by Pete McAllister | Audit and Accounting, IRS, News, Professional Services, Tax, Tax Consulting, Tax Planning, Tax Planning - Individual, Tax Preparation - Individual
We are deep in the throws of tax season, and although many of you have already filed, it certainly never hurts to become more aware of possible deductions. And it goes without saying that we all love saving money or getting a larger return. Below are some unusual deductions that taxpayers often don’t consider or simply don’t even know exist.
- Letting a friend crash on your couch – Did you know that you could have been claiming your college buddy who’s been sleeping on your couch for the last 5 months as a dependent? That is if said friend is earning less than $4,050 and you have been providing significant financial support. Similarly, children supporting their retired, elderly parents may claim them as dependents, even if they don’t live in the same home.
- Putting in a pool – Unfortunately, you cannot deduct this item simply because you like to cool off in the summertime and it cost you a lot of cash. However, if you have significant health issues, such as obesity or heart disease, and your doctor has recommended swimming as a beneficial form of regular exercise, putting a pool in your backyard may qualify as a deductible medical expense.
- Sending your kids to camp – This credit is only available to working parents. If both spouses work, and you send your child or children to either a summer day camp, a mini winter camp or even a daycare program over winter break, you may be able to receive a credit between $1000-$2000, depending on the number of children. Unfortunately though, overnight camps do not qualify under this credit.
- Losing money in Vegas – For those who gamble with some regularity, you know you must report your winnings and pay the subsequent taxes. However, reporting your losses as well can offset the amount of taxes charged on your winnings. One thing to keep in mind though is that you can only claim in losses the amount you made in winnings, no more.
- Taking a course – Did you take a design or business course in the last year to expand your knowledge or further develop yourself in your career? Anyone who took a course that enhanced their knowledge to boost job prospects and paid tuition or enrollment fees, or purchased books or supplies, can claim the Lifetime Learning Credit. The max amount one can receive is $2000, and the credit phases out altogether once your income reaches a certain level.
- Searching for a job – Paying fees to a job agency, hiring a career coach, or traveling to long-distance interviews can all be deducted if they amount to less than 2 percent of your adjusted gross income. However, buying a new suit or a nice pair of shoes for an interview do not qualify as deductible expenses.
- Driving for work – While your commute to work does not count as a deduction, most of the driving done during your work day, such as driving to a meeting or even to Office Max, can be deducted as work-related up to 54 cents per mile. Miles must be tracked exactly and documented properly to receive any deduction though.
If you have any questions about these potential income tax deductions, please contact me at [email protected].
by Pete McAllister | Accounting News, News, Resources, Tax, Tax Planning - Individual, Tax Preparation - Individual
“New Year, New Me.” This phrase is often uttered in the early parts of a new year as individuals prepare to make changes in their health, career, relationships or a variety of other personal traits. This phrase could ring true for 2017 as America prepares to inaugurate our 45th President and witnesses many political and policy shifts. One proposition that may enact some major adjustments is President-Elect Trump’s new tax plan. If you’d like to learn more about his tax proposals, check out our article highlighting major changes for individuals and businesses here. However, Trump’s plans have the potential to cause more shifts than just tax cuts; researchers believe it could have an impact on the housing market, specifically on mortgage interest deductions.
The President-Elect’s current plans include a rise in standard deductions for both individual filers and those filing jointly. Under current laws, many filers itemize their deductions rather than taking the standard deduction of $6,300 in order to receive additional tax breaks. But now, single filers could see a rise in exemption from $6,300 to $15,000 and joint filers could see a rise double that, at $30,000. Therefore, previously, those paying $10,000 in mortgage interest would have benefited from itemizing, but under Trump’s new proposals, in many cases, taxpayers would benefit more by taking the new standard deduction rather than itemizing. Although these propositions could simplify the filing process, they could also discourage individuals from buying. If homeowners no longer have an incentive to itemize and deduct their mortgage interest, then many may feel that renting is just as advantageous as buying.
Many economists would suggest that mortgage interest deduction does not actually motivate individuals to buy, but just encourages them to spend more or buy larger homes. However, limiting tax preferences for homeownership could cause a drop in the value and price of homes, a potential benefit to buyers, though a definite negative for sellers. One positive the market may have to look forward to is lower tax rates for many tax brackets, which has the potential to encourage individuals to spend more money on a variety of things, including housing. While the President-Elect’s tax changes could cause shifts to housing and homeownership, his proposals are ever changing and still being ironed out in many places. Current homeowners (who aren’t looking to sell in the next year) may have nothing to worry about, but future homeowners might consider what unfolds in the coming months before purchasing a home in 2017.
by Pete McAllister | Accounting News, Audit and Accounting, Bookkeeping, Tax Planning - Individual, Tax Preparation - Individual
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.
by Pete McAllister | Accounting News, Bookkeeping, Business Consulting, Healthcare, News, Resources, Tax Consulting, Tax Planning, Tax Planning - Individual, Tax Preparation - Individual
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.
by Pete McAllister | Accounting News, Audit and Accounting, Healthcare, IRS, News, Professional Services, Resources, Retail & Distribution, Tax Consulting, Tax Planning, Tax Planning - Individual, Tax Preparation - Individual
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.
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