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New Year resolutions

Happy New Year 2014

OK, now that you have all those “other” resolutions made how about some financial resolutions for 2014? Suggestions:

  • I will review my investment allocations. Do I need to rebalance my portfolio?
  • I will plan before making a significant financial move instead of after. History cannot be changed, only our recollections change but not the facts.
  • I will keep a questioning mind when I hear something that sounds too good (or too bad) to be true. I realize that many times they are not true.
  • I will put more away for my retirement, especially via my retirement plan.
  • I will review my employer’s benefit plans to make sure I am taking advantage of all available and appropriate tax savings.
  • I will work towards paying off all my personal debts such as credit cards, car loans, and lines of credit.
  • I will not borrow against my home equity except in a real emergency as I could lose my house if I have financial difficulties later. The interest is also often not deductible.
  • I will keep taxable income, such as operating businesses and many partnerships, out of my IRA. I do not want my IRA to pay income taxes.
  • I will keep charitable receipts for all contributions over $249 and bank records for those below. I will not wait until April 2015 to get these receipts at the last second as I know I must have them on hand when I file my return.
  • I will remember that my hair dresser/barber is not a tax expert and will run tax savings ideas by a professional before I implement them.
  • I will remember that I only owe income taxes because I am fortunate enough to have a decent income.

photo credit: Pepe Martin

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Individual taxes going up for many in 2013 :(

Yes, I really mean 2013. They are also going up in 2014 – sigh.

Federal increases, selected:

  1. New top federal tax bracket of 39.6% is applied to all income over $450,000, married filing jointly, and $400,000, for a single filer. The prior top bracket of 35% was also retained.
  2. The long-term capital gain and qualified dividend rates increase from 15% to 20% for those in the new 39.6% tax brackets.
  3. There is a new 3.8% tax on net investment income tax for taxpayers earning more than $250,000 for married filing joint or $200,000 for single filers. In addition to traditional investment income, such as interest and dividends, net investment income includes most rental income, capital gains and many types of business income.
  4. A new 0.9% Medicare tax for those with wages, salaries, self-employment income totaling over $250,000 married filing joint or $200,000 for single filers. The tax is only on the excess.
  5. Congress added back the phase-out of personal exemptions and the phase-out of itemized deductions (e.g. mortgage interest and charitable contributions). If you make in excess of $300,000 married filing jointly or $250,000 single then count on losing some deductions.
  6. Prior to 2013, a taxpayer could deduct medical expenses that exceeded 7.5% of their adjusted gross income. For 2013 and forward the limit is 10%.

NC increases, selected:

  1. The qualified tuition deduction, still available in 2013 on your federal, is now eliminated for NC purposes.
  2. Qualified mortgage insurance premiums are still deductible in 2013 on your federal but no longer for NC purposes.
  3. 2013 is the final year for the special tax free allowance for forgiveness of qualified principal residence debt for federal purposes. This provision is no longer allowed by NC. This one could cost some taxpayers quite a bit of NC tax.
  4. The adoption credit is reduced from 50% to 30% for 2013 and eliminated beginning in 2014.

What can we conclude? If you make over $250,000 married or $200,000 single, you will likely pay more income tax for 2013 than you did for 2012.

Filed Under: Tax

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New NC-4 for 2014

All NC employees must complete a new NC-4 or NC-4EZ for 2014. This is because the legislature changed quite a few income tax rules and effective January 1, 2014 they lowered tax rates to a flat 5.8%. Some will owe more tax, some will owe less tax and some will owe about the same amount.

NC has more information and the forms here:

http://www.dornc.com/press/2013/nc4requirement.html

Please start on the NC-4 Allowance Worksheet, Part I. Go to the section with your filing status and answer the questions. Notice the instructions following the questions. For example, for Married Filing Jointly the instructions after question 4 read:

“If you answered “No” to all of the above, STOP HERE and enter ZERO (0) as total allowances on Form NC-4, Line 1.”

Notice that if you answered “NO” to all of the 4 questions, you will enter ZERO (0) total allowances and you can stop. No need to complete the rest of the worksheets. Most of the NC-4s I have calculated have allowed me to stop here and I have calculated ZERO allowances. The instructions continue:

“If you answered “Yes” to any of the above, you may choose to go to Page 2, Part II to determine if you qualify for additional allowances. Otherwise, enter ZERO (0) on Form NC-4, Line 1.”

This is where it gets interesting. If you are a current client, please call or send an email if you need assistance. For most of you there will be no charge.

Filed Under: Tax