Are your Social Security Benefits Taxable?

Some people must pay taxes on part of their Social Security benefits while others find that their benefits aren't taxable at all. If you receive Social Security, a tax professional can help

you determine if some - or all - of your benefits are taxable.

Social security benefits include monthly retirement, survivor, and disability benefits. They do not include Supplemental Security Income (SSI) payments, which are not taxable.

If you received these benefits in 2015, you should receive a Form SSA-1099, Social Security Benefit Statement, showing the amount.

If Social Security was your only source of income in 2015 your benefits might not be taxable. You also may not need to file a federal income tax return this year; however, if you receive income from other sources, then you may have to pay taxes on some of your benefits.

Your taxable benefits and modified adjusted gross income are figured on a worksheet in the Form 1040A or Form 1040 Instruction booklet. Please call if you need assistance figuring this out.

Your income and filing status affect whether you must pay taxes on your Social Security. An easy method of determining whether any of your benefits might be taxable is to add one-half of your Social Security benefits to all of your other income, including any tax-exempt interest.

Next, compare this total to the base amounts below. If your total is more than the base amount for your filing status, then some of your benefits may be taxable. In 2015, the three base amounts are:

$25,000 - for single, head of household, qualifying widow or widower with a dependent child or married individuals filing separately who did not live with their spouse at any time during the year

$32,000 - for married couples filing jointly

$0 - for married persons filing separately who lived together at any time during the year

Retired Abroad?

Retirement income is generally not taxed by other countries. As a U.S. citizen retiring abroad who receives Social Security, for instance, you may owe U.S. taxes on that income, but may not be liable for tax in the country where you're spending your retirement years.

If Social Security is your only income, then your benefits may not be taxable, and you may not need to file a federal income tax return. If you receive Social Security, you should receive a Form SSA-1099, Social Security Benefit Statement, showing the amount of your benefits.

However, if you receive income from other sources (either U.S. or country of retirement) as well, from a part-time job or self-employment, for example, you may have to pay U.S. taxes on some of your benefits. You may also be required to report and pay taxes on any income earned in the country where you retired.

Each country is different, so consult a local tax professional or one who specializes in expat tax services.

State Taxes

Some states tax social security income as well: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Utah, Vermont, and West Virginia.

Note: Even if you retire abroad, you may still owe state taxes--unless you established residency in a no-tax state before you moved overseas. Also, some states honor the provisions of U.S. tax treaties; however, some states do not, therefore it is prudent to consult a tax professional.

Questions about income related to Social Security? Don't hesitate to call.

Amare Berhie, Senior Tax Accountant

AB Tax Online

ABA Tax Accounting

amare@abataxaccounting.com

(651) 300-4777, (612)424-1540, (651) 621-5777

Tax Changes for 2016 - Kiddie Tax

Experienced Tax Accountant – For taxable years beginning in 2016, 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 $1,050 (same as 2015). The same $1,050 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 2016 must be more than $1,050 but less than $10,500.

For 2016, 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 $2,100.

If you would like any additional information please feel free to contact me.

Amare Berhie, Senior Tax Accountant

AB Tax Online

ABA Tax Accounting

amare@abataxaccounting.com

(651) 300-4777, (612)424-1540, (651) 621-5777

The Earned Income Tax Credit: Often Missed

The Earned Income Tax Credit has helped workers with low and moderate incomes get a tax break for 40 years. Yet, one out of every five eligible workers fails to claim it. Here are some things you should know about this valuable credit:

Review Your Eligibility. If you worked and earned under $53,267, you may qualify for EITC. If your income or family situation has changed, you should review the EITC eligibility rules. You might qualify for EITC this year even if you didn’t in the past. If you qualify for EITC you must file a federal income tax return and claim the credit to get it. This is true even if you are not otherwise required to file a tax return. Don’t guess about your EITC eligibility. Use the EITC Assistant tool on IRS.gov. The tool can help you find out if you qualify for the credit. It can also estimate the amount of your EITC.

