is 23 cents per mile for 2015. 

8. No double benefit. You can't claim a tax deduction for medical and dental expenses you paid for with funds from your Health Savings Accounts (HAS) or Flexible Spending Arrangements (FSA). Amounts paid with funds from those plans are usually tax-free. This rule prevents two tax benefits for the same expense.


Gary DellaPosta is a CPA and founder of the firm: Gary M DellaPosta, CPA's & Business Advisors.  A graduate of Bryant University, he is a member of the American Institute of CPA's as well as the Massachusetts Society of CPA's.  In addition to providing accounting, tax and advisory services to individuals and businesses, he also provides litigation support to attorneys and has been recognized as an expert in numerous Massachusetts' courts.  Mr. DellaPosta serves on the Board of the Barnstable County Mutual Insurance Co., where he serves on the audit, investment and employee benefit committees.  He is a Director at The Cooperative Bank of Cape Cod and is a former director of Eastern Bank and Plymouth Savings Bank. He also serves as the Treasurer of the Community Health Center of Cape Cod and is a trustee of Heritage Museum & Gardens.

By: Gary M. DellaPosta, CPA

The best time to start instilling financial skills and values is when children are young. Start giving your kids an allowance once they reach school age. Let them participate in making the decision of how much their allowance should be.

Some parents may want to require kids to do household chores to earn the allowance. Or, parents might want to provide an allowance, but pay kids extra for the performance of tasks. This incentive plan is, of course, a matter of individual child-rearing philosophy, but it does get the message across that money does not grow on trees.

Give your kids control over their own money (their allowance and whatever monies you give them that are not earmarked for some particular purpose). You can make suggestions to them about what they should do with it-i.e., that they might spend half and save half-but allow them the final say on what happens to the money.

Let them see the consequences of both wise and foolish behavior with regard to money. A child who spends all of his money on the first day of the week is more likely to learn budgeting if he is not provided with extras to tide him over.

How much allowance to provide is a matter of parental discretion. Most parents provide about $7 per week to their elementary school children, and from $12 to $20 a week to kids in junior high.



Savings and Investment

Beyond the basics of budgeting and saving, you will want to get your child involved in saving and investing. The easiest way to do this is to have the child open his or her own passbook savings account.

If you want your child to get familiar with investing, there are various child-friendly mutual funds available. The mailings from the fund can be a source of education. Or you may want to get the child interested in individual stocks.

You may want to start a "matching" program with your kids to encourage saving. For instance, for every dollar that the child puts into a savings account or investment, you might match it with 50 cents.

If you want to get your kids involved with investing, it will usually have to be done through a custodial account. There are generally two types of widely used custodial accounts-one is set up under the Uniform Gifts to Minors Act, and the other under the Uniform Transfers to Minors Act. The type of custodial account available depends on which state you live in.

With a custodial account, the child is the owner, but the custodian (usually a parent) manages the property until the child reaches the age of majority under relevant state law-either 18 or 21. The custodian must follow certain rules concerning management of the property in the account. These rules are intended to ensure that the custodian does what is in the child's best interests.

IRAs for Kids

If your child has earned income-from a paper route or baby-sitting, for example, or from working in the family business he or she can contribute earnings to an IRA. The IRA can be an extremely effective investment for a child because of the IRA's tax-deferral feature and the length of time the money is left in the IRA. If $3,000 per year is contributed to the child's IRA for ten years and the money is left to grow until the child reaches age 65, the amount in the IRA could reach $600,000 or more, depending on the returns on the investment. In 2014, your child can contribute the lesser of his or her earned income for the year or $5,500, either to a traditional IRA or a tax-free Roth IRA. The contribution limits are the same for both types of accounts.

To replace the "lost" earnings, the parents can give $3,000 per year to the child (or the amount of earned income the child has, if less). The child may have to file tax returns.

The drawback of course is that, with some exceptions, the money cannot be withdrawn before age 59-1/2 without tax penalty.

Related Guide: For tax rules on IRA withdrawals for higher education, please see the Financial Guide: HIGHER EDUCATION COSTS: How To Get The Best Tax Treatment.

Taxes and Credit

Kids can learn to use automatic teller machine cards for their savings accounts. They can also start using credit cards at an early age-with parental counsel and involvement. They can learn the concepts of incurring and paying off debts both from credit card use and from small loans that parents make them.

