Top 10 Worst States for Taxes

Now that tax season has arrived, we are forced to realize how much we pay to our state governments. As April approaches, it’s good to access your overall tax bite and how it’s affected by where you live. The state you live in can significantly change how much money you get to keep at the end of the year and how much you have to hand over to your state.

Beth Braverman of the Fiscal Times compiled a list of the states with the toughest tax climate from the Tax Foundation’s data for 2014. “The Tax Foundation collects data on more than 100 tax provisions for each state and then ranks them to create its annual State Business Tax Climate Index.” The foundation looks at which states have the highest tax rates, and also if they are overly complex or unfair to certain individuals.

“One thing that’s important to remember here is that state and local tax rates are only part of the total sales tax story,” said Tax Foundation spokesperson Richard Borean by email. “Equally important are sales tax bases — what the tax applies to — which can have a palpable impact on how much the tax collects in revenue and how the tax affects the economy.”

Here are the worst ten states for taxes in 2014:

10. Maryland

Top state income tax rate: 5.75 percent

Sales tax rate: 6 percent

Per capita property tax: $1,467

Maryland has relatively high taxes across the board. The state is looking into lowering  its corporate income tax from 8.25% to 6% in the next five years and to increase the estate tax threshold from $1 million to $5.25 million.

9. Connecticut

Top State Income tax Rate: 6.7 percent

Sales tax rate: 6.35 percent

Property tax per capita: $2,522

Connecticut has extremely high property taxes and sales, income and corporate taxes in Connecticut are also worse than average. The state is also the single, only state to have a gift tax.

8. Wisconsin

Top state income tax rate:7.65 percent

State sales tax:5 percent

Per capita property tax:$1,724

Wisconsin ranks among the worst states for taxes due to its relatively high income tax plus alternative minimum tax on individuals. However, the state has passed some favorable property and corporate tax reforms.

7. Ohio

Top state income tax rate: 5.33 percent

State sales tax: 5.75 percent

Per capita property tax: $1,140

While Ohio’s tax rates look low, Ohio is on our top ten list because of a change in the Tax Foundation’s methodology. The group now penalizes states for how they treat LLCs and S corporations. Ohio is on the list for having 10 brackets.

6. Rhode Island

Top State Income Tax Rate: 5.99 percent

Sales tax: 7 percent

Property tax per capita: $2,083

High corporate and property taxes made Rhode Island place poorly. Rhode Island was also named least tax-friendly state in the country for retirees by Kiplinger Magazine, due to taxing Social Security benefits, pension income, and other sources of retirement income. However, next year the state’s ranking will probably improve because the state’s corporate income tax will fall from 9% to 7%.

5. Vermont

Top state income tax rate:8.95 percent

State sales tax:6 percent

Per capita property tax: $2,197

High property and income taxes resulted in Vermont’s poor showing on the Tax Foundation ranking. At 8.95 percent, it is sandwiched between New York and New Jersey with one of the highest marginal income tax rates in the nation. Vermont makes up some lost ground in the overall rankings with its state sales tax, which the Tax Foundation ranks at 16th from the top.

4. Minnesota

Top state income tax rate: 9.85 percent

State sales tax: 6.88 percent

Per capita property tax: $1,535

Minnesota made several changes to its tax code this year including: raising  its top income tax rate by 2%, and installing an individual tax hike on earners making more than $150,000. The state also has high sales, property and corporate income taxes.

3. California

Top State Income Tax Rate: 13.3 percent

Sales tax: 7.5 percent

Property tax per capita: $1,450

California is known for having one of the highest income taxes in the country at 13.3% on $1 million of taxable income. The state also has the highest state-wide sales tax rate and its 7.5% sales tax rate mandates a 1% local tax rate.

2. New Jersey
Top state income tax rate: 8.97 percent

State sales tax:7 percent

Per capita property tax: $2,896

New Jersey taxes score poorly in about every tax category. The state has the highest rates for every type of tax and adds many complexities.

1. New York

Top State Income Tax Rate: 8.82 percent

Sales tax: 4 percent

Property taxes per capita: $2,280

New York wins the worst state for taxes. The state had a high individual tax rate and high sales tax However, Governor Andrew Cuomo has announced the state’s new tax relief commission will be looking for ways to change the state’s tax code.

There it is, the list of the worst states to live in for taxes. If you are struggling your current geography, we hope this list will help you determine if another location has more possibilities for you.

