February 9, 2021 Update

Summer has arrived in Fort Wayne, Indiana. Both the Internal Revenue Service and The Indiana Department of Revenue are sending more incorrect tax notices. Worse both have changed their notices to provide little, or any information, forcing us to reach out to them and talk to them to find out what their notice means. Both agencies are struggling due to budget cuts. We expect this to get worse over the next couple of years. We are happy to help you with tax notices; however, they currently take a long time to resolve, and we charge separately for resolving tax notices. The Internal Revenue Service is in complete disarray due to DOGE cuts and some reports show that the IRS may only answer 16% of phone calls they receive next tax season. Further, we are seeing it take the IRS years in some cases to respond to notices, and it now often takes them 6 to 12 months to process amended returns, old year returns, and returns for those who are deceased.  The tax agencies are much harder to deal with than they were five years ago; and we expect this to get worse due to budget cuts.

SBS CPA Group implemented TaxDome this year. Our clients really like the easy-to-use portal, and more than half of our clients are using this platform. We expect that number to grow significantly. We like TaxDome and have received great feedback from our clients. A copy of your tax returns is in TaxDome. You can retrieve them yourself any time. If you need help please reach out to Nikkie Reyes at Admin@sbscpagroup.com or call her at 260-407-5000 and she can help you retrieve a copy of your tax returns from TaxDome or, if needed, she can get them to you in another way. If you have not opted into TaxDome, please opt in. Just email Nikkie or call her and she will help you opt in. If you are married and file a joint return both of you need to opt into TaxDome. Opting into TaxDome is not required for current clients next year. We really like TaxDome, and you will too. Please give it a chance. Mike Sylvester, CPA

The Original Purpose of Social Security: A Three-Legged Stool Social Security is a cornerstone of the United States' social safety net. Many Americans depend on this program to fund their retirement. The most recent data available from the Social Security Administration highlights the program's critical role in retirement planning. Social Security benefits account for approximately 30% of the income for individuals ages 65 and older. Retirement income was envisioned as a three-legged stool consisting of pensions, personal savings, and Social Security, each contributing one-third. The program was never intended to serve as the primary source of retirement income. Many Lower-Income Retirees Rely Heavily On Social Security 51.8% of individuals ages 65 and older depend on Social Security for half or more of their income. 24.7% of people in this age group rely on it for 90% or more of their income. Statistics Regarding Which Retirees Depend On Social Security The extent of reliance varies significantly by income quintile ; note the first quintile is the lowest 20% of taxable income and the fifth is the highest 20%: In the 1st quintile, 64.1% rely on Social Security for 90% or more of their income in retirement. In the 2nd quintile, 47.8% rely on Social Security for 90% or more of their income in retirement. All the way up to the 5th quintile, none of whom rely on Social Security for 90% or more of their income in retirement. Can Social Security Survive Beyond 2033? The program faces significant challenges. Without reform, Social Security will not be able to pay full benefits by 2033 . This presents a critical issue for Congress, as reductions in benefits are politically and socially untenable. Many changes are being made to the program via the Department of Government Efficiency. Further The Social Security Fairness Act was passed into law on January 5 and this brought more changes to the program. How Social Security Benefits Are Calculated Despite its importance, many people are unaware of how their Social Security benefits are calculated. Since the Social Security Administration ceased mailing statements in 2011, individuals must proactively set up an online account to access this information. The benefit formula is intentionally progressive, favoring lower-income earners by replacing a higher percentage of their income. For higher-income earners, Social Security becomes less significant as a percentage of their total retirement income. Terminology For Calculating Your Social Security Benefit 1. Credits: To qualify, individuals must earn 40 credits. In 2025, one credit is earned for every $1,810 in covered earnings (most often wages), with up to four credits given annually. 2. Average Indexed Monthly Earnings: The AIME figure is based on a worker's 35 highest-earning years, adjusted for inflation. If fewer than 35 years of earnings exist, zeros are averaged in. 3. Primary Insurance Amount: This is the monthly benefit a person receives at full retirement age. PIA is calculated using a formula adjusted annually for inflation. 2025 Social Security Payout Example: How The Formula Works Bend points are critical to the calculation and can be used to ensure you draw as much as possible in retirement. For a retiree with an AIME of $7,391 (This is annual wages of $88,692 in 2025 dollars): • 90% of the first $1,226 = $1,103.40 • 32% of the amount between $1,226 and $7,391 = $1,972.80. • Total PIA = $3,076.20 (before Medicare premiums). Strategies To Maximize Your Social Security Benefits To optimize benefits: • Aim for an AIME of at least $1,226, as the first tier yields a 90% replacement rate. • Understand that amounts above $7,391 are replaced at only 15%. Reviewing your lifetime earnings is crucial to ensure accuracy. Errors are far easier to correct early on than later on, when reconstructing decades-old income records may be challenging. Will Your Social Security Be Taxed? What Retirees Should Know Since 1983, up to 85% of Social Security income has been subject to federal taxes, depending on other income sources. This makes the program more progressive but also adds complexity to retirement planning. Consider discussing this with your tax professional and financial planner. When Should You Start Collecting Social Security? When to begin drawing Social Security benefits is a critical decision, particularly for married couples. Meeting with a qualified financial planner may be appropriate. Starting benefits early results in reduced monthly payments, while delaying up to age 70 increases them. Careful analysis and planning are essential to maximize lifelong benefits. Final Thoughts: Why Understanding Social Security Matters More Than Ever Social Security is a vital program for most Americans. Understanding its mechanics and planning effectively can significantly impact your retirement security and should be carefully considered before retirement. I do some consulting on this topic and if you want to hire me to do some Social Security planning please send me an email at Mike@sbscpagroup.com . Mike Sylvester, CPA

