1099-MISC Filing Requirements for Small Businesses

There are several different types of 1099s that exist in the federal 1099 information reporting series. However, one of the most popular forms that small businesses need to file is the Form 1099-MISC.

What is a Form 1099-MISC?

Form 1099-MISC is essentially an information report that is required to be sent to certain recipients who have been paid during the year in the course of a trade or business. A copy of the Form 1099-MISC is also reported to the Internal Revenue Service (and some states) for their records as well. Failure to file a required 1099 may result in denied expense deductions upon audit and additional penalties and fees (typically $30 to $530 per missed filing, increased annually, for federal purposes).

Form 1099-MISC Filing Requirements

Form 1099-MISC is required to be filed in several instances. However, some of the most common examples are as follows:

  • Nonemployee Compensation/Independent Contractors – required when $600 or more is paid during the year to a nonemployee. Includes payment for professional services (fees to attorneys, accountants, engineers, repairman, etc.).
  • Rents – all types when the amount paid is $600 or more (unless made to a real estate agent). Examples include real estate rentals for office space, machine rentals, etc.
  • Royalties- amounts that exceed $10. Examples include payments to authors, musicians, artists, etc.
  • Direct Resellers – required when sales are made in the amount of $5,000 or more of consumer products anywhere other than to a permanent retail establishment.

1099-MISC Filing Exemptions

There are a few cases when Form 1099-MISC does not need to be filed even though it may have met the aforementioned requirements.  A few examples are as follows:

  • Note that 1099-MISC generally do not need to be issued to corporations.
  • Amount paid via credit card, debit card, or third-party settlement company (i.e., PayPal) should not be reported on a 1099-MISC as they will be now be reported on Form 1099-K by the bank or third-party.

Tax Reporting of 1099-MISC

There is a question on tax returns which specifically ask if a business was required to issue 1099s and if so, whether they were filed.  Therefore, the IRS has implemented extra measures to make sure the 1099s are filed and will likely begin strictly enforcing the rules.  It is advised to collect a Form W-9 from all vendors so that 1099s can be issued if needed.

Form 1099-MISC Due Date – NEW!!!

Form 1099-MISC is due each year to the recipient by January 31st.  Beginning with the 2016 tax year, due dates for most 1099-MISC and accompanying forms (i.e., Form 1096) must also be submitted to the IRS no later than January 31st.

How to Obtain 1099-MISC and Accompanying Forms

Forms 1099-MISC and the accompanying Form 1096 are available for free delivery to your home or office via the IRS website.  Unfortunately, they official forms cannot be downloaded and submitted to the IRS.  Therefore, please allow the typical 10 business days to receive the forms.  Click here to order the forms.  At a minimum, it is recommended that you order the 2016 version of the following forms:

  • Form 1099-MISC – Miscellaneous Income
  • Form 1096 – Annual Summary and Transmittal of U.S. Information Returns
  • 1099-MISC – Instructions for Form 1099—MISC

Alternatively, a quick Internet search should reveal electronic filing options to help expedite the process.

Sources/References:

IRS Website – Online Order Form

IRS Website – Instructions for Form 1099-MISC

IRS Website – Form W-9

IRS Website – General Instructions for Certain Information Returns

Simply Taxes, LLC is a local year-round tax preparation firm with an office located in North Raleigh. Our Raleigh accountants are ready to work one-on-one with you to help optimize your tax deductions and to resolve any other tax issues in a professional manner.

The information contained within this article is for general guidance only. As such, it should not be used as a substitute for consulting with professional accounting, tax, legal or other competent advisers.  

Posted in Personal Taxes | Leave a comment

What’s New for 2016 North Carolina Tax Returns (Due in April 2017)?

The North Carolina General Assembly enacted legislation that significantly overhauled the income tax laws in the state effective January 1, 2014.  Below is a highlight of the most significant changes to the income tax law that continue to impact taxpayers in North Carolina for 2016.North Carolina Tax Law Changes

Inevitably, 2017 is likely to present some tax planning challenges as is typical when there is a change in political administrations.  Hopefully, any changes will simplify our client’s understanding of what is expected from them while reducing tax compliance burdens.  We will continue to focus on delivering quality and proactive services regardless of how volatile tomorrow’s tax law changes may be.

North Carolina Flat Tax

Perhaps the most drastic of all changes is the elimination of three personal income tax brackets (ranging from 6% to 7.75%) to a flat tax rate.  The 2016 flat tax rate is 5.75%.

