Unveiling Michigan’s Top 10 Overlooked Tax Deductions: A Guide to Maximize Returns

On April 21, 2024 / ATS Advisors, Michigan Taxes

Michigan’s Top 10 Overlooked Tax Deductions: Tax season always brings a mix of anticipation and trepidation. For Michigan residents, navigating the intricate web of tax deductions can be particularly daunting. Yet, buried within the tax code are hidden gems that often go unnoticed. Here’s a retrospective glance at the top 10 most overlooked tax deductions for Michigan residents, unveiling opportunities to maximize returns and ease the tax burden.

Home Office Deduction: Many Michiganders who operate a business from home fail to claim the home office deduction. Whether you’re a freelancer, consultant, or small business owner, you may be eligible to deduct a portion of your home-related expenses, such as utilities, mortgage interest, and property taxes.
Charitable Contributions: Donations to charitable organizations often qualify for deductions, but Michiganders sometimes overlook this benefit. Whether it’s cash donations, goods, or mileage driven for volunteering purposes, these contributions can significantly reduce taxable income.
Educator Expenses: Teachers and educators in Michigan often dip into their own pockets to purchase classroom supplies. Fortunately, they can claim a deduction of up to $250 for these expenses, including books, supplies, and other materials.
State Sales Tax Deduction: While Michigan doesn’t impose a state sales tax, residents can still benefit from deducting sales taxes paid on large purchases, such as vehicles or boats. This deduction is particularly valuable for those who itemize deductions rather than opting for the standard deduction.
Job Search Expenses: Job hunting can be costly, but the expenses incurred, such as transportation, resume printing, and agency fees, are often overlooked as deductible. Michiganders actively seeking new employment opportunities should keep track of these expenses for potential tax savings.
Medical and Dental Expenses: Health-related expenses, including medical and dental treatments, can add up quickly. Michiganders who itemize deductions can include these costs if they exceed a certain percentage of their adjusted gross income, potentially providing substantial tax relief.
Moving Expenses: While moving expenses are no longer deductible at the federal level for most taxpayers, Michigan still allows deductions for certain moving expenses related to starting a new job. Keep track of these expenses, including transportation, storage, and lodging costs.
Unreimbursed Business Expenses: Employees who incur expenses related to their jobs, such as travel, meals, and uniforms, and are not reimbursed by their employers, may be eligible for deductions. This often overlooked deduction can provide significant tax savings for Michigan residents.
Energy-Efficient Home Improvements: Making energy-efficient upgrades to your Michigan home not only saves on utility bills but also qualifies for tax credits. From installing solar panels to upgrading insulation, these improvements can yield both environmental and financial benefits.
Gambling Losses: While gambling winnings are taxable, losses can be deducted up to the amount of winnings. Michigan residents who enjoy a night at the casino or participate in other forms of gambling should keep meticulous records of losses to offset taxable income.

As tax season approaches, Michigan residents should take advantage of these often overlooked deductions to optimize their tax returns. However, navigating the complexities of the tax code can be challenging. For personalized tax assistance and guidance tailored to your specific needs, consider reaching out to ATS Advisors. Their team of experts is dedicated to helping Michigan residents navigate the intricacies of taxation and maximize their financial well-being. Don’t let valuable deductions slip through the cracks—seize the opportunity to unlock potential tax savings and utilize Michigan’s Top 10 Overlooked Tax Deductions.

5 Michigan Small Business Tax Benefits You Might Not Know

On April 11, 2024 / IRS, Michigan Taxes

5 Michigan Small Business Tax Benefits You Might Not Know – Need help? Contact ATS Advisors

As a small business owner in Michigan, navigating the tax landscape can be overwhelming. But fear not! There are several tax benefits and write-offs available to you that you might not be aware of. Let’s dive into five of these gems:

Federal Section 179 Deduction: This deduction allowed small businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. It was a boon for businesses looking to invest in growth while reducing their tax burden.
Michigan Small Business Tax Credit: Michigan offers a Small Business Alternative Credit for certain small businesses. This credit provides relief by reducing the Michigan Business Tax (MBT) liability for qualifying small businesses.
Federal Research and Development Tax Credit: Small businesses engaging in qualified research activities may be eligible for this federal tax credit. It’s designed to encourage innovation and growth by providing a credit for a percentage of qualified research expenses.
Michigan Net Operating Loss (NOL) Carryforward: If your business experienced a net operating loss in Michigan, you can carry that loss forward to offset future taxable income. This provision helps businesses weather tough times and stay afloat during periods of financial difficulty.
Federal Qualified Business Income Deduction (QBI): The QBI deduction allows eligible small businesses to deduct up to 20% of their qualified business income from partnerships, S corporations, sole proprietorships, and certain trusts and estates. This deduction can result in significant tax savings for qualifying businesses.

These tax benefits and deductions can make a meaningful difference for small businesses in Michigan, providing much-needed relief and incentivizing growth and innovation. However, it’s important to consult with a tax professional to ensure that you’re taking full advantage of all available opportunities and complying with relevant tax laws and regulations.

