For the first time, all taxpayers must include information about their health care coverage to the IRS on their 2014 Form 1040.

Another year, another tax form or two.

2014 was the first tax year that the Individual Shared Responsibility Provision (SRP) of the Affordable Care Act (ACA) went into effect. That means all taxpayers were required by law to have had minimum essential coverage for all 12 months, which includes:

• Government-sponsored programs like Medicare,
• Employer-sponsored coverage,
• Individual coverage purchased through the Health Insurance Marketplace (either HealthCare.gov or your state’s exchange) or directly from an insurance company, or
• Grandfathered health plans (some that existed before the ACA was passed and have not changed since).

If you have such health coverage, all you have to do is check the “Yes” box on the new line 61 on the 2014 Form 1040.

Figure 1: The 2014 IRS Form 1040 now asks about your household’s health coverage.

A New Form

If you bought a plan through the Health Insurance Marketplace, you should have received an IRS Form 1095-A by January 31, 2015. If you have not received it by now, contact the marketplace where you signed up for coverage; don’t contact the IRS.

The Form 1095-A, which is issued by the marketplace, contains several types of information, including details about you, your policy, household individuals covered, your monthly premiums, and any advance credit payments you received (this would have occurred during enrollment).

Premium Tax Credits

The ACA built in provisions for individuals who could not afford even a lower-tier health insurance policy – Premium Tax Credits (PTC) — to ensure that all taxpayers would be able to buy coverage. This formula involves comparing your income to the Federal Poverty Line (FPL). Your marketplace should have notified you about your PTC status. However, if your household situation changed between the estimates made during the enrollment period and your IRS income tax preparation (due to divorce, income increase or decrease, etc.), you’ll need to see if you are still eligible. To do so, fill out a Form 8962.

Figure 2: You’ll need to complete a Form 8962 to see if you can claim the Premium Tax Credit.

Basically, the IRS is trying to calculate the amount of tax credit you should receive. If there is a difference between any advance credit payment made and the new, calculated Premium Tax Credit, you may receive a refund – or be required to repay the excess.

Warning: The Form 8962 is a complicated new form, so there is bound to be some confusion. You may want our help with it.

Exemptions and Penalties

If you did not have health insurance in 2014, the IRS will assess what’s called an individual shared responsibility payment. In other words, a penalty. For tax year 2014, that payment would amount to whichever of these is greater:

• 1 percent of the household income that is above the tax return filing threshold for the taxpayer’s filing status, or
• The family’s flat dollar amount, which is $95 per adult and $47.50 per child (under age 18), limited to a family maximum of $285.

There are exceptions, though. For example, you may be granted an exemption if your household income is below the return filing threshold or if there was only a short coverage gap. If you have received an exemption, you’ll need to complete and file a Form 8965 with your 1040.

Note: The marketplace grants certain exemptions, while others are claimed on your tax returns. It depends on the exemption. If you think you are entitled to an exemption and have not been given one, please contact us right away.

Most taxpayers will simply be able to put a check in the Full-year coverage box on line 61 of the 2014 1040. But if you bought a policy through the Health Insurance Marketplace – either federal or state – for 2014, we strongly urge you to contact us. There will undoubtedly be many taxpayers puzzling over the ramifications of this new ACA provision. You don’t have to be one of them.

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Sometimes they are. Make sure you understand the IRS’s rules.

Do you receive social security benefits?  Maybe you have retired and receive payments after working hard all your life.  Maybe you are disabled and receive payments as a result of your injury. 

Either way, the big question you probably have is whether or not your payments are taxable.  How do you make that determination?

Amount of Benefits Received

At the end of the year, you should receive form SSA-1099.  This will provide the amount of benefits paid out and any taxes withheld, as well as Medicare premiums deducted from your benefits.  The Medicare premiums can be deducted as itemized deductions.  You will use the benefits paid out to determine the amount of taxes you will owe.

