Mariner Tax Preparation

Social Distancing Update

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Out of concern for all I stopped having in office appointments last week. Clients can –

  • (Our Preference) Share documents online via Intuit Link. This is the safest way to do it.
  • Drop their materials through our mail slot
  • Mail their materials to my home office at 4 Alma Rd in Millis

How we’re handling returns

Documents received are processed 2-3 days after they arrive. They are returned to clients via priority mail with signature forms and an invoice.

How much will it cost for preparation

Except for unique circumstances where someones return changed you will be billed the same as last year plus $10 for shipping.

Can I just come in and sign?

No. That defeats the purpose of social distancing. We’re handling all documents individually and keeping things as sterile as possible. It’s our sincere hope that we are over reacting. But we’ve decided to be proactive in uncertain times.

There’s changes from last year. I need to talk to Jim about them.

No problem. Let us know what is going on and we will be happy to help.

Thank you for supporting this effort. We need to take measures to contain the virus. I’ve spoken to many healthcare workers, and they are concerned. Let’s do all we can to make their jobs manageable in these challenging times.

Mariners – Unemployment and State Income Tax

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  • I am a client of yours and would like to ask if you can tell me where I can find the IRS decision that allows Merchant Mariners to receive unemployment when not permanently employed with a company?

Unemployment is governed by the individual states. Hence it is not an IRS related activity. It also isn’t specific to mariners.

Temporary Employment and Maritime Rotary Positions

mariner unemployment and state taxesA good industry for comparison would be the trade unions (electricians, plumbers, etc…) They receive a rotary position from the union. When the position is no longer available they are eligible for unemployment benefits (State specific). Mariners are also given a rotary position. When they are relieved the position is no longer available.

Most unemployment programs require the applicant to be “actively seeking work”. The contention can be made to deny a claim when a mariner has been relieved if they are not actively seeking new employment. Most programs provide a derivative of the following –

    • If your usual occupation is seasonal, you must look for other types of work in the off season. If you are on temporary layoff, you may seek temporary work until recalled.
  • If you belong to a “hiring hall”, a union that does not allow you to look for work on your own, you do not have to personally seek work. However, you must be in good standing with the union and on their work referral list.

Accordingly, mariners who are union members do not have to seek alternate employment if the Union forbids it.

Mariners identifying Tax Home vs. Unemployment Home?

One of the issues encountered in recent years has been with receiving unemployment benefits from a Mariner’s state of residence. For example, if the mariner resides in Massachusetts, but works for a California based company, Massachusetts will generally deny the claim requiring the Mariner to apply for benefits directly in California.

This presents some interesting issues. While 46 USC 11108 only directly identifies limitations on tax jurisdiction specifying a mariner on interstate or foreign articles “is not subject to the income tax laws of a State or political subdivision of a State, other than the State and political subdivision in which the individual resides, with respect to compensation for the performance of duties”, it does set specific guidelines.

The purpose of this legislation was to limit the imposition of taxes to mariners from states outside of their tax home. Like other protective acts, it prevents companies (and States) from assessing taxes from mariners who very well may have never been physically present in the State in question. It seems that the intent of congress was to establish that mariners are not tax transients and to treat all income as sourced to their tax home.

Confusion Setting In

If a mariner living in Massachusetts working for a company based in another state cannot have income in any other state besides their state of residence, how can they be required to apply for unemployment in another state? By law, they have no earned income in the other State.

Simply stated – All of the mariners’ wages are required to be reported as sourced to their state of residency. Accordingly, unemployment claims should be processed and sourced via the Mariners tax home.

Medical Deduction

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What types of expenses qualify as medical deductions?

