Blog Archives

Hike in Social Security Benefits Announced for 2025

10/28/2024

2025 Cost-of-Living Adjustment (COLA) changes

The Social Security Administration announced a 2.5% boost to monthly Social Security and Supplemental Security Income (SSI) benefits for 2025, another rate drop versus last year's increase of 3.2%. The increase is based on the rise in the Consumer Price Index over the past 12 months ending in September 2024.

For those contributing to Social Security through wages, the potential maximum income subject to Social Security taxes is increasing to $176,100. This represents a 4.4% increase in your Social Security taxes! What's of interest here is the percent increase in income subject to tax is much higher than the benefit increase. Here's a recap of the key dollar amounts:

2025 Social Security Benefits - Key Information
What it means for you

Up to $176,100 in wages will be subject to Social Security taxes, an increase of $7,500 from 2024. This amounts to $10,918.20 in maximum annual employee Social Security payments (an increase of $465!), so plan accordingly. Any excess Social Security taxes paid because of having multiple employers can be returned to you as a credit on your tax return.
For all retired workers receiving Social Security retirement benefits, the estimated average monthly benefit will be $1,976 per month in 2025, an average increase of $49 per month.
SSI is the standard payment for people in need. To qualify for this payment, you must have little income and few resources ($2,000 if single, $3,000 if married).
A full-time student who is blind or disabled can still receive SSI benefits as long as earned income does not exceed the monthly and annual student exclusion amounts listed above.

Social Security & Medicare Rates
The Social Security and Medicare tax rates do not change from 2024 to 2025. The rates are 6.20 percent for Social Security and 1.45 percent for Medicare. There is also a 0.9 percent Medicare wages surtax for single taxpayers with wages above $200,000 ($250,000 for joint filers) that is not reflected in these figures. Please note that your employer also pays a 6.2 percent Social Security tax and a 1.45 percent Medicare tax on your behalf. These amounts are reflected in the self-employment tax rate of 15.3%, as self-employed individuals pay both halves of the tax rate.

"Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.

The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.

We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area.

Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs.

We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at [email protected].

For more free resources, such as Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com.

Mia Verc, CPA; Janice Papais, CPA

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Understanding Tax Terms: Contemporaneous Records

10/22/2024

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Everyone needs to know what this means!

If you have problems getting to sleep at night and you turn to the IRS tax code for help, you might find some vocabulary that is very foreign to you. One of the more uncommon words used by the IRS is the term "contemporaneous." So what does it mean and why should you care?

Contemporaneous defined
According to the IRS, it means that the records used to support a claim on your tax return are created and originated at the same time as your claimed deduction. In other words, if you realize that you forgot to get a receipt for something, you are out of luck if you try to get one at a later date.

Not fair!
Perhaps you know you had the expense, but you simply forgot to get a receipt. You can cry foul, but time and time again the tax courts have upheld the IRS's elimination of a taxpayer's deduction for lack of contemporaneous documentation. Here are some areas where the term contemporaneous is especially important:

Charitable contributions
Business deductions for expenses and capital purchases
Mileage logs
Tip records
Gambling losses
Business travel expenses

The donation of vehicles, boats, and planes is often the most cited area where lack of contemporaneous documentation is a problem because these types of donations have a high estimated market value that changes from month to month. But timely, written acknowledgement from the charitable organization is also required for any donation of $250 or more.

What you need to know

Always get a receipt. Before you leave a donated item, always ask for a receipt. In the case of a vehicle, make sure the charitable organization gives you a Form 1098-C that is fully filled out. In addition, make sure the organization uses your vehicle or is a qualified charitable group that allows you to take the full market value of your donation.
If you forget, call right away. As soon as you realize a confirmation or receipt is missing, call to get one sent to you. Request that the receipt be dated as of the date of the service or activity.
Think tax year. Understanding the definition of contemporaneous is important, because it is not always precisely defined. If the documentation is received in the same year as the donation or transaction, you are usually in good shape.
Keep a log. Many transactions require the correct documentation at the time the activity occurs. This is true with deductible mileage, gambling losses, and tip income. So keep a log of your activities as they occur.
Wait to file. To meet the IRS definition of contemporaneous, the receipt or acknowledgement must be received the earlier of either when you file your tax return OR the due date (including extensions) of your tax return. This is particularly true with charitable contributions. So if you want to play it safe, do not file your tax return until all documentation is in hand.

"Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.

The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.

We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area.

Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs.

We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at [email protected].

For more free resources, such as Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com.

Mia Verc, CPA; Janice Papais, CPA

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Those Pesky Records!

10/15/2024

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What do I need to keep?

Each of us needs to keep records that substantiate our tax return or other important life events for as long as they are needed. So what does this mean?

The basic retention period. Federal tax return substantiation is generally three years from the later of the tax return filing due date OR the actual filing date.

State guidelines could be different. Understand your state and local audit timelines. Often states can review tax returns after your federal return is officially closed to a potential audit. When in doubt figure six months to a year after your federal tax filing retention period.

Keep some things forever. Some items should be kept indefinitely. These include, but are not limited to: copies of your 1040 tax return, major asset purchases and sales (home mortgage, home closing documents, documentation for stock and investment transactions, major asset purchases and sales documents, insurance documentation, and birth/death/marriage certificates).

Keep valuable item receipts. Keep records of any other valuable items purchased. This includes jewelry and other collectibles. You will need this to substantiate any gains or losses when you sell the item.

Finding the cost of stocks is easier...and trickier. Stock and investment companies are now required to report the cost of your investments to the IRS. So you will not need to dig around for old transaction information to prove what you paid for your investment. On the other hand, any errors on your investment statement also get sent to the IRS, so make sure the information provided is correct or it may create an audit trigger.

Digital asset documents must also be saved. If you buy or sell something using cryptocurrency, you must retain all related documents that confirm the purchase date, sales date, and cost.

Others may want your documentation. You may need records for non-tax related purposes. Copies of divorce decrees, records of insurance, and home sales closing paperwork are common examples of documents needed for other reasons.

Federal recordkeeping guidelines could become longer. Federal guidelines for record retention are generally 3 years. However, errors on your tax return for more than 25% of the tax obligation require record retention of 6 years. If fraud is determined, the record holding period is indefinite.

"Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.

The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.

We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area.

Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs.

We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at [email protected].

For more free resources, such as Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com.

Mia Verc, CPA; Janice Papais, CPA

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How to Maximize Deductions for Assisted Living

10/15/2024

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It's possible that someone in your family will need assisted living care at some point in their life. This care can be at an assisted living facility, a nursing home, or in their own home. Often, assisted living care is expensive and not fully reimbursable by typical health insurance policies. Thankfully, there is a medical expense itemized deduction when the out-of-pocket amount exceeds 7.5 percent of your adjusted gross income.

Here’s what you can do to increase the chances for you or a loved one to maximize their tax deduction.

Know the chronically ill definition. To qualify, care expenses must be incurred for rehabilitative, maintenance or personal care services of a chronically ill person under a plan of care created by a licensed health care practitioner. For tax purposes, a chronically ill individual is generally someone who is unable to perform at least two of the five activities of daily living which include eating, toiletry, transferring, bathing, dressing, and continence. The chronically ill definition also includes the need of supervision due to a cognitive impairment such as Alzheimer’s.

Obtain a breakdown. Don’t assume that every expense is a medical deduction. It's always best to get a breakdown of the cost of care. You'll also need to track which expenses have been reimbursed by insurance as those reimbursed costs are not deductible.

Track premium costs. If you have long-term care insurance and pay for health insurance, keep track of these costs as some or all of the premiums may be deductible.

Keep a travel log. Be aware that travel expenses incurred for medical care of the family member may also be deducted. For example, if the resident must be transported to a doctor’s office, dentist’s office, or hospital, the cost can be added to the deductible amount.

Record in-house expenses. Finally, remember that expenses for medical care at the facility are deductible, regardless of whether you can deduct monthly living expenses. For instance, if you’re charged separately for a visiting dentist, the cost is added to the deductible total.

If you have questions regarding your specific situation, please call.

"Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.

The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.

We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area.

Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs.

We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at [email protected].

For more free resources, such as Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com.

Mia Verc, CPA; Janice Papais, CPA

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Tax Surprises for the Newly Retired

10/15/2024

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You’ve got it all planned out. Your retirement savings accounts are full, you have started receiving Social Security benefits and your pension is ready to go. Everything is planned. What could go wrong? Here are five surprises that can turn your plan on a dime.

