Most People who’ve been filing income taxes, and maybe also business taxes, for years know the drill: gather all your records, keep your receipts and use an experienced professional tax preparer.

Beyond that, though, what are some items that frequently slip through the cracks? Nicole York, senior manager at Rodefer Moss & Co., took time to share her expertise. 

By Steve Kaufman

EXTOL: What are the things your clients need to bring to their tax preparation visit with you?

NICOLE YORK: First, any income statements: a W-2 for an employee, a K-1 for someone in an S-Corp or partnership, 1099s for sole proprietors and independent contractors. Then, all reports regarding mortgage interest paid, real estate taxes, property taxes (on cars, boats, motorcycles, campers) – it’s called “excise tax” in Indiana, “advalorem tax” in Kentucky. In short, I always tell my clients, “Include anything you get in the mail that says ‘Important Tax Documents Enclosed.’ ”

EXTOL: What about business expenses?

YORK: Have a list of all ordinary and necessary business expenses that might be deductible – anything they’ve had to pay to keep themselves in business.

EXTOL: What might change from year to year?

YORK: The birth of a child. A job change or relocation. Sale or purchase of a home, investments or other large assets. Distributions from a retirement plan. Significant medical issues. It could be something as simple as putting a child in daycare. We also recommend that they show us a couple of prior year tax returns, so we can see what’s been normal in the past.

EXTOL: Is it too late to make any significant changes to one’s 2016 tax situation?

YORK: Not at all. Many people don’t know theystill have time, even after the prior tax year ends, to take steps to mitigate their taxes for that year. You can still put $5,500 into your IRA ($6,500 if you’re over 50) until April 15 to count against last year’s taxes, assuming you meet the eligibility requirements. Self-employed individuals can still set up retirement plans until April 15. With a SEP (Simplified Employee Pension), you can put in about 25 percent of your net earnings. In fact, you even have until Oct. 15 to do that if you need to file for an extension on your taxes. And you still have time to max out a Health Savings Account (HSA) if you have one – up to $3,350 for a single taxpayer, $6,750 for a family, with an option for an additional $1,000 catch-up contribution if you’re over 55.

EXTOL: A Health Savings Account? What is that?

YORK: It’s a set-aside fund to pay for qualified medical expenses that exceed your health insurance plan’s deductibles.

EXTOL: Can anyone set one up?

YORK: No. First, you need to have a high-deductible health insurance plan. The government defines that, for 2016, as having deductibles of at least $1,300 for an individual, $2,600 for a family. In addition, the total out-of-pocket expense can’t exceed $6,550 for an individual, $13,100 for a family.

EXTOL: Do many people have that?

YORK: More and more, probably. It’s one way to keep premiums down, whether for health insurance coverage you’re required to carry under the Affordable Care Act or for health insurance coverage you’re getting through your employer.

EXTOL: How do you set up an HSA?

YORK: If it’s an employee benefit, your employer sets it up and withholds the contributions from your paycheck.

EXTOL: Is it too late to set one up now for your 2016 taxes?

YORK: It is. Those plans have to be set up before year-end. If you already have one, though, the deductible contributions can still be made until April 15. However, any HSA contributions made in 2017 for the tax year 2016 have to be made by the individual, such as a check deposited directly into the account. Just tell your bank that those are “prior year contributions.” Any contributions that come from the employer’s withholding on your paycheck will only be credited for the year in which they’re withheld.

EXTOL: We live in a two-state, multi-county community. It must get complicated.

YORK: Yes. For instance, a lot of Indiana residents working in Louisville have Louisville tax withheld from their paychecks. Indiana allows for a tax credit for those payments. One thing we find with new clients is that they’re not taking that credit, especially if they’d been preparing their own returns, or if the returns were done by a tax preparer unfamiliar with Indiana tax law.

EXTOL: Does that apply to state withholdings, as well?

YORK: No, Kentucky and Indiana are reciprocal states. So, if an Indiana resident is working in Kentucky, the employer withholds Indiana state income tax. And, of course, vice-versa.

EXTOL: Indiana residents do pay county income tax,
too, don’t they?

YORK: Yes, based on the county they lived in as of January 1 of the taxable year. It’s a flat tax filed with their Indiana state return. It’s not a separate metro return, like in Louisville/Jefferson County.

EXTOL: And the county tax rates are all the same?

YORK: Not at all. Around here, it’s 1 percent in Harrison County, 1.15 percent in Floyd County and 2 percent in Clark County. Something to think about if someone is planning to move this year.

EXTOL: Does anything still surprise you?

YORK: I’m still shocked that people enter into large transactions – selling a house, selling land, selling large investments – without first consulting their tax preparer about all the tax consequences. After the fact, there’s not always much we can do to mitigate the tax effects.

EXTOL: Any particular examples?

YORK: Social Security recipients are often shocked when a large transaction puts them over an income level and suddenly makes 85 percent of their Social Security income taxable. We get a lot of timber sales in Southern Indiana, where someone will have a logger come in and cut down standing timber on their property. Then they sell it and – oops – it raises their taxable income.

EXTOL: “Oops” sounds bad.

YORK: Nobody likes “oops,” especially when it comes to taxes.

About Nicole York

Nicole York is a CPA and a senior manager of the firm Rodefer Moss & Co. She works out of the Corydon office. “If you haven’t seen a tax preparer yet, there’s still time,” she said. “If you’re seeing a new preparer, you should pull together at least one prior year tax return (two is better), and write down a list of questions you have. If you’re a small-business owner, summarize all of your income and expenses for the year. Having these items handy before we meet will expedite the preparation process.”

For more information on Rodefer Moss, go to roderfermoss.com/indiana.html

THE FIRM’S THREE INDIANA LOCATIONS ARE AT:

301 E. Elm St., New Albany | 812.945.5236 119

E. Beaver St., Corydon | 812.738.3777

1074 Copperfield Dr., Georgetown | 812.951.2708