  • Payments of fees to doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists, and nontraditional medical practitioners
  • Payments for in-patient hospital care or nursing home services, including the cost of meals and lodging charged by the hospital or nursing home
  • Payments for acupuncture treatments or inpatient treatment at a center for alcohol or drug addiction, for participation in a smoking-cessation program and for drugs to alleviate nicotine withdrawal that require a prescription
  • Payments to participate in a weight-loss program for a specific disease or diseases, including obesity, diagnosed by a physician but not ordinarily, payments for diet food items or the payment of health club dues
  • Payments for insulin and payments for drugs that require a prescription
  • Payments for admission and transportation to a medical conference relating to a chronic disease that you, your spouse, or your dependents have (if the costs are primarily for and essential to medical care necessitated medical care). However, you may not deduct the costs for meals and lodging while attending the medical conference
  • Payments for false teeth, reading or prescription eyeglasses or contact lenses, hearing aids, crutches, wheelchairs, and for guide dogs for the blind or deaf
  • Payments for transportation primarily for and essential to medical care that qualify as medical expenses, such as, payments of the actual fare for a taxi, bus, train, or ambulance or for medical transportation by personal car, the amount of your actual out-of-pocket expenses such as for gas and oil, or the amount of the standard mileage rate for medical expenses, plus the cost of tolls and parking fees

Don’t forget that medical deductions have to exceed 7.5% of your AGI and you need to meed itemization thresholds. In practice, medical deductions are not beneficial to the average taxpayer because of this. Another good reason to opt for the medical FSA.

Rental Deductions

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What deductions can I take if I have a rental?

Costs you incur to place the property in service, manage it and maintain it generally are deductible. Even if your rental property is temporarily vacant, the expenses are still deductible while the property is vacant and held out for rent.

Deductible expenses include, but are not limited to:

  • Advertising
  • Auto Expenses
  • Travel (including air fare, car rental etc…)
  • Cleaning and maintenance
  • Commissions
  • Depreciation
  • Mortgage Interest
  • Other Interest
  • Homeowner association dues and condo fees
  • Insurance premiums
  • Real Estate taxes
  • Other Taxes
  • Management fees
  • Pest control
  • Professional fees
  • Rental of equipment
  • Rents you paid to others
  • Repairs
  • Supplies
  • Trash removal fees
  • Travel expenses
  • Utilities
  • Yard maintenance

All expenses you deduct must be ordinary and necessary, and not extravagant.

You can deduct the cost of travel to your rental property, if the primary purpose of the trip is to check on the property or perform tasks related to renting the property. If you mix business with pleasure, though, you’re required to allocate the travel costs between deductible business expenses and nondeductible personal costs. Be careful not to cheat yourself on the breakdown.

Flexible Spending Account vs. Dependent-Care Credit

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flexible spending taxesA couple of tax breaks are available for working parents who pay for child care, but you’ll have to choose one or the other.  Is it better to pay for child-care expenses using a flexible spending account or to claim the dependent-care credit on my tax return?

Many people will have that question over the next few months, as they make decisions about their employee benefits for 2014. You may be allowed to set aside up to $5,000 in pretax money for the year in a flexiblespending account for dependent-care expenses. Or you could claim those expenses for the dependent-care credit when you file your 2012 tax return. But you can’t use the same expenses for both tax breaks. Most familieswho have access to a dependent-care flexible spending account at work would be better off running their child-care expenses through the FSA.

Money you set aside in a flexible spending account is not only subtracted from your paycheck before income taxes are calculated, but it also avoids the 7.65% Social Security and Medicare tax. So if you’re in the 15% income-tax bracket, you won’t have to pay the 15% federal tax or the 7.65% Social Security tax, which means that you’ll avoid paying a total of 22.65% in taxes on that money. In that case, contributing the maximum $5,000 to your dependent-care flex plan cuts your tax bill by $1,133. The benefits get even better as your tax bracket rises. If you’re in the 25% bracket, for example, you’ll end up saving 32.65% in taxes on the money you contribute to the FSA — and lowering your tax bill by $1,633. You’ll save even more if your FSA contribution escapes state income taxes.

