Affordable Care Act Employer Reporting

November 12th, 2015

affordable-care-actIn March of this year, the IRS released information concerning the tax returns of employers that are required under the Affordable Care Act. The copies of the actual forms have yet to be released, but the article below is meant to answer some frequently asked questions from employers about what to expect. If you have any questions about Forms 1095-B and 1095-C, please contact our office today.

Click here to download the FAQ

State Sends 150K Incorrect Letters To Taxpayers

November 11th, 2015

About 150,000 residents in the State of Indiana have received a letter from the Department of Revenue saying that they owed more on their taxes, but the state is admitting that many of those who received the letters don’t owe anything.

If you think that you received this letter by mistake, the letter begins with:

“After a review of past tax filings, we believe you may be under-reporting taxable income for the State of Indiana…”

The Department of Revenue for the State of Indiana has said that the letters were sent to individuals and businesses that were flagged, but their results weren’t fully reviewed.

If you think you have received one of these letters, please contact our office today.

To read more on this story, click here.

2014 Year-End Tax Planning

November 5th, 2014

Year-end tax planning is especially challenging this year because Congress has yet to act on a host of tax breaks that expired at the end of 2013. Some of these tax breaks may be retroactively reinstated and extended, but Congress may not decide the fate of these tax breaks until the very end of this year (and, possibly, not until next year).

These breaks include, for individuals: the option to deduct state and local sales and use taxes instead of state and local income taxes; the above-the-line-deduction for qualified higher education expenses; tax-free IRA distributions for charitable purposes by those age 70- 1/2 or older; and the exclusion for up-to-$2 million of mortgage debt forgiveness on a principal residence.

For businesses: tax breaks that expired at the end of last year and may be retroactively reinstated and extended include: 50% bonus first year depreciation for most new machinery, equipment and software; the $500,000 annual expensing limitation; the research tax credit; and the 15-year write off for qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property.

Higher-income-earners have unique concerns to address when mapping out year-end plans. They must be wary of the 3.8% surtax on certain unearned income and the additional 0.9% Medicare (hospital insurance, or HI) tax that applies to individuals receiving wages with respect to employment in excess of $200,000 ($250,000 for married couples filing jointly and $125,000 for married couples filing separately).

The surtax is 3.8% of the lesser of: (1) net investment income (NII), or (2) the excess of modified adjusted gross income (MAGI) over an unindexed threshold amount ($250,000 for joint filers or surviving spouses, $125,000 for a married individual filing a separate return, and $200,000 in any other case). As year-end nears, a taxpayer’s approach to minimizing or eliminating the 3.8% surtax will depend on his estimated MAGI and net investment income (NII) for the year. Some taxpayers should consider ways to minimize (e.g., through deferral) additional NII for the balance of the year, others should try to see if they can reduce MAGI other than NII, and other individuals will need to consider ways to minimize both NII and other types of MAGI.

The additional Medicare tax may require year-end actions. Employers must withhold the additional Medicare tax from wages in excess of $200,000 regardless of filing status or other income. Self-employed persons must take it into account in figuring estimated tax. There could be situations where an employee may need to have more withheld toward year end to cover the tax. For example, an individual earns $200,000 from one employer during the first half of the year and a like amount from another employer during the balance of the year. He would owe the additional Medicare tax, but there would be no withholding by either employer for the additional Medicare tax since wages from each employer don’t exceed $200,000. Also, in determining whether they may need to make adjustments to avoid a penalty for underpayment of estimated tax, individuals also should be mindful that the additional Medicare tax may be overwithheld. This could occur, for example, where only one of two married spouses works and reaches the threshold for the employer to withhold, but the couple’s income won’t be high enough to actually cause the tax to be owed.

We have compiled a checklist of additional actions based on current tax rules that may help you save tax dollars if you act before year-end. Not all actions will apply in your particular situation, but you (or a family member) will likely benefit from many of them. We can narrow down the specific actions that you can take once we meet with you to tailor a particular plan. In the meantime, please review the following list and contact us at your earliest convenience so that we can advise you on which tax-saving moves to make:

