2019 SBS Tax Planner

Tax Season hours at SBS CPA Group (Feb 2 nd -April 15 th ) Monday thru Friday 8:30am to 6:00pm Saturday 9:00am to 4:00pm

Tax season is here! We’re ready to start filing returns and need your documents all at once . Please provide: Your completed tax planner All source documents How to Send Your Documents Please choose one method: ✅ TaxDome – Upload all documents, name them , and click “done uploading” so we know you're finished. ✅ Drop off – Bring them to our office. ✅ Mail – Send them to our office. ✅ Email – Send everything to your CPA. Why Use TaxDome? If you activate your TaxDome account, you can: ✔️ Download copies of your tax returns ✔️ Upload documents easily ✔️ Sign returns electronically (if both spouses have emails on file) Important: TaxDome emails come from notifications@taxdome.com . If you didn’t get an invitation, check your spam folder. Still no email? Contact Nikkie Reyes at admin@sbscpagroup.com or call 260-407-5000 . We look forward to another great tax season!  SBS CPA Group Team

Starting in 2024, members of qualifying health care sharing ministries will be able to deduct their health care sharing expenses on their Indiana tax returns. Qualified health care sharing expenses are defined as the amount paid by a qualified individual for membership in a health care sharing ministry. You must be a resident of Indiana and have been a member of a health care sharing ministry for at least a month during the year to receive the deduction. But what is a health care sharing ministry? A health care sharing ministry is a type of nonprofit organization where members share healthcare expenses based on mutual faith and commitment. It is not insurance-members help cover each other's medical costs. While they can be quite beneficial, they also have drawbacks. If you are considering switching to a health care ministry, do your research to decide if it is right for you.  Let your tax preparer know if you are a member of a health care sharing ministry. Keep track of your qualified health care sharing ministry expenses and make sure you give them to your tax preparer, along with all of your other documents, at tax time. Jennifer Thonert, CPA

If you are an active member of the military, get ready to pay less state income tax to Indiana. Starting in 2024, Indiana will no longer tax any active-duty military pay. In prior years, Indiana would allow up to $5,000 of active military pay to be non-taxable, but a new law has passed making the entire amount exempt for those that qualify. To qualify, you must be a resident. To make sure you are considered an Indiana resident, confirm the following to be true: 1) Indiana is listed as your “home of record” on your military documents. 2) A DD Form 2058 is on file saying Indiana is your legal residence. 3) Your permanent address with the military is an Indiana address. 4) You have a current Indiana driver’s license. 5) You are registered to vote in Indiana. 6) You file an Indiana tax return. 7) You have ties to Indiana, such as a bank account. Once you determine that you are a resident, the next step is to file an Indiana tax return. Even if it is the only income you have, you must still file the return in order to claim the exemption. You do not have to attach proof to the return that you have active-duty status, but you are required to substantiate it if it ever gets called into question. Keeping a copy of your orders is advised. Also, make sure at tax time that your tax preparer knows you qualify for this exemption. Jennifer Thonert, CPA

Are you someone, or do you have an employee, who is not from Indiana but works here for short periods? Beginning in tax year 2024, Indiana has an income tax exemption for some nonresident employees. If they work in the state for 30 days or less, the state of Indiana will not collect income taxes on their wages. Employers do not need to withhold state income tax from these employees. However, it is only a state exemption-not a local one-so local income taxes will still need to be withheld, if applicable. In order for the nonresident to qualify for the exemption, the following circumstances must be met: 1) They must have been a nonresident for the entire year. 2) They must have worked in Indiana for 30 days or less. A workday counts as an Indiana workday if more than 50% of the hours that were worked that day were in Indiana (transit time does not count in the calculation). 3) They must not have the following professions: professional athlete, professional entertainer, or public figure that gets paid per event. These professionals will still be subject to income tax no matter how many days they work. Anyone who is exempted does not have to file an Indiana tax return, unless their employer withheld Indiana income tax. In that case, a tax return will need to be filed to get a refund. If the employee happens to cross the 30-day threshold, their entire year’s Indiana income then becomes taxable to the state, unless they are residents of a reciprocal state. Indiana has reciprocal tax agreements with six states: Illinois, Kentucky, Michigan, Ohio, Pennsylvania, and Wisconsin. People who live in those states but work in Indiana already do not pay Indiana state taxes, so the new rule does not affect them.  Make sure to let your tax preparer know if you are, or have, one of these employees.