Elimination of North Carolina Exemptions

In an attempt to simplify North Carolina tax law, many exemptions, deductions, and credits have been eliminated.  The most notable eliminations are as follows:

  • $50,000 exemptionfor small business owners
  • $4,000 deduction for government retirees (Bailey Settlement exclusions still apply)
  • $2,000 deduction for non-government retirees
  • $35,000 exemption for severance wages
  • Education expenses
  • Child care expenses
  • Earned Income Tax credit
  • Adoption expense credit
  • Long-term care insurance credit

Modification of North Carolina Standard Deductions on Tax Returns

To compensate for the loss of many deductions, the standard deductions that may be claimed on North Carolina tax returns increased as follows for 2016:

  • From $6,000to $15,000 for married individuals filing jointly
  • From $4,400to $12,000 for individuals filing using the Head of Household status
  • From $3,000to $7,500 for individuals filing using the Single or Married Filing Separate status (if other spouse does not claim itemized deductions)

Changes to North Carolina Itemized Deductions on Tax Returns

New rules are in play for people who opt to itemize deductions in lieu of taking the standard deduction.  There is now a $20,000 maximum cap on the amount that can be claimed in total for mortgage interest and property taxes paid on real estate.  This deduction was previously unlimited for most people in the past.

In addition, the itemization of medical expenses deducted on a taxpayer’s federal return are deductible as well as charitable contributions.

Repeal of NC529 College Savings Plan Deduction

Contributions to North Carolina 529 college savings plans are no longer deductible.

Increase to North Carolina Child Tax Credit

The North Carolina child tax credit will increase from $100 to $125 per child for many families with income under $40,000.  However, the credit will remain at $100 per child for many as long as their adjusted gross income remains under the following thresholds:

  • $100,000 – Married Filing Jointly
  • $80,000 – Head of Household
  • $50,000 – Single or Married Filing Separately

Same-Sex Couples

North Carolina recognizes the marriages of same-sex couples legally performed both inside and outside of North Carolina. As such, same-sex married couples must file Federal and North Carolina returns using either the Married Filing Jointly or Married Filing Separately filing status.  Couples married prior to October 24, 2014, may be eligible to claim additional refund money for the past 2 years by filing amended tax returns.

Related Articles

What’s New for 2016 Federal Tax Returns (Due in April 2017)

NC-4 EZ or NC-4: Changes to the North Carolina Employee’s Withholding Certificate Form

Simply Taxes, LLC is a local year-round tax preparation firm with an office located in North Raleigh. Our Raleigh accountants are ready to work one-on-one with you to help optimize your tax deductions and to resolve any other tax issues in a professional manner.

The information contained within this article is for general guidance only. As such, it should not be used as a substitute for consulting with professional accounting, tax, legal or other competent advisers.  

Posted in Personal Taxes | Leave a comment

What’s New for 2016 Tax Returns (Due in April 2017)?

Sign Shows Year Two Thousand And Sixteen

Each year federal tax laws change, and 2016 was no exception. Fortunately, many of the changes enacted into legislation during the year which impacted individuals were mere extensions of laws that were set to expire during 2016. Below is a highlight of the tax laws that commonly affect individuals which are either new, continuing from a prior year, or scheduled to expire at a future date.

Inevitably, 2017 is likely to present some tax planning challenges as is typical when there is a change in political administrations.  Hopefully, any changes will simplify our client’s understanding of what is expected from them while reducing tax compliance burdens.  We will continue to focus on delivering quality and proactive services regardless of how volatile tomorrow’s tax law changes may be.

Affordable Care Act

Effective in 2014, individuals are required to carry health insurance coverage either through an employer, the government, or private market to avoid being assessed a penalty.  Many individuals who obtained coverage through the Health Insurance Marketplace are eligible to receive the Health Insurance Premium Credit. There are also various exemptions for individuals who did not have coverage the entire year.  This maximum penalty for not having insurance during 2016 has increased compared to the prior year.  The penalty is now $695 per adult, with $347 per dependent child under age 18, subject to a maximum of $2,085 per family; or 2.5% of the amount of annual household income that exceeds income tax filing thresholds capped at the National Average Bronze Plan Premium.

Same-Sex Couples

Legally married same-sex couples must file their 2015 and later tax returns using either the filing status Married Filing Separate or Married Filing Jointly for both federal and state purposes.  There is no longer any distinction in the federal or state tax law between same-sex couples and heterosexual couples.  Refunds may be available for same-sex couples that filed separate returns during 2013 and 2014.

Increased Medical Expense Deduction Limitation

Only amounts exceeding 10% of an individual’s adjusted gross income can be used as an itemized deduction.  However, the old 7.5% threshold remains unchanged through 2016 for individuals age 65 and over.

Increased Exemption Amount

The amount you can deduct for each exemption has increased by $50 to $4,050.  This amount may be limited for those earning at least $259,400 (or $155,650 if married filing separately; or $311,300 if married filing jointly; or $285,350 if filing Head of Household).

Standard Deductions Increase

Standard deductions increased depending on filing status.  2016 standard deductions are listed below.

Filing Status Standard Deduction Additional Deduction if 65 or Older Additional Deduction If Blind
Single/Married Filing Separate $6,300 $7,850 (Single)

$7,550

(MFS)

Add $1,550 (Single)

Add $1,250 (MFS)

Married Filing Jointly/Qualifying Widow(er) $12,600 $13,850 if one spouse is at least 65, $15,100 if both are at least 65 Add $1,250
Head of Household $9,300 $10,850 Add $1,550

Child Tax Credit

The child tax credit remains $1,000 for each child dependent under the age of 17 subject to reduction based on income.