Tax season is not only expensive, it can be long and confusing. In order to help people avoid costly tax prep errors, Advocate Tax Solutions offers a superb tax preparation program starting at as low as $25/month. Our tax experts are also here to be your go to resource for all of your tax preparation, accounting, and back tax questions. Call 888-737-0200 today and talk to a consultant for free. Let’s start solving your tax problems together.

For more information go to advocatetaxsolutions.info

Quick Tax Tips for Single Parents

Being a single parent can bring its own unique challenges and concerns in life, but filing taxes shouldn’t be one of them!

Here are some basic things to consider before filing your taxes this year.

Dependents:

Determining who you claim as dependents affects your ability to receive some credits and deductions. In a separation or divorce, this is usually a stipulated agreement between the two parents. However, the both parents can benefit if the parent who normally claims the child agrees to sign a waiver allowing for the non-custodial parent to make the claim. While you cannot split the deduction for a single year, parents can alternate years making the claim or only claim certain children if there are more than one. Remember that a child can only be a dependent if the child has lived with a parent for at least six months out of the year and was financially supported from that parent.

Head of Households:

You can file as head of household if you were not married on December 31, 2014, your kids live with you for at least 50% of the year, and you earn at least 50% of your household income. Head of household status will allow you a lower tax rate and higher deductions.

Exemptions:

For every dependent child you are allowed to deduct $3,950 for 2014. Head of households earning $275,650 or more are phased out.

Tax Credits:

Single parents earning $75,000 adjusted gross income or less can take $1,000 off their tax bill for each dependent 16 and younger in 2014.

Child Care:

Head of households who have an income or are full-time students can claim up to $3,000 per child for qualifying health care. This includes day care, summer day camps, and after school programs. Phaseout starts at $75,000 for single head of household filers.

Earned Tax Income Credit:

The maximum credit is $6,143. If you have three or more children and earn less that $46,997 as a single parent you can take this credit. If you have two children you can still qualify if you have a smaller income.

We hope this will help you begin to file your taxes! For all your tax preparation and tax debt needs call 888-737-0200. The tax experts at Advocate Tax Solutions are here to be your one stop shop for every tax question and problem. Visit www.advocatetaxsolutions.info for more information today!

Obama’s State of the Union Tax Proposal

Last night, President Obama proposed several tax changes in the State of the Union. The proposals will benefit middle-class taxpayers but will cost the wealthy taxpayers and financial services more. According to White House estimates, the proposals could raise $320 billion over 10 years. President Obama hopes to use that money to give middle class taxpayers $175 billion in tax breaks and to make community college free for two years.

The tax breaks:

• A tax credit of up to $500 for two-earner filers. Tax credits reduce your tax dollar for dollar, unlike deductions that reduce your taxable income. The full credit would be available for two-earner families with incomes up to $120,000. Partial credits would be available for those with incomes up to $210,000.
• The tax breaks would increase the income level at which the credit phases out and expand the earned income tax credit for workers without qualifying children. It would be made available to workers 21 years of age and older.
• Increase the child care tax credit to $3,000, and make the maximum credit available to most families with incomes up to $210,000.
• Simplify the student loan interest tax deduction.
• Make the American Opportunity Tax Credit permanent.
• Give full time college students a tax credit of up to $2,500 a year for five years and part-time students would be eligible for a $1,250 AOTC. In order to pay for some of the students’ tax credits, the proposal would roll back expanded tax cuts for 529 education savings plans that were enacted in 2001 for new contributions and the proposal would make distributions on 529 plans taxable to students.

Retirement Plans:

• Every employer with 10 employees would have to enroll workers automatically in an individual retirement account. Workers would be able to opt out if they chose.
• Any employer with 100 or fewer employees would get a $3,000 tax credit for offering an auto-enroll IRA. Employers would get a $1,500 start-up credit for setting up a plan.
• Long-term part-time employees would be eligible to enroll in company retirement plans.
• The proposal would target individual retirement accounts with unusually high balances and limit contributions and accruals of IRA benefits higher than about $3.4 million.

The Tax Increases:

• A higher capital gains tax, or the tax on long-term capital gains, for the wealthy. Currently the maximum gain capital is 23.8%. The proposal would set the rate at 28%. In the 2014 tax season, single filers with taxable income above $406,750 and joint filers with taxable income above $457,600 pay the highest capital gains rate.
• Currently, you can pass stocks onto your heirs without paying capital gain tax. When you inherit an asset your basis in the asset is the higher of the fair market value at the time of death or the decedent’s original basis. Usually, the fair market value is higher. The Obama proposal would eliminate that. When you inherit an asset your basis while simply be the decedent’s original basis. Capital gains would be owed at death, and in the case of couples, at the death of the second spouse. Capital gains of $100,000, or $200,000 for joint filers, would be free from tax. Couples would have an exemption of $500,000 on the gains of their personal residences. No taxes would be due on inherited small-family businesses until those businesses were sold.
• The proposal would instate a fee on large financial institutions, 0.07% of liabilities annually, levied on about 100 companies with $50 billion or more in assets in order to discourage excessive borrowing.