In conclusion, while taxes may never be a small business owner’s favorite topic, knowing about and leveraging these tax benefits can lighten the burden and help your business thrive in the Great Lakes State.

Michigan Gift Tax: A Few Things To Know

On April 1, 2024 / Michigan Taxes

In the annals of Michigan’s tax history, the Michigan Gift Tax stands as a notable chapter, albeit one now consigned to the past. Enacted in 1971, the tax was designed to levy charges on gratuitous transfers of property or assets. Essentially, it was the state’s way of ensuring that gifts, large or small, didn’t evade the taxman’s gaze.

The concept of a gift tax isn’t unique to Michigan; it’s a feature of many state and federal tax codes. In essence, it’s a tax on the transfer of property by one individual to another without any consideration or payment in return. The idea is to prevent people from avoiding inheritance or estate taxes by giving away their assets before they die.

For Michigan residents, the Gift Tax was a reality they needed to navigate, particularly when considering generous gestures or estate planning. It applied to both tangible and intangible gifts, ranging from cash and real estate to stocks and bonds. The tax rate varied depending on the value of the gift and the relationship between the donor and the recipient.

However, Michigan’s Gift Tax era came to an end in 2013 when it was repealed, much to the relief of many residents and estate planners. This repeal brought Michigan in line with federal gift tax laws, which meant that most individuals were no longer subject to state-level gift taxes.

For those who may have questions about past dealings with the Michigan Gift Tax or require assistance with current tax matters, there are avenues to explore. Michigan residents, in particular, may find valuable guidance by reaching out to ATS Advisors. With their expertise in tax planning and compliance, they can provide tailored advice and support to ensure individuals navigate Michigan’s tax landscape smoothly.

As with any tax-related issue, it’s essential to stay informed and seek professional assistance when needed. While the Michigan Gift Tax may be a thing of the past, staying abreast of current tax laws and regulations remains crucial for all residents. And for those who may find themselves in need of guidance, ATS Advisors stands ready to lend a helping hand.

Still have questions? Here is some more info!

Michigan Tax Credits For Renewable Energy

On March 27, 2024 / Michigan Taxes

Exploring Michigan Tax Credits for Renewable Energy

Live in Michigan? Need tax assistance? Contact ATS Advisors!

In an era marked by growing environmental awareness and the urgent need to transition towards sustainable energy sources, Michigan offers various tax credits aimed at incentivizing investments in renewable energy. Understanding these tax credits can not only help individuals and businesses contribute to a cleaner environment but also benefit financially. Let’s delve into the key tax credits available for renewable energy in Michigan:

1. Solar Energy Tax Credits:

Residential Solar Energy Credit: Michigan residents investing in solar energy systems for their homes can avail themselves of a generous tax credit. This credit covers a percentage of the cost of installing solar panels, helping homeowners offset initial expenses.
Commercial Solar Energy Credit: Businesses that choose to integrate solar energy systems into their operations can also benefit from tax credits. These credits encourage commercial entities to embrace sustainable energy solutions, reducing their carbon footprint while enjoying financial incentives.

2. Wind Energy Tax Credits:

Small Wind Energy Credit: Michigan provides tax credits to individuals or businesses installing small wind energy systems on their properties. These credits aim to promote the adoption of wind power as a viable renewable energy source, particularly for rural communities and agricultural operations.

3. Geothermal Energy Tax Credits:

Residential Geothermal Energy Credit: Homeowners opting for geothermal heating and cooling systems can take advantage of tax credits offered by Michigan. These credits help offset the upfront costs associated with installing geothermal systems, making them a more accessible option for residential properties.

4. Biomass and Other Renewable Energy Sources:

Biomass Energy Credit: Michigan supports the use of biomass energy through tax credits, encouraging the utilization of organic materials for power generation.
Other Renewable Energy Credits: Various other renewable energy sources, such as hydroelectric power and fuel cells, may also qualify for tax credits in Michigan, promoting a diverse and sustainable energy portfolio.

By leveraging these credits, individuals and businesses in Michigan can not only contribute to the state’s renewable energy goals but also enjoy significant financial benefits. Investing in renewable energy not only reduces reliance on fossil fuels but also fosters a cleaner and more sustainable future for generations to come.

Understanding the Michigan Homestead Tax Credit: A Guide to Maximizing Savings

On March 12, 2024 / Michigan Taxes

Understanding the Michigan Homestead Tax Credit is a valuable resource for homeowners in the state, designed to alleviate the financial burden of property taxes. Established to assist low- and moderate-income homeowners, this credit can significantly reduce the amount of taxes owed, providing much-needed relief for families across Michigan.

Live in Michigan? Need tax help? Contact ATS Advisors!

So, what exactly is the Michigan Homestead Property Tax Credit? Essentially, it’s a credit available to eligible homeowners who pay property taxes or rent on their primary residence in Michigan. The credit is calculated based on a variety of factors, including household income, property taxes paid, and the size of the household. The aim is to ensure that those with lower incomes receive more substantial benefits, thereby promoting housing affordability and stability.

