January 2015 Letter

With the flip of a switch, a number of tax provisions that expired at the end of 2013 are now back on for 2014 tax returns. Outlined this month is a list of the more common laws that have been extended for 2014, but are off once again in 2015. Also included are the mileage rates for use in 2015, a general interest article describing the increasingly popular peer-to-peer lending phenomena, and a quick recap of things to consider as you start gathering your 2014 tax records.

Should you wish to review your situation please feel free to call. Also feel free to forward this newsletter to someone who may benefit from this information.

Extender Bill Passes

A visible expression of confusion in tax policy out of Washington D.C. is the treatment of a short list of tax laws that have been extended only to expire once again. In late December, Congress finally acted to extend many of these tax provisions for 2014. Here is a list of the commonly used tax provisions that will be available to you when you file your 2014 tax return.

	Teacher $250 deduction for qualified classroom expenses. Impacts: All qualified educators including those who do not itemize their deductions.
	Deduction for state and local general sales taxes (in place of state income tax deduction) Impacts: All taxpayers in states without income taxes who itemize deductions and taxpayers who have high sales tax obligations versus state income tax obligations.
	Deductibility of home mortgage insurance premiums. Impacts: All qualified home owners who carry mortgage insurance.
	Tuition and fees deduction Impacts: All students who can benefit from this additional program to help reduce the cost of their education.
	50% additional first year depreciation deduction and higher Section 179 expense limits. The new Section 179 annual expense limit is now $500,000 (up from $25,000 prior to the extension.) Impacts: All businesses who have acquired and placed qualified assets into service during 2014.
	Tax-free contributions from qualified retirement plans for charitable contributions. Impacts: All qualified taxpayers 70½ years old (or older) who made charitable contributions directly from their traditional IRAs.

There are many other provisions in this tax law. Clarifications on the signed bill will become known over the next few months. Please remember these extended tax laws are not in place for the 2015 tax year.

Peer-to-peer Lending Goes Public

Recently the largest peer-to-peer lending company, Lending Club, moved to become listed as a public company. So what is this alternative banking model and what should you know about it?

What is it?

Peer-to-peer lending is an example of using the power of the internet to bring lenders and borrowers together. If you wish to receive a loan you go to a peer-to-peer web site, fill out an application, get approved, and then post your request for a loan. If you have money to lend, you go to the same web site. You become approved as a lender, transfer money into your account, and then select approved loans to fund. The peer-to-peer company receives part of each transaction for bringing lenders and borrowers together.

How is it used?

How is this popular banking model used?

By borrowers: Much of the current activity for borrowers is to consolidate credit card debt with lower interest rates. Others use the service for purchasing a car, financing a home improvement, funding college and financing big events (like a wedding). The approval process versus traditional lending is often quicker and less painful.

By lenders: Individual lenders use it as a way to receive better returns versus their traditional bank savings accounts. Institutional lenders use it as a quick way to improve returns on their loan portfolios without a lot of paperwork.

Things to consider

Is peer-to-peer lending or borrowing right for you? Here are some things to consider.

For borrowers:

	Review the service providers. There are a number of peer-to-peer lenders out there. Research them and choose a company that has a great track record. Compare this option with your other borrowing options before proceeding.
	Read the fine print. As is true with any lending document, understand the terms of your loan. What happens if you cannot make a payment? What are the penalties? What happens if the note is in collection status? Are there barriers to obtaining future financing from other sources?

For lenders:

	Understand the model. Prior to investing understand each company's business model. How do they make their money? Read the fine print. Is this option right for you?
	Unsecured lending is risky. Most of these loans are unsecured. If the borrower does not pay, you lose your investment.
	Institutions have an inside track. Most of the funding for large peer-to-peer companies is from very large banks and investment companies. Are they getting to fund the best deals? What is left for you?
	Information to make a good lending decision. The information made available to you to decide whether to make a loan is controlled by the peer-to-peer company. Each peer-to-peer company has different levels of information available for you to make your lending decision.
	Diversify. If lending money is an option you wish to consider, make sure you diversify and talk to experts to ensure you understand the risk. Even within a single peer-to-peer company you will want to reduce your exposure to any one investment going bad.
	The environment could change. If we experience a redo of the 2008 recession, a number of these peer-to-peer loans are going to default. Can you handle this risk?

Currently peer-to-peer lending is a hot and upcoming trend. Most of us will start to see more information on this lending model in the news and via advertising. It is helpful to begin to understand this new banking model and what it means to you.

2015 Standard Mileage Rates

The IRS recently announced mileage rates to be used for travel in 2015. The business mileage rate increases by 1.5 cents while Medical and Moving mileage rates are lowered by one cent. Charitable mileage rates are unchanged.

Standard Mileage Rates Mileage Rate/Mile     Business Travel 57.5¢ Medical/Moving 23.0¢ Charitable Work 14.0¢

Here are 2014 rates for your reference as well.

