News & Articles

Many of you may be getting that lucky feeling while out gambling at one or both of Maine’s casinos. We would like to remind you that all winnings from any table games, slots, horse races, and lotteries, are taxable income and must be included on your income tax return.
Payers (i.e., Oxford Casino) may send to you a form W-2G reporting your gambling winnings. But taxpayers are responsible for reporting this income, even if you didn’t receive such a form.

If you are just an occasional gambler, you should report you gambling winnings as “Other Income” on your tax return.

If you itemize deductions, you can deduct your gambling losses on Schedule A. The amount you can deduct is limited to the amount you report as income. Do not reduce the winnings you report by your losses: you must report the total amount of winnings as income, and then report the losses on schedule A. If you wish to deduct your losses, you must keep accurate records of your gambling activity such as receipts and tickets. Keeping a diary of your winnings and losses would be very helpful in documenting your gambling activity. For More information about deducting gambling losses click here.

Many of us here in Maine are lucky enough to have a camp on one of Maine’s many lakes and ponds.  What are the tax implications of renting it out for a few weeks or weekends?

The good news is that if you rent out your second home for 14 or fewer days a year, all of the rental income you receive for those 14 days is tax free. You do not have to report this income and cannot deduct any rental expenses related to that period for federal tax purposes.  So when the Olympics come to Maine, we are all in for a windfall.

If you stay in your summer home (or ski condo) for more than 14 days but also rent it things get a bit more complicated. Under this scenario, you would be required to report any rents received, but you would also claim expenses related to your rental activities. The guidance for how to allocate your expenses falls under the vacation home rules, click here

And let’s not forget about the State of Maine. The State of Maine requires you to pay a sales tax of 7% on “casual rentals” of vacation homes rented out for 15 days or more. In order to file and pay the sales tax you would need to register with Maine Revenue Service. There are some exceptions such are renting to a sales tax exempt organization; property rented to a person for 28 continuous days as a permanent residence; or renting to someone on assignment for a temporary job or education purposes. For more information about the Maine Sales Tax on Casual Rentals, click here.

Should you have any questions about how to treat your rental please give us a call to discuss.

Get Credit for Summer Camp!

School is almost out for the summer which means you’re probably scrambling to figure out what to do with your child(ren) for the summer. We wanted to remind you that if you send your child(ren) to day camp those expenses may qualify for the Child and Dependent Care Tax Credit on your 2013 tax return.

Expenses that qualify for this credit are day camp expenses and child care in your home.  Overnight camps and summer tutoring do not count for the credit calculation.

To get the credit, you and your spouse, if applicable, must both have earned income and the qualifying child(ren) must be under the age 13 for the entire year.  The maximum credit is 35% of your expenses up to a maximum level of $3,000 for one child of $6,000 for two or more children. There are income phase outs that apply so you’ll need to consult your accountant to determine the exact credit.

So save those receipts! You’ll also need to have the name, address and Social Security or employer identification number of the summer camp or care provider to complete the credit form next year.

For more information click here

Enjoy our beautiful Maine summer!

Beginning on December 29, 2012, Maine law permits the marriage of same-sex couples and recognizes the marriage of same sex couples performed in other states.  For Maine income tax purposes, same sex couples who were legally married as of December 31, 2012, are required to use the filing status “married filing joint,” or “married filing separate” for Maine state income tax purposes.

For Federal purposes, same-sex marriage is not recognized, so same sex couples would individually file their federal income tax returns with a “single,” or “head of household” filing status.

Since the Maine income tax calculation starts with the federal income, same-sex couples in Maine will need to prepare a federal taxable return as-if they were filing “married filing joint” or “married filing separate” for federal tax purposes. This would be referred to as a “pro-forma federal tax return.”  The federal adjusted gross income calculated on this pro-forma return would be the figure used on the Maine income tax return for same-sex couples.  Dependents for each person would need to be combined on the Maine income tax return.

Couples who are registered domestic partners under Maine law, whether same-sex or opposite-sex, may not file a Maine income tax return using the “married filing joint” or “married filing separate” filing status. So, the above would not apply to domestic partners in Maine.