American Opportunity Credit ($2,500)

A credit up to $2,500 per student is available for the first four years of undergraduate education.

Educator Expenses

Teachers and educators are generally allowed to deduct up to $250 of the cost of classroom supplies.  This credit no longer has an expiration date under current law.

Sales Tax Deduction

Individuals are given a choice to either deduct state income tax or state sales tax as an itemized deduction.  This credit no longer has an expiration date under current law.

Student Loan Interest

Many individuals are able to deduct up to $2,500 in student loan interest paid during the year on qualified student loans.

First-Time Homebuyer Tax Credit Repayment

Certain individuals who participated in the 2008 First Time Homebuyer Tax Credit will continue to need to pay back all or a portion of their tax credit.  See IRS website for more specifics.

Energy Credit

A 10% credit for qualified energy efficiency improvements to a primary home is available.  The total cumulative cap is $500 ($200 for windows) for all years after 2005.

Earned Income Tax Credit (EITC)

The amount of Earned Income Tax Credit for taxpayers has slightly increased. Filers can claim up to three (3) children and earn higher levels of income before phasing out of the credit.  The maximum credit for three children claimed during 2016 is $6,269.

Deductible Vehicle Mileage

The following rates apply to most vehicles used for the purposes listed below during 2016.

Purpose
Charitable 14 cents
Business 54 cents
Medical/Moving 19 cents

Additional Medicare Taxes

An additional .9% tax will be imposed on earned income exceeding $200,000 (or $250,000 for married filing jointly filers).  In addition, a 3.8% tax will be imposed on the lesser of net investment income or the amount that exceeds the established thresholds – $125,000 if married and filing separately, $200,000 if filing single, or $250,000 if filing jointly.

Itemized Deductions Limitations

Some individuals earning incomes in excess of $258,250 (or $154,950 if married filing separately) may be subject to having their itemized deductions limited up to 80%.

Expiring Tax Deduction and Credits

Congress recently passed legislation to extend the following tax laws that apply to 2016 tax returns.  These provisions will not be applied to any future tax years unless additional legislation is passed.

Mortgage Insurance Premiums

Individuals are able to deduct mortgage insurance premiums paid on mortgages taken out after 2006.  This deduction will no longer be available effective with the 2017 returns as the law currently stands.

Cancellation of Home Mortgage Debt

Individuals are allowed to exclude all or a portion of debt canceled or forgiven related to a mortgage on their primary home.  This deduction will no longer be available effective with the 2017 returns as the law currently stands.

Tuition and Fees Deduction

Individuals are able to deduct up to $4,000 in tuition and fees paid to eligible colleges and universities.  This deduction will no longer be available effective with the 2017 returns as the law currently stands.

 

Related Articles

What’s New for 2016 North Carolina Tax Returns (Due in April 2017)

IRS List of Tax Deductible Expenses: Itemized Miscellaneous Deductions

Guide for Choosing a Tax Preparer

Standard Deductions vs. Itemized Deductions:  Which Deduction is Better for Tax Returns?

How to File Same-Sex Tax Returns in North Carolina

 

Simply Taxes, LLC is a local year-round tax preparation firm with an office located in North Raleigh. Our Raleigh accountants are ready to work one-on-one with you to help optimize your tax deductions and to resolve any other tax issues in a professional manner.

The information contained within this article is for general guidance only. As such, it should not be used as a substitute for consulting with professional accounting, tax, legal or other competent advisers.  

Posted in Personal Taxes | Leave a comment

What’s New for 2015 Tax Returns (Due in April 2016)?

Each year the federal tax laws change and 2015 was no exception.  Below is a highlight of the most common tax laws that are new, continuing from a prior year, or scheduled to expire.

2015 Tax Changes

Affordable Care Act

Effective in 2014, individuals are required to carry health insurance coverage either through an employer, the government, or private market to avoid being assessed a penalty.  Many individuals who obtained coverage through the Health Insurance Marketplace are eligible to receive the new Health Insurance Premium Credit. There are also various exemptions for individuals who did not have coverage the entire year.  This maximum penalty for not having insurance during 2015 has more than doubled compared to 2014.

Same-Sex Couples

Legally married same-sex couples must file their 2015 tax returns using either the filing status Married Filing Separate or Married Filing Jointly for both federal and state purposes.  There is no longer any distinction in the federal or state tax law between same-sex couples and heterosexual couples.

Increased Medical Expense Deduction Limitation

Only amounts exceeding 10% of an individual’s adjusted gross income can be used as an itemized deduction.  However, the old 7.5% threshold remains unchanged through 2016 for individuals age 65 and over.

Increased Exemption Amount ($50)

The amount you can deduct for each exemption has increased by $50 to $4,000.  This amount may be limited for those earning at least $258,250 (or $154,950 if married filing separately).

Standard Deductions Increase ($100 – $400)

Standard deductions increased between $150 and $300 depending on filing status.  2015 standard deductions are listed below.