Standard Mileage Rates Mileage Rate/Mile     Business Travel 56.0¢ Medical/Moving 24.0¢ Charitable Work 14.0¢

Remember to properly document your mileage to receive full credit for your miles driven.

Getting Organized for 2014 Tax Filing

Now that the tax laws for 2014 have been put to bed, it is time to start gathering your tax records for 2014 and taking steps to get your tax house in order for 2015. Here are some ideas to help you.

Look for your tax forms. W-2s, 1099s, 1098s and the new 1095-A's will start hitting your mailbox. Look for them and get them organized. Create a checklist of the forms to make sure none is missing. If you used the new Affordable Care insurance exchange to purchase your health insurance you will also be receiving a new 1095-A form that recaps this activity.

It is all in a name. If you were recently married or had a name change, file your taxes using the correct name. File the name change with the Social Security Administration as soon as possible, but be aware of the timing with a potential name conflict with the IRS. Any name mis-match could cause a rejection from the IRS and create an audit trigger.

Collect your receipts and sort them. Using last year's tax return, begin to gather and sort your necessary tax records. Sort your tax records to match the items on your tax return. Here is a list of the more common tax records in no particular order:

	Informational tax forms (W-2, 1099, 1098, 1095-A, plus others) that disclose wages, interest income, dividends, and capital gain/loss activity
	Other forms that disclose possible income (jury duty, unemployment, IRA distributions and similar items)
	Business K-1 forms
	Social Security records
	Mortgage interest statements
	Tuition paid statements
	Property tax statements
	Mileage log(s) for business, moving, medical, and charitable driving
	Medical, dental and vision expenses
	Business expenses
	Records of any asset purchases and sales
	Health insurance records (including Medicare and Medicaid)
	Charitable receipts and documentation
	Bank and investment statements
	Credit card statements
	Records of any out of state purchases that may require use tax
	Records of any estimated tax payments
	Home sales records
	Educational expenses (including student loan interest expense)
	Casualty and theft loss documentation
	Moving expenses
	Contribution records

If you are not sure whether something is important for tax purposes, retain the documentation. It is better to save unnecessary documentation than to later wish you had the document to support your deduction.

Clean up your auto log. You should have the necessary logs to support your qualified business miles, moving miles, medical miles and charitable miles driven by you. Gather the logs and make a quick review to ensure they are up to date and totaled.

Review and update your withholdings. Make a quick review of your W-2 and decide if now is the time to have your employer update your withholding amounts. A second check might be in order after you file your taxes.

Coordinate your deductions. If you and someone else may share a dependent, confirm you are both on the same page as to who will claim the dependent. This is true for single taxpayers, divorced taxpayers, taxpayers with elderly parents/grandparents, and parents with older children.

Review your other information. Do not just focus on tax related items. Review other parts of your financial life for possible organization and updates. This includes insurance, investments, legal documents, safety plans, identity theft protection, credit scores, retirement planning, retirement account contributions and your home's annual budget.

As always, should you have any questions or concerns regarding your situation please feel free to call.

December 2014 Letter

With the outcome of Congressional action as uncertain as ever, what can be done to manage your own affairs as the 2014 tax year winds down? In addition to identifying a list of ideas that may help reduce your taxes, included in this month's letter are planning considerations for those who have possible household employees. There is also a recap of key tax code provisions that expired in 2013, but may still have an impact in 2014.

Looking for something to talk about at the next family gathering? Look no further than a quick review of the U.S. Oxford dictionary's words of the year.

Should you wish to review your situation please feel free to call. Also feel free to forward this newsletter to someone who may benefit from this information.

Last-Minute Tax Moves

There's still time

As 2014 winds down, there is still time to reduce your potential tax obligation. Here are some ideas to make your 2014 tax return less of a burden on your wallet.

	Defer income or accelerate expenses. Remember individual taxpayers are on the "cash basis" of accounting for income tax purposes. That means your income is taxable when you receive it and expenses count when you pay them. With this knowledge consider making deductible payments prior to the end of the year. Examples could be property tax payments, mortgage interest payments, and charitable donations. Shift the expense or revenue into the tax year that will be most beneficial for your tax situation. This review is especially important if you are nearing retirement.
	Give to charities. Consider making end of year donations to charities of your choice. Remember donations of property in good or better condition and your charitable mileage are also deductible. Receiving proper documentation that acknowledges your contributions is important to ensure you obtain the full deduction.
	Consider donating appreciated stock. By donating appreciated stock owned one year or longer to a favorite charity, you receive two benefits. First, you will not have to claim the capital gain on the appreciation of your investment. Second, you can claim the higher market value of the stock as your contribution amount. The procedure you need to follow to qualify your donation of appreciated stock is fairly strict. Ask for help from your broker and the charitable organization to ensure it is done correctly.
	Consider gifts. Each year you may gift up to $14,000 without tax consequences to as many individuals as you choose. Consider any gift giving you wish to make up to the annual limit. This could include gifts of cash or property, including investments.
	Make effective use of capital losses. Remember up to $3,000 in net capital losses can be claimed each year. This loss limitation is calculated after netting all your capital losses against any capital gains. By careful planning you can take advantage of this loss amount each year.
	Fund tax-deferred retirement accounts. An easy way to reduce your taxable income is to fully fund retirement accounts that have tax-deferred status. The most common accounts are 401(k)s, 403(b)s, and various IRAs (Traditional, SEP, and SIMPLE).
	Retirement account distributions. If you are over the age of 59 you will want to review whether taking distributions from your retirement plans makes sense. This is especially important if you are over the age of 70½ when required minimum distributions (RMD) must be made. Remember, removing a planned amount from your retirement accounts each year may be more tax efficient than waiting until you are "required" to do so using the RMD rules when you are older.