It is important to familiarize kids with paying taxes as well. If children have to file tax returns-as they would with an IRA--allow them to participate in the process; this will get them used to the idea of yearly tax payments, and can also be an opportunity for learning about how governments are run with tax revenues.

Note: One side benefit of getting your kids involved in money management is that it may help to avoid the "math phobia" some kids experience in junior high school.

Tip: Professional guidance should be considered for a life event change as major as a marriage of divorce.

Source: Expenditures on Children By Families 2013, US Department of Agriculture Publication Number 1528-2013. Before-tax Income of $61,530 and $106,540 (Average = $82,790).

By: Gary M. DellaPosta, CPA

Confused about which credits and deductions you can claim on your 2014 tax return? You're not alone. Here are six tax breaks that you won't want to overlook.

1. State Sales and Income Taxes Thanks to last-minute tax extender legislation passed last December taxpayers filing their 2014 returns can still deduct either state income tax paid or state sales tax paid, whichever is greater.

Here's how it works. If you bought a big ticket item like a car or boat in 2014, it might be more advantageous to deduct the sales tax, but don't forget to figure any state income taxes withheld from your paycheck just in case. If you're self-employed, you can include the state income paid from your estimated payments. In addition, if you owed taxes when filing your 2013 tax return in 2014, you can include the amount when you itemize your state taxes this year on your 2014 return.

2. Child and Dependent Care Tax Credit Most parents realize that there is a tax credit for daycare when their child is young, but they might not realize that once a child starts school, the same credit can be used for before and after school care, as well as day camps during school vacations. This child and dependent care tax credit can also be taken by anyone who pays a home health aide to care for a spouse or other dependent--such as an elderly parent--who is physically or mentally unable to care for him or herself. The credit is worth a maximum of $1,050 or 35 percent of $3,000 of eligible expenses per dependent.

3. Job Search Expenses Job search expenses are 100 percent deductible, whether you are gainfully employed or not currently working--as long as you are looking for a position in your current profession. Expenses include fees paid to join professional organizations, as well as employment placement agencies that you used during your job search. Travel to interviews is also deductible (as long as it was not paid by your prospective employer) as is paper, envelopes, and costs associated with resumes or portfolios. The catch is that you can only deduct expenses greater than 2 percent of your adjusted gross income (AGI). Also, you cannot deduct job search expenses if you are looking for a job for the first time.

4. Student Loan Interest Paid by Parents Typically, a taxpayer is only able to deduct interest on mortgage and student loans if he or she is liable for the debt; however, if a parent pays back their child's student loans that money is treated by the IRS as if the child paid it. As long as the child is not claimed as a dependent, he or she can deduct up to $2,500 in student loan interest paid by the parent. The deduction can be claimed even if the child does not itemize.

5. Medical Expenses Most people know that medical expenses are deductible as long as they are more than 10 percent of Adjusted Gross Income (AGI) for tax year 2014. What they often don't realize is what medical expenses can be deducted, such as medical miles (23.5 cents per mile) driven to and from appointments and travel (airline fares or hotel rooms) for out of town medical treatment.

Other deductible medical expenses that taxpayers might not be aware of include health insurance premiums, prescription drugs, co-pays, and dental premiums and treatment. Long-term care insurance (deductible dollar amounts vary depending on age) is also deductible, as are prescription glasses and contacts, counseling, therapy, hearing aids and batteries, dentures, oxygen, walkers, and wheelchairs.

If you're self-employed, you may be able to deduct medical, dental, or long term care insurance. Even better, you can deduct 100 percent of the premium. In addition, if you pay health insurance premiums for an adult child under age 27, you may be able to deduct those premiums as well.

6. Bad Debt If you've ever loaned money to a friend, but were never repaid, you may qualify for a non-business bad debt tax deduction of up to $3,000 per year. To qualify however, the debt must be totally worthless, in that there is no reasonable expectation of payment.

Non-business bad debt is deducted as a short-term capital loss, subject to the capital loss limitations. You may take the deduction only in the year the debt becomes worthless. You do not have to wait until a debt is due to determine whether it is worthless. Any amount you are not able to deduct can be carried forward to reduce future tax liability.

Are you getting all of the tax credits and deductions that you are entitled to? Maybe you are...but maybe you're not. Why take a chance?

By: Gary M. DellaPosta, CPA
If you, your spouse or dependents had significant medical or dental costs in 2013, you may be able to deduct those expenses when you file your tax return. Here are eight things you should know about medical and dental expenses and other benefits.

