Affordable Care Act

What is the Affordable Care Act?

Under the Affordable Care Act, the federal government, state governments, insurers, employers, and individuals share responsibility for improving the quality and availability of health insurance coverage in the United States. The ACA reforms the existing health insurance market by prohibiting insurers from denying coverage or charging higher premiums because of an individual’s preexisting conditions.

The ACA also creates the Health Insurance Marketplace, also known as the Marketplace or the Exchange. The Marketplace is where taxpayers find information about health insurance options, purchase qualified health plans and, if eligible, obtain help paying premiums and out-of-pocket costs. A new tax credit, the premium tax credit, is available only if the taxpayer purchased a qualified health plan through the Marketplace. This credit helps eligible taxpayers pay for coverage.

The ACA also includes the individual shared responsibility provision, which requires individuals to have qualifying health care coverage for each month of the year, qualify for a coverage exemption, or make a shared responsibility payment when filing their federal income tax returns. For purposes of ACA, qualifying health care coverage is also called minimum essential coverage. Most taxpayers already had minimum essential coverage prior to the start of the year and only had to maintain that coverage during the entire year. If taxpayers and their dependents had minimum essential coverage for each month of the year, the taxpayer will simply check a box indicating that coverage when filing the federal income tax return. No further action is required.

Some taxpayers are exempt from the coverage requirement of the individual shared responsibility provision and do not have to make a shared responsibility payment when filing a federal income tax return. Coverage exemptions are available for individuals specifically described as having a religious, economic, or other justification for not having minimum essential coverage. Taxpayers who qualify for an exemption will attach a Form 8965, Health Coverage Exemptions, to their federal income tax return to claim that exemption.

Taxpayers or any dependents who did not maintain minimum essential coverage for each month of their tax year and did not qualify for a coverage exemption must make an individual shared responsibility payment with their federal tax return

Individual Shared Responsibility Provision

What is the individual shared responsibility provision?

For each month of the year, the individual shared responsibility provision calls for individuals to:

                Have qualifying health care coverage (also called minimum essential coverage), or

                Qualify for an exemption from coverage, or

                Make an individual shared responsibility payment when filing their federal income tax return

Individuals are treated as having minimum essential coverage for the month as long as the individuals are enrolled in and entitled to receive benefits under a plan or program identified as minimum essential coverage for at least one day during that month.

Who must have health care coverage?

In general, all U.S. taxpayers are subject to the individual shared responsibility provision. Under the provision, a taxpayer is potentially liable for him or herself, and for any individual the taxpayer could claim as a dependent for federal income tax purposes. Thus, all children generally must have minimum essential coverage or qualify for a coverage exemption for each month in the year. Otherwise, the primary taxpayer(s) (e.g., parents) who can claim the child as a dependent for federal income tax purposes will generally owe an individual shared responsibility payment for the child.

Senior citizens must also have minimum essential coverage or qualify for a coverage exemption for each month in the year. Both Medicare Part A and Medicare Part C (also known as Medicare Advantage) are minimum essential coverage.

All U.S. citizens are subject to the individual shared responsibility provision, as are all non-U.S. citizens who are in the U.S. long enough during a calendar year to qualify as resident aliens for federal income tax purposes. Foreign nationals who live in the U.S. for a short enough period that they do not become resident aliens for tax purposes are exempt from the individual shared responsibility provision even though they may have to file a U.S. income tax return.

All bona fide residents of U.S. territories are treated as having minimum essential coverage and are not required to take any action to comply with the individual shared responsibility provision other than to indicate their status on their federal income tax returns.

What is minimum essential coverage?

Under the ACA, minimum essential coverage, is a health care plan or arrangement specifically identified in the law as minimum essential coverage, including:

                Specified government-sponsored programs (e.g., Medicare Part A, Medicare Advantage, most Medicaid programs, CHIP, most TRICARE programs, and comprehensive health care coverage of veterans)

                Employer-sponsored coverage under a group health plan (including self-insured plans)

                Individual market coverage (e.g., a qualified health plan purchased through the Marketplace or individual health coverage purchased directly from an insurance company)

                Grandfathered health plans (in general, certain plans that existed before the ACA and have not changed since the ACA was passed)

                Other plans or programs that the Department of Health and Human Services recognizes as minimum essential coverage for the purposes of the ACA

What are the health coverage exemptions?

The following is a partial list of exemptions:

                Unaffordable coverage – The amount the taxpayer would have paid for the lowest cost employer-sponsored coverage available or for coverage through the Marketplace is more than eight percent of the taxpayer’s household income for the year.

                Short coverage gap – The taxpayer went without coverage for less than three consecutive months during the year.