Filing Status

Standard Deduction

Additional Deduction if 65 or Older

Additional Deduction If Blind

Single/Married Filing Separate $6,300 $7,850 Add $1,550
Married Filing Jointly/Qualifying Widow(er) $12,600 $13,850 if one spouse is at least 65, $15,100 if both are at least 65 Add $1,250
Head of Household $9,250 $10,650 Add $1,550

Child Tax Credit ($1,000)

The child tax credit remains $1,000 for each child dependent under the age of 17.

American Opportunity Credit ($2,500)

A credit up to $2,500 per student is available for the first four years of undergraduate education.  This credit has been extended through 2017.

Student Loan Interest

Many individuals are able to deduct up to $2,500 in student loan interest paid during the year on qualified student loans.

First-Time Homebuyer Tax Credit Repayment

Certain individuals who participated in the 2008 First Time Homebuyer Tax Credit will continue to need to pay back all or a portion of their tax credit.  See IRS website for more specifics.

Energy Credit

A 10% credit for qualified energy efficiency improvements to a primary home is available.  The total cumulative cap is $500 ($200 for windows) for all years after 2005.

Earned Income Tax Credit (EITC) ($100)

The amount of Earned Income Tax Credit for taxpayers has increased by $100. Filers can claim up to three (3) children and earn higher levels of income before phasing out of the credit.  The maximum credit for three children claimed during 2015 is $6,242.

Deductible Vehicle Mileage

The following rates apply to most vehicles used for the purposes listed below during 2015.

Purpose
Charitable 14 cents
Business 57.5 cents
Medical/Moving 23 cents

Additional Medicare Taxes

An additional .9% tax will be imposed on earned income exceeding $200,000 (or $250,000 for married filing jointly filers).  In addition, a 3.8% tax will be imposed on the lesser of net investment income or the amount that exceeds the established thresholds – $125,000 if married and filing separately, $200,000 if filing single, or $250,000 if filing jointly.

Itemized Deductions Limitations

Some individuals earning incomes in excess of $254,200 (or $152,525 if married filing separately) may be subject to having their itemized deductions limited up to 80%.

Expiring Tax Deduction and Credits

Congress recently passed a temporary measure to extend the following tax laws that apply to 2015 tax returns.  These provisions will not be applied to any future tax years unless additional legislation is passed.

Mortgage Insurance Premiums

Individuals are able to deduct mortgage insurance premiums paid on mortgages taken out after 2006.  This deduction will no longer be available effective with the 2016 returns as the law currently stands.

Cancellation of Home Mortgage Debt

Individuals are allowed to exclude all or a portion of debt cancelled or forgiven related to a mortgage on their primary home.  This deduction will no longer be available effective with the 2016 returns as the law currently stands.

Tuition and Fees Deduction

Individuals are able to deduct up to $4,000 in tuition and fees paid to eligible colleges and universities.  This deduction will no longer be available effective with the 2016 returns as the law currently stands.

Educator Expenses

Teachers and educators are generally allowed to deduct up to $250 of the cost of classroom supplies.  This deduction will no longer be available effective with the 2016 returns as the law currently stands.

Sales Tax Deduction

Individuals are given the choice to either deduct state income tax or state sales tax as an itemized deduction.  This deduction will no longer be available effective with the 2016 returns as the law currently stands.

Related Articles

What’s New for 2015  North Carolina Tax Returns (Due in April 2015)

IRS List of Tax Deductible Expenses: Itemized Miscellaneous Deductions

Guide for Choosing a Tax Preparer

Standard Deductions vs. Itemized Deductions:  Which Deduction is Better for Tax Returns?

Simply Taxes, LLC is a local year-round tax preparation firm with an office located in North Raleigh. Our Raleigh accountants are ready to work one-on-one with you to help optimize your tax deductions and to resolve any other tax issues in a professional manner.

The information contained within this article is for general guidance only. As such, it should not be used as a substitute for consulting with professional accounting, tax, legal or other competent advisers.  

 

Posted in Personal Taxes | Leave a comment

What’s New for 2015 North Carolina Tax Returns (Due in April 2016)?

The North Carolina General Assembly enacted legislation that significantly overhauled the income tax laws in the state effective January 1, 2014.  Below is a highlight of the most significant changes to the income tax law that continue to impact taxpayers in North Carolina for 2015.North Carolina Tax Law Changes

North Carolina Flat Tax

Perhaps the most drastic of all changes is the elimination of three personal income tax brackets (ranging from 6% to 7.75%) to a flat tax rate.  The 2015 flat tax rate is 5.75%.