1. You must itemize. You deduct qualifying medical and dental expenses if you itemize on Schedule A on Form 1040.

2. Deduction is limited. You can deduct total medical care expenses that exceed 10 percent of your adjusted gross income for the year. The AGI threshold is still 7.5 percent of your AGI if you or your spouse is age 65 or older. This exception will apply through December 31, 2016.

3. Expenses must have been paid in 2013. You can include medical and dental expenses you paid during the year, regardless of when the services were provided. Be sure to save your receipts and keep good records to substantiate your expenses.

4. You can't deduct reimbursed expenses. Your total medical expenses for the year must be reduced by any reimbursement. Normally, it makes no difference if you receive the reimbursement or if it is paid directly to the doctor or hospital.

5. Whose expenses qualify. You may include qualified medical expenses you pay for yourself, your spouse and your dependents. Some exceptions and special rules apply to divorced or separated parents, taxpayers with a multiple support agreement, or those with a qualifying relative who is not your child.

6. Types of expenses that qualify. You can deduct expenses primarily paid for the diagnosis, cure, mitigation, treatment or prevention of disease, or treatment affecting any structure or function of the body. For drugs, you can only deduct prescription medication and insulin. You can also include premiums for medical, dental and some long-term care insurance in your expenses. And, starting with tax year 2011, you can also include lactation supplies.

7. Transportation costs may qualify. You may deduct transportation costs primarily for and essential to medical care that qualifies as a medical expense, including fares for a taxi, bus, train, plane or ambulance as well as tolls and parking fees. If you use your car for medical transportation, you can deduct actual out-of-pocket expenses such as gas and oil, or you can deduct the standard mileage rate for medical expenses, which is 24 cents per mile for 2013. (This rate decreases to 23.5 cents in 2014.)

8. No double benefit. You can't claim a tax deduction for medical and dental expenses you paid with funds from your Health Savings Accounts or Flexible Spending Arrangements. Amounts paid with funds from those plans are usually tax-free.


Gary DellaPosta is a CPA and founder of the firm: Gary M DellaPosta, CPA's & Business Advisors.  A graduate of Bryant University, he is a member of the American Institute of CPA's as well as the Massachusetts Society of CPA's.  In addition to providing accounting, tax and advisory services to individuals and businesses, he also provides litigation support to attorneys and has been recognized as an expert in numerous Massachusetts' courts.  Mr. DellaPosta serves on the Board of the Barnstable County Mutual Insurance Co., where he serves on the audit, investment and employee benefit committees.  He also serves as the Treasurer of the Community Health Center of Cape Cod, is a Director at The Cooperative Bank of Cape Cod and is a former director of Eastern Bank and Plymouth Savings Bank.

By: Gary M. DellaPosta, CPA
Two tax credits are available for education costs - the American Opportunity Credit (formerly the Hope Credit) and the Lifetime Learning credit. These credits are available only to taxpayers with adjusted gross income below specified amounts (see Income Phase-Outs below).

How These Credits WorkThe amount of the credit you can claim depends on (1) how much you pay for qualified tuition and other expenses for students and (2) your adjusted gross income (AGI) for the year.

You must report the eligible student's name and Social Security number on your return to claim the credit. You subtract the credits from your federal income tax. If the credit reduces your tax below zero, you cannot receive the excess as a refund. If you receive a refund of education costs for which you claimed a credit in a later year, you may have to repay ("recapture") the credit.

Caution: If you file married-filing separately, you cannot claim these credits.

Which costs are eligible? Qualifying tuition and related expenses refers to tuition and fees, and course materials required for enrollment or attendance at an eligible education institution. They now include books, supplies and equipment needed for a course of study whether or not the materials must be purchased from the educational institution as a condition of enrollment or attendance.

"Related" expenses do not include room and board, student activities, athletics (other than courses that are part of a degree program), insurance, equipment, transportation, or any personal, living, or family expenses. Student-activity fees are included in qualified education expenses only if the fees must be paid to the institution as a condition of enrollment or attendance. For expenses paid with borrowed funds, count the expenses when they are paid, not when borrowings are repaid.

Tip: If you pay qualified expenses for a school semester that begins in the first three months of the following year, you can use the prepaid amount in figuring your credit.