 

w-4 withholding

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Why you should Adjust Your W-4 Withholding

Common lifestyle changes, like getting a job or getting married, can change your tax liability. To avoid being caught off guard by an unexpected tax bill or huge tax refund, you’ll need to adjust your withholdings on your paycheck.

What’s a W-4 and Why Should I Pay Attention to It?
mariner taxes w-4Every time you earn income, you’ll most likely owe taxes. How much you pay is determined by your Form W-4. Your employer deducts taxes based on the number of allowances you claim on your W-4. This system works well if you’re a “standard” taxpayer who files single, has one job, and claims a standard deduction. But if you don’t fit into this category — and many of us don’t — it’s likely that you have too much or too little tax withheld.

When you have too much money withheld from your paychecks, you end up giving Uncle Sam an interest-free loan (and getting a tax refund). Ask yourself if there are better ways to use that money. Why not take home more money in your weekly paycheck? Or invest the proceeds and earn interest on it? On the other hand, having too little withheld from your paycheck could mean an unexpected tax bill or even a penalty for underpayment. Either way, there’s a better way to manage your hard-earned money.

The key to paying the right amount of tax is to update your W-4 regularly. Do this whenever you have a major personal life change. The goal is to reduce the potential for both a tax bill and a tax refund to zero, or close to it. But if you count on a big tax refund every year, you should also pay attention to your withholding, because how much you have withheld directly impacts your refund.

Here are Five Life Changes that Should Make You Revisit Your W-4 Withholding

You get a second job
Getting a second job is the most common reason for needing to adjust your W-4. Do this whether you moonlight, have a home business, or get another full-time job. Any time your income goes up, your tax liability will likely go up too, requiring a new W-4. If your extra income comes from a side job with no W-4, you can still adjust the W-4 at your main job to account for the increase in income.

Your spouse gets a job or changes jobs
Any change of household income, whether up or down, could put joint filers in a different tax bracket and require both of you to modify your allowances. To ensure accuracy, use your combined income to figure the allowances. Once this is calculated, one spouse can claim all of them, or they can be divided between both W-4s.

You’re unemployed part of the year
If you get laid off from your job and stay unemployed the rest of the year, you likely had too much tax withheld. But if you get re-hired in the same year, you’ll need to adjust for the downtime. To avoid paying too much tax, you should increase the allowances on a new W-4. We’ll show you how to do that below.

You get married…or divorced
Tying or untying the knot will surely change your tax rate, especially if both spouses work. Married persons filing jointly qualify for a lower tax rate and other deductions. Getting a divorce will take you back to single status and reverse many tax benefits. If you fail to account for these events on your W-4 by adjusting allowances, your withholdings could be inaccurate.

You have a baby…or adopt one
A new baby is more than a bundle of joy for you and your spouse. It’s a major tax event too. You can claim an additional allowance for a dependent and may qualify for the Child Tax Credit, Child Care Tax Credit and others. If you adopt a child, there’s another tax credit. Any of these could allow you to reduce your withholding to account for the added tax benefits. Leaving your withholdings as-is will likely result in a larger than expected tax refund.

If you want to have more or less taken out each paycheck ask your employer for a fresh W-4. You can claim as many allowances as warranted by your personal situation. Another way to increase your withholdings is to put the actual amount you want deducted on Line 6 (“Additional Withholdings”) of the W-4.

If you want to verify if your W-4 is filled out correctly for your life; use the IRS W-4 Calculator…
http://www.irs.gov/Individuals/IRS-Withholding-Calculator

You can adjust your W-4 at any time during the year. Just remember, adjustments made later in the year will have less impact on your taxes for that year.

Health Care Reform

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mariner taxes health care reformNow that healthcare reform is the law of the land, it’s time to think about how it will affect your taxes. Whether your income is high, low or in-between, everyone will be affected in some way. Here’s a year-by-year breakdown of what’s on the horizon and details about how the new law may change the amount of tax you pay.

