Frequently Asked Questions

Many of the most popular questions answered by experts.

What is an advantage to an LLC over an S-Corp? If my business is setup as an s-corp, is this a right move?

Generally it is recommended to get an S-corporation for earning income, and an LLC for owning assets. The S-corp. (or LLC taxed as an S-corp.) lets you divide your income into salary (subject to FICA) and dividend distributions (not subject to FICA).

What is the FICA limit and rate for 2013?

The FICA limit for 2013 is $113,700. The FICA rate for 2013 is 6.2%.

What are some of the strategies you suggest to clients to save money at tax time?

With proper planning, there are a lot of things people can do, including gift-giving to children and relatives, charitable contributions, putting money in pension plans, 401K, IRAs and even health savings accounts. I like to say that people don’t plan to fail; they fail to plan. And planning is a year-round process. There’s a lot more to it than paying taxes.

Do you have any caveats for people in this financial environment?

In South Florida, we still have this chaos of short sales, loan modifications and so on, and there are a lot of tax effects from these actions. For example, a short sales will not only hurt your credit, but also damage your ability to get another mortgage for anywhere from two to four years, depending on the institutions. This is something that has to be seriously considered. I think one thing we’re seeing right now is that people want their accountant to act more as a consultant than just a tax preparer. This is something we at Melnick, Lilienfeld & Castonguay have always preached, everyone here really wants to help clients achieve their goals or work out any tax issues. We’re large enough to provide clients with a wide range of specialized services, but small enough to know them on a personal level.

Can I deduct the cost of searching for a job? Are moving expenses for my new job tax deductible?

Job seekers may be able to deduct many expenses related to their search: printing resumes, fees for employment and outplacement agencies, career seminar costs and business-related travel. Moving expenses relevant to your job search may be deductible if you meet the distance and time test.

What are the tax implications of withdrawing money early from a retirement account to pay bills or debt?

In difficult economic times, many people start eyeing their retirement accounts to payoff bills or debt. While it is your money, you may be unaware of the impacts of withdrawing from your nest egg. Withdrawing money early from a retirement account comes with a 10 percent tax penalty in addition to the regular income tax on the amount withdrawn. There can be other consequences, too. The retirement money may bump you into a higher tax bracket, which can result in the taxation of other income, such as social security, that you wouldn’t have been taxed on otherwise.

My house foreclosed, how does that impact my taxes?

The Mortgage Forgiveness Debt Relief Act survived the recent ‘fiscal cliff,’ receiving a one-year extension through 2013. This means you don’t have to pay taxes on the loss of your home through foreclosure or short sale, up to $2 million (or $1 million if married filing separately).

When does Additional Medicare Tax start?

Additional Medicare Tax applies to wages and compensation above a threshold amount received after December 31, 2012 and to self-employment income above a threshold amount received in taxable years beginning after December 31, 2012.

When are individuals liable for Additional Medicare Tax?

An individual is liable for Additional Medicare Tax if the individual’s wages, compensation, or self-employment income (together with that of his or her spouse if filing a joint return) exceed the threshold amount for the individual’s filing status:
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What wages are subject to Additional Medicare Tax?

All wages that are currently subject to Medicare Tax are subject to Additional Medicare Tax if they are paid in excess of the applicable threshold for an individual’s filing status. For more information on what wages are subject to Medicare Tax, see the chart, Special Rules for Various Types of Services and Payments, in section 15 of Publication 15, (Circular E), Employer’s Tax Guide.

Will Additional Medicare Tax be withheld from an individual's wages?

An employer must withhold Additional Medicare Tax from wages it pays to an individual in excess of $200,000 in a calendar year, without regard to the individual’s filing status or wages paid by another employer. An individual may owe more than the amount withheld by the employer, depending on the individual’s filing status, wages, compensation, and self-employment income. In that case, the individual should make estimated tax payments and/or request additional income tax withholding using Form W-4, Employee’s Withholding Allowance Certificate.

What is the Net Investment Income Tax (NIIT)?

The Net Investment Income Tax is imposed by section 1411 of the Internal Revenue Code (IRC). The NIIT applies at a rate of 3.8 percent to certain net investment income of individuals, estates and trusts that have income above the statutory threshold amounts.

What is included in Net Investment Income?

In general, investment income includes, but is not limited to: interest, dividends, capital gains, rental and royalty income, non-qualified annuities, income from businesses involved in trading of financial instruments or commodities, and businesses that are passive activities to the taxpayer (within the meaning of IRC section 469). To calculate your Net Investment Income, your in vestment income is reduced by certain expenses properly allocable to the income.