In 2023, Indiana introduced the Attainable Homeownership Tax Credit, which is designed to encourage contributions to affordable housing initiatives in Indiana. If you are looking to contribute to a meaningful cause, while benefiting from a significant tax incentive, this credit could be a fantastic opportunity. Currently, the only organization approved by the Indiana Economic Development Corporation (IEDC) to receive credit-eligible contributions is Habitat for Humanity of Indiana (including its local affiliates). The tax credit equals 50% of your contributions to Habitat Indiana, with a maximum credit of $10,000 per taxpayer per year. For married couples filing jointly, the maximum credit is also $10,000 per couple. Contributions can include cash, checks, stocks, and bonds. These contributions are valued at their fair market value at the time of the donation. The value of services, labor, or reduced-cost equipment is not eligible for the credit. To claim the credit, Habitat Indiana will provide a certifying number (PIN) that must be listed on Schedule IN-OCC. The program has an annual statewide credit cap of $4 million per fiscal year (July 1 – June 30). Credits are allocated on a first-come, first-served basis, based on when returns are received. If the annual cap is reached, any credits claimed afterward will be permanently disallowed, though carryovers will remain valid. Credits are limited to your Indiana state tax liability after applying other nonrefundable credits. For example, if you qualify for a $10,000 credit but your state tax liability is only $8,000, the unused $2,000 can be carried forward to future years. This tax credit is a win-win: it supports Habitat Indiana’s mission to provide affordable housing while offering a substantial incentive for taxpayers. Whether you are an individual, a couple, or a business, contributing to this program can make a meaningful impact on Indiana communities. If you are considering contributing to Habitat for Humanity of Indiana, ensure your donation meets the eligibility criteria and plan to claim the credit promptly to avoid missing out due to the annual cap. For further questions about the Attainable Homeownership Tax Credit, feel free to reach out to the partner in charge of your account. Thank you for reading!  Nathan Skinner

SBS CPA Group will be closed Dec. 24th thru Dec. 26th, allowing our staff time to spend with family. We will also be closed New Year Day, Jan. 1st.

Social Security: A Vital Program for Americans Social Security is a cornerstone of the United States' social safety net. Many Americans depend on this program to fund their retirement. The most recent data available from the Social Security Administration highlights the program's critical role in retirement planning. Social Security benefits account for approximately 30% of the income for individuals ages 65 and older. This aligns with the program’s original intent in 1935. Retirement income was envisioned as a three-legged stool consisting of pensions, personal savings, and Social Security, each contributing one-third. It was never intended to serve as the primary source of retirement income. Unfortunately, reliance on Social Security has increased significantly: 51.8% of individuals ages 65 and older depend on Social Security for half or more of their income. 24.7% of people in this age group rely on it for 90% or more of their income. Income Quintile Reliance on Social Security The extent of reliance varies significantly by income quintile: 1st Quintile (lowest 20% of taxable income): 86.6% depend on Social Security for at least half their income. 64.1% rely on it for 90% or more. 2nd Quintile: 82.3% depend on it for at least half. 47.8% rely on it for 90% or more. 3rd Quintile: 62.7% depend on it for at least half. 13.8% rely on it for 90% or more. 4th Quintile: 24.8% depend on it for at least half. Only 1% rely on it for 90% or more. 5th Quintile (highest 20% of taxable income): 2.2% depend on it for at least half. None rely on it for 90% or more. Challenges Ahead The program faces significant challenges. Without reform, Social Security will not be able to pay full benefits by 2035. This presents a critical issue for Congress, as reductions in benefits are politically and socially untenable. Understanding Social Security Benefits Despite its importance, many people are unaware of how their Social Security benefits are calculated. Since the SSA ceased mailing statements in 2011, individuals must proactively set up an online account to access this information. The benefit formula is intentionally progressive, favoring lower-income earners by replacing a higher percentage of their income. For higher-income earners, Social Security becomes less significant as a percentage of their total retirement income. Key Components of Benefit Calculations Credits: To qualify, individuals must earn 40 credits. In 2024, one credit is earned for every $1,730 in wages, with up to four credits given annually. Average Indexed Monthly Earnings (AIME): The AIME figure is based on a worker's 35 highest-earning years, adjusted for inflation. If fewer than 35 years of earnings exist, zeroes are averaged in. Primary Insurance Amount (PIA): This is the monthly benefit a person receives at full retirement age. PIA is calculated using a formula adjusted annually for inflation. An Example Calculation for 2024 For a retiree with an AIME of $6,000: 90% of the first $1,174 = $1,056.60 32% of the amount between $1,174 and $6,000 = $1,544.32 Total PIA = $2,601 (before Medicare premiums). Planning Considerations To optimize benefits: Aim for an AIME of at least $1,174, as the first tier yields a 90% replacement rate. Understand that amounts above $7,078 are replaced at only 15%. Reviewing your lifetime earnings is crucial to ensure accuracy. Errors are far easier to correct early on than later on, when reconstructing decades-old income records may be challenging. Social Security and Income Taxation Since 1983, up to 85% of Social Security income has been subject to federal taxes, depending on other income sources. This makes the program more progressive but also adds complexity to retirement planning. Strategic Decision-Making When to begin drawing Social Security benefits is a critical decision, particularly for married couples. Starting benefits early results in reduced monthly payments, while delaying up to age 70 increases them. Careful analysis and planning are essential to maximize long-term benefits. Conclusion Social Security remains a vital program for most Americans. Understanding its mechanics and planning effectively can significantly impact retirement security. Set up your Social Security account today to review your earnings and plan for the future.