Elimination of North Carolina Exemptions

In an attempt to simplify North Carolina tax law, many exemptions, deductions, and credits have been eliminated.  The most notable eliminations are as follows:

  • $50,000 exemption for small business owners
  • $4,000 deduction for government retirees (Bailey Settlement exclusions still apply)
  • $2,000 deduction for non-government retirees
  • $35,000 exemption for severance wages
  • Education expenses
  • Child care expenses
  • Earned Income Tax credit
  • Adoption expense credit
  • Long-term care insurance credit

Modification of North Carolina Standard Deductions on Tax Returns

To compensate for the loss of many deductions, the standard deductions that may be claimed on North Carolina tax returns increased as follows for 2015:

  • From $6,000 to $15,000 for married individuals filing jointly
  • From $4,400 to $12,000 for individuals filing using the Head of Household status
  • From $3,000 to $7,500 for individuals filing using the Single or Married Filing Separate status (if other spouse does not claim itemized deductions)

Changes to North Carolina Itemized Deductions on Tax Returns

New rules are in play for people who opt to itemize deductions in lieu of taking the standard deduction.  There is now a $20,000 maximum cap on the amount that can be claimed in total for mortgage interest and property taxes paid on real estate.  This deduction was previously unlimited for most people in the past.

New for 2015, itemization of medical expenses deducted on a taxpayer’s federal return are once again allowed.

Fortunately, North Carolina did not limit the amount of charitable contributions that may be claimed on a return for itemizers.

Repeal of NC529 College Savings Plan Deduction

Contributions to North Carolina 529 college savings plans are no longer deductible.

Increase to North Carolina Child Tax Credit

The North Carolina child tax credit will increase from $100 to $125 per child for many families with income under $40,000.  However, the credit will remain at $100 per child for many as long as their adjusted gross income remains under the following thresholds:

  • $100,000 – Married Filing Jointly
  • $80,000 – Head of Household
  • $50,000 – Single or Married Filing Separately

 

Same-Sex Couples

North Carolina now recognizes the marriages of same-sex couples legally performed both inside and outside of North Carolina. As such, same-sex married couples must now file Federal and North Carolina returns using either the Married Filing Jointly or Married Filing Separately filing status.  Couples married prior to October 24, 2014 may be eligible to claim additional refund money for the past 3 years by filing amended tax returns.

 

Related Articles

What’s New for 2015 Federal Tax Returns (Due in April 2014)

NC-4 EZ or NC-4: Changes to the North Carolina Employee’s Withholding Certificate Form

 

Simply Taxes, LLC is a local year-round tax preparation firm with an office located in North Raleigh. Our Raleigh accountants are ready to work one-on-one with you to help optimize your tax deductions and to resolve any other tax issues in a professional manner.

The information contained within this article is for general guidance only. As such, it should not be used as a substitute for consulting with professional accounting, tax, legal or other competent advisers.  

Posted in Personal Taxes | Leave a comment

IMPORTANT NC TAX LAW UPDATE! – 2014 North Carolina Amended Returns

Breaking News 123rfPerhaps the cruelest April Fool’s Day joke of them all (except that it is not actually a joke) are the North Carolina tax law changes that were signed into law this week!

On April 1, 2015 the North Carolina Department of Revenue released updated guidance that impacts the 2014 tax returns.  Yes – those are the returns that most people have already filed or about to file shortly!

Who is Impacted by the North Carolina Tax Law Changes?

Quite a few people will be impacted by the changes in the law.  However, those most likely to be affected incurred the following expenses during for 2014:

Mortgage Premiums

Many people are eligible to deduct the amount they pay for mortgage premium insurance in addition to mortgage interest on their federal returns.  However, the state will not accept such a deduction; therefore, amounts paid for mortgage insurance premiums are subject to North Carolina income tax.

Education Expenses

Amounts spent on qualified educational expenses are allowed as either a deduction or credit on the federal tax return.  The state will not allow any educational deductions or credits on the return.  As such, educational expenses deducted from the federal return will  be subject to North Carolina income tax.

Cancellation of Debt Related to Home

In many cases, individuals who had lost their primary homes had their mortgage debt canceled.  This cancellation of debt was excluded from federal taxable income for those who qualified.  However, the state considers this cancellation of debt taxable income on which North Carolina income tax must be paid.

For a full list of changes, please review the North Carolina Notice dated April 1, 2015 found at this link: http://www.dor.state.nc.us/taxes/impactofcodeupdate040115.pdf

What To Do If You Already Filed Your 2014 North Carolina Tax Return

Unfortunately, amended tax returns will need to be prepared and filed if the originally filed return included any of the deductions which are now disallowed.   Amended return are filed on Form D-400X; see links below.

North Carolina Amended Return Form (D-400X) – http://www.dornc.com/downloads/D400X.pdf

North Carolina Amended Return Form Instructions  –http://www.dor.state.nc.us/downloads/d400x_instructions.pdf

When Are North Carolina Amended Returns Due?

Time is most definitely of the essence as the amended tax returns are due April 15th!  Amended returns filed after that deadline may be subject to interest and late-payment penalties.

 

Source:  North Carolina Department of Revenue Notice Dated April 1, 2015 – http://www.dor.state.nc.us/taxes/impactofcodeupdate040115.pdf

 

Related Articles:

What’s New for 2014 Federal Tax Returns (Due in April 2014)

What’s New for 2014 North Carolina Tax Returns (Due in April 2015)

Simply Taxes, LLC is a local year-round tax preparation firm with an office located in North Raleigh. Our Raleigh accountants are ready to work one-on-one with you to help optimize your tax deductions and to resolve any other tax issues in a professional manner.