                Household income below the return filing threshold – The taxpayer’s household income is below the taxpayer’s minimum threshold for filing a tax return.

                Certain noncitizens – The taxpayer was neither a U.S. citizen, U.S. national, nor an alien lawfully present in the U.S.

                Members of a health care sharing ministry – The taxpayer was a member of a health care sharing ministry, which is a tax-exempt organization whose members share a common set of ethical or religious beliefs and have shared medical expenses in accordance with those beliefs continuously since at least December 31, 1999.

                Members of Indian tribes – The taxpayer was a member of a federally-recognized Indian tribe, including an Alaska Native Claims Settlement Act (ANCSA) Corporation Shareholder (regional or village), or is otherwise eligible for services through an Indian health care provider or the Indian Health Service.

                Incarceration – The taxpayer was in a jail, prison, or similar penal institution or correctional facility after the disposition of charges.

                Members of certain religious sects – The taxpayer was a member of a religious sect that has been in existence since December 31, 1950, and is recognized by the Social Security Administration as conscientiously opposed to accepting any insurance benefits, including Medicare and social security.

What is the individual shared responsibility payment?

If anyone in the taxpayer’s tax household does not have minimum essential coverage, and does not qualify for a coverage exemption, the taxpayer will need to make an individual shared responsibility payment (SRP) when filing their federal income tax return.

Premium Tax Credit and Advance Payments

Who can claim a premium tax credit?

Only taxpayers who purchased qualified health plan from a State-based or Federally-facilitated Health Insurance Marketplace (Marketplace) may be eligible for the premium tax credit. This is a new federal tax credit to help eligible taxpayers pay for health insurance premiums. When enrolling in a qualified health plan through the Marketplace, eligible taxpayers choose to have some or all of the benefit of the credit paid in advance to their insurance company as advance credit payments or wait to claim all of the benefit of the premium tax credit on their tax return. Taxpayers must file a tax return to claim the premium tax credit. Those who choose advance credit payments must file a tax return to reconcile their advance credit payments with their actual premium tax credit even if they have gross income that is below the income tax filing threshold.

In general, taxpayers are allowed a premium tax credit if they meet all of the following:

                The taxpayer, spouse (if filing a joint return), or dependents were enrolled at some time during the year in one or more qualified health plans offered through the Marketplace.

                One or more of the individuals listed above were not eligible for other minimum essential coverage during the months they were enrolled in the qualified health plan through the Marketplace.

                The taxpayer is an applicable taxpayer. A taxpayer is an applicable taxpayer if he or she meets the following three requirements: The taxpayer’s income is at least 100 percent but not more than 400 percent of the federal poverty line for the taxpayer’s family size. (See the exception below for taxpayers with household income below 100 percent of the federal poverty line who are not citizens, but are lawfully present in the U.S. See the definition of “applicable taxpayer” in the glossary for another exception for taxpayers with household income below 100 percent of the federal poverty line for whom advance credit payments were made.)

                If married, the taxpayer files a joint return with his or her spouse (unless the taxpayer is considered unmarried for Head of Household filing status, or meets the criteria in Notice 2014-23 or T.D. 9683, which allows certain victims of domestic abuse or spousal abandonment to claim the premium tax credit using the MFS filing status). See the glossary for more information about domestic abuse or spousal abandonment and the instructions for Form 8962, Premium Tax Credit, for more details about these exceptions.

                The taxpayer cannot be claimed as a dependent by another person.

                 

A taxpayer with household income below 100 percent of the federal poverty line can be an applicable taxpayer as long as the taxpayer, the taxpayer’s spouse, or a dependent who enrolled in a qualified health plan is not a U.S. citizen, but is lawfully present in the U.S. and not eligible for Medicaid because of immigration status.

Tax provision on Foreign currency Gain and Loss.

I get this question lot of times ,how to deal with tax provision on Foreign Currency Gain and Loss.

Most of my friends and clients who transferred the money to India in 2008 when 1 $ is equal to 45 rupees is concerned because in actual the value of there money got depreciated .

Let us take simple example

If Mr.A transferred $ 10,000 in 2008 at the exchange rate of $1 = 45 , that comes to 45,0000 rupees . for all these years the money is been sitting in NRE account earning interest .

Now let us assume Mr.A is in need of money in US and wants to bring the money back in US in 2015 since the Indian Rupee depreciated against US dollar in recent years and $1 = 60 he will only be able to get back 45,0000/60 = $7500 .

On absolute level not taking Interest he earned in Indian account into consideration he lost $ 2,500.

Will  he able to claim the loss as deduction is a big question.
Good news is he will be able to claim the loss as expense under IRC Code 988.