Know the Rules. You need to understand the rules before you claim the EITC, to be sure you qualify. It’s important that you get this right. Here are some factors you should consider:

• If you are married and file a separate return you do not qualify for EITC.
• You must have a Social Security number that is valid for employment for yourself, your spouse, if married, and any qualifying child listed on your tax return.
• You must have earned income. Earned income includes earnings from working for someone else or working for yourself.
• You may be married or single, with or without children to qualify. If you don’t have children, you must also meet age, residency and dependency rules. If you have a child who lived with you for more than six months of 2015, the child must meet age, residency, relationship and the joint return rules to qualify.
• If you are a member of the U.S. Armed Forces serving in a combat zone, special rules apply.

Lower Your Tax or Get a Refund. If you qualify for EITC, you could pay less federal tax, no tax or even get a refund. EITC could be worth up to $6,242. The average credit was $2,447 last year.

Combining e-file with direct deposit is the fastest and safest way to get your refund. If you would like any additional information please feel free to contact me.

Amare Berhie, Senior Tax Accountant

AB Tax Online

ABA Tax Accounting

amare@abataxaccounting.com

(651) 300-4777, (612)424-1540, (651) 621-5777

Tax Changes for 2016: Alternative Minimum Tax (AMT)

Tax Services- 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 2016, the exemption amounts are $53,900 for individuals ($53,600 in 2015) and $83,800 for married couples filing jointly ($83,400 in 2015).

If you would like any additional information please feel free to contact me.

Amare Berhie, Senior Tax Accountant

AB Tax Online

ABA Tax Accounting

amare@abataxaccounting.com

(651) 300-4777, (612)424-1540, (651) 621-5777

Exemptions and Dependents: Top Tax Facts

Most people can claim an exemption on their tax return. It can lower your taxable income. In most cases, that reduces the amount of tax you owe for the year. Here are the top some tax facts about exemptions to help you file your tax return.

1. Exemptions Cut Income.  There are two types of exemptions. The first type is a personal exemption. The second type is an exemption for a dependent. You can usually deduct $4,000 for each exemption you claim on your 2015 tax return.

2. Personal Exemptions.  You can usually claim an exemption for yourself. If you’re married and file a joint return, you can claim one for your spouse, too. If you file a separate return, you can claim an exemption for your spouse only if your spouse:

·         Had no gross income,

·         Is not filing a tax return, and

·         Was not the dependent of another taxpayer.

3. Exemptions for Dependents.  You can usually claim an exemption for each of your dependents. A dependent is either your child or a relative who meets a set of tests. You can’t claim your spouse as a dependent. You must list the Social Security number of each dependent you claim on your tax return. For more on these rules, see IRS Publication 501, Exemptions, Standard Deduction, and Filing Information. Get Publication 501 on IRS.gov. Just click on the Forms & Pubs tab on the home page.

4. Report Health Care Coverage. The health care law requires you to report certain health insurance information for you and your family. The individual shared responsibility provision requires you and each member of your family to either:

·         Have qualifying health insurance, called minimum essential coverage, or

·         Have an exemption from this coverage requirement, or

·         Make a shared responsibility payment when you file your 2015 tax return.

·         Visit IRS.gov/ACA for more on these rules.

5. Some People Don’t Qualify. You normally may not claim married persons as dependents if they file a joint return with their spouse. There are some exceptions to this rule.

6. Dependents May Have to File.  A person who you can claim as your dependent may have to file their own tax return. This depends on certain factors, like total income, whether they are married and if they owe certain taxes.

7. No Exemption on Dependent’s Return.  If you can claim a person as a dependent, that person can’t claim a personal exemption on his or her own tax return. This is true even if you don’t actually claim that person on your tax return. This rule applies because you can claim that person as your dependent.

8. Exemption Phase-Out.  The $4,000 per exemption is subject to income limits. This rule may reduce or eliminate the amount you can claim based on the amount of your income. See Publication 501 for details.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

If you would like any additional information please feel free to contact me.

Amare Berhie, Senior Tax Accountant

AB Tax Online

ABA Tax Accounting

amare@abataxaccounting.com

(651) 300-4777, (612)424-1540, (651) 621-5777