Tax Season hours at SBS CPA Group (Feb 2 nd -April 15 th ) Monday thru Friday 8:30am to 6:00pm Saturday 9:00am to 4:00pm

Tax season is here! We’re ready to start filing returns and need your documents all at once . Please provide: Your completed tax planner All source documents How to Send Your Documents Please choose one method: ✅ TaxDome – Upload all documents, name them , and click “done uploading” so we know you're finished. ✅ Drop off – Bring them to our office. ✅ Mail – Send them to our office. ✅ Email – Send everything to your CPA. Why Use TaxDome? If you activate your TaxDome account, you can: ✔️ Download copies of your tax returns ✔️ Upload documents easily ✔️ Sign returns electronically (if both spouses have emails on file) Important: TaxDome emails come from notifications@taxdome.com . If you didn’t get an invitation, check your spam folder. Still no email? Contact Nikkie Reyes at admin@sbscpagroup.com or call 260-407-5000 . We look forward to another great tax season!  SBS CPA Group Team

Starting in 2024, members of qualifying health care sharing ministries will be able to deduct their health care sharing expenses on their Indiana tax returns. Qualified health care sharing expenses are defined as the amount paid by a qualified individual for membership in a health care sharing ministry. You must be a resident of Indiana and have been a member of a health care sharing ministry for at least a month during the year to receive the deduction. But what is a health care sharing ministry? A health care sharing ministry is a type of nonprofit organization where members share healthcare expenses based on mutual faith and commitment. It is not insurance-members help cover each other's medical costs. While they can be quite beneficial, they also have drawbacks. If you are considering switching to a health care ministry, do your research to decide if it is right for you.  Let your tax preparer know if you are a member of a health care sharing ministry. Keep track of your qualified health care sharing ministry expenses and make sure you give them to your tax preparer, along with all of your other documents, at tax time. Jennifer Thonert, CPA