One of the key features of the Homestead Property Tax Credit is its ability to provide direct financial assistance to homeowners struggling to meet their tax obligations. By reducing the amount of taxes owed, this credit can free up much-needed funds for other essential expenses, such as groceries, utilities, and healthcare costs. For many families, especially those on fixed incomes or facing financial hardships, the Homestead Credit can make a significant difference in their quality of life.

But how can homeowners in Michigan take advantage of this valuable credit? The process begins with determining eligibility. Generally, to qualify for the Homestead Property Tax Credit, homeowners must meet certain criteria, including residency requirements, income limits, and property tax payments. Eligibility is typically based on factors such as household income, marital status, and age, so it’s essential to review the specific requirements outlined by the Michigan Department of Treasury.

Once eligibility is established, homeowners can apply for the Homestead Property Tax Credit by completing the appropriate forms and submitting them to the Department of Treasury. These forms typically require detailed information about household income, property taxes paid, and other relevant financial data. It’s crucial to ensure accuracy when completing these forms to avoid delays or complications in processing.

After submitting the application, homeowners can expect to receive notification of their eligibility and the amount of the credit they qualify for. This credit can then be applied directly to their property tax bill, reducing the amount owed or providing a refund if the credit exceeds the tax liability. Additionally, eligible renters may also receive a portion of the credit based on their rental payments and income level.

In conclusion, the Michigan Homestead Property Tax Credit is a valuable resource for homeowners, offering financial assistance to those in need. By understanding the eligibility criteria and application process, homeowners can take full advantage of this credit, maximizing savings and easing the burden of property taxes. For more information on the Homestead Property Tax Credit and how to apply, homeowners are encouraged to contact the Michigan Department of Treasury or consult with a tax professional.

Visit Michigan.govs website for additional information on Understanding the Michigan Homestead Tax Credit.

Three New Tax Changes Impacting Michigan Residents in 2023

On March 5, 2024 / Michigan Taxes

Three New Tax Changes Impacting Michigan Residents in 2023

Live in Michigan? Need to have your taxes handled? Contact ATS Advisors today!

As the calendar flipped to 2023, Michigan residents found themselves greeted with several notable changes to their state tax laws. From adjustments in deductions to alterations in tax brackets, these modifications bring both challenges and opportunities for taxpayers across the Great Lakes State.

1. Increased Standard Deduction:

One of the most significant changes affecting Michigan residents in 2023 is the increase in the standard deduction. This adjustment aims to provide tax relief for individuals and families by allowing them to deduct a larger portion of their income before calculating taxes owed. For single filers, the standard deduction rose to $6,600, up from $6,350 in the previous tax year. Married couples filing jointly now enjoy a standard deduction of $13,200, an increase from $12,700. This change translates into potential savings for taxpayers across various income levels, providing welcome relief for many Michigan households.

2. Revised Tax Brackets:

Another key modification impacting Michigan taxpayers is the adjustment to tax brackets. Tax brackets determine the rate at which different levels of income are taxed, and changes to these brackets can significantly influence individuals’ tax liabilities. In 2023, Michigan implemented a slight restructuring of its tax brackets, resulting in adjustments to the rates applied to different income thresholds. While the changes were relatively minor, they can still have a meaningful impact on taxpayers, particularly those with incomes near the thresholds of different brackets. Taxpayers should review the new brackets carefully to ensure accurate tax planning and compliance.

3. Expanded Credits for Education Expenses:

Michigan residents investing in education received some welcome news in 2023, as the state expanded credits for education expenses. This change allows eligible taxpayers to claim a credit against their state taxes for qualified education expenses, such as tuition and fees paid for higher education. The expansion of these credits provides additional support to individuals and families striving to pursue educational opportunities and further their skills and knowledge. By reducing the tax burden associated with education expenses, Michigan aims to promote access to education and workforce development, fostering economic growth and prosperity across the state.

In conclusion, the tax changes introduced in Michigan for the year 2023 bring a mix of benefits and adjustments for residents. With an increased standard deduction offering potential savings, revised tax brackets influencing rates, and expanded credits for education expenses providing support for learners, taxpayers must familiarize themselves with these changes to navigate the tax landscape effectively. By staying informed and leveraging available deductions and credits, Michigan residents can optimize their tax strategies and minimize their tax liabilities in the year ahead.

Click here to read other Michigan tax changes!

Three New Tax Changes Impacting Michigan Residents in 2023 – Ryan Garchar

Michigan Sales Tax On Rental Equipment

On January 16, 2024 / Michigan Taxes

Have a Small Business in Michigan? Contact ATS Advisors to handle all of your tax needs and financial questions!

What is the Heavy Equipment Owners Excise Tax?

Issued under authority of Public Act 35 of 2022

Beginning January 1, 2023, this tax is levied on each transaction of a qualified renter for renting eligible personal property.
Qualified renter is imposed a 2% tax of the rental price directly on the customer that rents qualified heavy equipment.
Qualified renter collects the tax as part of the rental payment made by the customer and remits return and payment to the Michigan Department of Treasury.
Returns are due quarterly as follows: April 30th, July 31st, October 31st, and January 31st.
Amounts reported must be reported separately for each qualified renter business location.
Form 5815 can be remitted via email to: Treas-HeavyEquip-Customer-Support@michigan.gov
If sending a payment separately, Payment Voucher Form 5851, must be filled out completely and returned to:

Michigan Department of Treasury
P.O. Box 30830
Lansing, MI 48909

How To Claim An Exemption

To claim the exemption, eligible taxpayers would need to first file Form 5819 with the assessor of the local unit in which the qualified renter business location is set up.