Base Amounts

The IRS has established a threshold to determine whether your benefits are taxable, based on your filing status. For 2014, these base amounts are:

$25,000 – for single, head of household, qualifying widow or widower with a dependent child, or married individuals filing separately who did not live with their spouse at any time during the year

$32,000 – for married couples filing jointly

$0 – for married persons filing separately who lived together at any time during the year

Taxable Amount Calculation

As you know, the tax code is complex and often difficult to understand. And it’s critical that you get it right. If Social Security payments are at least one element of your tax mix, we suggest you let us handle your tax preparation and filing.

However, if you choose to handle it yourself, here’s a glimpse of the complexity in this particular area. 

First, take the amount of the benefits you received and divide it by half.  Then add to this amount any other amounts you received for taxable income, like interest and dividends, business income, and taxable distributions from an IRA, pension, or annuity.

If the total of these amounts is less than the amount of income adjustments you had (like deductible expenses as a teacher, moving expenses, alimony you paid, and contributions to an IRA or Health Savings Account), you will not owe anything on your benefits. 

If your income items total more than your adjustments, compare this to the base amounts.  If the base amount is more than your income less adjustments, you won’t owe anything on your social security income.

If the amount is more than the base amount, subtract the following from the net you just calculated:

$12,000 if married filing jointly

$9,000 if single, head of household, qualifying widow(er), or married filing separately (and you lived apart from your spouse for all of 2014)

If you still have not gone below zero, you’ll have more calculations to make.

Obviously, calculating the taxes you owe on Social Security payments can be a grueling process. Let us know if we can help you sort it out.

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There are many requirements you must meet in order to qualify, but it may lower your tax bill.

Supporting a family can be difficult, not to mention expensive.  Working families  whose income is fairly low need all the help they can get with their income taxes. 

The Earned Income Tax Credit (EITC)  was put in place by Congress to provide relief for low-income families who may have trouble paying their tax bills.

Qualifying for the Credit

You may be eligible for the EITC if you have earned income, are not filing as married filing separate, and  are claiming adjusted gross income within certain limits. Earned income would consist of:

1. Any wages, salaries, tips, and other taxable pay from an employer,
2. Any union strike benefit payments,
3. Long-term disability benefits paid to you before you reached minimum retirement age (between 55 and 57, depending on when you were born), and
4. Net earnings from self-employment if you own a business, run a farm, are a minister or member of a religious order (these will have some special rules), or have income as a statutory employee.

In addition to earned income, any investment income you received must be $3,350 or less for the year to qualify for the EITC.

Taking the Credit If You Have Children

The EITC was put in place to help those with children, so the amount of the credit will depend on the number of children you have.  You can receive a credit if you do not have a qualifying child, but the credit is greater if you do.  A qualifying child would be one who:

1. Is related to you in any way, except for someone who is a cousin,
2. Lives with you for more than half the year,
3. Did not file a joint return except for the sole purpose of getting a refund, and
4. Is younger than you, and is either younger than 19, or younger than 24 and a full-time student.  Permanently and totally-disabled individuals do not have to meet the age standard.

Taking the Credit If You Don’t Have Children

If you do not have a qualifying child, you can still get the credit. However, in addition to the rules mentioned previously, you will have had to have lived in the U.S. for over half the year, be between 25 and 65 years of age, and cannot be claimed as a dependent on someone else’s return.

The Form

In order to claim the credit you will need to file Schedule EIC.  There are a few pieces of information we will need to complete this schedule, such as Social Security cards, birth dates, the previous year’s federal and state returns, and documentation of income (W-2s and 1099s, income and expense records, etc.).

That may sound like a lot of paperwork, but you’d need most of it to file your taxes anyway. If you think you may be eligible for the EITC, contact us to discuss your situation, and we will be glad to help you.

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The Affordable Care Act (ACA) can save your small business money through its tax credits.

If your small business has employees, you’ve undoubtedly been paying attention to the news coming out of Washington, D.C., about the Affordable Care Act (ACA). This law was designed to be implemented in waves, rather than all at once, and there have been major changes since it was passed and signed.