Example: You pay $1,500 of tuition in December 2014 for the winter 2015 semester, which begins in January 2015. You can use the $1,500 in figuring your 2014 credit. If you paid in January instead, you would take the credit on your 2015 return.

Tip: As future year-end tax planning, this rule gives you a choice of the year to take the credit for academic periods beginning in the first 3 months of the year; pay by December and take the credit this year; pay in January or later and take the credit next year.

Eligible students. You, your spouse, or an eligible dependent (someone for whom you can claim a dependency exemption, including children under age 24 who are full-time students) can be an eligible student for whom the credit can apply. If you claim the student as a dependent, qualifying expenses paid by the student are treated as paid by you, and for your credit purposes are added to expenses you paid. A person claimed as another person's dependent can't claim the credit. The student must be enrolled at an eligible education institution (any accredited public, non-profit or private post-secondary institution eligible to participate in student Department of Education aid programs) for at least one academic period (semester, trimester, etc.) during the year.

No "double-dipping." The tax law says that you can't claim both a credit and a deduction for the same higher education costs. It also says that if you pay education costs with a tax-free scholarship, Pell grant, or employer-provided educational assistance, you cannot claim a credit for those amounts.

Income Limits. To claim the American Opportunity Credit your modified adjusted gross income (MAGI) must not exceed $90,000 ($180,000 for joint filers). To claim the Lifetime Learning Credit, MAGI must not exceed $63,000 ($127,000 for joint filers). "Modified AGI" generally means your adjusted gross income. The "modifications" only come into play if you have income earned abroad.

The American Opportunity Tax CreditThe American Opportunity Tax Credit (AOC) was extended through tax year 2017 by the American Taxpayer Relief Act of 2012. The maximum credit, available only for the first four years of post-secondary education, is $2,500 for tax years 2013 to 2017. You can claim the credit for each eligible student you have for which the credit requirements are met.

Special Qualification Rules. In addition to being an eligible student, he or she:

• Must be enrolled in a program leading to a degree, certificate, or other recognized credential;
• Must be taking at least half of a normal full-time load of courses, for at least one semester or trimester beginning in the year for which the credit is claimed; and
• May not have any drug-related felony convictions.

Amount of credit. The maximum amount of the AOC credit is $2,500. Generally, 40% of the AOC is now a refundable credit for most taxpayers, which means that you can receive up to $1,000 even if you owe no taxes.

The Lifetime Learning CreditYou may be able to claim a Lifetime Learning credit of up to $2,000 (20% of the first $10,000 of qualified expense) for eligible students (subject to reduction based on your AGI). Only one Lifetime Learning Credit can be taken per tax return, regardless of the number of students in the family.

• The credit can help pay for undergraduate, graduate and professional degree courses, including courses to improve job skills.
• For courses taken to acquire or improve job skills, there are no requirements as to course loads, so that even one or two courses can qualify.
• The number of years for which this credit can be claimed is not limited.

Choosing the Credit. You can't claim both credits for the same person in the same year. But you can claim one credit for one or more family members and the other credit for expenses for one or more others in the same year - for example, an AOC for your child and a lifetime learning credit for yourself.

Electing Not To Take the Credit. There are situations in which the credit is not allowed, or not fully available, if some other education tax benefit is claimed - where the higher education expense deduction is claimed for the same student, see below, or where credit and tax exemption (under a Section 529 or 530 program) are claimed for the same expense. In that case the taxpayer - or, more likely, the taxpayer's tax adviser - will determine which tax rule offers the greater benefit and if it's not the credit, elect not to take the credit.

By: Gary M. DellaPosta, CPA

Welcome 2014! As the new year rolls around, it's always a sure bet that there will be changes to the current tax law and 2014 is no different. From health savings accounts to retirement contributions and standard deductions, here's a checklist of tax changes to help you plan the year ahead.

Filing Season Delayed by 10 Days 
Taxpayers should note that the 2014 tax season opens on Jan. 31, 2014.

In most years, the filing season opens on Jan. 21; however, due to the 16-day government shutdown that took place in October 2013, the filing season is delayed by 10 days this year. No returns, paper or electronic, will be processed by the IRS before this date.

The April 15 tax deadline is set by statute and will remain in place, although taxpayers can request an automatic six-month extension to file their tax return. 

Individuals For 2014, more than 40 tax provisions are affected by inflation adjustments, including personal exemptions, AMT exemption amounts, and foreign earned income exclusion, as well as most retirement contribution limits.

