What Do I File If I Have Income From A Neighboring State?
Mar 06, 2015
My father, who is an Indiana resident, recently asked me what type of Ohio return he needed to file since he had some income from Ohio during 2014. Earning an income in a neighboring state is certainly a familiar situation for many Northwest Ohioans, being so close to both Indiana and Michigan. Many states have helped to ease the filing burden on residents with out-of-state income by signing reciprocal (reciprocity) agreements with neighboring states. For example, Ohio, Michigan, and Indiana are reciprocal states.. This allows residents of one state to request an exemption from withholding for wages earned in a second reciprocal state. Therefore, only a return for the resident state needs to be filed.
Depending on the state, there are slightly different requirements. The requirements for Ohio, Michigan and Indiana are as follows:
Ohio: A full-year nonresident living in a border state does not have to file if the nonresident’s only Ohio-sourced income is wages received from an unrelated employer. Nonresident employees in Ohio should file IT-4NR with their employers to be exempt from having to withhold Ohio income taxes.
Michigan: Residents of reciprocal states working in Michigan do not have to pay Michigan tax on their salaries or wages earned in Michigan. The following states are reciprocal with Michigan: Illinois, Indiana, Kentucky, Minnesota, Ohio, and Wisconsin. Nonresident employees in Michigan should file MI-W4 with their employers to be exempt from having to withhold Michigan income taxes.
Indiana: If you were a full-year resident of Kentucky, Michigan, Ohio, Pennsylvania or Wisconsin, and your only income from Indiana was from wages, salaries, tips or commissions, then you need to file Form IT-40RNR, Indiana Reciprocal Nonresident Individual Income Tax Return. You aren’t required to pay Indiana income tax, but you are required to file the Indiana form to pay any Indiana local and county tax owed. Nonresident employees in Indiana should file WH-47 with their employers to be exempt from having to withhold Indiana income taxes.
If taxes from a non-resident reciprocal state were erroneously withheld, you would need to file a return in that state to be able to have it refunded. My father Reciprocal Nonresident Individual Income Tax Return was glad to hear that with Ohio being a reciprocal state of Indiana, he didn’t have to file a return in Ohio, saving him time and money. See your tax professional for more guidance.
By: Brent D. Ringenberg, CPA
Categories: Uncategorized
ODT Identity Confirmation Quiz
Feb 26, 2015
With income tax fraud and identity theft on the rise, the Ohio Department of Taxation (ODT) has implemented a new initiative to increase security measures. Ohio’s Identity Confirmation Quiz is just one of the tools the ODT is using to prevent fraudsters from receiving a refund as a result of identity theft.
Taxpayers who have filed their tax returns are selected at random to receive an identity confirmation letter instructing them to complete the quiz within 60 days. The quiz can be taken online at the Ohio Department of Taxation’s website. If selected to take the quiz, you will need the reference number from your Identity Confirmation letter, your social security number (SSN) and the amount of refund claimed on your tax return.
The quiz consists of multiple-choice questions very specific to the individual taxpayer. According to the ODT, the information used to populate the personal quiz comes from many public and commercial data sources and consists of current and historical information about the identified individual. In addition, the quiz is timed, allowing only a few minutes to be completed.
Once the quiz is complete, the taxpayer will know immediately whether or not they passed or failed.
- If a taxpayer passed, processing of the tax return continues.
- If a taxpayer fails, they may have the opportunity to take a second quiz. If passed the second time, processing of the tax return continues.
- If a taxpayer fails twice, they must mail documentation to the ODT proving their identity. Please click here for further instructions.
Please note the selection for this Identity Confirmation Quiz is a random process and should not concern a taxpayer if they receive it. This is unrelated to the size of the refund or with the taxpayer being audited. For additional information or answers to frequently asked questions, please visit the ODT’s Identity Confirmation Quiz page.
By: Jenny Furey, CPA
Categories: Uncategorized
3 Steps To Lower Taxes For The Self-Employed
Feb 24, 2015
When you are self-employed, your business profits are taxed to you at federal rates as high as 39.6%. Add self-employment taxes, which in 2015 will amount to 15.3% of the first $118,500 of your net self-employment earnings plus 2.9% of any earnings over that amount. Then there’s an additional 0.9% Medicare surtax on earnings in excess of $200,000 ($250,000 if married filing jointly). At tax rates like these, it pays to take steps to reduce your tax burden.
Step One: Deduct Business Expenses
Be sure you have an organized system for recording your expenses. To be deductible, a business expense must be “ordinary” (common and accepted in your trade or business) and “necessary” (helpful and appropriate for your trade or business). Since personal expenses are generally not deductible, it’s smart to have a separate business bank account and use a separate credit card for business purchases.
