Houck & Associates, P.C.
"Big firm expertise with small town hospitality."

Affordable Care Act & 2014 tax return

In 2010, when Congress passed the Affordable Care Act, the effects seemed far away to many of us. Now that 2014 is here, there will be several direct effects upon every American, with the requirement that all Americans of all ages obtain qualified health insurance for the entire year. The requirement to obtain health insurance applies to you individually as well as to anyone you claim as a dependent on your return.

Several new forms will be issued to taxpayers this year, primarily Form 1095-A, B and C. In order to complete your 2014 return we will need all copies of Form 1095. These forms provide us with the necessary information to report your health insurance coverage, calculate any credit and calculate any penalty that may apply.

Because much of the reporting for 2014 will be voluntary you may not receive any Forms 1095. We therefore need to also obtain from you the following information in order to complete your return:

1. Health insurer(s) for the year;
2. Number of months of coverage;
3. Members of your family covered by the above health insurance throughout the year;
4. Your county of residence all year.

Of equal importance for 2014 are the multiple possibilities of tax mistakes made primarily by your dependent children who may work in 2014. We strongly recommend professional help with these returns. Although this guidance appears self-serving for us, let us assure you this guidance is meant to protect you from your children inadvertently costing you potential health care tax credits. The IRS recently released new Form 8962 to calculate the credit and in our continuing education classes we have learned how difficult it is to calculate the credit and how easy it is to make a mistake and lose the credit. We are estimating this new form will require substantially more preparation time for this year’s return which means, as expected, that we will be once again raising your fee. We are sorry about the fee increase but this is one of the costs of compliance with these new requirements.

For those of you who have received an advance payment of the Health Care credit by purchasing insurance through the Exchange we also need to warn you that if you received a greater credit than allowed you will be forced to repay the excess with this year’s return.

We also encourage you to visit www.Healthcare.gov when you have a chance just to see what is available to you in the form of insurance, and what premiums will really cost for your family so that you have a clear idea of the facts without a political or media based bias.

The other aspects of the Affordable Care Act that no one is talking about are the two new surtaxes. Many people incorrectly believe that only high income Americans pay these surtaxes, but because the tax is not adjusted for inflation, within a few years all Americans will pay the additional surtaxes. You need to take steps now to plan for this event and our advice is to utilize every fringe benefit your employer offers, maximize 401-k deferrals and call us if you are expecting a big bonus, stock or asset sale or other major income change so that we can work with you to minimize the effects of these new taxes.

As usual we thank you for your business in the past, and look forward to working together for many years.


YOUR TAXES

A day after the very last moment, Congress acted and made the long awaited tax decisions.  The late action by Congress made year-end tax planning impossible.  I had expected more tax increases and restrictions on allowed deductions than Congress enacted.  The new tax bill, for the vast majority, is a thing to celebrate.  It keeps most of our tax rates the same, and made the tax cuts that created those rates permanent.  Congress would have to enact a new law, not just let the old one expire for rates to rise.  The decision to make so many of the formerly temporary changes permanent, gives us stability and planning bility.  Businesses and those considering going into business can accurately project their tax burdens at least for the near future.  This should benefit us all in terms of accelerated economic expansion.

Congress did let the 2% reduction in the employee’s portion of Social Security taxes expire.  This is the change that affects us negatively, as we will all see our net paychecks go down.  While this payroll tax “holiday” was always meant to be a short term stimulus, you will notice a smaller paycheck.

Changes or not, January is the time to get your papers together to support your 2012 returns. This month you will be receiving the bulk of the documents needed to complete your tax returns:   your W-2s from your employer(s), forms from the bank and investment companies regarding your interest, dividend earnings, and securities transactions.  Most investment houses send out a year-end statement distinct from your December monthly statement, which presents the full year and includes the information the investment house reported to the  IRS.  In addition, you will need to pull together your records for those things that are deductible including mortgage interest, large medical expenses, charitable contributions, property taxes, state income and sales taxes paid in 2012. Many people are aware of the most usual deductions, but fail to keep track of their mileage for medical and/or charitable purposes which can be included in itemized deductions.  You need a mileage log to support the deduction.  If you didn’t keep one in 2012, you could start one now for 2013.  You could be surprised how many miles you drive for these purposes.

Another issue is deciding whether you will prepare your own return or seek the help of someone knowledgeable in the tax laws.  If your return is very simple, one W-2, standard deduction, and very little else, you can probably file it yourself on-line at IRS.gov.  You could buy one of the many tax programs available.  These programs work just fine IF you answer the program’s interview questions correctly.  If you misunderstand the question, the program can take you down the entirely wrong road.  Tax law is voluminous and notoriously complex; a small difference between your situation and another’s can result in a dramatically different tax position. Therefore, if your return includes rental property, a business, you receive forms from investments that are required to be taxed on your return, etc.; you may save money in the long run by getting a professional to help you.  One way to be sure of a person’s qualifications to do a good job on your taxes is whether or not they are Certified Public Accountants.  CPAs are college educated, highly trained, and required to take ongoing annual training.  They understand tax law, accounting, investments and business.  These are essential qualities in preparing your taxes accurately.