We know the proposal will ignite many party differences in Washington, but we want to know what you, the taxpayers, think! Leave a comment below and lets us know what you think is good or bad about the proposal and what tax reforms are important to you.

If you have any tax problems, Advocate Tax Solutions, your tax team is here for you to use as a resource. We can settle your taxes with the tax solutions that make sense. Call 888-737-0200 or visit www.advocatetaxsolutions.com for a free consultation.

The New Tax Laws in 2015 That Could Affect You

Every year the U.S. tax code undergoes changes that can affect the amount we owe the IRS. Knowing and planning for these changes can help you save money and confusion this year.

Here are some key changes to be aware of.

401 (k) Contribution Limits

For the past two years, 2013-2013, the contribution limit for 401 (k) retirement account was fixed at $17,500 plus another $5,500 “catch up”. This year the amount has risen to $18,000 with a $6,000 catch up for those 50 years of age and above.401 (k)s, or employer-based retirement plans can be a powerful savings builder. In order to qualify for the catch up contributions you must be of age or turn 50 any time during 2015.

IRA Deduction Eligibility

While IRA contribution limits will remain the same in 2015 ($5,500 plus a $1,000 catch-up for those 50 and older), the deduction for taxpayers making contributions to a traditional IRA is more generous. Here’s what the IRS states, “The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $61,000 and $71,000, up from $60,000 and $70,000 in 2014. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $98,000 to $118,000, up from $96,000 to $116,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $183,000 and $193,000, up from $181,000 and $191,000. For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.”

Roth IRA Eligibility

The Roth IRA’s eligibility is also expanding. The AGI phase out range has risen from being between $181,000-$191,000 in 2014 to $183,000-$193,000 in 2015 for married and filing jointly couples. For taxpayers filing as single and head of households, the range has risen from $114,000-$129,000 to between $116,000-$131,000.

IRA Rollovers

Beginning this year, taxpayers will only be able to execute one IRA rollover per year. A rollover involves removing money out of one IRA and putting it into another IRA after holding it for less than 60 days.

myRA

The myRA, my Retirement Account, is a new retirement account created by the U.S. Department of the Treasury, designed to be offered through employers. The myRA doesn’t have any fees and offers modest, guaranteed growth, ensuring that you won’t lose any money. A myRA account can be started with as little as $25 and you can add a minimum of $5 at a time. The contributions levels for myRA are the same as for IRAs ($5,5000 with a $1,000 catch-up). Once your account reaches $15,000 it has to be transferred into a private sector Roth IRA.

SEP IRA Contribution Limits

For taxpayers who are self-employed, contribution limits rise to $53,000 in 2015 and compensation limits rise to $265,000. These limits apply to solo 401 (k)s as well.

SIMPLE IRA Contribution Limits

In 2015, you will be able to contribute as much as $12,500 plus a $3,000 catch up if you are 50 and older.

Health Savings Account Eligibility

This year you will no longer be eligible for a Health Savings Account if you forward any FSA money. This new rule has confused many people. You can read more here or contact your tax professionals.

Health Insurance Penalty

The penalty for opting out of healthcare coverage has risen this you. In 2014, the penalty for opting out of the “minimum essential coverage” had a penalty of 1% of their income above the tax filing threshold ($95 per adult, $47.50 per child, and a $285 family maximum. For 2015, the penalty has doubled to 2% of your income ($325 per adult, $162.50 per child, and a family maximum of $975). The penalty will continue to rise in 2016.

While these new tax laws are the ones that will most likely affect you, there are many other new tax laws in 2015 that are worth learning about as well. If you have questions concerning the new laws and how they affect you contact your tax team at 888-737-0200 or visit http://www.advocatetaxsolutions.com

Things to Check Before Open Enrollment Ends On February 15

Millions of Americans who receive health insurance through work are benefiting from the Affordable Care Act (ACA), and millions of others have signed up for the Health Insurance Marketplaces to lower their monthly premiums.

As the end of 2015 Health Insurance Marketplace open enrollment period quickly approaches, there are some questions you should ask yourself to make sure you’re complying with the Affordable Care Act (ACA) to avoid being hit with a tax penalty when  you file your 2015 federal income taxes next year.