All this is new tax law and provides a confusing tax situation for Maine same-sex married couples. Your CPA can help your navigate through all these nebulous new regulations.

Determining the correct filing status for your federal income tax return is important for a number of reasons. Filing status has an impact on tax rates, standard/itemized deductions, and many credits. Here are some notes on each status to help you determine which is appropriate for your situation.

Married Filing Jointly:

To elect this status you must be married as of the last day of the year. So all those last minute elopers out there this means you. Keep in mind that for your federal tax return the laws that govern are federal, not state. So even if you can file married at the state level under the same-sex laws in your state, you cannot elect this status at the federal level.

Generally, married filing jointly results in a favorable tax scenario compared to filing separately. One important thing to note, taxpayers who opt for married filing jointly are jointly liable for any tax liability that results from their filing jointly.

Married Filing Separately:

For those married couples opting not to file jointly the alternative status is married filing separately. As noted above typically this status does not result in tax savings; however, there are some reasons for choosing this status.

One of the more frequent reasons is excess medical expenses related to a spouse with minimal income. Since the medical expense deduction is tied to adjusted gross income, you may find that you can deduct the expenses if filing separately. Keep in mind that the taxes for the other spouse will most likely increase so you would want to weigh the cost benefit to see which nets the lowest tax liability.

When a couple separates, before actually divorcing, married filing separately is often the preferred status since it establishes individual tax liabilities that cannot attach to the other. It also allows you to file without concern for the other spouse.

No matter the reason for opting to file separately keep in mind that there are also some credits that are unavailable to those using the married filing separately status, such as the earned income tax credit and the child dependent care credit.

Head of Household:

In order to be considered head of household, your must be unmarried, considered unmarried, or a surviving spouse as of the end of the year. You may be considered unmarried if you are legally separated from your spouse under a decree of divorce or separate maintenance at the end of the year, or have lived apart from your spouse for at least six months of the prior year.

You must also have provided more than half the cost of keeping up a home for the year, and have child or other individual living with you who you may claim as a dependent on your tax return.  There are special rules of you support your parents who do not live with you, so you may qualify under those circumstances.

This status results in lower tax rates and a higher standard deduction as compared to filing single. So if you meet the criteria the head of household status is the best option.

Surviving Spouse:

Filing with the surviving spouse status entitles you to the same tax rate as married filing jointly for two years after the death of your spouse assuming you have a dependent child at the time of the filing.

Single:

If you do not qualify for any of the above filing statuses, you should file with the single status.

The IRS offers an online assessment that may help you determine your filing status, click here 

Filing your return with the proper filing status can save you money. However, your particular set of circumstances can make determining this status difficult. Consulting with your CPA will help you determine your best filing status for optimal results.

Maine taxpayers have the opportunity to donate to several worthwhile charities when they file their Maine state income tax return…if they know to use the correct form.

Using form 1040ME Schedule CP, Maine taxpayers can chose to donate to the following charities when they file their returns  (you would increase your tax  or reduce your refund by the amount you choose to contribute:

• Endangered & Nongame Wildlife Fund (Chickadee Check-off)
• Maine Children’s Trust
• Bone Marrow Screening Fund
• Companion Animal Sterilization Fund
• Maine Military Family Relief Fund
• Maine Veterans’ Memorial Cemetery Maintenance Fund
• Maine Asthma & Lung Disease Research Fund
• Maine Public Library Fund

Since 1998, these check-offs have appeared on a separate form, Form CP, as opposed to the front of the Maine income tax return.

On February 2, 2013, the Portland Press Herald reported that some of these charities are in danger of being dropped from the form.  If the total contributions raised by the check-off to any one charity falls below $25,000, that charity’s check-off will be eliminated from the form.  According to the article, the donations from the “chickadee check-off” have fallen from a high of $129,000 in 1985 to $37,000 in 2005.  Officials attribute this fall off of donations to moving the check-off to the separate schedule from the front page as well as competition from other charity check-offs.

