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Current Tax Tip
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MBT Quarterly Estimates
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When are MBT quarterly estimates due?
Quarterly returns and payments for calendar year filers are due April 15, July 15, October 15 and January 15. Quarterly returns and payments for fiscal year filers are due the 15th day of the first month after each quarter.
How are quarterly estimates calculated?
The sum of estimated payments must equal at least 85% of estimated tax liability for the year, and the amount of each estimated payment must reasonably approximate the tax liability for that quarter. For Tax Year 2009 and after, if prior year’s tax is $20,000 or less, estimated tax may be based in the prior year’s amount in four equal payments, the sum of which equals the previous year’s tax liability. If the year’s tax liability is $800 or less, quarterly returns are not required.
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Previous Tax Tips
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2008 Year-End Tax Planning for Individuals
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This document highlights several tax-saving opportunities to consider.
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More information is available in PDF format. Click here. |
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2007 Year-End Tax Planning for Individuals
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There is still time to implement these strategies to minimize your 2007 liability.
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More information is available in PDF format. Click here. |
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2006 Year-End Tax Planning for Individuals
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There is still time to implement these strategies to minimize your 2006 liability.
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More information is available in PDF format. Click here. |
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Average Itemized Deductions
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Table of Average Itemized Deductions
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More information is available in PDF format. Click here. |
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Tax Relief Reconciliation Act of 2003
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On May 28, 2003, President Bush signed the Tax Relief Reconciliation Act of 2003 into law. A number of provisions of the new act are actually accelerations of tax cuts included in the Growth and Tax Relief Reconciliation Act of 2001.
Major provisions of the new bill include:
Accelerated 10-Percent Bracket Expansion:
The expansion of the 10-percent bracket, originally scheduled for 2008, is accelerated to apply in 2003 and 2004. The endpoint of the 10-percent tax bracket increases from $12,000 of taxable income to $14,000 for married couples (and from $6,000 to $7,000 for single taxpayers). This expansion benefits married taxpayers with taxable income over $12,000 and single taxpayers with taxable income over $6,000. This provision is effective for 2003 and 2004 only after which the reductions as provided in the 2001 act will resume.
Accelerated Reduction in Income Tax Rates:
The reductions in income tax rates in excess of 15-percent originally scheduled for 2004 and 2006 are accelerated to 2003, resulting in new rates of 25%, 28%, 33% and 35% (from 27%, 30%, 35% and 38.6%). These reductions benefit married couples with taxable income greater than $47,450 and single taxpayers with taxable income greater than $28,400.
Accelerated Reduction of Marriage Penalty:
The standard deduction for married couples is increased to double the amount of the standard deduction for single taxpayers in 2003 and 2004. The width of the 15-percent tax bracket for married couples is increased to twice the width for single taxpayers in 2003 and 2004. These provisions were scheduled to phase-in over the period between 2005 and 2009. These reductions benefit married couples who claim the standard deduction or who have taxable income greater than $47,450. This provision is effective for 2003 and 2004 only after which the reductions as provided in the 2001 act will resume.
Accelerated Increase in Child Tax Credit:
The amount of the child tax credit is increased to $1,000 in 2003 and 2004 (from $600), accelerating a scheduled phase-in over the period between 2005 and 2010. In 2003, the increased amount of the child tax credit will be paid in the form of an advance or rebate beginning in July 2003. Taxpayers who claimed the Child Tax Credit on their 2002 income tax returns and who listed at least one dependent who will be under age 17 as of December 31, 2003 qualify for the rebate.
You don't have to take any action to get your check. The IRS will determine who qualifies and mail advance notices to all qualifying taxpayers. Shortly thereafter the checks will be mailed. If you think you qualify for the rebate all you have to do is wait to receive your check.
The checks will be mailed beginning on July 25 and in two subsequent mailings scheduled for August 1 and August 8. Notices will be mailed in advance of payments to advise taxpayers of their eligibility for this rebate program. Approximately 25 million checks will be mailed as part of this program. There will be no direct deposit service available for rebate payments.
Taxpayers who filed their 2002 income tax returns after the April 15 filing deadline are still eligible for the rebate, but their rebates will not be included in the first three mailings. Later mailings after August 8 will be for qualifying taxpayers who filed after April 15.
If you do not receive a rebate but you are entitled to claim the Child Tax Credit for 2003, you will have to wait until you file your 2003 income tax return, then claim the full amount of the $1,000 Child Tax Credit on your tax return.