If you are an active member of the military, get ready to pay less state income tax to Indiana. Starting in 2024, Indiana will no longer tax any active-duty military pay. In prior years, Indiana would allow up to $5,000 of active military pay to be non-taxable, but a new law has passed making the entire amount exempt for those that qualify. To qualify, you must be a resident. To make sure you are considered an Indiana resident, confirm the following to be true: 1) Indiana is listed as your “home of record” on your military documents. 2) A DD Form 2058 is on file saying Indiana is your legal residence. 3) Your permanent address with the military is an Indiana address. 4) You have a current Indiana driver’s license. 5) You are registered to vote in Indiana. 6) You file an Indiana tax return. 7) You have ties to Indiana, such as a bank account. Once you determine that you are a resident, the next step is to file an Indiana tax return. Even if it is the only income you have, you must still file the return in order to claim the exemption. You do not have to attach proof to the return that you have active-duty status, but you are required to substantiate it if it ever gets called into question. Keeping a copy of your orders is advised. Also, make sure at tax time that your tax preparer knows you qualify for this exemption. Jennifer Thonert, CPA

Are you someone, or do you have an employee, who is not from Indiana but works here for short periods? Beginning in tax year 2024, Indiana has an income tax exemption for some nonresident employees. If they work in the state for 30 days or less, the state of Indiana will not collect income taxes on their wages. Employers do not need to withhold state income tax from these employees. However, it is only a state exemption-not a local one-so local income taxes will still need to be withheld, if applicable. In order for the nonresident to qualify for the exemption, the following circumstances must be met: 1) They must have been a nonresident for the entire year. 2) They must have worked in Indiana for 30 days or less. A workday counts as an Indiana workday if more than 50% of the hours that were worked that day were in Indiana (transit time does not count in the calculation). 3) They must not have the following professions: professional athlete, professional entertainer, or public figure that gets paid per event. These professionals will still be subject to income tax no matter how many days they work. Anyone who is exempted does not have to file an Indiana tax return, unless their employer withheld Indiana income tax. In that case, a tax return will need to be filed to get a refund. If the employee happens to cross the 30-day threshold, their entire year’s Indiana income then becomes taxable to the state, unless they are residents of a reciprocal state. Indiana has reciprocal tax agreements with six states: Illinois, Kentucky, Michigan, Ohio, Pennsylvania, and Wisconsin. People who live in those states but work in Indiana already do not pay Indiana state taxes, so the new rule does not affect them.  Make sure to let your tax preparer know if you are, or have, one of these employees.

In 2023, Indiana introduced the Attainable Homeownership Tax Credit, which is designed to encourage contributions to affordable housing initiatives in Indiana. If you are looking to contribute to a meaningful cause, while benefiting from a significant tax incentive, this credit could be a fantastic opportunity. Currently, the only organization approved by the Indiana Economic Development Corporation (IEDC) to receive credit-eligible contributions is Habitat for Humanity of Indiana (including its local affiliates). The tax credit equals 50% of your contributions to Habitat Indiana, with a maximum credit of $10,000 per taxpayer per year. For married couples filing jointly, the maximum credit is also $10,000 per couple. Contributions can include cash, checks, stocks, and bonds. These contributions are valued at their fair market value at the time of the donation. The value of services, labor, or reduced-cost equipment is not eligible for the credit. To claim the credit, Habitat Indiana will provide a certifying number (PIN) that must be listed on Schedule IN-OCC. The program has an annual statewide credit cap of $4 million per fiscal year (July 1 – June 30). Credits are allocated on a first-come, first-served basis, based on when returns are received. If the annual cap is reached, any credits claimed afterward will be permanently disallowed, though carryovers will remain valid. Credits are limited to your Indiana state tax liability after applying other nonrefundable credits. For example, if you qualify for a $10,000 credit but your state tax liability is only $8,000, the unused $2,000 can be carried forward to future years. This tax credit is a win-win: it supports Habitat Indiana’s mission to provide affordable housing while offering a substantial incentive for taxpayers. Whether you are an individual, a couple, or a business, contributing to this program can make a meaningful impact on Indiana communities. If you are considering contributing to Habitat for Humanity of Indiana, ensure your donation meets the eligibility criteria and plan to claim the credit promptly to avoid missing out due to the annual cap. For further questions about the Attainable Homeownership Tax Credit, feel free to reach out to the partner in charge of your account. Thank you for reading!  Nathan Skinner