Year-End Tax Planning Moves for Individuals

  • Realize losses on stock while substantially preserving your investment position. There are several ways this can be done. For example, you can sell the original holding, then buy back the same securities at least 31 days later. It may be advisable for us to meet to discuss year-end trades you should consider making.
  • Postpone income until 2015 and accelerate deductions into 2014 to lower your 2014 tax bill. This strategy may enable you to claim larger deductions, credits, and other tax breaks for 2014 that are phased out over varying levels of adjusted gross income (AGI). These include child tax credits, higher education tax credits, and deductions for student loan interest. Postponing income also is desirable for those taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances. Note, however, that in some cases, it may pay to actually accelerate income into 2014. For example, this may be the case where a person’s marginal tax rate is much lower this year than it will be next year or where lower income in 2015 will result in a higher tax credit for an individual who plans to purchase health insurance on a health exchange and is eligible for a premium assistance credit.
  • If you believe a Roth IRA is better than a traditional IRA, and want to remain in the market for the long term, consider converting traditional-IRA money invested in beaten-down stocks (or mutual funds) into a Roth IRA if eligible to do so. Keep in mind, however, that such a conversion will increase your adjusted gross income for 2014.
  • If you converted assets in a traditional IRA to a Roth IRA earlier in the year, the assets in the Roth IRA account may have declined in value, and if you leave things as is, you will wind up paying a higher tax than is necessary. You can back out of the transaction by recharacterizing the conversion, that is, by transferring the converted amount (plus earnings, or minus losses) from the Roth IRA back to a traditional IRA via a trustee-to-trustee transfer. You can later reconvert to a Roth IRA, if doing so proves advantageous.
  • It may be advantageous to try to arrange with your employer to defer a bonus that may be coming your way until 2015.
  • Consider using a credit card to pay deductible expenses before the end of the year. Doing so will increase your 2014 deductions even if you don’t pay your credit card bill until after the end of the year.
  • If you expect to owe state and local income taxes when you file your return next year, consider asking your employer to increase withholding of state and local taxes (or pay estimated tax payments of state and local taxes) before year-end to pull the deduction of those taxes into 2014 if doing so won’t create an alternative minimum tax (AMT) problem.
  • Take an eligible rollover distribution from a qualified retirement plan before the end of 2014 if you are facing a penalty for underpayment of estimated tax and having your employer increase your withholding isn’t viable or won’t sufficiently address the problem. Income tax will be withheld from the distribution and will be applied toward the taxes owed for 2014. You can then timely roll over the gross amount of the distribution, i.e., the net amount you received plus the amount of withheld tax, to a traditional IRA. No part of the distribution will be includible in income for 2014, but the withheld tax will be applied pro rata over the full 2014 tax year to reduce previous underpayments of estimated tax.
  • Estimate the effect of any year-end planning moves on the alternative minimum tax (AMT) for 2014, keeping in mind that many tax breaks allowed for purposes of calculating regular taxes are disallowed for AMT purposes. These include the deduction for state property taxes on your residence, state income taxes, miscellaneous itemized deductions, and personal exemption deductions. Other deductions, such as for medical expenses, are calculated in a more restrictive way for AMT purposes than for regular tax purposes in the case of a taxpayer who is over age 65 or whose spouse is over age 65 as of the close of the tax year. As a result, in some cases, deductions should not be accelerated.
  • You may be able to save taxes this year and next by applying a bunching strategy to “miscellaneous” itemized deductions (i.e., certain deductions that are allowed only to the extent they exceed 2% of adjusted gross income), medical expenses and other itemized deductions.
  • You may want to pay contested taxes to be able to deduct them this year while continuing to contest them next year.
  • You may want to settle an insurance or damage claim in order to maximize your casualty loss deduction this year.
  • Take required minimum distributions (RMDs) from your IRA or 401(k) plan (or other employer-sponsored retired plan) if you have reached age 70- 1/2. Failure to take a required withdrawal can result in a penalty of 50% of the amount of the RMD not withdrawn. If you turned age 70- 1/2 in 2014, you can delay the first required distribution to 2015, but if you do, you will have to take a double distribution in 2015—the amount required for 2014 plus the amount required for 2015. Think twice before delaying 2014 distributions to 2015—bunching income into 2015 might push you into a higher tax bracket or have a detrimental impact on various income tax deductions that are reduced at higher income levels. However, it could be beneficial to take both distributions in 2015 if you will be in a substantially lower bracket that year.
  • Increase the amount you set aside for next year in your employer’s health flexible spending account (FSA) if you set aside too little for this year.
  • If you are eligible to make health savings account (HSA) contributions in December of this year, you can make a full year’s worth of deductible HSA contributions for 2014. This is so even if you first became eligible on Dec. 1, 2014.
  • Make gifts sheltered by the annual gift tax exclusion before the end of the year and thereby save gift and estate taxes. You can give $14,000 in 2014 to each of an unlimited number of individuals but you can’t carry over unused exclusions from one year to the next. The transfers also may save family income taxes where income-earning property is given to family members in lower income tax brackets who are not subject to the kiddie tax.