So, if you wish to donate to any of these charities, remember to use Schedule CP on your Maine tax return, then put the total on line 31 of Form 1040ME.  Remember, these contributions may be deductible on your federal income tax return if you itemize your deductions.

And if you have your tax returns prepared by your CPA, please tell him or her that you wish to make these contributions.

Mainers supporting Mainers: always worthwhile!

In 2011, Governer LePage signed into law a tax reform bill, which has come into effect in 2013. Here are the highlights:

• Provided tax relief for roughly two thirds of all Maine’s taxpayers.
• Eliminated the 2 percent tax rate on Mainers with the lowest income, removing all income tax burden for 70,000 low income Maine families.
• Reduced the top income tax rate from 8.5 percent to 7.95 percent.
• Conformed personal exemptions and deductions to the federal standard, eliminating the marriage penalty and the alternative minimum tax.
• Increased the death tax exemption from $1 million to $2 million saving Maine farms and small businesses during transitions.
• Eliminates a tax charged on meals in retirement facilities.

The reduction in the income tax rate means that a Maine family of 4 with a Maine adjusted gross income (MAGI) of $25,000 or less could have no state income tax withheld, will have no liability and will not be required to file a Maine income tax return. If you fall into this category, you should contact your employer about adjusting your Maine tax withholding via Form W-4ME.

A family of 4 with a MAGI of $65,000 and who takes the standard deduction can anticipate a decrease of about $300 in state income tax.

A single individual with a MAGI of $35,000 and who takes the standard deduction can anticipate a decrease of about $200 in state income tax.

It is not too often that taxes actually go down!

For all you inquiring minds, here is an quick history of the income tax in the U.S. Please note that the rates shown are the highest marginal tax rates at the time.  For example, in 1954, the 91% marginal rate would have been applied only to the income over $400,000.

Here are filing dates you need to know about in February:

February 15-

• Last day you can file a form W-4 with your employer if you wish to be exempt for withholding of income tax for 2013.
• Last day to furnish annual statements to recipients of proceeds from broker exchanges (1099-B,) proceeds from real estate transactions (1099-S,) broker payments in lieu of dividends or tax-exempt interest (1022-MICS,) and gross proceeds paid to an attorney  (1099-MISC.)

February 28-

• Last day for employers to submit copies of forms 1099 they sent to recipients, along with transmittal form 1096, to the IRS.
• Last day for employers to submit copies of  form W-2 and W-2G  they sent to recipients,  along with transmittal form W-3, to the IRS.

For your convenience, we offer a calendar of events at our web site, click here

Do I Need to File a Tax Return?

People whose income falls below certain levels may not owe any federal income tax, and therefore may not have to file a return. The income limits for 2012 are as follows for each of the filing statuses:
• Single $ 8,699
• Married Filing Jointly $ 16,399
• Married Filing Separately $ 8,699
• Head of Household $ 12,399

If your income is in excess of these amounts you need to file. However, even if you find that your income is under these thresholds, you may want to file a return if:
• You had any income tax withholding on your earnings as you can get these withholdings refunded.
• You are self-employed and had more than $400 in net earnings from your work.
• You are eligible for the Earned Income Tax Credit (EITC). This credit can be refundable which means even if you have paid no taxes, you can get cash back. Click here for a  link with more information on EITC eligibility
• You are eligible for the refundable portion of the Child Tax Credit. As with the Earned Income Credit this can be refundable even if you paid no taxes.

The IRS does have a question and answer application that can help you determine whether you need to file. Click Here

Another common question is whether a dependent child needs to file. The answer to this question depends on what kind of income the dependent child has. If your dependent child has a job, any income would be considered earned income. The filing requirement for dependents with earned income is $5,950. Again if they were under this amount it still may be worthwhile to file if they had income tax withheld at either the federal or state level.

There is one other consideration for dependents relating to unearned income. Unearned income includes interest, dividend and capital gain income. If a dependent has unearned income over $950 there is a filing requirement and you may end up having to deal with the “kiddie tax” calculation. If you have a situation such as this we recommend you consult a tax professional.