This is the location where the rental equipment is stored when it is not rented out.
The form must have been postmarked before February 21, 2023, to be considered timely.
If a taxpayer missed that date, they could file directly with the March Board of Review of the township/city. They should contact the assessor to determine the best way of doing that.
Part of Form 5819 is “page 3,” which is the spreadsheet. This should be filed electronically as a spreadsheet.

Form 5819 and Instructions are available at Business Taxpayer Forms

Michigan Sales Tax On Rental Equipment – 2023

How to Compute Penalty

If a qualified renter does not submit a completed statement and full payment of the tax levied under section 5 by the applicable deadline in subsection (3), the department shall issue a notice to the qualified renter within 30 days after that deadline. The notice must include a statement explaining the consequences of nonpayment as described in subsection (5) and instructing the qualified renter of its potential responsibility under subsection (5)(b). A qualified renter shall submit payment in full within 90 days after the issuance of the notice with a penalty of 3% per month calculated from the applicable deadline in subsection (3) on the unpaid balance for each month payment is not made in full. The calculation of penalty is not prorated based on the date payment is received (e.g. for the April 30 quarterly deadline – any payment received any day in May would have 3% penalty, June has 6% penalty, etc.).

For the qualified renter’s first assessment year, the penalty must be waived if the qualified renter submits a completed statement along with full payment of the tax levied under section 5 within 30 days after the issuance of the department’s notice.

Michigan Sales Tax On Rental Equipment – 2023

5 Steps To Start An LLC in Michigan

On October 30, 2023 / Michigan Taxes, starting a business

Michigan may be known for its lakes and other natural wonders, but it also represents some good business opportunities as well. If you’re thinking of starting a limited liability company (LLC) here, you’ll have a number of steps to complete before you’re set up. Learn how to start your Michigan LLC below.

Need Assistance? Contact ATS Advisors

An LLC is a popular business model due to its taxation flexibility and the personal asset protection it offers. Michigan is gaining attention as a good place to do business, thanks to factors like regulatory friendliness, technology and innovation availability, and a low cost of doing business. The state has also been investing in cutting-edge advancements, like electric vehicle production and climate change initiatives which may help make for a promising future.

Steps to Set Up an LLC in Michigan

Different states have different rules for setting up an LLC. Understanding the requirements in your chosen state before you get started will make the process easier. Here’s what you need to know about starting an LLC in Michigan.

Step 1: Pick a Name for Your Michigan LLC

When you complete the Articles of Organization needed to register your Michigan LLC, you’ll be asked to give your LLC’s desired name. The name must be unique and can’t be the same or similar to another business name existing in the state. There are also restrictions regarding certain words that can’t be used; for example, the word “ambulance” can’t be used unless the business is licensed by the Department of Community Health.

If you have a business name in mind that you really want to use and you’d like to reserve it, you can complete a form to save the name. This might be necessary if you aren’t yet ready to file the actual Articles of Organization, for instance. You can save a name for an LLC for up to six months. The cost is $25.

Step 2: Find a Registered Agent

Michigan requires that every LLC registered in the state designates a registered agent with a registered office. This individual or business entity must be named when filing the Articles of Organization. A registered agent is an individual or entity appointed to receive formal notices or documents on your business’ behalf. This could include anything from IRS notifications to lawsuits.

Michigan requires that the resident agent be a legal Michigan resident or Michigan corporation. A foreign corporation with a certificate of authority to do business in the state can also be the registered agent, as can a Michigan LLC or a foreign LLC approved to do business in the state. The registered agent must have a street address in Michigan; you can’t use a P.O. box.

Step 3: File the Michigan Articles of Organization

To officially register your LLC with the state of Michigan, you have to submit the Articles of Organization to the Michigan Department of Licensing and Regulatory Affairs. This paperwork requires you to provide your LLC’s name, describe its business purposes, and designate the name and contact details of your registered agent.

When you submit the document, you’ll have to pay the $50 filing fee (plus expedited fees, if desired). Finally, make sure to include the name and contact information, including a business telephone number, of the “preparer” (your or whoever is completing the paperwork). In case of any issues while processing, it’s important that you can be contacted. There are many LLC services that can help complete all of these paperwork items for you if you do not wish to do it yourself.

Step 4: Draft an Operating Agreement

When completing the Articles of Organization for a Michigan LLC, you’ll see a section of the application where you can add “any desired additional provision.” This gives you the option to attach additional pages to your application, if needed. This is an ideal opportunity to include an operating agreement. Michigan doesn’t require an LLC to have an operating agreement. However, it’s recommended to create one.