Year-End Tax-Planning Moves for Businesses & Business Owners

  • Businesses should buy machinery and equipment before year end and, under the generally applicable “half-year convention,” thereby secure a half-year’s worth of depreciation deductions for the first ownership year.
  • Although the business property expensing option is greatly reduced in 2014 (unless legislation changes this option for 2014), don’t neglect to make expenditures that qualify for this option. For tax years beginning in 2014, the expensing limit is $25,000, and the investment-based reduction in the dollar limitation starts to take effect when property placed in service in the tax year exceeds $200,000.
  • Businesses may be able to take advantage of the “de minimis safe harbor election” (also known as the book-tax conformity election) to expense the costs of inexpensive assets and materials and supplies, assuming the costs don’t have to be capitalized under the Code Sec. 263A uniform capitalization (UNICAP) rules. To qualify for the election, the cost of a unit-of-property can’t exceed $5,000 if the taxpayer has an applicable financial statement (AFS; e.g., a certified audited financial statement along with an independent CPA’s report). If there’s no AFS, the cost of a unit of property can’t exceed $500. Where the UNICAP rules aren’t an issue, purchase such qualifying items before the end of 2014.
  • A corporation should consider accelerating income from 2015 to 2014 where doing so will prevent the corporation from moving into a higher bracket next year. Conversely, it should consider deferring income until 2015 where doing so will prevent the corporation from moving into a higher bracket this year.
  • A corporation should consider deferring income until next year if doing so will preserve the corporation s qualification for the small corporation alternative minimum tax (AMT) exemption for 2014. Note that there is never a reason to accelerate income for purposes of the small corporation AMT exemption because if a corporation doesn’t qualify for the exemption for any given tax year, it will not qualify for the exemption for any later tax year.
  • A corporation (other than a “large” corporation) that anticipates a small net operating loss (NOL) for 2014 (and substantial net income in 2015) may find it worthwhile to accelerate just enough of its 2015 income (or to defer just enough of its 2014 deductions) to create a small amount of net income for 2014. This will permit the corporation to base its 2015 estimated tax installments on the relatively small amount of income shown on its 2014 return, rather than having to pay estimated taxes based on 100% of its much larger 2015 taxable income.
  • If your business qualifies for the domestic production activities deduction for its 2014 tax year, consider whether the 50%-of-W-2 wages limitation on that deduction applies. If it does, consider ways to increase 2014 W-2 income, e.g., by bonuses to owner-shareholders whose compensation is allocable to domestic production gross receipts. Note that the limitation applies to amounts paid with respect to employment in calendar year 2014, even if the business has a fiscal year.
  • To reduce 2014 taxable income, consider deferring a debt-cancellation event until 2015.
  • To reduce 2014 taxable income, consider disposing of a passive activity in 2014 if doing so will allow you to deduct suspended passive activity losses.
  • If you own an interest in a partnership or S corporation consider whether you need to increase your basis in the entity so you can deduct a loss from it for this year.

These are just some of the year-end steps that can be taken to save taxes. Again, by contacting us, we can tailor a particular plan that will work best for you. We also will need to stay in close touch in the event Congress revives expired tax breaks, to assure that you don’t miss out on any resuscitated tax saving opportunities.

Do not hesitate to call us to set up an appointment before end of the year to make sure you are taking the right steps for year-end tax preparation. You are also always welcome to give us a call with any questions. 317-549-3091 or email us at cpa@cwmcf.com

 

The Latest Tax Implications of the Affordable Care Act Update (Obamacare)

September 12th, 2014

The Latest Tax Implications of the Affordable Care Act Update (Obamacare)

Did you know the health care law actually created two new taxes to help pay for the cost of the ACA? The first of the two taxes is the Net Investment Income Tax (NIIT).

It is a new Medicare tax that applies to certain types of income received by the taxpayer.

Income that is subject to net investment income tax are the following:

  • Interest
  • Dividends
  • Annuities
  • Royalties
  • Rental
  • Capital Gains

Income that is not subject to the net investment income tax are:

  • Wages
  • Unemployment
  • Income from an active business (S-Corp flow through)
  • Social Security
  • Alimony
  • Tax-exempt interest
  • Self-employment income
  • IRA & Pension Distributions

The tax will apply to taxpayers with Income above the following  thresholds (Adjusted Gross Income):

  • Married Filing Joint                           $250,000
  • Married Filing Separate                                $125,000
  • Single                                                          $200,000

The tax is 3.8% applied to the lessor of the following:

-        Taxpayers net investment income

-        The amount of AGI above the threshold amount

Example: Tommy is a single individual with an adjusted gross income of $210,000 which included $20,000 of interest and $20,000 in dividends.

