June, 2012

Tracking Your Days Just Got Easier

          Taxpayers are being selected for state residency audits more frequently than ever before.  The goal of state auditors is to determine whether the taxpayer is liable for resident state taxes in their jurisdiction.  New York is one state where you can be taxed as a resident if you are domiciled there or meet statutory resident tests.  You are a statutory resident if you spend greater than 182 days in the state and maintain a permanent place of abode.  In New York’s case, just one minute spent in the state on a particular day counts as a day spent in the state. 

          Many New Jersey or Connecticut residents are shocked to learn that they can be deemed New York City residents if they maintain a vacation home in New York or a pied a terre in Manhattan and travel from their home to New York City for work more than 182 days in the year.  If selected for audit, taxpayers are asked to provide substantiation to show their whereabouts during each day of the year (or years) under audit.  The substantiation may include credit card receipts, cellular telephone records, and/or EZ Pass statements, among other things.  The taxpayers are also allowed to provide oral testimony and pattern of conduct evidence to support their day-to-day location.  A taxpayer who is deemed a New York State and/or City resident can face substantial tax liabilities, including interest and penalties.  A client may justly be overwhelmed at the thought of keeping detailed records that support their whereabouts each hour of each day, or they may just be too busy to spend the appropriate amount of time on the task. 

          There is now a mobile application that can remove the headache and the dread in this process.  MONAEO is an application that is connected to your cellular telephone.  It has past, present, and future benefits.  In the present, it tracks your location and records the data on an hour by hour, day by day basis.   You can elect to receive notifications and alerts if you are close to the day count limit for a certain jurisdiction.  In the future, when you are preparing the information necessary for your tax professional to complete your individual income tax return, you can download the recorded information into Excel or PDF format to provide to your tax professional.  Years later, if chosen for an audit, the taxpayer has the documents to substantiate their whereabouts each day of the year in question, which at that time, is many years in the past.

          More information about this valuable, time saving software program can be found at www.monaeo.com.

The Tax Impact of the Patient Protection and Affordable Care Act and this Month’s  Supreme Court Ruling

          On June 27, 2012, the Supreme Court ruled by a vote of 5 to 4 that the Patient Protection and Affordable Care Act is constitutional under the government’s right to tax.   Since the Act was upheld, the specific provisions that will impact your income tax will go into effect as planned, beginning in 2011, 2012, or 2013:
Beginning in 2011, distributions from Health Savings Accounts that are not used for unreimbursed medical expenses are subject to a 20% penalty and taxation at ordinary income tax rates.  Previously, the penalty was 10%.

Beginning in 2013, a new Medicare Health Insurance (HI) tax and Net Investment Income tax affects high income earners.  The individuals subject to this tax are single individuals with incomes over $200,000 or joint filers with income over $250,000.  The Medicare HI tax is an additional 0.9% tax on the employee’s share of Medicare.  The employee’s share now totals 2.35%.  The employer’s share remains at 1.45%.  The net investment income tax is a 3.8% tax on interest, dividends, capital gains, royalties, annuities, and rents. 

Beginning in 2013, the medical expense deduction threshold increases from 7.5% to 10%.  For individuals over age 65, the threshold remains at 7.5% through 2016.  This will reduce the amount of a medical expense deduction available to taxpayers.

Beginning in 2013, the limit for contributions to a flexible spending account will be reduced to $2,500.

Lower New York State Personal Income Tax Rates Are In Effect for 2012

Governor Andrew M. Cuomo signed a law which lowered the personal income tax rates for New York State residents.  New York City resident income tax rates remain unchanged.

If you are a single filer or married filing separately, and your income level:
Is between $20,000 and $75,000, your new tax rate is 6.45%.  This is a reduction from the previous rate of 6.65%.

Is between $75,000 and $200,000, your new tax rate is 6.65%.  This is a reduction from the previous rate of 6.85%.

Is between $200,000 and $1,000,000, your new tax rate is 6.85%.  This is a reduction from the previous rate of 7.85 – 8.97%.

Is over $1,000,000, your new tax rate is 8.82%.  This is a reduction from the previous rate of 8.97%.

If you are married filing jointly, and your income level:
Is between $40,000 and $150,000, your new tax rate is 6.45%.  This is a reduction from the previous rate of 6.65%.

Is between $150,000 and $300,000, your new tax rate is 6.65%.  This is a reduction from the previous rate of 6.85%.

Is between $300,000 and $2,000,000, your new tax rate is 6.85%.  This is a reduction from the previous rate of 7.85 – 8.97%.

Is over $2,000,000, your new tax rate is 8.82%.  This is a reduction from the previous rate of 8.97%.

The tax rates will stay the same for 2013 and 2014, although the income levels will be indexed for inflation.

As always, if you have any questions about these or any other matters, do not hesitate to call us.
         
Remember, We’re Here For You!!

        Sincerely yours,
 

        Melissa Lisch