The information contained within this article is for general guidance only. As such, it should not be used as a substitute for consulting with professional accounting, tax, legal or other competent advisers.  

Posted in Personal Taxes | Leave a comment

What’s New for 2014 Tax Returns (Due in April 2015)?

Each year the federal tax laws change and 2014 was no exception.  Below is a highlight of the most common tax laws that are new, continuing from a prior year, or scheduled to expire.2014(123rf)

Affordable Care Act

Effective in 2014, individuals are required to carry health insurance coverage either through an employer, the government, or private market to avoid being assessed a penalty.  Many individuals who obtained coverage through the Health Insurance Marketplace are eligible to receive the new Health Insurance Premium Credit. There are also various exemptions for individuals who did not have coverage the entire year.

Same-Sex Couples

Legally married same-sex couples must file their 2014 tax returns using either the filing status Married Filing Separate or Married Filing Jointly.  There is no longer any distinction in the federal tax law between same-sex couples and heterosexual couples.  However, same-sex couples can only file their state returns jointly in states that recognize the validity of same-sex marriages, such as North Carolina.

Increased Medical Expense Deduction Limitation

Only amounts exceeding 10% of an individual’s adjusted gross income can be used as an itemized deduction.  However, the old 7.5% threshold remains unchanged through 2016 for individuals age 65 and over through 2016.

Increased Exemption Amount ($50)

The amount you can deduct for each exemption has increased by $50 to $3,950.  This amount may be limited for those earing at least $250,000 (or $150,000 if married filing separately).

Standard Deductions Increase ($100 – $400)

Standard deductions increased between $150 and $300 depending on filing status.  2014 standard deductions are listed below.

Filing Status

Standard Deduction

Additional Deduction if 65 or Older

Additional Deduction If Blind

Single/Married Filing Separate $6,200 $7,750 Add $1,550
Married Filing Jointly $12,400 $13,600 if one spouse is at least 65, $14,800 if both are at least 65 Add $1,200
Head of Household $9,100 $10,650 Add $1,550

Child Tax Credit ($1,000)

The child tax credit remains $1,000 for each child dependent under the age of 17.

American Opportunity Credit ($2,500)

A credit up to $2,500 per student is available for the first four years of undergraduate education.  This credit has been extended through 2017.

Student Loan Interest

Many individuals are able to deduct up to $2,500 in student loan interest paid during the year on qualified student loans.

First-Time Homebuyer Tax Credit Repayment

Certain individuals who participated in the First Time Homebuyer Tax Credit between 2008 and 2010 will continue to need to pay back all or a portion of their tax credit.  See IRS website for more specifics.

Energy Credit

A 10% credit for qualified energy efficiency improvements to a primary home is available.  The total cumulative cap is $500 ($200 for windows) for all years after 2005.

Earned Income Tax Credit (EITC) ($100)

The amount of Earned Income Tax Credit for taxpayers has increased by $100. Filers can claim up to three (3) children and earn higher levels of income before phasing out of the credit.  The maximum credit for three children claimed during 2014 is $6,143.

Deductible Vehicle Mileage

The following rates apply to most vehicles used for the purposes listed below during 2014.

Purpose
Charitable 14 cents
Business 56 cents
Medical/Moving 23.5 cents

Additional Medicare Taxes

An additional .9% tax will be imposed on earned income exceeding $200,000 (or $250,000 for married filing jointly filers).  In addition, a 3.8% tax will be imposed on the lesser of net investment income or the amount that exceeds the established thresholds – $125,000 if married and filing separately, $200,000 if filing single, or $250,000 if filing jointly.

Itemized Deductions Limitations

Some individuals earning incomes in excess of $254,200 (or $152,525 if married filing separately) may be subject to having their itemized deductions limited up to 80%.

Expiring Tax Deduction and Credits

Congress recently passed a temporary measure to extend the following tax laws that apply to 2014 tax returns.  These provisions will not be applied to any future tax years unless additional legislation is passed.

Mortgage Insurance Premiums

Individuals are able to deduct mortgage insurance premiums paid on mortgages taken out after 2006.  This deduction will no longer be available effective with the 2015 returns as the law currently stands.

Cancellation of Home Mortgage Debt

Individuals are allowed to exclude all or a portion of debt cancelled or forgiven related to a mortgage on their primary home.  This deduction will no longer be available effective with the 2015 returns as the law currently stands.

Tuition and Fees Deduction

Individuals are able to deduct up to $4,000 in tuition and fees paid to eligible colleges and universities.  This deduction will no be longer available effective with the 2015 returns as the law currently stands.

Educator Expenses

Teachers and educators are generally allowed to deduct up to $250 of the cost of classroom supplies.  This deduction will no longer be available effective with the 2015 returns as the law currently stands.