Tax is computed as follows:

Net investment income of $40,000

Adjusted gross income of $210,000

Threshold for singles: ($200,000)

Excess: $10,000

Lessor of A or B: $10,000

Taxable at 3.8%:  $380

The second new tax is the Additional Medicare Tax

The Affordable Care Act also created a .9% tax called the Additional Medicare Tax, which is entirely separate from the 3.8% net investment income tax discussed earlier.

Taxpayers with wages and/or self-employment income above certain thresholds are subject to the additional tax.

The thresholds are the same as the net investment income tax.

  • $250,000 for joint filings
  • $125,000 for married separate filings
  • $200,000 for singles

How is the tax calculated and paid?

Example:

Rudy is employed as a lawyer with Duey Cheatem and Howe.  He is single and has the following annual earnings:

W-2 Wages                            $240,000

Interest                                   $30,000

Total Income                        $270,000

Since Rudy’s wages exceed his threshold by $40,000 he is subject to the additional Medicare tax on this $40,000 or $360.00 ($40,000*.9%)

**Note he is also subject to the net investment income tax and will pay an additional $1,140 in NIIT. ($30,000*3.8%)

Now let’s address the individual medical insurance coverage mandate.

Effective January 1, 2014, individuals must maintain a minimum essential insurance coverage or pay a shared responsibility payment (penalty) on their tax return.

Here is what we think will happen at tax time since no specific guidance has been released yet:

During January 2015 when you are receiving all your other tax documents, your insurance company will send you a form for proof of insurance that you will need to provide your tax preparer.  This form will show the type of coverage you have and the number of months during 2014 the policy was in place.  If it was not in place the entire 12 months, then you are subject to the penalty for those months.

Without this proof of insurance information the penalty will be assessed.

Now, the time bomb no one is talking about.

Taxpayers who purchased health insurance policies through the exchange that was set up by the government could have surprises at tax time.

Part of the Affordable Care Act created a tax credit for lower income families and individuals depending on family size and geographic location.  The lower the income the higher the credit.  Sort of makes sense.

Here is the flaw:

During the application process one of the questions is “What do you think your 2014 income will be?” Based on the answer, it calculates your potential premium credit and asks if you want that applied to your monthly premium or wait and receive when you file your 2014 taxes.

What do you think has happened?

You think people figured out they could enter a lower amount for anticipated income and receive a larger credit?  You got it! And of course they have applied it to their monthly premiums so they are paying a much lower amount than they should.

What happens next you ask?

At tax time we have to prepare a reconciliation of premium credits received already versus what they are entitled to, based on their actual income.  If they have received too much in credits they are required to repay the excess credit.  So taxpayers who usually get refunds will have balances due; these could be quite large, and as they are in the lower income bracket they will not have the money to pay them.  What will the IRS do? No guidance on this one yet. Nobody is talking about it, but it is real.

Please contact us with your questions about this Affordable Care Act Tax Implications Update, or schedule your consultation by calling us at 317-549-3091.

We’re here to help you be prepared for next year and beyond for your personal and business tax needs.

 

 

Health Care Reform: Financial Impact 2013 and Beyond

November 5th, 2012

As the third year of the Patient Protection and Affordable Care Act (PPACA) approaches, employers need to be aware of additional fees that will be assessed on insurers and plan administrators of self-insured plans beginning in 2013. In addition, reporting health care costs to the government begins.

The new fees will increase the cost of providing group health plans for employees. They include:

  • Fees to fund research on patient-centered outcomes
  • Transitional reinsurance fees
  • Pay or play penalties
  • Cadillac tax

Fees to fund research on patient-centered outcomes
Health care reform created the Patient-Centered Outcomes Research Institute (PCORI), which is charged with promoting research to evaluate and compare the health outcomes and clinical effectiveness, risks, and benefits of medical treatments, services, procedures, and drugs. PCORI is to be funded in part by fees assessed on health insurers and sponsors of self-insured group health plans. This fee is commonly referred to as the “comparative effectiveness fee” or “PCORI fee.” The PCORI fee will be assessed at $1.00 times the average number of covered lives (employees and dependents) for the first plan or policy year ending on or after October 1, 2012. Employer plan sponsors must choose a method for calculating the average number of covered lives for their required annual fees by December 31, 2012, for calendar year plans.

Transitional reinsurance fees
The transitional reinsurance program will require health insurance issuers, as well as certain plan administrators on behalf of self-insured group health plans, to make contributions to a transitional reinsurance program for the three-year period beginning January 1, 2014. This fee is likely to result in additional costs for employer plan sponsors and – depending on whether the plan at issue is self-administered – certain additional reporting obligations.