Step Two: Deduct Health Insurance Premiums
You may qualify to deduct premiums paid for medical, dental, and qualified long-term care insurance coverage for you, your spouse, and your dependents.* The coverage may include children who haven’t reached age 27 by the end of the year, even if you don’t claim them as dependents on your tax return.
Unlike health insurance premiums paid for employees, the self-employed health insurance deduction won’t save you self-employment taxes. However, it will lower your taxable income. You must meet certain requirements to qualify for the deduction.
Step Three: Deduct Retirement Plan Contributions
Funding a retirement plan can also save you significant tax dollars. Within limits, plan contributions will be tax deductible.** Several types of plans may be suitable for you as a self-employed taxpayer, including a simplified employee pension (SEP) plan, a savings incentive match plan (SIMPLE), or a solo (individual) 401(k) plan. Each plan has specific features and requirements that you will want to weigh carefully before making a choice.
- Dollar limits apply to the deduction for long-term care insurance premiums.
** Although deductible for income-tax purposes, contributions to your own retirement plan account do not reduce earnings subject to self-employment taxes.
Categories: Uncategorized
Social Security — Are Benefits Taxable?
Feb 19, 2015
If you thought Uncle Sam would forget about taxes on your Social Security retirement benefits, think again. When you have other income, up to 85% of your benefit could be taxable. Your “combined income” determines whether — and how much of — your benefits will be subject to federal income tax.
What’s Combined Income?
Your combined income comprises all the income you receive from any source, with only a few exceptions. Combined income includes wages and self-employment income; rental income; investment income, such as interest, dividends, and capital gains; income from pensions and retirement accounts (but not tax-free Roth distributions); and — here’s the kicker — even tax-exempt interest from municipal bonds. In addition, you have to add in half your Social Security benefits when you are figuring your combined income.*
The Thresholds
You won’t pay taxes on your Social Security if:
- Your combined income is not more than $25,000 and your filing status is single or head of household
- Your and your spouse’s combined income is not more than $32,000 and you file a joint returnUp to 50% of benefits are taxable if you have combined
Up to 50% of benefits are taxable if you have combined income between:
- $25,000 and $34,000 (single/head of household)
- $32,000 and $44,000 (married joint)
Up to 85% of benefits are taxable if you have combined income of more than:
- $34,000 (single/head of household)
- $44,000 (married joint)
And if you’re a married taxpayer filing a separate return, you’ll probably have to pay taxes on your benefits.
- You have to take certain adjustments into account in the combined income calculation.
Categories: Uncategorized
A Tax Credit for Going Green
Feb 18, 2015
Thinking about installing a renewable energy system in your residence? Uncle Sam offers individual taxpayers a federal income-tax credit equal to 30% of the cost of qualified residential energy-efficient property (REEP) placed in service in 2015 or 2016.
What Systems Can Qualify?
Credit-eligible property includes:
- Solar electric
- Solar water heating
- Geothermal heat pump (uses ground or ground water as a thermal energy source for heating or cooling)
- Small wind energy (generates electricity using a wind turbine)
- Fuel cell (generates electricity from hydrogen and oxygen through an electrochemical process)
The credit covers the cost of both the equipment and its installation, including labor and any piping or wiring necessary to connect it to your home.
The system must meet specified standards for energy efficiency. You should obtain a certification from the manufacturer that the component you are purchasing meets the relevant requirements for the REEP credit. Note that the manufacturer’s certification is different from the U.S. Department of Energy’s Energy Star label; not all products with the Energy Star label meet the credit requirements.
When available, the tax credit is quite generous. For example, let’s say you spend $6,000 in 2015 on a home solar water heating system that meets all requirements for the REEP tax credit. After considering the $1,800 credit ($6,000 × 30%), the system costs you only $4,200.
Restrictions
The home you are installing the equipment in must be located in the United States and you must use it as your residence. The credit is not available for equipment used to heat a swimming pool or hot tub.
Solar, geothermal, or wind energy property can qualify for the credit whether it is installed in your principal residence or another residence. The credit for fuel cell property is limited to equipment installed in your principal residence.
As for cost, the tax law generally places no dollar limits on the credit. However, there is an exception for fuel cell property: The maximum credit is $500 for each 0.5 kilowatt of capacity.
Some states and public utilities offer incentives to encourage the purchase of energy-efficient property. Certain types of incentives may require an adjustment to your purchase price or cost for credit calculation purposes.
Categories: Uncategorized