Some elements of the ACA have already been incorporated into the health care industry. One of these benefits is a tax credit for the health insurance costs you pay for your employees. For the years 2010-2013, small businesses could take a tax credit of 35 percent of the premiums paid for health insurance.  Small tax-exempt businesses got a credit of 25 percent.

Starting in 2014, small business owners can take a tax credit up to 50 percent of the premiums they paid for health insurance. Tax-exempt small business owners’ credit will be 35 percent. This credit can be claimed for two consecutive tax years.

To be eligible for this credit, you will have to meet the following requirements:

• You must pay at least 50 percent of the cost of employee-only health care coverage for each of your employees. 
• You must also have fewer than 25 full-time equivalent employees.  This means the average number of hours worked by your employees is greater than or equal to 40 hours a week.
• The average wage of the employees covered must be less than $50,000 per year.  This amount will be adjusted for inflation every year.
• You will have had to pay premiums on behalf of your employees who are enrolled in a qualified health plan offered through a Small Business Health Options Program (SHOP) Marketplace.  However, if you qualify for an exception to the requirement to buy health insurance through a SHOP Marketplace, you can still take this credit.

This credit is refundable.  This means that if you are a small business employer and did not owe tax during the year, you can get a refund on your return, which can be carried back or forward to other tax years. In addition, if you are an eligible small business, you can claim a business expense deduction for the premiums that are in excess of the credit.

In other words, not only do you get to take a credit for these costs, but you can also take a deduction for employee premium payments. 

However, keep in mind that you are eligible to receive the credit and have it be refundable as long as it does not exceed your income tax withholding and Medicare tax liability. Further, if you are a small tax-exempt employer, any refund payments you receive are subject to sequestration.

If you’ve been working with us on tax planning for next year’s filing, you probably know all of this. If not, we encourage you to make an appointment to talk with us about your ACA-related issues – or any other tax questions you may have.

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You dream of meeting someone special to spend your life with.  Then you meet the perfect person.  You get married and start planning a life together.

Then things go south.

Maybe your spouse starts a business and makes some shady decisions. Maybe he or she takes deductions that shouldn’t have been claimed. But if you do everything right, do you have to be punished along with your spouse?

No, you don’t. You can file with the IRS for something called Innocent Spouse Relief. This provision relieves of having to pay the taxes, interest, and penalties that would be incurred as a result of your spouse’s improper reporting on your joint tax return.

Types of Relief

There are three types of relief:

1. Innocent Spouse Relief. This frees you from paying any additional tax owed as a result of your spouse failing to report all income, reporting it incorrectly, or improperly claiming deductions or credits.
2. Separation of Liability Relief. This allocates additional tax owed between you and your former spouse (or current spouse, if you are separated) that arises as a result of an item not properly reported on a joint return.
3. Equitable Relief. If you do not qualify for either Innocent Spouse or Separation of Liability Relief, but you did not know about an item that your spouse improperly reported on your joint return, you may be able to claim this status.  You can also be awarded this relief if the tax was reported correctly but not paid.

How to Qualify for Relief

To qualify for Innocent Spouse Relief, you must meet three criteria. First, you must have filed a joint return with your spouse that understated your taxes solely as a result of your spouse’s erroneous item(s). An “erroneous item” would include income your spouse received but did not include on your joint return. Deductions, credits, and property basis are also considered erroneous items if they are incorrectly reported on the return.

Second, you have to be able to show that you did not know, nor had reason to know, that there was an understatement of tax on the return when you signed it. Third, when everything is taken into account, you need to demonstrate that it would not be fair to hold you liable for the understatement of tax due to the actions of your spouse.

If you want to request Separation of Liability Relief, you must (1) have filed a joint tax return and (2) meet at least on of the following conditions:

1. You are either divorced or legally separated from the spouse with whom you originally filed the return,
2. You are widowed, or
3. You have not shared a household with the spouse in question at any time during the 12-month period that ends on the date you requested relief.

To be eligible for Equitable Relief, you must show that it would be unfair for the IRS to hold you liable for either the underpayment or understatement of tax.