Pay or play penalties
In 2014, large employers with fifty or more full-time equivalent employees could be subject to two potential penalties: the No Coverage Penalty and the Unaffordable Coverage Penalty. The No Insurance Penalty subjects certain employers to a $2,000 per full-time employee penalty (excluding the first thirty full-time employees) under specific conditions. The Unaffordable Coverage Penalty applies if an employer offers its full-time employees the opportunity to enroll in coverage under an employer plan that either is unaffordable (relative to an employee’s household income) or does not provide minimum value. This penalty is $3,000 for every full-time employee who receives a subsidy for coverage in a state exchange.

In some cases, the total cost of these penalties may be less than the total cost of providing coverage. CliftonLarsonAllen’s Health Insurance and Penalty Calculator provides information about the impact of reform on individual companies.

Cadillac tax
Starting in 2018, insurers of employer-sponsored plans or companies that self-insure their own plans will be subject to an excise tax if their premiums are in excess of $10,200 for individual coverage and $27,500 for family coverage. Roughly 60 percent of large employers believe their plans would trigger the tax unless they take action to avoid it, according to a 2011 survey by Mercer, a human resources consulting firm. Although the tax is to be imposed on insurers, the effects are likely to trickle down to consumers.

Many health care reform provisions will impact the cost to provide health care coverage for employees. Employers should be aware of the additional fees and reporting requirements and work with their benefits consultants to determine the financial impact of health care on their businesses. Plan sponsors should have already verified that they have the systems in place to determine and report the aggregate cost of applicable employer-sponsored coverage for 2012 on employees’ Forms W-2.

Click Here to read full article

Investor Confidence in US Companies Inching Upward

October 1st, 2012

On September 19, the Center for Audit Quality (CAQ) released its sixth annual “Main Street Investor Survey,” which shows that investor confidence in capital markets has increased 4 percentage points since 2011, with 65 percent saying they have “a great deal of confidence, quite a bit of confidence, some confidence, very little confidence, or at least some confidence.” The survey defines “investors” as those with $10,000 or more in such investments as mutual funds, stocks, IRAs, 401(k)s.

By way of comparison, confidence in capital markets outside the United States fell 8 percentage points, to 35 percent.

Confidence in investing in US publicly traded companies leveled off at 71 percent this year, a 1-point drop from 2011, and a 5-point drop from years 2008 through 2010.

CAQ Executive Director Cindy Fornelli said, “Individual investors, as a group, have confidence in audited financial information released by public companies and believe that auditors are effective in looking out for investors’ interests.”

Other findings:

  • 69 percent of those surveyed say they have confidence in audited financial information released by public companies.
  • 70 percent believe the American economy will either stay the same or improve over the next year; 20 percent believe it will get worse.
  • 25 percent expect their personal financial situation to improve; 64 percent expect it to stay the same over the next year.
  • The top four economic concerns are: (1) not having enough money for retirement, (2) not being able to afford health care in case of serious illness or injury, (3) not being able to maintain their current standard of living, and (4) fear of losing their jobs
  • .

The survey was conducted after some disappointing news that was expected to dampen consumer confidence but didn’t: the lackluster initial public offering of Facebook and news that JPMorgan Chase and Co. lost more than $4 billion in derivatives trading. But, according to an InvestmentNews.com report, Fornelli said, “I don’t know that the average investor is that attuned to individual companies and individual stocks.”

The CAQ conducted just one of a flurry of consumer confidence surveys. The National Association of Home Builders says the “builder confidence index” is at its highest point since 2006, and new-home construction is up nearly 30 percent from a year ago, New York magazine reports.

In his New York magazine article, “The Confidence Game: The Economy Is Recovering, Most of Us Think,” Kevin Roose says, “So, with a pile of imperfect polls and statistics mostly pointing in the same direction, it’s relatively safe to say that four years after the near-collapse of the financial system, we’re seeing the light at the end of the tunnel – or at least we think we are.”

Yet another survey indicates that perceptions don’t always match the facts. BusinessWeek reported on a survey by Franklin Templeton that asked individual investors about their perception of markets since the previous year. In 2011, 48 percent of investors said the markets were down over the course of 2010, when the Standard & Poor (S&P) 500-stock index rose more than 15 percent. Data released September 18 shows that 53 percent thought the S&P had dropped 2011, but it actually rose 2 percent.

Full article: http://www.accountingweb.com/article/investor-confidence-us-companies-inching-upward/219889