Let me give you a synopsis of IRC code 988

1. Where there are currency gains or losses in connection with a trade or business or with the management or administration of investment assets, the gain is treated as an ordinary gain (rather than as a capital gain) and any loss is generally treated as an expense.

2. Where currency gains or losses are incurred in connection with the purchase of an investment, the gain or loss on the currency change on realization (usually from selling) is a capital gain or loss and is included as part of the total capital gain or loss on the investment.

3. Currency gains of $200 or less that arise from personal transactions (not for investment or business) are not taxable, but any personal currency losses are not deductible.  A personal transaction includes any gain or loss arising from travel even if the travel is business related.

4. Any currency gains in excess of $200 per personal transaction (per trip or per purchase) are treated as a capital gain (long term or short term depending on your holding period).

The provisions of the IRC Code 988 are very complex and confusing.

It is very important that US Persons who have currency gain or losses consult their tax advisor before they disclose anything on their US income tax returns

Business Tax Provisions Retroactively Extended by the Tax Increase Prevention Act of 2014

On Dec. 16, 2014, Congress passed the "Tax Increase Prevention Act of 2014" (TIPA, or "the Act"), which the President is expected to sign into law. As explained in this Special Study, the Act extends a host of tax breaks for businesses, including the research credit, the new markets tax credit, the employer wage credit for activated reservists, enhanced charitable deductions for contributions of food inventory, and empowerment zone tax incentives.

Research Credit Extended

The research credit equals the sum of: (1) 20% of the excess (if any) of the qualified research expenses for the tax year over a base amount (unless the taxpayer elected an alternative simplified research credit); (2) the university basic research credit (i.e., 20% of the basic research payments); (3) 20% of the taxpayer's expenditures on qualified energy research undertaken by an energy research consortium.

The base amount is a fixed-base percentage of the taxpayer's average annual gross receipts from a U.S. trade or business, net of returns and allowances, for the 4 tax years before the credit year, and can't be less than 50% of the year's qualified research expenses. The fixed base percentage for a non-startup company is the percentage (not exceeding 16%) that taxpayer's total qualified research expenses are of total gross receipts for tax years beginning after '83 and before '89. A 3% fixed-base percentage applies for each of the first 5 tax years in which a "startup company" (one with fewer than 3 tax years with both gross receipts and qualified research expenses) has qualified research expenses.

A taxpayer can elect an alternative simplified research credit equal to 14% of the excess of the qualified research expenses for the tax year over 50% of the average qualified research expenses for the three tax years preceding the tax year for which the credit is being determined. If a taxpayer has no qualified research expenses in any one of the three preceding tax years, the alternative simplified research credit is 6% of the qualified research expenses for the tax year for which the credit is being determined.

Under pre-Act law, the research credit didn't apply for amounts paid or accrued after Dec. 31, 2013.

New law. TIPA retroactively extends the research credit for one year to apply to amounts paid or accrued before Jan. 1, 2015. ( Code Sec. 41(h)(1) , as amended by Act Sec. 111(a))

Work Opportunity Tax Credit Extended

The work opportunity tax credit (WOTC) allows employers who hire members of certain targeted groups to get a credit against income tax of a percentage of first-year wages up to $6,000 per employee ($3,000 for qualified summer youth employees). Where the employee is a long-term family assistance (LTFA) recipient, the WOTC is a percentage of first and second year wages, up to $10,000 per employee. Generally, the percentage of qualifying wages is 40% of first-year wages; it's 25% for employees who have completed at least 120 hours, but less than 400 hours of service for the employer. For LTFA recipients, it includes an additional 50% of qualified second-year wages.

The maximum WOTC for hiring a qualifying veteran generally is $6,000. However, it can be as high as $12,000, $14,000, or $24,000, depending on factors such as whether the veteran has a service-connected disability, the period of his or her unemployment before being hired, and when that period of unemployment occurred relative to the WOTC-eligible hiring date.

Under pre-Act law, wages for purposes of the WOTC didn't include any amount paid or incurred to: veterans or non-veterans who began work after Dec. 31, 2013.

New law. TIPA retroactively extends the WOTC so that it applies to eligible veterans and non veterans who begin work for the employer before Jan. 1, 2015

Indian Employment Credit Extended

The Indian employment credit is 20% of the excess, if any, of the sum of qualified wages and qualified employee health insurance costs (not in excess of $20,000 per employee) paid or incurred (other than paid under salary reduction arrangements) to qualified employees (enrolled Indian tribe members and their spouses who meet certain requirements) during the tax year, over the sum of these same costs paid or incurred in calendar year '93.

Under pre-Act law, the credit didn't apply for any tax year beginning after Dec. 31, 2013.

New law. TIPA retroactively extends the Indian employment credit for one year to tax years beginning before Jan. 1, 2015.