This provision is effective for 2003 and 2004 only after which the reductions as provided in the 2001 act will resume.
Reduction in Tax Rates on Dividends and Capital Gains:
The maximum tax rate on dividends paid by corporations to individuals and on individuals' capital gains is reduced to 15% in 2003 through 2008. For taxpayers in the 10% and 15% ordinary income tax rate brackets, the rate on dividends and capital gains is reduced to 5% in 2003 through 2007, and to zero in 2008.
The new rates apply to capital gains realized on or after May 6, 2003, and to dividends received in 2003 and after. This provision reduces the double taxation of corporate earnings.
Increase in Small Business Expense Election for Equipment Purchases:
The amount that may be immediately deducted by small businesses for the purchase of equipment is increased from $25,000 to $100,000 beginning in 2003. The amount of purchases qualifying for this immediate deduction begins to phase out for small businesses with purchases in excess of $400,000 (increased from $200,000). Both parameters are indexed for inflation beginning in 2004. These changes are effective for taxable years of 2003, 2004, and 2005. After 2005, this provision will revert to prior law limits.
Increase in First-Year Bonus Depreciation:
The additional first-year bonus depreciation deduction is increased from 30 percent to 50 percent for investments acquired and placed in service after May 5, 2003 and before January 1, 2005. Taxpayers may also continue to use 30 percent bonus depreciation for property acquired and placed in service before January 1, 2005.
AMT Hold-Harmless Relief:
To ensure that the benefits from the acceleration
of the tax reductions are not reduced by the AMT, the AMT exemption amount
is increased by $9,000 for married taxpayers and by $4,500 for single
taxpayers in 2003 and 2004.
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Deductions for Vacation Home Rentals
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Did you know that you can take a tax deduction for certain expenses on a second home that is used as a vacation and rental home.
There are limits on the deductibility of expenses if the property rented is a "dwelling unit" and the dwelling unit is used for personal purposes. A "dwelling unit" is a home, apartment, condo, mobile home, boat, or any other structure containing sleeping space, toilet, and cooking facilities.
The type and amount of expenses that you can deduct depend on how often you use the home for personal use and how often you rent it to others. In general, there are two types of expenses associated with a vacation home -- trade or business (or production of income) expenses and deductible personal expenses. Deductible personal expenses are items that are deductible in their entirety, regardless of whether the vacation home is personal use or rental property -- e.g., casualty losses, state and local property taxes, and interest.
The first limitation on the deductibility of expenses is that the expenses related to a trade or business or the production of income -- i.e., rental expenses -- are only deductible to the extent you do not use the home for personal use. Moreover, a second limitation applies if your personal use is so extensive that the dwelling unit is treated as a "residence" for tax purposes. This second limitation prohibits you from deducting any rental expenses that exceed the gross rental income from the property.
One of the first things you must do is determine the number of days during the year that you used the vacation home for personal purposes. In making this determination, any fraction of a day counts as a whole day (even if you just use part of the unit). You may exclude the days that the home was used for repairs and maintenance, as well as the time it was held out for rent. If, however, you use the home for personal purposes on the same day it is rented for fair rental value, you must include it as a personal use day. Fair rental value is the amount of rent an unrelated person would be willing to pay.
In a few cases you must treat someone else's use as your own. Thus, you must count as personal use any day in which the home was used by a co-owner, a family member of you or your co-owner, an individual who is renting for less than fair rental value, or by an individual who is using your house under an arrangement that enables you to use another dwelling unit (e.g., switching a beach house and a mountain cabin). A word of caution. Family members' use counts as your personal use even if they are paying fair rental value (unless they use the home for their primary residence). This is also true for the switching arrangement.
You should next determine the number of days the vacation home was rented for its fair rental value. This number is important both for determining whether the dwelling unit is a residence and for allocating deductions between personal and rental uses. If the number of personal use days exceeds the greater of (1) 14 days or (2) 10% of the number of days the unit was rented at fair rental value, the dwelling unit is a residence and the second limitation on expenses (i.e., the gross income limitation) will apply.
To apply the first limitation on deductibility, you must calculate the allocation fraction. This determines what percent of each expense is attributable to rental use and, therefore, what percent of the expense is deductible. The numerator of the fraction is the number of days the home was rented at fair rental value. There are, however, two views on what constitutes the denominator. The Tax Court and the Ninth Circuit view, which is more favorable to taxpayers, is that the denominator includes all days in the taxable year. The IRS includes in the denominator only the days the property was used for any purpose, and excludes from both the numerator and denominator the days the property was used for repairs and maintenance.