The Form 

To get relief, you should file an IRS Form 8857, Request for Innocent Spouse Relief.  Since tax relief like this can be complex, we would be happy to talk with you about your specific situations. We’ll walk you through your option so you can make the most informed decision.

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Welcome to hurricane season!  Hurricanes can cause quite a bit of damage not only to vacation homes, but also to the primary  residences of people who live in areas affected by hurricanes. In 2005, Hurricane Katrina caused more than $125 million in damage.

However, hurricanes are not the only causes of natural disasters.  Quite a bit of damage can be done by tornados, rock slides, and floods.  What do you do if your home is affected by a natural disaster?

What is a natural disaster?

For tax purposes, in order for you to be able to claim a loss due to a natural disaster, the President of the United States must declare the area declared to be eligible for federal assistance under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. You can check the FEMA website at http://www.fema.gov/disasters to see if this applies to the dame done to your property.

Amount of the loss you can deduct

There are  three steps you need to take to determine the amount of the loss.

• First, determine your adjusted basis in the property before the event occurred.
• Second, calculate how much the fair market value of your property  decreased due to the disaster.
• Third, take the smaller of  those two amounts and deduct any insurance or other type of reimbursement you received or expect to receive.  If you end up with a gain because the insurance coverage is larger than the loss of fair market value or the adjusted basis, you will be taxed on that gain.

There are limits to what you can deduct.  You will have to reduce each individual event loss by $100.  Additionally, you will have to reduce your total loss by 10 percent of your adjusted gross income after applying the 10 percent rule.

This formula may well sound confusing to you. If so, we would be happy to do the calculations for you.

Timing

In most cases, you need to deduct a loss in the year the disaster occurred.  However, if you have a loss from a federally-declared disaster that could receive public or individual assistance, you can take the loss as you prepare your taxes for the previous year (this may require amending a completed  return).  The benefit of doing this is that it will result in a lower tax bill, which could generate a refund (or increase a refund you were due to receive).

Forms to use

You would report a loss on personal use property on Form 4684, Casualties and Thefts, as well as Schedule A, Itemized Deductions.  If you have a gain, it would go on Form 4684 as well, but would be reported on Schedule D, Capital Gains and Losses.

This is just a brief summary of what to keep in mind if you have a loss from a natural disaster; there are other items to consider when calculating a gain or loss. If you’ve been affected by a natural disaster, you have enough to worry about without sweating the tax implications. We’re here to help you navigate all the decisions and paperwork.

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The IRS takes the distinction very seriously.

Many small businesses start out as casual pastimes. You help troubleshoot your friends’ computer problems in your spare time, and they start telling their friends and business contacts about you. Or you use your woodworking skills to build furniture for non-profit organizations or your sewing skills to make one-of-a-kind dolls for the neighbor kids.

Word gets around that you’re good at what you do, but you can’t keep doing it for free. You have to start charging for your time in addition to the materials required.

There’s a point at which the Internal Revenue Service would consider you a business, obligating you to report your income and expenses on IRS forms and schedules come tax-filing time. So how do you know when you reach that point?

A Good Problem

If you’re in such a situation, whether you’re trying to parlay something you produce into a full-time business or you’re just doing it in your free time, ask yourself nine questions. This is a bit of a gray area, but the IRS looks at a number of factors in order to determine your status.

• Do you conduct yourself in a businesslike manner?
• Do your time and effort imply that you’re trying to make your related activities profitable?
• Is the income you bring in necessary for your livelihood?
• Are your losses the result of events that are out of your control, or are they normal losses that occur when a business is launched?
• Do you alter your production or service methods to try to be more profitable?
• Do you – or anyone else involved in the enterprise – have the skills and knowledge required to make your business a success?
• Have you ever made a profit creating similar products?
• Are you making a profit — some years, at least? How much?
• Do you anticipate continuing to make a profit in the future, based on what you’re producing?

The IRS does not consider just one of these factors when determining whether or not you need to file. Nor is its decision based solely on your answers to these nine questions.