Year-Round Tax Planning Can Help You Avoid Costly Errors The federal tax code is extremely complicated and difficult to understand. Each state (and the District of Columbia) with an income tax has its own tax code. These tax codes change most years, and retroactive tax changes have become more frequent. The difficulty of the tax code makes year-round tax planning essential. I have been preparing U.S. income tax returns for 20 years. I have filed returns in at least 30 states and the District of Columbia. I have signed more than 7,000 federal income tax returns and a similar number of state income tax returns. I enjoy researching the income tax code and preparing income tax returns. What breaks my heart is performing what I call a "tax autopsy." This is when a client commits an unforced error and does something with major tax consequences that an accountant discovers only when preparing the person’s income taxes for the prior year. For many Americans, and a strong majority of my clients, income taxes are the single highest expense they have over their lifetime. Tax planning involves minimizing the income taxes you owe over your lifetime in a legal and controlled fashion. It’s a year-round activity that is separate from completing and filing your annual income taxes. Proper tax planning eliminates surprises as well as underpayment penalties and interest. Across the couple of tax autopsies I do every year, in each case, the taxpayers likely would have benefited from discussing the matter with a professional to ensure they understood the tax ramifications of the event or events in question. The Consequences of Tax Autopsies Tax autopsies often result in a large amount of income tax being owed, and the amount owed is often unexpected. This can cause stress and angst. It may also cause financial hardship. In some cases, it can lead to underpayment penalties and interest. In the worst cases, liens and levies can be put into place by taxing agencies. The key to avoiding tax autopsies is communication. The tax code is so complicated, and it changes so often, that few people have a strong understanding of how income taxes are calculated. Events That Require Tax Planning There are many different items taxpayers should discuss with professionals. Examples include: Retirement, which can create issues due to lack of withholding Retirement distributions Roth conversions Selling a property with a taxable gain Bonuses Equity compensation Gains realized from the stock market or cryptocurrency Legal settlements in certain circumstances Profits from one or more businesses One item that can create a serious tax autopsy for lower-income families is worth a longer discussion. The Centers for Medicare & Medicaid Services (CMS) is the federal agency that provides health coverage to more than 160 million people through Medicare, Medicaid, the Children's Health Insurance Program, and the Health Insurance Marketplace. Per CMS, in February 2024, 20.8 million people received health insurance through the Marketplace. In February 2024, 19.3 million Marketplace enrollees—or 93% of total Marketplace enrollees—received Advanced Premium Tax Credits (APTC). When enrollees sign up for Marketplace coverage, generally between November 1 and December 15 of the prior year, the enrollee must estimate income (known as Modified Adjusted Gross Income or MAGI) for the next calendar year. This is extremely challenging. For example, people signing up today are estimating their 2025 MAGI, and their actual 2025 MAGI will not be known until the 2025 income tax returns are filed in 2026. The federal government directly pays a portion of the monthly premium for the 93% of enrollees who choose to get the advanced subsidies based on the enrollee’s MAGI estimate. When the enrollee’s income tax returns are filed, their actual MAGI is calculated, and the subsidy is reconciled on the Form 1040. You can change your estimated income throughout the year through the Marketplace. If the enrollee’s MAGI is less than the estimated amount given to the Marketplace, life is good. The taxpayer was not paid enough APTC, and they will get credit for this underpayment on the Form 1040. The worst case is when a taxpayer’s MAGI is higher than the estimated amount they provided to the Marketplace. This means the enrollee received too much money in subsidies, and this amount is added to that person’s federal tax liability in most cases. In this situation, the tax autopsy happens when the enrollee has more taxable income than previously estimated. This can happen for a wide variety of reasons. Beyond what was mentioned earlier, the one I see most often in this circumstance is taxable retirement distributions. The amount of money that must be repaid depends on the exact circumstances; however, I have seen quite a few taxpayers have to repay several thousand dollars in subsidies they were not due. This is difficult because taxpayers who receive health care subsidies are low-income taxpayers. Year-round tax planning can help prevent tax autopsies and save taxpayers a significant amount of their hard-earned money!