With the Supreme Court’s ruling on the new Patient Protection and Affordable Care Act (a.k.a. Affordable Care Act or Obamacare), you may be wondering how you’ll be affected.

While there are some tax implications of the new law, there’s no need to panic. The revisions are gradual and stretch out over 10 years. You’ll have plenty of time to adjust to them.

Some changes to tax credits and medical accounts went into effect in 2010 and 2011. But you won’t see major changes until 2013 and 2014.

Here’s a year-by-year breakdown of what’s on the horizon.

2010
$250 prescription drug rebate: This rebate addresses the gap in drug coverage for people on Medicare.

Revised adoption tax credit: The maximum credit increased from $12,150 to $13,170 per eligible child.

The tanning tax: The legislation imposes a 10% tax on individuals who use ultraviolet indoor tanning services. The tax was levied beginning July 1, 2010.

2011

Limit on tax-free medical accounts: You are no longer able to use your flexible spending account (FSA) to buy over-the-counter drugs like ibuprofen. Prescription drugs are still covered.
Stiffer fines for abuse of Health Savings Accounts (HSAs): Penalties for using your HSA to buy non-qualified products increase. They climbed from 10% to 15% to 20%, giving you added motivation not to purchase a laptop or furniture with your HSA.

2013

This is an important year for joint filers with incomes over $250,000 and single filers with incomes over $200,000. These taxpayers will now be subject to two taxes:

Medicare tax on earned income: The tax will increase from 1.45% to 2.35%, but only on income beyond the $200,000/$250,000 thresholds.

Medicare tax on investment income: This new 3.8% tax will be assessed on interest, dividends, capital gains, rent and royalty income. Investment income from retirement accounts is not subject to the tax.

Taxpayers at any income level could be subject to these changes:

Cap on flexible spending account (FSA) contributions: Previously, employers could set the limit on contributions to FSAs. Many opted for caps as high as $5,000. In 2013, a cap of $2,500 goes into effect. Anything above the cap becomes part of your taxable income. The cap will rise each year as the cost-of-living increases.

New limits on medical deductions: Current law allows filers who itemize their deductions to deduct out-of-pocket medical expenses that exceed 7.5% of their income. In 2013, expenses must exceed 10% for filers under age 65. (If you’re over 65, the law goes into effect in 2016.)

2014

The year 2014 is a watershed for the healthcare reform law. This is when the major changes to your healthcare plan will begin. At this time, all Americans will be required to maintain health insurance. (Exceptions include Native Americans, prisoners and illegal immigrants.)

If you are not covered by an employer plan, or by Medicare or Medicaid, you’ll have to purchase your own coverage from a market exchange.

The IRS is responsible for monitoring whether people comply with the new laws. They’ll do this by requiring you to report the value of your health plan on your tax return. If you don’t have coverage, a penalty will be assessed.

Here are the details:

Something new on Form W-2: Starting in 2014, you’ll see a new number on your W-2 form. This is how employers will report the value of your health plan to the IRS. This key figure will determine whether you’re eligible for tax credits or liable for tax penalties.

Health plans are not income: Even though the value of your plan is reported on your W-2, it’s not taxable. So you don’t need to report it as income on your tax return.

Penalties for those without medical coverage: The penalty starts at $95 or 1% of income (whichever is greater) per person in 2014. It gradually rises until it hits 2.5% or $695 (whichever is greater) per person by 2016.
Tax credits for low-income filers: If you can’t afford health insurance, you may be eligible for tax credits to help you pay the cost of coverage if you earn between 133% and 400% of the federal poverty level. Based on the current poverty level of $10,830 per year for singles and $22,050 per year for a family of four, assistance would be available for singles with income between $14,404 and $43,320 and families with income between $29,327 and $88,200.

More changes coming
These changes take taxpayers through the first four years of healthcare reform. More are coming down the road.