For 2014, the tax rate structure, which ranges from 10 to 39.6 percent, remains the same as in 2013, but tax-bracket thresholds increase for each filing status. Standard deductions and the personal exemption have also been adjusted upward to reflect inflation. For details see the article, "Tax Brackets, Deductions, and Exemptions for 2014," below.

Alternative Minimum Tax (AMT)
Exemption amounts for the AMT, which was made permanent by the American Taxpayer Relief Act (ATRA) are indexed for inflation and allow the use of nonrefundable personal credits against the AMT. For 2014, the exemption amounts are $52,800 for individuals ($51,900 in 2013) and $82,100 for married couples filing jointly ($80,800 in 2013).

"Kiddie Tax" 
For taxable years beginning in 2014, the amount that can be used to reduce the net unearned income reported on the child's return that is subject to the "kiddie tax," is $1,000 (same as 2013). The same $1,000 amount is used to determine whether a parent may elect to include a child's gross income in the parent's gross income and to calculate the "kiddie tax". For example, one of the requirements for the parental election is that a child's gross income for 2014 must be more than $1,000 but less than $10,000.

For 2014, the net unearned income for a child under the age of 19 (or a full-time student under the age of 24) that is not subject to "kiddie tax" is $2,000.

Health Savings Accounts (HSAs) 
Contributions to a Health Savings Account (HSA) are used to pay current or future medical expenses of the account owner, his or her spouse, and any qualified dependent. Medical expenses must not be reimbursable by insurance or other sources and do not qualify for the medical expense deduction on a federal income tax return.

A qualified individual must be covered by a High Deductible Health Plan (HDHP) and not be covered by other health insurance with the exception of insurance for accidents, disability, dental care, vision care, or long-term care.

For calendar year 2014, a qualifying HDHP must have a deductible of at least $1,250 for self-only coverage or $2,500 for family coverage (unchanged from 2013) and must limit annual out-of-pocket expenses of the beneficiary to $6,350 for self-only coverage (up $100 from 2013) and $12,700 for family coverage (up $200 from 2013).

Medical Savings Accounts (MSAs) 
There are two types of Medical Savings Accounts (MSAs): the Archer MSA created to help self-employed individuals and employees of certain small employers, and the Medicare Advantage MSA, which is also an Archer MSA, and is designated by Medicare to be used solely to pay the qualified medical expenses of the account holder. To be eligible for a Medicare Advantage MSA, you must be enrolled in Medicare. Both MSAs require that you are enrolled in a high deductible health plan (HDHP).



Self-only coverage. For taxable years beginning in 2014, the term "high deductible health plan" means, for self-only coverage, a health plan that has an annual deductible that is not less than $2,200 (up $50 from 2013) and not more than $3,250 (up $50 from 2013), and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $4,350 (up $50 from 2013).

Family coverage. For taxable years beginning in 2014, the term "high deductible health plan" means, for family coverage, a health plan that has an annual deductible that is not less than $4,350 (up $50 from 2013) and not more than $6,550 (up $100 from 2013), and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $8,000 (up $150 from 2013).


AGI Limit for Deductible Medical Expenses
In 2014, the deduction threshold for deductible medical expenses remains at 10 percent (same as 2013, but up from 7.5 percent in 2012) of adjusted gross income (AGI); however, if either you or your spouse were age 65 or older as of December 31, 2013, the new 10 percent of AGI threshold will not take effect until 2017. In other words, the 7.5 percent threshold continues to apply for tax years 2013 to 2016 for these individuals. In addition, if you or your spouse turns age 65 in 2014, 2015, or 2016, the 7.5 percent of AGI threshold applies for that year through 2016 as well. Starting in 2017, the 10 percent of AGI threshold applies to everyone.

Eligible Long-Term Care Premiums 
Premiums for long-term care are treated the same as health care premiums and are deductible on your taxes subject to certain limitations. For individuals age 40 or younger at the end of 2014, the limitation is $370. Persons more than 40 but not more than 50 can deduct $700. Those more than 50 but not more than 60 can deduct $1,400, while individuals more than 60 but not more than 70 can deduct $3,720. The maximum deduction $4,660 and applies to anyone more than 70 years of age.