An operating agreement includes details like the LLC’s members and what percentage of the LLC they own; the members’ voting rights; the members’ duties opposite the LLC; the frequency of holding meetings; how profits and losses are distributed; and buy-out and buy-sell rules. It can also detail what happens to a member’s shares in case of death. By laying all of this information out in an operating agreement, it’s possible to firm up verbal promises, reduce the risk of misunderstandings, and help protect your liability in case of legal issues.

Step 5: Get Your Employer Identification Number (EIN)

An EIN is a special number that’s similar to a Social Security Number (SSN) except that it’s for a business instead of an individual. The EIN is used by the Internal Revenue Service (IRS) to identify your business. You will include your EIN on tax paperwork. You’ll also need your EIN in case you ever hire employees for your business.

Getting an EIN is easy and fast. The quickest route to getting your EIN is to apply online through the IRS’s dedicated website. Alternatively, you can request an EIN via mail, fax, or telephone. That said, the IRS prefers online applications. Best of all, requesting an EIN doesn’t cost you a thing. It’s free!

Author: Allison Killian, US NEWS, 2023.

Michigan Taxes on Casino Winnings

On July 19, 2023 / Michigan Taxes

Michigan Gambling And Taxes

Yes, gambling winnings are taxable in Michigan. Need assistance? Call Michigans trusted ATS Advisors

Whether you’ve won money at a Michigan online gambling site, or a retail location, it is subject to Michigan individual income tax, to the extent it is included in your adjusted gross income.

It’s important that you know how and when the Internal Revenue Service might get involved when you win at the blackjack table or your favorite sportsbook.

So, here is a guide for Michigan Taxes on Casino Winnings, including how to claim your wins and deduct your losses.

What is new for claiming gambling winnings on your 2022 taxes?

Claiming your gambling winnings on your tax return will not change from previous years — other than the amount you won, of course.

We took a brief look at how to claim your gambling winnings while filing your 2022 taxes.

What is taxable in Michigan?

Throwing money around in a casino rarely seems like an official transaction. Whether you win or lose, the final disposition of your chips can often feel like a stitch in time.

Unfortunately, it’s not. All winnings that you realize in a casino are taxable as income, both on the state and federal levels.

So, you should be reporting those wins on your annual tax returns. Though many people scoff at the notion of reporting cash income to the government, it counts the same as income from a check or direct deposit in the eyes of the IRS.

Failure to report your gambling income could, in theory, land you in hot federal water or with the state of Michigan’s tax office. In practice, those entities are unlikely to audit someone over a few hundred or thousand dollars.

But that doesn’t mean that they can’t or won’t do so.

Also, please take note that non-cash winnings, such as cars, boats, or other objects that you may win at a casino, are subject to taxes, too. The value that has transferred to you because of the win has increased your financial position, and the government wants its share of the loot. As a side note, game show prize winners have to do the same thing.

What taxes will I have to pay in Michigan?

Now that you’ve steeled yourself to the reality of giving away a portion of your sweet winnings to the government, you may be wondering who and what you’ll be forced to pay. As indicated earlier, you will be compelled to pay percentages to both the IRS and the state of Michigan for your wins there.

The IRS, for its part, will demand that you fork over 25% of your winnings to the feds for your troubles. This rate applies to wins of any size. So even if you win just a dollar, you’ll still need to throw a quarter in the federal direction.

In addition, Michigan law requires that you pay an additional 4.25% to the folks in Lansing for having played in their casino. Even though the casinos themselves are the main wellspring of tax income for the state lawmakers, gamblers do not escape unscathed.

For smaller wins, you’ll essentially be on your honor to report your gambling winnings to the appropriate authorities. As stated earlier, it’s not legal just to stick the money into your pocket, but there’s no mechanism or watchful eye to force your compliance as you exit the casino.

That lack of oversight extends to wins up to $5,000. However, at that point, the casino itself is bound to collect 25% on the government’s behalf before it releases your winnings to you. Give the cage your name and Social Security number, and your tax bill will be settled before you leave the property.

Obviously, losing 25% off the top is a kick in the teeth, but please don’t get any ideas about simply withholding your name and SSN. As it turns out, anyone who refuses to provide their information (for any reason) will be subject to an additional penalty of 3%.

Neither option is good. Bear in mind that the casino is not going to keep a cent of that money that it withholds. So, you might as well go along with it and live to fight another day.

If I never win $5,000, will I ever have to pay taxes upfront?

If you’re not a high roller, the idea of ever reaching the federal threshold for casinos to report wins might seem far-fetched. After all, if you usually bet in $5 or $10 increments, it’s quite unlikely that you’ll realize a win that exceeds $100, let alone $5,000.

So, you may be wondering if you’d ever have to worry about the feds ever knowing that you were gambling. Unfortunately, there are some other scenarios in which the casino might have to report your win to the IRS before handing you the proceeds from your hard-fought victory.

A casino must report a win to the IRS with Form W-2G if any of the following events occurs:

The total winnings, or combined bet and profit, on a slot machine exceed $1,200.
A player’s keno profit on a game is more than $1,500.
A poker player wins more than $5,000 in a tournament.
A game’s profit is more than $600 and is 30 times or greater than the bet amount.