Sales Tax Deduction

Individuals are given the choice to either deduct state income tax or state sales tax as an itemized deduction.  This deduction will no longer be available effective with the 2015 returns as the law currently stands.

Related Articles

What’s New for 2014 North Carolina Tax Returns (Due in April 2015)

IRS List of Tax Deductible Expenses: Itemized Miscellaneous Deductions

Guide for Choosing a Tax Preparer

Standard Deductions vs. Itemized Deductions:  Which Deduction is Better for Tax Returns?

How to File Same-Sex Tax Returns in North Carolina

 

Simply Taxes, LLC is a local year-round tax preparation firm with an office located in North Raleigh. Our Raleigh accountants are ready to work one-on-one with you to help optimize your tax deductions and to resolve any other tax issues in a professional manner.

The information contained within this article is for general guidance only. As such, it should not be used as a substitute for consulting with professional accounting, tax, legal or other competent advisers.  

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What’s New for 2014 North Carolina Tax Returns (Due in April 2015)?

NCsign(123rf)

The North Carolina General Assembly enacted legislation that significantly overhauled the income tax laws in the state effective January 1, 2014.  Below is a highlight of the most significant changes to the income tax law impacting taxpayers in North Carolina.  Note that these laws will apply to the 2014 income tax returns due in 2015.

North Carolina Flat Tax

Perhaps the most drastic of all changes is the elimination of three personal income tax brackets (ranging from 6% to 7.75%) to a flat tax rate of 5.8% effective for 2014 and 5.75% effective in 2015.

Elimination of North Carolina Exemptions

In an attempt to simplify North Carolina tax law, many exemptions, deductions, and credits have been eliminated.  The most notable eliminations are as follows:

  • $50,000 exemption for small business owners
  • $4,000 deduction for government retirees (Bailey Settlement exclusions still apply)
  • $2,000 deduction for non-government retirees
  • $35,000 exemption for severance wages
  • Education expenses
  • Child care expenses
  • Earned Income Tax credit
  • Adoption expense credit
  • Long-term care insurance credit

Modification of North Carolina Standard Deductions on Tax Returns

To compensate for the loss of many deductions, the standard deductions that may be claimed on North Carolina tax returns increased as follows:

  • From $6,000 to $15,000 for married individuals filing jointly
  • From $4,400 to $12,000 for individuals filing using the Head of Household status
  • From $3,000 to $7,000 for individuals filing using the Single or Married Filing Separate status (if other spouse does not claim itemized deductions)

Changes to North Carolina Itemized Deductions on Tax Returns

New rules are in play for people who opt to itemize deductions in lieu of taking the standard deduction.  There is now a $20,000 maximum cap on the amount that can be claimed in total for mortgage interest and property taxes paid on real estate.  This deduction was previously unlimited for most people in the past.

Fortunately, North Carolina did not limit the amount of charitable contributions that may be claimed on a return for itemizers.

Repeal of NC529 College Savings Plan Deduction

Contributions to North Carolina 529 college savings plans are no longer deductible.

Increase to North Carolina Child Tax Credit

The North Carolina child tax credit will increase from $100 to $125 per child for many families with income under $40,000.  However, the credit will remain at $100 per child for many as long as their adjusted gross income remains under the following thresholds:

  • $100,000 – Married Filing Jointly
  • $80,000 – Head of Household
  • $50,000 – Single or Married Filing Separately

Same-Sex Couples

North Carolina now recognizes the marriages of same-sex couples legally performed both inside and outside of North Carolina. As such, same-sex married couples must now file Federal and North Carolina returns using either the Married Filing Jointly or Married Filing Separately filing status.  Couples married prior to October 24, 2014 may be eligible to claim additional refund money for the past 3 years by filing amended tax returns.

Related Articles

What’s New for 2014 Federal Tax Returns (Due in April 2014)

How to File Same-Sex Tax Returns in North Carolina

NC-4 EZ or NC-4: Changes to the North Carolina Employee’s Withholding Certificate Form

Simply Taxes, LLC is a local year-round tax preparation firm with an office located in North Raleigh. Our Raleigh accountants are ready to work one-on-one with you to help optimize your tax deductions and to resolve any other tax issues in a professional manner.

The information contained within this article is for general guidance only. As such, it should not be used as a substitute for consulting with professional accounting, tax, legal or other competent advisers.  

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Changes to North Carolina Tax Law for Same-Sex Married Couples

Effective October 24, 2014, the State of North Carolina now recognizes the marriages of same-sex couples legally performed inside and outside of North Carolina.  This change comes about a year after the landmark United States Supreme Court ruling that overturned the Defense of Marriage Act (DOMA) which set the ground for making same-sex marriages identical to heterosexual marriages for tax purposes.North Carolina Same Sex

How to File Tax Returns in North Carolina for Same-Sex Marriages

As a result of these changes, same-sex married couples no longer have to prepare up to 7 different tax returns as required by the old law.  In fact, effective with the 2014 tax returns, same-sex married couples are now required to use the same filing status as used on the federal return – Married Filing Jointly or Married Filing Separately.  There are no specials laws or additional procedures that differ between same-sex couples and heterosexual couples effective with the new law.