Medicare Taxes 
The additional 0.9 percent Medicare tax on wages above $200,000 for individuals ($250,000 married filing jointly), which became effective last year, in 2013, remains in effect for 2014, as does the Medicare tax of 3.8 percent on investment (unearned) income for single taxpayers with modified adjusted gross income (AGI) more than $200,000 ($250,000 joint filers). Investment income includes dividends, interest, rents, royalties, gains from the disposition of property, and certain passive activity income. Estates, trusts and self-employed individuals are all liable for the new tax.

Foreign Earned Income Exclusion 
For 2014, the foreign earned income exclusion amount is $99,200, up from $97,600 in 2013.

Long-Term Capital Gains and Dividends
In 2014 tax rates on capital gains and dividends remain the same as 2013 rates; however threshold amounts are indexed for inflation. As such, for taxpayers in the lower tax brackets (10 and 15 percent), the rate remains 0 percent. For taxpayers in the four middle tax brackets, 25, 28, 33, and 35 percent, the rate is 15 percent. For an individual taxpayer in the highest tax bracket, 39.6 percent, whose income is at or above $406,750 ($457,600 married filing jointly), the rate for both capital gains and dividends is capped at 20 percent.

Pease and PEP (Personal Exemption Phaseout) 
Both Pease (limitations on itemized deductions) and PEP (personal exemption phase-out) have been permanently extended (and indexed to inflation) for taxable years beginning after December 31, 2012, and in 2014, affect taxpayers with income at or below $254,200 for single filers and $305,050 for married filing jointly.

Estate and Gift Taxes 
For an estate of any decedent during calendar year 2014, the basic exclusion amount is $5,340,000, indexed for inflation (up from $5,250,000 2013). The maximum tax rate remains at 40 percent. The annual exclusion for gifts also remains at $14,000.

Individuals - Tax Credits
Adoption Credit 
In 2014, a non-refundable (only those individuals with tax liability will benefit) credit of up to $13,190 is available for qualified adoption expenses for each eligible child.

Earned Income Tax Credit 
For tax year 2014, the maximum earned income tax credit (EITC) for low and moderate income workers and working families rises to $6,143, up from $6,044 in 2013. The credit varies by family size, filing status and other factors, with the maximum credit going to joint filers with three or more qualifying children.

Child Tax Credit 
For tax year 2014, the child tax credit is $1,000 per child.

Child and Dependent Care Credit
If you pay someone to take care of your dependent (defined as being under the age of 13 at the end of the tax year or incapable of self-care) in order to work or look for work, you may qualify for a credit of up to $1,050 or 35 percent of $3,000 of eligible expenses in 2014. For two or more qualifying dependents, you can claim up to 35 percent of $6,000 (or $2,100) of eligible expenses. For higher income earners the credit percentage is reduced, but not below 20 percent, regardless of the amount of adjusted gross income.

Individuals - Education
American Opportunity Tax Credit and Lifetime Learning Credits 
The American Opportunity Tax Credit (formerly Hope Scholarship Credit) was extended to the end of 2017 by ATRA. The maximum credit is $2,500 per student. The Lifetime Learning Credit remains at $2,000 per return.

Interest on Educational Loans 
In 2014 (as in 2013), the $2,500 maximum deduction for interest paid on student loans is no longer limited to interest paid during the first 60 months of repayment. The deduction is phased out for higher-income taxpayers with modified AGI of more than $65,000 ($130,000 joint filers).

Individuals - Retirement
Contribution Limits 
The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan remains unchanged at $17,500. Contribution limits for SIMPLE plans remains unchanged at $12,000. The maximum compensation used to determine contributions increases to $260,000 (up $5,000 from 2013).

Income Phase-out Ranges 
The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by an employer-sponsored retirement plan and have modified AGI between $60,000 and $70,000, up from $59,000 and $69,000 in 2013.

For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by an employer-sponsored retirement plan, the phase-out range is $96,000 to $116,000, up from $95,000 to $115,000. For an IRA contributor who is not covered by an employer-sponsored retirement plan and is married to someone who is covered, the deduction is phased out if the couple's modified AGI is between $181,000 and $191,000, up from $178,000 and $188,000.

The modified AGI phase-out range for taxpayers making contributions to a Roth IRA is $181,000 to $191,000 for married couples filing jointly, up from $178,000 to $188,000 in 2013. For singles and heads of household, the income phase-out range is $114,000 to $129,000, up from $112,000 to $127,000. For a married individual filing a separate return who is covered by a retirement plan, the phase-out range remains $0 to $10,000.