1. Do I have coverage? If not, do I need it?

The ACA requires most Americans to carry a health insurance plan. If you choose not to, you will be choosing to pay a fine to be uninsured. Call one our tax experts at 888-737-0200 to see if you can qualify for an exemption.

2. Does my current plan comply with the ACA?

Most employment-based plans comply with the law and if you already have a plan from the Health Insurance Marketplace or your state Marketplace you are in compliance. Medicare, Medicaid, the Children’s Health Insurance Program, TRICARE and any other qualified coverage also complies with the health law.

3. Can I get subsidized insurance?

If you are uninsured or buy your own coverage visit Healthcare.gov or your state’s Marketplace to find out if you qualify for subsidized insurance. Depending on your household income you may be eligible for an advanced premium tax credit and cost-sharing assistance. If you have a limited income you can also find out if and how you can qualify for Medicare. If you already have a Marketplace plan, you have until February 15 to purchase different coverage if your plan is no longer right for you. Just remember to cancel your old policy!

4. Did I report my life changes?

If you had any major life events this year such as marriage, divorce, having a child or a change in income, makes sure to update your information on your plan. You could be eligible to receive more financial assistance or you could have to repay money when filing your income taxes.

If you have any more questions about how the ACA could affect your taxes,call 888-737-0200 or visit http://www.advocatetaxsolutions.com. The tax experts at Advocate Tax Solutions are your one stop resource for all of your tax issues.

This Tax Season Could Be One of the Worst

This tax season is predicted to be the worst in years for both the IRS and for taxpayers. Nina Olson, the national taxpayer advocate, believes it could be as bad as 1985, which lost returns and delayed refunds due to a computer failure.

This year it is a potential disaster because the IRS budget keeps getting smaller and the tax code more complicated. This is also the first year the IRS will have to administer premium tax credits, the Foreign Account Tax Compliance Act and individual mandates under the Affordable Care Act.

While firsts are never perfect, the IRS has limited resources due to budget cuts. Congress has dropped the IRS budget by 10% in the past five years, and has not accounted for the cost increases.

While the number of taxpayers has grown by about 7 million people, the number of IRS personnel has dropped by 8%.

IRS Commissioner John Koskinen warned that refunds may be possibly delayed and that there will be less taxpayer service.

According to CNN, Olson “estimates that 47% of the calls coming into the IRS probably won’t be answered during the filing season. The other 53% of people lucky enough to get through will have to wait an average of 34 minutes to talk to a human being.”

Koskinen promises the IRS will keep everything running as smoothly as possible, but the agency will still be stretched thin.  “All we can try to do is maximize the resources available in that January to May time frame to make sure that … we do as well as we can. And ‘as well as we can’ is still going to be miserable,” he said.

If that misery includes greatly delayed refunds, Americans won’t like it. Currently Americans have one of the best tax compliance rates in the world and it would costs the government billions if that was to change.

We hope this tax season isn’t as miserable as it’s predicted to be! It may be best to start filing your taxes as soon as possible. Since the tax code is increasingly complex this year, it could be a good idea to consult a tax professional. At Advocate Tax Solutions, our tax consultants will prepare this year’s taxes for you as well as file any prior year’s unfiled tax returns. For all your tax preparation, accounting, and back tax questions call your tax representatives at 888-737-0200 or visit www.advocatetaxsolutions.com.

Received an IRS letter? Here are some tips.

Have you received a notice from the IRS? We recognize a letter from the IRS can put an instant knot in your stomach, but before you decide to fight or pay up there are some basic facts you should look at. Here are some tips to help calm your nerves.

You Are Not Alone.

Millions of Americans owe back taxes every year. The IRS is big, faceless, and bureaucratic. They send millions of letters and notices to taxpayers.

Don’t Panic

If you get a letter from the IRS open it before you worry. Not every envelope from the IRS is a bill or bad news. Many IRS letters can be dealt with simply and quickly. Make sure you read carefully. There are many reasons the IRS sends letters and notices. It could simply request payment, notify you of a payment made, tell you of a change in your account, or request additional information for your account.

Keep Copies and Follow Instructions.

Everything the IRS sends provides specific instructions and time periods. Make sure you respond in a timely manner, but for some cases you may not even need to reply. Sometimes letters and notices don’t need a response if you agree with the IRS and sometimes they are just notices saying you will be billed. Read carefully and keep copies. Copies will be helpful to your case wherever proof is needed. Plus, if you have a power of attorney on file, the IRS will send a cope to you as well as your designated attorney. It is a good idea to have an attorney on file if you are ever worried about missing something.