How to Fill Out Form NC-4 or Form NC-4 EZ for Same-Sex Couples

It is recommended that all same-sex married couples provide their employers with a new Employee’s Withholding Allowance Certificate, Form NC-4 or Form NC-4 EZ completed as a married individual.  Changing the allowances will affect the amount of taxes withheld from an employee’s paycheck.

North Carolina Refund Opportunities for Prior Years

The repeal of DOMA also allows same-sex married couples the opportunity to amend returns for the past three years to claim refunds of federal income, Social Security, and Medicare taxes.  In a similar fashion, North Carolina allows same-sex couples who were married before October 24, 2014 the opportunity to claim a refund for the past 3 past years.  Amending prior year returns are not a requirement but simply an option for those interested.

Many same-sex married couples will be able to file amended returns to claim refunds; however, it is not always a benefit for tax purposes to file the amended returns.  The rules are rather complex in making this determination.  As such, Simply Taxes is offering a FREE analysis to determine the likelihood of receiving additional refund money.  Simply fill out this easy questionnaire to have a trained tax specialist contact you regarding your options.

Sources/Related Articles:

NC-4 EZ or NC-4: Changes To The North Carolina Employee’s Withholding Certificate Form

4 Steps to Prepare Same-Sex Tax Returns in North Carolina (Pre- 10/24/14 rules)

Same-Sex Marriage and Filing Status (NCDOR Directive PD-14-3)

Simply Taxes, LLC is a year-round tax preparation firm with an office located in North Raleigh. Our Raleigh accountants are ready to work one-on-one with you to help optimize your tax deductions and to resolve any other tax issues in a professional manner.

The information contained within this article is for general guidance only. As such, it should not be used as a substitute for consulting with professional accounting, tax, legal or other competent advisers.

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4 Steps to Prepare Same-Sex Tax Returns in North Carolina (Pre- 10/24/14)

North Carolina Same Sex The United States Supreme Court overturned the Defense of Marriage Act (DOMA) during 2013 making same-sex marriages identical to heterosexual marriages for federal tax purposes.  However, states such as North Carolina are still permitted not to recognize the validity of same-sex marriages creating the need for up to 7 (seven) tax returns to be prepared.  That’s right – 7 different tax returns!  Here are the steps same-sex married couple in North Carolina should follow to prepare their tax returns.

***10/24/14 Update:***  North Carolina now recognizes same-sex marriages. Therefore, all married couples must file using the Married Filing Jointly or Married Filing Separately filing status.

Step 1:  Prepare Federal Tax Returns

Beginning with the 2013 income tax returns, all same-sex married couples must file their federal tax returns using either the Married Filing Jointly or Married Filing Separate filing status.  So which filing status is appropriate?  Unfortunately, there is no “one size fits all answer”.   Couples should prepare their tax returns using both statuses and then use the status that provides for the best tax savings.  Note that this process is no different that the options allowed for heterosexual couples.

This step has the potential of causing 3 different tax returns  to be prepared – one for both spouses filing jointly and one each for each spouse if they file separately.

Step 2:  Prepare “Dummy” Federal Tax Return

Since North Carolina does not recognize the validity of same-sex marriages (even when the marriage was entered into legally in another state) it is necessary to prepare “dummy” tax returns prior to preparing the North Carolina tax returns.  A dummy tax return in this case is a federal tax return prepared using an unmarried filing status (i.e., Single, Head of Household).  A dummy federal tax return is required for each spouse since it is the starting point for the North Carolina tax returns. 

This step will require the preparation of 2 additional tax returns – one dummy federal return for each spouse.  Note that the dummy returns are NOT actually filed.

Step 3:  Prepare North Carolina Tax Returns

Prepare two individual North Carolina tax returns for each spouse using the information from the dummy tax returns prepared in step 2

At this point, up to 7 tax returns have been prepared – 3 from federal returns using a married status, 2 dummy federal returns, and 2 North Carolina returns.

Step 4: Same-Sex Married Couples Additional Refund Analysis

The repeal of DOMA also allows same-sex married couples the opportunity to amend returns for the past three years to claim refunds of income tax.  Additionally, if a spouse was receiving benefits through the other spouse’s employer then a refund of Social Security and Medicare taxes may also be available.

Many individuals will be able to claim refunds; however, not everyone will qualify.  The rules are rather complex in making this determination.  As such, Simply Taxes is offering a FREE analysis to determine the likelihood of receiving additional refund money.  Simply fill out this easy questionnaire to have a trained tax specialist contact you regarding your options.

 

Simply Taxes, LLC is a local year-round tax preparation firm located in Raleigh, North Carolina.  As a convenience, we offer both in-office and remote meeting options to help our clients optimize their taxes.

The information contained within this article is for general guidance only. As such, it should not be used as a substitute for consulting with professional accounting, tax, legal or other competent advisers.

 

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