After you have calculated the allocation fraction, multiply it by the items of rental expense. If the second limitation, described below, does not apply, it does not matter if you apply the fraction on an item-by-item basis or to the total of the rental expenses. If the unit is not a residence, the entire amount calculated is deductible.
If the dwelling unit is a residence, the gross income limitation applies. Gross income for purposes of the limitation is: gross rental receipts (even if it was rented for below fair rental value), reduced by deductible personal expenses allocable to the rental unit, and further reduced by the rental expenses not directly related to the dwelling unit itself. These latter expenses are not allowed at all if you have no profit motive in renting the home. Once you have determined the gross income, apply the allocation fraction to each separate item of rental expense. If the total of these expenses exceed gross income, special ordering rules apply and some items will be disallowed in the current taxable year. Any excess is carried over to the following year. These expenses, however, will still be subject to the gross income limitation in following years, even if the property is no longer a "residence."
Any deductible personal expenses not deducted because of the gross income limitation are allowed as itemized deductions.
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Retention Schedule for Individuals
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Have you wondered how long to keep your records? Here is a list incorporating IRS suggestions and suggestions from Michigan CPA's.
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More information is available in PDF format. Click here. |
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Cafeteria Plans
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Cafeteria plans are a popular way of providing an increase in take-home pay for employees at a minimal cost to the employer while reducing the employer’s payroll tax expenses.
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More information is available in PDF format. Click here. |
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Tax Record Retention Tips
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When organizing your files, these are some general rules concerning your records.
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More information is available in PDF format. Click here. |
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The Job Creation and Workers Assistance Act of 2002
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The new law includes temporary rules aimed at stimulating new business investment or providing tax relief for struggling businesses, extensions of several expired or expiring tax provisions, and a set of temporary rules intended to facilitate recovery in the area of New York City devastated by the September 11, 2001, terrorist attack.
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More information is available in PDF format. Click here. |
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The Earned Income Tax Credit
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The earned income tax credit is available for working low-income taxpayers with children.
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More information is available in PDF format. Click here. |
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Itemized deductions
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Deducting Home Motgage Interest
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More information is available in PDF format. Click here. |
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Itemized deductions
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Itemized Deductions for Medical Expenses
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More information is available in PDF format. Click here. |
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Qualifying dependents
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Who you can claim as a dependent
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More information is available in PDF format. Click here. |
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Individual Retirement Accounts
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New IRA contribution limitations
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More information is available in PDF format. Click here. |
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Retirement plans
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Questions and answers regarding SIMPLE Retirement Plans
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More information is available in PDF format. Click here. |
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Individual Retirement Accounts
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New minimum distribution rules for IRAs
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More information is available in PDF format. Click here. |
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Child care tax credit
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Do you qualify for the child care tax credit?
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More information is available in PDF format. Click here. |
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Estate planning
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Should you revise your estate plan?
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More information is available in PDF format. Click here. |
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Cash accounting
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Does your small business qualify for the cash method of accounting?
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More information is available in PDF format. Click here. |
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Educational IRA's
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Changes for Educational Individual Retirement Accounts
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More information is available in PDF format. Click here. |
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Home office expenses
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Do you qualify for a home office deduction?
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More information is available in PDF format. Click here. |
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Vehicle expenses
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Do you know how to deduct the cost of a vehicle used in your business?
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More information is available in PDF format. Click here. |
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Scholarship income
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Is that scholarship received by you or your child taxable income?
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More information is available in PDF format. Click here. |
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Part-time business or hobby?
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Are you wondering if you can deduct any of the expenses incurred in your part time business?
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More information is available in PDF format. Click here. |
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Like-kind exchanges
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Are you considering selling a piece of appreciated business property to purchase another one?
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More information is available in PDF format. Click here. |
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Itemized deductions
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Do you know how to use “bunching” to maximize your itemized deductions?
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More information is available in PDF format. Click here. |
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Gifts to charities
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Non-cash Charitable Contributions
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More information is available in PDF format. Click here. |
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Capital Gains rates
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Did you know about the newest capital gains tax rate?
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More information is available in PDF format. Click here. |
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Business structure
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Have you considered an LLC as an entity choice for your new business?
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More information is available in PDF format. Click here. |
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