Now, filing this form does not mean that the casino has to collect from your winnings automatically. However, since the government will soon be aware of your win, it would be foolish to omit it from your return. So, make sure to keep your copy of the form for your records.

The bottom line is that if you have a memorable win in a casino, it’s quite likely that the government wants to remember it, too.

How do I report my winnings?

It’s understandable that you might feel disappointed about having to pay taxes on your winnings. Nevertheless, in most cases, you’ll bite the bullet and decide to file. So, here’s how to do that.

As is the case for essentially anything to do with the IRS, there are forms to fill out. The first thing to do is report the income on the IRS Schedule 1, which is the form for additional income and adjustments to income.

On that form, look for Line 8 in Part I, which is entitled “other income.” Here is where you will list your winnings and their source. “Gambling” or “casino” are fine for explaining from where the money came in most cases, although you can be more specific regarding the casino and date if you’re worried about attracting attention.

Once you’ve entered the information onto your Schedule 1, you’ll need to put the same total onto line 7a of your regular tax return. You will then be able to add the winnings into your overall taxable income.

By the way, your Schedule 1 is also the place to list various types of deductions, such as certain business expenses or student loan interest payments. So, make sure that you don’t miss out on all the different ways to knock down that taxable base.

Can I report gambling losses in any way?

Of course, gambling comes with the inherent chance of losing. However, you could understandably think that it seems unfair that the IRS only cares about your winnings. You may wonder if there’s a way to claim gambling losses on your taxes.

As it turns out, you can.

The IRS provides Schedule A as a form to claim various deductions. Although there’s no line expressly for gambling losses, you can list your setbacks in Box 16 — Other Itemized Deductions to claim them.

Now, there are two rules that go along with claiming casino losses on your tax form. The first, and most important, is that you cannot claim losses in excess of your claimed winnings.

So, if you list $1,000 in gambling winnings on your Schedule 1, the maximum that you could claim as losses on your Schedule A would be $1,000. If you had a bad year at the casino (as many of us do), the IRS does not simply allow you to write off the loss as a deduction against your taxable base, unfortunately.

The other rule is that you must be able to prove your losses in some kind of meaningful way in order to claim them. It is vital that you keep records, receipts and other documentation to show the losses, or the IRS might not accept the deduction as valid.

After all, that might be a handy way to offset your winnings from the year and avoid taxation, so the IRS has to be sure that you took the beating you claim to have suffered. The chance that the agency will take a harder look at you will increase as the dollar amount goes up, so if you’re a bit of a high roller, it’s a good idea to keep a paper trail for yourself.

If you’re thinking that record-keeping might be a pain, you can possibly make things easier by using your loyalty or membership card at your casino of choice when you play. Because they award you based on your play, they keep records of your play. It shouldn’t be too difficult to acquire a copy of your history from the casino.

For your Michigan tax return, you can now claim losses as a deductible expense. That change was passed by the state’s legislature late in December 2021, then signed by Gov. Gretchen Whitmer at the close of the year.

Do I have to pay taxes if I don’t live in Michigan?

It’s pretty clear that you have to pay taxes to Michigan if you’re a Michigan resident. However, you may be wondering if you’re still on the hook for the taxes if you’re just visiting from out of state.

Unfortunately, you are still bound to pay taxes to Michigan for your gambling win as a nonresident. As is often the case, there’s even a form for that. Worse yet, you will also have to report your winnings on your return for your own state, assuming that your state requires an income tax.

However, there are a couple of bits of good news. First of all, the states nearest Michigan (Illinois, Indiana, Kentucky, Minnesota, Ohio and Wisconsin) have reciprocal agreements with the Great Lakes State regarding earnings that you incur in Michigan. If you live in one of those six states, you are not required to file a nonresident return in Michigan.

The other ray of sunshine is that there is, in fact, a tax credit that you will be able to claim on your home state’s return that will offset the taxes you paid in Michigan on your winnings. So, even though you had to fork over to a state in which you don’t live, you don’t have to pay double tax on the windfall. Although states are happy to collect tax revenue, they correctly realize that having to pay tax twice on the same win might lead citizens to decide it’s not worth the effort to play.

Do I have to pay taxes if I’m part of a group?

In many areas, there is strength in numbers, and gambling is no exception. It’s not uncommon for a group of friends to pool their money so that they can roll a bit higher than they would individually. Whether they’re throwing in for a slot machine or on a lottery ticket, groups of people can often find themselves with a claim to a significant amount of winnings.

Unfortunately, taxes remain one of life’s surest things, and group wins are subject to taxation just as much as individual wins. As expected, there is a form (you’re probably saying it with us if you’ve read this far).

If your group of friends scores big, you will need to fill out IRS Form 5754 to report the winnings for tax purposes. One member of the group will have to designate himself or herself as the primary winner, and the other members of the group will have to note the share of the prize that they are claiming. So, if you hit it big with your buddies, you might need a calculator.

Once you’ve got the form filled out, send it to the IRS. If the win occurs at a casino, casino management might want a copy of the form for its own records, too.

Does Michigan Tax Your Retirement Income?