1. Health emergencies and long-term care. When a simple procedure could cost thousands, health care costs can put a huge dent in your plan. Long-term care can also cost thousands per month. Have you planned for this? If your health insurance is not adequate, you may need to pull money out of your retirement accounts to pay the bills. While this withdrawal may not be subject to a penalty, it might be subject to income tax if the funds are from a pre-tax account.
Tip: Look into creative ways to enhance your health insurance coverage including supplemental health insurance and prescription drug cost coverage. Consider long-term care insurance and other alternative ways to reduce your potential living needs.

2. Taxability of Social Security benefits. If you have excess earnings, your Social Security benefits could be reduced. Even worse, if you are still working, your benefits could be subject to income tax.
Tip: If this impacts you, consider conducting a tax planning session to better understand your options including the possibility of delaying the receipt of Social Security benefits.

3. Your pension plan. Understand if your pension is in good financial health. Pensions will often offer a lump-sum payout option for you. Should you take it?
Tip: Review your pension plan’s annual statement. How solid is it? If there are risks, consider cash out alternatives and planning for the potential drop in future income.

4. Minimum required distributions. Forgot to take your minimum required distribution from your retirement plans this year? The tax bite, however, could be quite a surprise in future years so you will need to actively manage this aspect of your retirement or a bite could be taken out of your retirement plans.
Tip: Select a memorable date (like your birthday) to review your distribution and take action so this tax surprise does not impact you.

5. Future tax rates. The federal government is spending over $1 trillion more than it brings in each year. Cash-starved states are also looking for new tax revenue. So don’t be surprised when future tax rates continue to rise during your retirement.
Tips:

Create a retirement plan with higher state and federal tax rates
Plan for increases in health care costs through Medicare
Plan for more taxes on Social Security benefits
Plan for higher capital gain and dividend taxes (now 20% versus 15%)

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Understanding Tax Terms: Head of Household

10/15/2024

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The tax term head of household is one of the more misunderstood tax phrases inside the U.S. tax code. However, if your situation warrants head of household status, there are two big tax benefits: First, a higher standard deduction. Second, lower effective tax rates for virtually every income level. This is great, but only if you qualify.

Three key qualifications

There are three specific rules to qualify for the head of household status:

1. You are not married. First, you need to be unmarried or considered unmarried as of the last day of the year. Unmarried means single, divorced or legally separated per a court order. You can also be considered unmarried if you are legally married, but you and your spouse are separated and live in different residences for the last half of the year.?

2. You pay half of the cost to keep up your home. Second, you need to support yourself. You do this by showing that you provide at least half the cost to keep up your home. The IRS provides a worksheet to help you calculate this, but the idea is to add up household costs and determine that you pay more than half throughout the year. Here are examples:

Costs to include: Rent, mortgage interest, property taxes, homeowners insurance, repairs, utilities, and food eaten in your home.
Costs not to include: Clothing, education, medical expenses, vacations, life insurance and transportation.

3. There is a qualifying person living with you for at least half the year. This can be the most complicated of the three requirements. Essentially, you must have a dependent that is supported by you. So if you can claim a person as a dependent and they live with you for at least six months during the year in question, you probably meet this requirement. Beyond your son or daughter, a qualifying person can also be a sibling, parent, grandchild, grandparent, and other relatives. There is also a special rule for caring for your parent. You may be eligible as head of household even if your parent doesn't live with you, as long as you provide more than half the cost of keeping up their home.

Making the right decision on filing status can save you thousands of dollars in taxes, but you have to know the rules. If you have questions regarding your current situation or have a life change that may qualify you for the head of household filing status, feel free to call.

"Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.

The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.

We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area.

Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs.

We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at [email protected].

For more free resources, such as Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com.

Mia Verc, CPA; Janice Papais, CPA

0 Comments

Hike in Social Security Benefits Announced for 2025

2025 Cost-of-Living Adjustment (COLA) changes

Understanding Tax Terms: Contemporaneous Records

Everyone needs to know what this means!

Those Pesky Records!

What do I need to keep?

How to Maximize Deductions for Assisted Living

Tax Surprises for the Newly Retired

Understanding Tax Terms: Head of Household

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Hike in Social Security Benefits Announced for 2025

2025 Cost-of-Living Adjustment (COLA) changes

Understanding Tax Terms: Contemporaneous Records

Everyone needs to know what this means!

Those Pesky Records!

What do I need to keep?

How to Maximize Deductions for Assisted Living

Tax Surprises for the Newly Retired

Understanding Tax Terms: Head of Household

BLOG

CATEGORIES​

ARCHIVES

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