Personal Income Tax Mary B Pearson, CPA Assistant Professor of Accounting

Topics Discussed: New Income Tax Legislation ◦ Income Tax Brackets ◦ Dependent Qualifications ◦ Capital Gain Rates ◦ Child Tax Credit ◦ Child & Dependent Care Credit ◦ Medical Expense Deduction Common Questions Q&A

Too Simple?!

2014 Tax Brackets Tax RateSingleMarried Filing Joint 10%$0 - $9,075$0 - $18,150 15%$9,075 – $36,900$18,150 - $73,800 25%$36,900 – $89,350$73,800 - $148,850 28%$89,350 – $186,350$148,850 - $226,850 33%$186,350 - $405,100$226,850 – $405,100 35%$405,100 - $406,750$405,100 - $457, %Over $406,750Over $457,600

Dependent Qualifications Can Claim: Son, Daughter, Step Child, brother, sister, step brother, step sister, grandchild, or descendent. If over 19, did the person earn less than 3,950? Can claim child under 19 or under 24 and a full time student ◦ Did you pay over ½ support? ◦ Did the dependent live with you over half the year (exception = divorce, education)?

Capital Gains Tax Rates Capital Gains tax is imposed on sale of investment assets (stocks, land, rental property) where the sales price exceeds your basis. Still favorable tax treatment on sale of personal residences! ◦ In 2014, the new capital gains tax rate caps at 20% for tax payers in the 39.6% income tax bracket and above. ◦ If you are in the 10% -15% tax bracket, the capital gains rate is still 0%, 25%-35% tax bracket, the capital gains rate is 15%.

Child Tax Credit $1,000 credit (can be refundable credit) Eligible for a dependent child under the age of 17 Credit is reduced by $50 for every $1,000 dollars over $110,000 MFJ, Adjusted Gross Income ($75,000 Single) Phases out completely at $130,000 MFJ, and $95,000 Single

Child Care Credit Qualifying Person must be under the age of 13 and a dependent. Credit is 20% of amount paid for child care up to $1,050 for one child, and $2,100 for two or more children. Credit cannot exceed one spouses earned income.

Medical Expense Deduction Take Advantage of Health Savings Accounts (HSA) ◦ Tax Free Contributions ◦ Limits = $3,300 Single, $6,550 Family, if 55 or older, can contribute another $1,000 ◦ New threshold for medical and dental deduction is 10% for taxpayers under 65 makes it harder to deduct expenses as an itemized deduction.

Estate and Gift Tax Amounts 2014 Estate limit is $5.00 million ◦ To decrease taxable estate an individual can gift up to $14,000 per person per year, tax free and not included in receivers income ◦ For a couple, they can gift $28,000 to a child, grandchild, sister, brother… per year

What am I???

Can I file HEAD OF HOUSEHOLD? You are unmarried or considered unmarried at the end of the year. You paid more than one half the cost of keeping up a home for the year. A “Qualifying Person” lived with you in the home for more than half the year. Exception: school absences, dependent parent

What is Self Employed Income? Revenue: What did I make? Deductions: ◦ Advertising ◦ Car & Truck Expenses/Mileage = $.565 per mile ◦ Contract Labor ◦ Repairs ◦ Licenses ◦ Bank Fees ◦ Expense or Depreciate Business Assets  Computers/Desks/Equipment/Software ◦ Insurances ◦ Interest paid on Credit Cards ◦ Legal and Professional Fees including tax prep fees and advice ◦ Office Expenses ◦ Rental costs for equipment & property, including storage shed fees ◦ Travel Costs including meals and lodging ◦ Supplies ◦ Cell Phone & Internet Costs ◦ Business Use of Home

Education Credits American Opportunity Credit= First 4 years of Post Secondary Education = Up to $2,500 (100% of 1 st $2,000, 25% of next $2,000) 40% is refundable Lifetime Learning Credit = All Post Secondary = $2,000 per taxpayer (20% of expense) Tuition and Fees Deduction = $4,000 per year All phase out at a maximum of $180,000

Can I deduct Student Loan Interest? Student Loan Interest: Can deduct up to $2500 if AGI is less than $75,000 Single, $150,000 MGJ

Can I contribute to a Roth IRA? Roth IRA: Non Deductible, but earns interest tax free. Withdrawals are non- taxable ◦ Can contribute up to $5500 if under 50 and $6500 if over 50 and: ◦ AGI is less than $191,000 MFJ ◦ AGI is less than $129,000 Single

What are the 2014 Standard Deductions and Exemption? Single: $6,200 Married Filing Joint: $12,400 Head of Household: $9,100 Exemption Amount = $3,950

What are Itemized Deductions? Medical and Dental Expenses Personal Property Taxes on vehicles are not deductible in Utah Sales Tax vs. State Income Taxes Real Estate Taxes Mortgage Interest Principle Mortgage Insurance Premiums Charitable Contributions Unreimbursed Employee Expenses

Do I Qualify for Earned Income Credit? Maximum Income MFJ Maximum Income Hof H # Children$ Credit $51,567$46,2273$6,044 $48,378$43,0382$5,372 $43,210$37,8701$3,250 $19,680$14,3400$487

What Education Expenses can I deduct? ItemEducationAmountCovered Expenses Income Phase Out American Opportunity Credit 4 years of Post Secondary Education $2,500 per yr & student 40% of credit is refundable Tuition, Fees, Books, and Supplies $180,000 MFJ $90,000 Single Lifetime Learning Credit Post Secondary $2,000 per taxpayer 20% of expenses Tuition, Fees, Books, and Supplies $122,000 MFJ $61,000 Single Tuition & Fees Deduction Post Secondary $4,000 per year Qualified Tuition & Fees $160,000 MFJ $80,000 Single/Hof H

Can I withdraw my 401K early? Yes, but you will pay a penalty of 10% if not used for: ◦ Unreimbursed medical expenses or medical insurance premiums if over 10% of your AGI ◦ Total or Permanent Disability ◦ Higher Education Expenses ◦ Purchase of your first home ◦ IRS levy ◦ Qualified Reservist Distribution

Questions & Answers Personal Income Taxes are due Thursday, April 15 th, 2015 Filing Period: Three years from the due date of the return to claim a refund. ◦ EX: Due date April 15, You have until April 15, 2017 to file or amend a 2013 return for a refund.