It’s an all-or-nothing deal. You can’t claim deductions on your tax return for what the IRS calls an activity not engaged in for profit. In other words, you can’t deduct any expenses you incur for participating in a sport, hobby or other recreational activity unless you’re filing as a sole proprietor or small business. And if you file as a sole proprietor or small business, you also have to deal with the other side of the equation and pay taxes on any income you receive.

A Smart Beginning

If you’ve reached the point where you’re thinking you’d like to take on the legal obligations of being a business as well as participate in the benefits of such a venture, give us a call. You’ll have to make decisions about how to run the business, such as the tax structure of your enterprise, for example. You’ll be filing additional IRS documents, and you’ll need to start estimating your quarterly payments in order to avoid paying an unanticipated tax bill on April 15.

All of this may sound a little daunting, but we can walk you through the steps necessary to launch a new business venture. It takes some work at the start and as you continue to meet your IRS-related responsibilities. But you’ll also have the satisfaction of knowing that you’ve finessed a hobby, skill, or interest into a legitimate, successful business.

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The majority of tax laws apply regardless of age, but some are different if you’re 65 or older.

By the time you turn 65, you’ve probably already started enjoying some benefits reserved for senior citizens. Restaurants, exclusive living communities, entertainment venues – many businesses start offering discounts at 55.

You may have already have retired and/or started to draw Social Security. Your health care benefits will change significantly on your 65^th birthday as you enroll in Medicare.

And what about income taxes? Yes, you still have to file and pay income taxes. Your income is still considered taxable unless it is exempt for some reason. At 65, you may still be receiving compensation for services or some other kind of business income, but the bulk of your money may be coming from sources like rents and royalties, interest and dividends, property sales, and estates and trusts.

Much of your tax preparation will be the same for the year you turn 65, but some things will be different. We’d be happy to go over these in detail at any time. The sooner the better, actually, if 2014 is the first year you’ll be filing as a senior. Then we can start making plans now for any adjustments that might fall in your favor.

Here are some of the areas in which your tax return may be a little different when you turn 65 and/or retire:

Deductions

If you are 65 or older, you can take a higher standard deduction than you did previously.

Note: The IRS considers you 65 the day prior to your actual 65^th birthday.

Retirement Plan Distributions

There are so many different kinds of distributions, and the filing requirements are all so different, that you should really sit down with us before you start receiving them. That way, you’ll be able to make at least some rough income and expense projections (if you haven’t already done so as a part of an overall retirement plan). The IRS has strict, complex rules here, and you’ll want to stay in compliance to avoid any penalties.

Estimated Taxes

Whether or not you paid estimated taxes when you were working, it’s possible you’ll be required to pay them in retirement. Providers generally withhold taxes on pensions and annuities, but if you end up owing money when you file, you may be required to pay estimated taxes (unless you can adjust your withholding to cover the shortfall).

Social Security

It’ll be nice to have another steady, reliable income stream, but your Social Security benefits will be taxed. If you opt to not have taxes withheld from your Social Security payments, you’ll either have to compensate for them elsewhere or pay estimated taxes.

Medicare

Medicare benefits are not considered income.

Start Now

Gone are the days when a large portion of the population worked for the same company for decades and retired with a nice employer-subsidized pension. 401(k)s, which are portable and only partially employer-subsidized, are replacing that model.

According to one source, one out of four individuals younger than 65 is not saving money for retirement at all. If you fall into this group, or if you’re in the even larger group that is saving but unsure they’ll have enough to retire, you owe it to yourself and any heirs you may have to start now, no matter how minimal your contributions.

We’d be happy to look at your current financial situation and hear about your retirement goals and dreams. Together, we can start piecing together a plan that will give you more confidence in your ability to retire young enough to enjoy your senior years.

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You had good intentions, but you just couldn’t pull it together in time. Here are some suggestions for dealing with delinquent taxes.

One of the problems with waiting until the last minute to prepare and file income taxes is that you don’t know what might pop up in your personal or professional life to delay you.

If this happened to you this year, or if for whatever reason you simply didn’t have all of the information you needed by the deadline, you’re probably wondering what to do now.