On July 12, 2023 / Michigan Taxes

Live in Michigan? Need Tax Assistance? Call ATS Advisors

What are retirement and pension benefits?

A popular question with Michigan Residents is: Does Michigan Tax Your Retirement Income? This is a tricky answer due to many diffferent factors discussed in this article.

Under Michigan law, retirement and pension benefits include most payments that are reported on a 1099-R for federal tax purposes. This includes defined benefit pensions, IRA distributions and most payments from defined contribution plans. Retirement and pension benefits are taxable based on date of birth (see age groups below). Regardless of date of birth, the following are not taxed:

US Military pensions
Michigan National Guard pensions
Social Security
Railroad benefits
Rollovers not included in the Federal Adjusted Gross Income (AGI)

What are Qualified Distributions?

A subtraction is allowed on the Michigan return for qualifying distributions from retirement plans. Retirement plans include private and public employer plans, and individual plans such as IRA’s. To be considered a qualified distribution for the subtraction, several requirements must be met. For employer plans, an employee must have retired under the provisions of the plan, the pension benefits must be paid from a retirement trust fund, and the payment must be made to either the employee or a surviving spouse. (Payments made to a surviving spouse are only deductible if the employee qualified for the subtraction at the time of death.)

For qualifying distributions, there may be a limitation on the amount of the exemption that can be claimed.

What Distributions Do Not Qualify for a Subtraction?

Certain distributions reported on form 1099-R are not retirement or pension benefits. Under Michigan law, deferred compensation is taxable. These distributions include:

All distributions from 457 plans
Distributions from 401(k) or 403(b) plans sourced to employee contributions and the earnings from those contributions if they were not matched by the employer.
Early distributions under the terms of the retirement plan are always taxable regardless of the date of birth of the taxpayer. (See retirement code chart for 1099-R below.)

NOTE: When considering your pension subtraction, ‘surviving spouse’ means the deceased spouse died prior to the current tax year (e.g., when filing a 2021 return the spouse died in 2020). Deceased spouse benefits do not include benefits from a spouse who died in 2021. If you or your spouse received pension benefits from a deceased spouse, see Form 4884, Michigan Pension Schedule instructions.

Form 1099-R Distribution Codes

Qualification for a subtraction is a two-step process. Use the distribution chart to determine whether your retirement and/or pension benefits qualify as a subtraction (step one). Then use the appropriate age category (step two). You must meet both qualification requirements in order to be eligible for a retirement and/or pension benefits subtraction.

If you do not qualify based on the distribution chart in step one, then you do not have a qualified subtraction and step two is not applicable.

Form 1099-R reports the total retirement and pension benefits you received during the year. Please refer to box 7 on Form(s) 1099-R for the distribution code(s) that describes the condition under which the retirement or pension benefit was paid. This chart lists distribution codes and describes eligibility of benefits for subtraction based on each code. Some exceptions exist. If your distribution code is not included in the list below or if you have questions on eligibility of your benefits, please consult your tax professional.

Form 1099-R Distribution Codes
Form 1099-R Distribution Codes	Does the code indicate the distribution is eligible for a Michigan retirement and pension subtraction? (Limited based on age and year of birth)
1 – Early distribution, no known exception.	No.
2 – Early distribution, exception applies.	No, unless: Part of a series of mainly equal periodic payments made for the life of the employee or the joint lives of the employee and their beneficiary; Early retirement under the terms of the plan.
3 – Disability.	Yes.
4 – Death.	Yes, for surviving spouse only and only if the decedent would have also qualified for a normal distribution under Distribution Code 7 at the time of death. No, for all other beneficiaries. No , if paid as a death benefit payment made by an employer but not made as part of a pension, profit sharing, or retirement plan.
5 – Prohibited transaction.	No.
6 – Section 1035 exchange. The exchange of life insurance	No.
7 – Normal distribution. normal distribution from a plan, distribution from a traditional IRA, if the participant is at least 59½, Roth conversion if the participant is at least age 59½, distribution from a life insurance, annuity, or endowment contract must be 65 and part of a series of mainly equal periodic payments made for the life of the employee or the joint lives of the employee and their beneficiary.	Yes. Exception: You may not subtract distributions from a plan that: allows the employee to set the amount of compensation to be deferred does not prescribe the retirement age or years of service
8 – Excess contribution plus earnings/excess deferrals (and/or earnings) taxable in 2021.	No.
9 – Cost of current life insurance protection.	No.

For joint filers, the age of the oldest spouse determines the age category.

Recipients born before 1946:

For 2021 you may subtract all qualifying retirement and pension benefits received from public sources, and may subtract private retirement and pension benefits up to $54,404 if single or married filing separately or up to $108,808 if married filing jointly. Private subtraction limits must be reduced by public benefits subtracted. Withholding will only be necessary on taxable pension payments (private pension payments) that exceed the pension limits stated above for recipient born before 1946.