This is a short list of some of the ideas you can use to lower your tax obligation in 2014. If interested, call to review your situation.

Remember the Nanny Tax

Do you have a household employee?

The "nanny tax" refers to the part of the tax code that deals with household workers that are treated as employees. The nanny tax rules require you to withhold Social Security and Medicare taxes for any household employee that earns $1,900 or more annually. Who it applies to Household employees include baby sitters, house cleaners, yard workers, and general labor that are not incorporated. It does not apply to companies that work around your home. Steps to take

If you have suppliers that work for you, you need to find out if they work for themselves (sole-proprietor) or whether they are organized as a business entity like an S-corporation, C-corporation or Limited Liability Company (LLC). If your help is not incorporated and you expect to pay them in excess of the threshold, please obtain the household employee's Social Security number and then file the necessary tax forms to withhold the proper amounts. Should you need assistance with this please call.

Word of the Year

Are you current with the New English?

Each year the Oxford Dictionary announces a new word of the year. This word exemplifies changes in society and shows the continuing evolution of the English language. As the year wraps up, here is a look back at the words of the year for the past decade. How many do you know? Which of them do you use in your everyday speech? Enjoy.

Year	Oxford Dictionary U.S. Word of the Year	Definition
2005	podcast	(noun) A digital audio file made available on the Internet for downloading to a computer or portable media player, typically available as a series, new installments of which can be received by subscribers automatically.
2006	carbon-neutral	(adjective) Making no net release of carbon dioxide to the atmosphere, especially through offsetting emissions by planting trees.
2007	locavore	(noun) A person whose diet consists only or principally of locally grown or produced food.
2008	hypermiling	(noun) The practice of making adjustments to a vehicle or using driving techniques that will maximize the vehicle's fuel economy.
2009	unfriend	(verb) Remove (someone) from a list of friends or contacts on a social networking website: she broke up with her boyfriend, but she hasn't unfriended him
2010	refudiate	(verb) used loosely to mean 'reject': She called on them to refudiate the proposal to build a mosque. [origin -- blend of refute and repudiate]
2011	squeezed middle	(adjective/noun) The section of society regarded as particularly affected by inflation, wage freezes, and cuts in public spending during a time of economic difficulty, consisting principally of those people on low or middle incomes.
2012	GIF	(noun) A lossless format for image files that supports both animated and static images: [as modifier]: a GIF image. Derived from; graphic interchange format
2013	selfie	(noun) A photograph that one has taken of oneself, typically one taken with a smartphone or webcam and shared via social media.

Source: Oxford Dictionary

And the winner for 2014?

Verb - Inhale and exhale the vapor produced by an e-cigarette or similar device.

This word was introduced to describe the act of inhaling vapor from e-cigarette products since the word "smoke" does not correctly apply to these high-tech devices. Look for new "non-vaping" signs at establishments near you.

The Extension that Never Ends

With the potential for retroactive tax law changes in 2014, please prepare for the extension of the following tax laws that expired in 2013. This expiration and extension treadmill has been going on for years. And while there is no guarantee that changes will be made, by being prepared with the proper documentation you can take advantage of any forecasted law changes.

	Educator's $250 tax deduction If you are a teacher and have out-of-pocket expenses please keep your receipts. You may be able to deduct up to $250 of qualified expenses even if you do not itemize deductions.
	State sales tax itemized deduction option Keep receipts of any large purchases. The sales tax provision allows for you to take either a general sales tax deduction or a state income tax deduction as an itemized deduction.

	Direct contribution from retirement accounts for qualified seniors In 2013, qualified seniors who donated funds directly from their retirement plan could exclude the plan withdrawal from income. Hold off using this technique in 2014 until you receive confirmation from Congress this tax benefit is extended.
	Itemized deduction for mortgage insurance premium costs Keep your mortgage insurance documentation for a potential itemized deduction.
	Changes in small business depreciation Through late November, 2014 there is no longer bonus first year depreciation. In addition Section 179 amounts are greatly reduced from $500,000 in qualified assets to $25,000. Even if the law changes, you have little time to purchase and install equipment. Please plan accordingly.

If other late law changes impact you, rest assured those changes will be applied to your tax return as they become known.

As always, should you have any questions or concerns regarding your situation please feel free to call.