There are other tax preparers like “enrolled agents” and “registered tax  preparers”.  These preparers have some training in tax preparation but may not have a good grasp of accounting, investments or business. Having represented taxpayers and businesses before the IRS, I know the taxpayer is not held responsible for relying on the advice of a competent professional.  To be considered competent requires both education and experience. This elevates CPAs to the top of the list.  So, pull your paperwork together and go to a CPA.


IRS Small Business Audits

The IRS has increased its  auditing of small business by 32% under the current administration.  This means your business stands a higher chance of coming under scrutiny than it  once did.  In particular the IRS is looking at compensation of  shareholders in Sub-chapter S Corporations.  The IRS gets a big return for  their time if they find the company’s owners have been underpaying their own  salaries and taking distributions which are free from payroll taxes.  Are  you at risk?  The rule for S-Corporations is that the owner’s salary be  “reasonable”.  If the IRS finds the owner’s salary to be too  low, they can reclassify other payments to the owners as salary.  Then,  they can assess late filing and payment fees on the unreported payroll.
These fees can be as much as three times the amount of the unpaid payroll  taxes.  Standard corporations have an opposite problem with payroll. They  have to be careful not to pay their owners too much.  The incentive for  the Corporate shareholder is to receive the income as dividends, taxed at a  much lower rate than payroll.  The IRS will look at the other items on the  tax return as well.  They will question the completeness of your revenue  reporting and applicability of your expense reporting.

What to do?

Have a conversation with your CPA to discover your own risk areas.  Then  work together to make a plan on how to handle the risk. 


Medicare Premiums Qualify as Self-Employed Heath Insurance

There has been confusion as to the rules for self-employed taxpayers, including 2% or greater S-Corporation owners, regarding whether Medicare premiums qualify as self-employed health insurance. Clarification has been issued allowing self-employed tax payers to deduct these premiums as self-employed health insurance rather than an itemized medical deduction. If you are in this situation, you can amend your previously filed returns for a refund. Amendable returns are those filed within three years of filing the amendment or two years from the payment of the tax, whichever is later. As taxpayers are not eligible for Medicare until age 65, this clarification affects a limited number of people. However, if you are one of them, see your CPA for help.



Pending Tax Law Changes

The end of 2012 will see a massive change in tax law if Congress fails to act.  The Bush tax measures will expire the end of December, meaning your taxes for 2013 will likely be substantially higher than they have been since about 2000.  In this election year, it is unlikely Congress will act before November.  That leaves us all in a bind.  Consider cashing out your capital gains and accelerating any income you can into 2012, just in case.


Business Health

Many facets play into whether a business is healthy. One of them is the business’s debt load. Most businesses use credit cards and lines of credit to ease cash flow squeezes. These are designed to be short term solutions to short term problems. If you find your credit card or line of credit balances do nothing but grow over the year, it’s time to look at your business with an eye toward improving cash flow. This is a sign of an ailing business and immediate attention is needed.


Tax Time

Tax time is here again.  The filing deadline for federal individual returns is April 17, 2012.  You should be receiving your tax related documents now.  You will need to bring in all documents labeled “important tax document” so we can prepare your return.  Please also bring your organizer, filled out as best you can.  This will save a good deal of time on our part, as well as trigger your memory regarding what we need to see.  Please bring the entire year-end annual report from your brokerage.  We are looking forward to seeing you soon.

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Embezzlement Starts with Trust

An embezzler was testifying in his trial.  The Judge asked how he could possibly have ingratiated himself so much with his victim and then steal from her.  He replied, “Unless they trust you, you can’t steal from them”.

It is almost always the case that the person embezzling from their company is a very trusted individual.  When the truth comes out everyone is totally shocked.  So, protect yourself with good accounting policies and procedures and make sure everyone follows them.  Make sure to limit who has access to bank accounts, make sure the bank statements and credit card statements are sent to and opened by the owner of the company, always ask questions of the bookkeeper, so they know their work is being watched.  Get some sound advice from your CPA on internal controls, set them up and follow them.  Also, get a whistle blower hot-line employees, customers and vendors can call anonymously to report experiences that didn’t feel right to them.

Live by the old adage “Trust but verify”.  Nothing will protect you completely, but these steps help to prevent embezzlement and/or lessen the amount stolen before the embezzlement is discovered.

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