Here are some options.

• Take care of your tax obligation as soon as possible. If you’re due a refund, it doesn’t matter if you miss the deadline (though you may lose the money owed you if you don’t file within three years). If you must pay in, file quickly to minimize any penalties the IRS might assess.
• Complete an Installment Agreement Request. This is done on an IRS Form 9465, or you can enter the information online here. You’re only eligible if you owe $25,000 or less (total of tax, penalties and interest) for businesses or $50,000 for individuals. All required forms and schedules must be completed. You may want to do this when, for example, you can only pay a portion of the tax owed.
• Contact the IRS right away if your return is late because of hardship. If you lost your job, got divorced, or faced some other unfortunate life event that prevented you from filing, or if you can make a case for a different reasonable cause, the IRS may waive penalties and postpone collection activity. Keep in mind that you may be asked to increase your payments if your economic situation gets significantly better.
• Request an Offer in Compromise. Talk to us before you reach out to the IRS about this. The agency will sometimes negotiate with you and settle for less than you owe based on your current and future incomes. 
• Go over your return again, or ask us to review it. It is possible that you missed a credit that you were eligible for, miscalculated, didn’t take a deserved deduction, etc. If that’s the case, you may either be getting a refund or at least owe less than you think, which will minimize penalties and interest.

If you are at all concerned that the IRS may take unwanted action against you, contact us immediately. We’ve worked with the IRS for different clients, and we can advise you on what steps you’ll need to take. While we’re doing that, why not get a jump on preparing for your 2014 taxes? Income tax-planning should be a year-round endeavor.

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Be prepared for a mountain of paperwork, much of it related to income taxes.

Adding your first employee to your small business comes with good and bad news. The good, of course, is that you’re succeeding so well that you need full-time help. You’re hopeful that this new individual will being new energy and fresh ideas into your growing company.

You probably worry, though, about finding the right person. And you wonder how much your own workload as an employer will grow.

You’re smart to be concerned about both issues. The first has a lot of gray area, but the second – at least where company income taxes are concerned – is very straightforward and clear. The IRS spells out your responsibilities and expects that they will be followed to the letter.

Here’s some of what you’ll need to do:

Get an Employer Identification Number (EIN). Sometimes called Employer Tax ID or Form SS-4. You’ll use this for your interaction with the IRS and with state agencies.

Figure 1: Your Employee Identification Number is as critical to your business life as your Social Security number is to your personal life.

Set up your accounting system to accommodate withholding taxes. If you’re using QuickBooks, this is fairly easy. But it can be risky to modify the Chart of Accounts unless you’re absolutely sure of what you’re doing. Let us help you with this initial setup. You’ll need federal and state (if applicable) income tax withholding accounts. You’ll use these in much of your payroll work, like financial statements and expense-tracking.

Ask your new hire to complete the required IRS forms. Your employee must also fill out a W-4 form, which you’ll then submit to the IRS. This will guide you in withholding the correct amount of tax from the employee’s paycheck. The I-9 form must also be completed by every new hire; it verifies their citizenship or eligibility to work in the U.S.

Register the employee with your state’s New Hire Reporting Program. Newly-hired or re-hired employees must be reported to the state within 20 days of their hire date.

File your quarterly tax returns. If your employees have a portion of their pay withheld for income taxes, Social Security and Medicare taxes, you must file a quarterly Form 941. There are other IRS forms in the 94x series; we can help you determine what you need to file – and how to file.

Figure 2: It’s very important that you fulfill your payroll tax responsibilities four times a year. The IRS assesses penalties for not doing so.

Of course, you’ll have other regularly-scheduled tasks to complete related to the IRS and any required state and local taxes. If you have never hired an employee before (and even if you have), let us sit down with you and go over everything. We can put together a calendar outlining what’s due, and when.

Don’t get discouraged. The early setup can be time-consuming and labor-intensive, but if you build the right foundation, you’ll eventually fall into the rhythm of being an employer.

Filed under: Taxes by Katie Bluhm
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