Complete Form 4884, Michigan Pension Schedule.
Military pensions, Michigan National Guard pensions and Railroad Retirement benefits are entered on Schedule 1, line 11. These continue to be exempt from tax. They must be reported on Schedule W Table 2, even if no Michigan tax was withheld.
Social Security benefits included in your adjusted gross income are entered on Schedule 1, line 14 and are exempt from tax.
Public pensions can include benefits received from the federal civil service, State of Michigan public retirement systems and political subdivisions of Michigan.
Rollovers not included in the Federal Adjusted Gross Income (AGI) will not be taxed in Michigan.
Subtraction for dividends, interest, and capital gains is limited to $12,127 for single filers and $24,254 for joint filers, less any subtractions for retirement benefits including US military, Michigan National Guard, and railroad retirement benefits.

Recipients born during the period January 1, 1946 through December 31, 1952:

If the older of you or your spouse (if married filing jointly) was born during the period January 1, 1946 through December 31, 1952, and reached the age of 67, you are eligible for a deduction against all income and will no longer deduct retirement and pension benefits. Complete Schedule 1, line 23 instead of Michigan Pension Schedule, Form 4884.

The deduction is $20,000 for a return filed as single or married, filing separately, or $40,000 for a return filed as married, filing jointly. If you checked either SSA Exempt box 22C or 22G from Schedule 1, your deduction is increased by $15,000. If you checked both boxes 22C and 22G your deduction is increased by $30,000.

The standard deduction is reduced by military pay (included on Schedule 1, line 14), military and/or railroad retirement benefits (both reported on Schedule 1, line 11)

A surviving spouse who meets all of the following conditions may elect to take the larger of the retirement and pension benefits deduction based on the deceased spouse’s year of birth (deceased spouse must be the older of the two) subject to the limits available for a single filer or the survivor’s Michigan Standard Deduction:

Reached the age of 67 and
Not remarried and
Claimed a subtraction for retirement and pension benefits on a return jointly filed with the decedent in the year they died.

Recipients born after 1952:

All retirement (private and public) and pension benefits are taxable to Michigan, unless one of following applies:

Taxpayers born January 1, 1953 through January 1, 1955 should not file Form 4884. Instead, taxpayers may be eligible for a Tier 3 Michigan Standard Deduction. This deduction is up to $20,000 for a return filed as single or married filing separately, or up to $40,000 for a married filing jointly return. Exemption(s) claimed on MI-1040, lines 9a and 9d, taxable Social Security benefits, military compensation (including retirement benefits), Michigan National Guard retirement benefits and railroad retirement benefits included in AGI may reduce the amount eligible to be claimed on this line.

To ensure you receive your maximum deduction complete Worksheet 2 in the MI-1040 booklet for Tier 3 Michigan Standard Deduction on Schedule 1, line 24.

A surviving spouse who meets all of the following conditions may elect to the take the larger of the retirement and pension benefits deduction based on the deceased spouse’s year of birth (deceased spouse must be the older of the two) subject to the limits available for a single filer or the survivor’s Michigan Standard Deduction:

Reached the age of 67 and
Not remarried and
Claimed a subtraction for retirement and pension benefits on a return jointly filed with the decedent in the year they died.

The older of you or your spouse (if married filing jointly) was born after January 1, 1955 but before January 2, 1960, has reached age 62 and received retirement benefits from employment exempt from Social Security. You may be eligible for a retirement and pension subtraction of $15,000. If both spouses on a joint return qualify, the maximum subtraction increases to $30,000.
The older of you or your spouse (if married filing jointly) was born after January 1, 1955, received retirement benefits from employment exempt from Social Security, and were retired as of January 1, 2013. You may subtract up to $35,000 in qualifying retirement and pension benefits if single or married filing separately or $55,000 if married filing a joint return. If both spouses on a joint return qualify, the maximum subtraction increases to $70,000.

Nontaxable benefits:

Military pensions, Michigan National Guard pensions and Railroad Retirement benefits are entered on Schedule 1, line 11. These continue to be exempt from tax. They must be reported on Schedule W Table 2, even if no Michigan tax was withheld.
Social Security benefits included in your adjusted gross income are entered on Schedule 1, line 14 and are exempt from tax.
Rollovers not included in the Federal Adjusted Gross Income (AGI) will not be taxed in Michigan.

Surviving Spouse:

If a surviving spouse claimed a subtraction for retirement and pension benefits on a return jointly filed with the decedent in the year they died and the surviving spouse has not remarried, then the surviving spouse may claim the retirement and pension benefits subtraction that would have applied based on the year of birth of the older of the surviving spouse or the deceased spouse. For more information, see instructions.

2021 Pension Deduction Estimator

DISCLAIMER:
This estimator provides an unofficial estimate and has no legal bearing on any future tax liability. Interactive estimators are made available to you as self-help tools for your independent use.

NOTE: The information you provide is anonymous and will only be used for purposes of this estimation. It will not be shared, stored or used in any other way, nor can it be used to identify the individual who enters it. It will be discarded when you exit this program.

Dividends/Interest/Capital Gain Deduction

Senior Citizens born before 1946 (or the unremarried surviving spouse for someone born before 1946 who was at least age 65 at the time of death) may subtract dividends, interest, and capital gains. The subtraction is limited to $12,127 for single filers and to $24,254 for joint filers for 2021. These limits must be reduced by any pension subtraction taken.

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