Saver's Credit 
In 2014, the AGI limit for the saver's credit (also known as the retirement savings contribution credit) for low and moderate income workers is $60,000 for married couples filing jointly, up from $59,000 in 2013; $45,000 for heads of household, up from $44,250; and $30,000 for married individuals filing separately and for singles, up from $29,500.

Businesses
Standard Mileage Rates 
The rate for business miles driven is 56 cents per mile for 2014, down from 56.5 cents per mile in 2013.

Section 179 Expensing 
For 2014 the maximum Section 179 expense deduction for equipment purchases decreases to $25,000 of the first $200,000 of business property placed in service during 2014. The bonus depreciation of 50 percent is gone, as is the accelerated deduction, where businesses can expense the entire cost of qualified real property in the year of purchase.

Transportation Fringe Benefits 
If you provide transportation fringe benefits to your employees, in 2014 the maximum monthly limitation for transportation in a commuter highway vehicle as well as any transit pass is $130 down from $245 in 2013. The monthly limitation for qualified parking is $250.

While this checklist outlines important tax changes for 2014, additional changes in tax law are more than likely to arise during the year ahead.


Gary DellaPosta is a CPA and founder of the firm: Gary M DellaPosta, CPA's & Business Advisors.  A graduate of Bryant University, he is a member of the American Institute of CPA's as well as the Massachusetts Society of CPA's.  In addition to providing accounting, tax and advisory services to individuals and businesses, he also provides litigation support to attorneys and has been recognized as an expert in numerous Massachusetts' courts.  Mr. DellaPosta serves on the Board of the Barnstable County Mutual Insurance Co., where he serves on the audit, investment and employee benefit committees.  He also serves as the Treasurer of the Community Health Center of Cape Cod, is a Director at The Cooperative Bank of Cape Cod and is a former director of Eastern Bank and Plymouth Savings Bank.

By: Gary M. DellaPosta, CPA

Kids may have an impact on your tax situation. Here are eight tax credits and deductions that can help lower your tax burden.
 
1.) Dependents: In most cases, a child can be claimed as a dependent in the year they were born. 

2.) Child Tax Credit: You may be able to take this credit on your tax return for each of your children under age 17. If you do not benefit from the full amount of the Child Tax Credit, you may be eligible for the Additional Child Tax Credit. The Additional Child Tax Credit is a refundable credit and may give you
a refund even if you do not owe any tax. 

3.) Child and Dependent Care Credit: You may be able to claim this credit if you pay someone to care for your child under age 13 while you work or look for work. Be sure to keep track of your child care expenses so we can claim this credit accurately.

4.) Earned Income Tax Credit: The EITC is a benefit for certain people who work and have earned income from wages, self-employment, or farming. EITC reduces the amount of tax you owe and may also give you a refund.

5.) Adoption Credit: You may be able to take a tax credit for qualifying expenses paid to adopt a child. 

6.) Coverdell Education Savings Account: This savings account is used to pay qualified expenses at an eligible educational institution. Contributions are not deductible; however, qualified distributions generally are tax-free. 

7.) Higher Education Credits: Education tax credits can help offset the costs of education. The American Opportunity and the Lifetime Learning Credit are education credits that reduce your federal income tax dollar for dollar, unlike a deduction, which reduces your taxable income. 

8.) Student Loan Interest: You may be able to deduct interest you pay on a qualified student loan. The deduction is claimed as an adjustment to income so you do not need to itemize your deductions. 
 
As you can see, having children can make a big impact on your tax profile. If you're a parent, we'll go over your situation with you to make sure you're getting the appropriate credits and deductions.

By: Gary M. DellaPosta, CPA

Are you one of the millions of Americans who haven't filed (or even started) your taxes yet? With the April 15th tax filing deadline less than two weeks away, here's some last minute tax advice for you. 

1.) Stop Procrastinating. Resist the temptation to put off your taxes until the very last minute. Our office needs time to prepare your return, and we may need to request certain documents from you, which will take additional time. 

 2.) Include All Income. If you had a side job in addition to a regular job, you might have received a Form 1099-MISC. Make sure you include that income when you file your tax return because you may owe additional taxes on it. If you forget to include it you may be liable for penalties and interest on the unreported income. Remember: Get your documents to us as soon as you can, and we'll help you take care of whatever comes up.