You can ask for more time.

For many notices, the IRS will grant you  an extension of time if requested. If you do ask for an extension, confirm it in writing. Everything you do with the IRS needs to be confirmed in writing.

Get Some Help

Consider getting professional help. A tax lawyer, accountant, or tax consultant may do a better job with the issue than you can. These experts can help you get a better resolution with the IRS and sometimes pay less than you would have to. Here at Advocate Tax Solutions we have tax attorneys, CPAs and tax consultants on staff to help you get the best resolution possible.

For more information call 888-737-0200 or visit http://www.advocatetaxsolutions.com today! All consultations are free and of course confidential.

2015 Filing Start Date Announced

There was a rumor going around that the 2015 filing start date would be delayed, but the Internal Revenue Service (IRS) has put it to rest. The IRS finally announced the 2015 date, January 20, 2015, for paper and electronically filed tax returns. That’s 11 days sooner than last year’s date.

There was also some concern about a tiered filing system. Congress had initially signaled that it might not sign off on all tax extenders, but Congress approved a tax extenders package and Obama signed the tax extenders package into law on December 19.  This enables there to be no tiered opening season this year. All taxpayers can begin filing on January 20.

According to Forbes, IRS Commissioner John Koskinen said, about the extenders that, “we have reviewed the late tax law changes and determined there was nothing preventing us from continuing our updating and testing of our systems.” And he added, “Our employees will continue an aggressive schedule of testing and preparation of our systems during the next month to complete the final stages needed for the 2015 tax season.”

We’ll continue bringing you updates as they are made available. If you have questions about this year’s tax season or about your own tax preparation call your trusted tax experts at Advocate Tax Solutions. 888-737-0200 or visit www.advocatetaxsolutions.com

Hope you all have a great New Year!

Tax Tips for the End of the Year

April 15 may seem far off, but we have some end of the year tax tips that will make your life easier this year.

1. Don’t forget your deductions or credits

 

• Don’t forget your expenses or what you did during the year, for example giving away unwanted clothes to charity or doing a 5k, they can add up to some nice deductions.

 

• If you have dependents look at the Earned Income Credit Calculator on our website at https://www.advocatetaxsolutions.com/tax-calculators. If your wages and self-employment income fall below a certain level, you can earn deductions and credits based on how many dependents you have. You can also claim the Child Tax Credit-up to $1,000 if you have children under 17.

 

• If you are energy efficient and have installed the Energy-Star approved solar-power systems before the end of 2016, you can claim 30% of the cost as a tax credit for that year.

 

• If you have been unemployed in 2014 and had job searching costs, you may be able to deduct them.

 

2. If you didn’t have health insurance this year  This is the first year most Americans are required to have health coverage. If you were uninsured for 3+ months, you may not qualify for an exemption and may get hit with a tax penalty for 2014.

 

3. Check your withholdings Individuals should periodically check their withholdings to ensure they are in line with their true tax liability. Certain life changes like marriage and having a child will change your tax liability. That would be a good reason to adjust your tax withholdings.

 

4. Don’t NOT file your taxes Always file your taxes by the original or extended due date, even if you cannot pay. Late-filing penalties are worse that late-payment penalties.

 

5. Sometimes you need to consult a tax expert The tax code is an infinitely complex and can be extremely confusing and anxiety provoking. So it’s understandable to want to get professional tax help. Every year the tax law changes and its thresholds are adjusted. If you don’t know the law and how it applies to you, consulting with someone who’s up on the tax code is a good idea.

If you need help let the tax professionals at Advocate Tax Solutions know! All estimates are free, confidential, and guaranteed. Our tax professionals have years of experience negotiating with the IRS and representing thousands of clients.

 

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Even in Space, Astronauts have to File Their Taxes

Not even astronauts are far enough away to escape the IRS. Just like every other American, astronauts have to file their taxes by April 15, even if they’re in space!

How does that happen?

In an interview with CNN, Nasa astronaut Leroy Chiao explained how he managed to file his taxes from space. Chiao, commander of the tenth expedition to the International Space Station, was far from the planet on April 15, 2005. Chiao says that you have to “get someone to help you out on the ground.”

“You do have to anticipate everything,” Chiao said. Since astronauts are in orbit for long periods of time, they either have to plan everything in advance or find someone they trust on the ground.

Lucky for astronauts and Americans alike, Advocate Tax Solutions is on the ground and has trustworthy tax professionals to help with all IRS tax needs.

Regardless of how far you think you may be from the IRS, Advocate Tax Solutions is stationed and ready to help!