3.)   File on Time or Request an Extension. This year's tax deadline is April 15. If the clock runs out, you can get an automatic six-month extension, bringing the filing date to October 15, 2013. The extension itself
does not give you more time to pay any taxes due. You will owe interest on any amount not paid by the April deadline, plus a late-payment penalty if you have not paid at least 90 percent of your total tax by that date. 
 If you need to file for late-penalty relief, we can help with that to. See Late-Penalty Relief for Late Filers under Tax Tips below

4.)    Don't  Panic If You Can't Pay. If you can't immediately pay the taxes you owe, consider some alternatives. You can apply for an IRS installment agreement, suggesting your own monthly payment amount and due date, and getting a reduced late-payment penalty rate. You also have various options for charging your balance on a credit card. There is no IRS fee for credit card payments, but the processing companies charge a convenience fee. Electronic filers with a balance due can file early and authorize the government's
financial agent to take the money directly from their checking or savings account on the April due date, with no fee.

5.)   Sign and Double Check Your Return. The IRS will not process tax returns that aren't signed, so make sure you sign and date your return. You should also double check your social security number, as well as any electronic payment or direct deposit numbers, and make sure that your filing status is correct. 

 Late-Penalty Relief for Extended Filers
 Due to delays at the start of the tax season, the IRS is providing late-payment penalty relief to individuals and businesses requesting a tax-filing extension because they are attaching forms to their returns that couldn't be filed until after January.

 The relief applies to the late-payment penalty, normally 0.5 percent per month, charged on tax payments made after the regular filing deadline. This relief applies to any of the forms delayed until February or March, primarily due to the January enactment of the American Taxpayer Relief Act.

 Taxpayers using forms claiming such tax benefits as depreciation deductions and a variety of business credits, including the Work Opportunity Credit qualify for this relief, as well as the following: 

~ Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits
~ Form 8908, Energy Efficient Home Credit
~ Form 8839, Qualified Adoption Expenses 
~ Form

Individuals and businesses qualify for this relief if they properly request an extension to file their 2012 returns. Eligible taxpayers need not make any special notation on their extension request, but as usual, they must properly estimate their expected tax liability and pay the estimated amount by the original due date of
the return.

 The return must be filed and payment for any additional amount due must be made by the extended due date. Interest still applies to any tax payment made after the original deadline.

By: Gary M. DellaPosta, CPA

If you, your spouse or dependents had significant medical or dental costs in 2012, you may be able to deduct those expenses when you file your tax return. Here are eight things you should know about medical and dental expenses and other benefits.

  1. You must itemize. You deduct qualifying medical and dental expenses if you itemize on Schedule A on Form 1040.

  2. Deduction is limited. You can deduct total medical care expenses that exceed 7.5 percent of your adjusted gross income for the year. 

  3. Expenses must have been paid in 2012. You can include medical and dental expenses you paid during the year, regardless of when the services were provided. Be sure  to save your receipts and keep good records to substantiate your expenses.

  4. You can't deduct reimbursed expenses. Your total medical expenses for the year must be reduced by any reimbursement. Normally, it makes no difference if you receive the reimbursement or if it is paid directly to the doctor or hospital.

  5. Whose expenses qualify. You may include qualified medical expenses you pay for yourself, your spouse and your dependents. Some exceptions and special rules apply to divorced or separated parents, taxpayers with a multiple support agreement, or those with a qualifying relative who is not your child.

  6. Types of expenses that qualify. You can deduct expenses primarily paid for the diagnosis, cure, mitigation, treatment or prevention of disease, or treatment affecting any structure or function of the body. For drugs, you can only deduct prescription medication and insulin. You can also include premiums for medical, dental and some long-term care insurance in your expenses. Starting in 2011, you can also include lactation supplies.

  7. Transportation costs may qualify. You may deduct transportation costs primarily for and essential to medical care that qualifies as a medical expense, including fares for a taxi, bus, train, plane or ambulance as well as tolls and parking fees. If you use your car for medical transportation, you can deduct actual out-of-pocket expenses such as gas and oil, or you can deduct the standard mileage rate for medical expenses, which is 23 cents per mile for 2012.(This rate increases to 24 cents in 2013.)

  8. Tax-favored saving for medical expenses.  Distributions from Health Savings Accounts and withdrawals from Flexible Spending Arrangements may be tax free if used to pay qualified medical expenses including prescription medication and insulin.