New Markets Tax Credit Extended

A new markets tax credit applies for qualified equity investments to acquire stock in a community development entity (CDE). The credit is: (1) 5% for the year in which the equity interest is purchased from the CDE and for the first two anniversary dates after the purchase (for a total credit of 15%), plus (2) 6% on each anniversary date thereafter for the following four years (for a total of 24%).

Under pre-Act law, there was a $3.5 billion cap on the maximum annual amount of qualifying equity investments for 2010, 2011, 2012 and 2013. However, a carryover was allowed where the credit limitation for a calendar year exceeded the aggregate amount allocated for the year, but no amount could be carried over to any calendar year after 2018.

New law. TIPA retroactively extends the new markets tax credit for one year, through 2014.

Differential Wage Payment Credit for Employers Extended

Eligible small business employers that pay differential wages-payments to employees for periods that they are called to active duty with the U.S. uniformed services (for more than 30 days) that represent all or part of the wages that they would have otherwise received from the employer-can claim a credit. This differential wage payment credit is equal to 20% of up to $20,000 of differential pay made to an employee during the tax year. An eligible small business employer is one that: (1) employed on average less than 50 employees on business days during the tax year; and (2) under a written plan, provides eligible differential wage payments to each of its qualified employees. A qualified employee is one who has been an employee for the 91-day period immediately preceding the period for which any differential wage payment is made.

Under pre-Act law, the credit was not available for differential wages paid after Dec. 31, 2013.

New law. TIPA retroactively extends the credit for one year to differential wages paid before Jan. 1, 2015.

 Enhanced Deduction for Food Inventory Extended

A taxpayer engaged in a trade or business is eligible to claim an enhanced deduction for donations of food inventory. A C corporation's deduction equals the lesser of (a) basis plus half of the property's appreciation, or (b) twice the property's basis, for contributions of food inventory that was apparently wholesome food-i.e., meant for human consumption and meeting certain quality and labeling standards. For a taxpayer other than a C corporation, the aggregate amount of contributions of apparently wholesome food that may be taken into account for the tax year can't exceed 10% of the taxpayer's aggregate net income for that tax year from all trades or businesses from which those contributions were made for that tax year.

Under pre-Act law, this enhanced charitable deduction didn't apply for contributions after Dec. 31, 2013.

New law. TIPA retroactively extends the apparently wholesome food contribution rules for one year to contributions made before Jan. 1, 2015.

Domestic Production Activities Deduction Rules for Puerto Rico Extended

Under the  domestic production activities deduction, a taxpayer is allowed a deduction from taxable income (or adjusted gross income, in the case of an individual) that is equal to 9% of the lesser of the taxpayer's qualified production activities income (QPAI) or taxable income for the tax year. QPAI is generally domestic production gross receipts (DPGR) reduced by the sum of: (1) the costs of goods sold that are allocable to those receipts; and (2) other expenses, losses, or deductions which are properly allocable to those receipts. The amount of the deduction for a tax year is limited to 50% of the wages paid by the taxpayer, and properly allocable to DPGR, during the calendar year that ends in the tax year. Wages paid to bona fide residents of Puerto Rico generally are not included in wages for purposes of computing the wage limitation amount.

A taxpayer has DPGR from: (1) any sale, exchange or other disposition, or any lease, rental or license, of qualifying production property manufactured, produced, grown or extracted by the taxpayer in whole or in significant part within the U.S.; (2) any sale, exchange, etc., of qualified films produced by the taxpayer; (3) any sale, exchange or other disposition of electricity, natural gas, or potable water produced by the taxpayer in the U.S.; (4) construction activities performed in the U.S.; or (5) engineering or architectural services performed in the U.S. for construction projects located in the U.S.

Under pre-Act law, for the first eight years of a taxpayer beginning after Dec. 31, 2005 and before Jan. 1, 2014, Puerto Rico was included in the term "U.S." in determining DPGR, but only if all of the taxpayer's Puerto Rico-sourced gross receipts were taxable under the federal income tax for individuals or corporations. In computing the 50% wage limitation, the taxpayer was allowed to take into account wages paid to bona fide residents of Puerto Rico for services performed in Puerto Rico.

New law. TIPA extends the special domestic production activities rules for Puerto Rico for one year through 2014. Under the Act, these special rules for Puerto Rico apply for the first nine tax years of a taxpayer beginning after Dec. 31, 2005 and before Jan. 1, 2015

Subpart F Exception for Active Financing Income Extended

The U.S. parent of a foreign subsidiary engaged in a banking, financing, or similar business is eligible for deferral of tax on that subsidiary's earnings if the subsidiary is predominantly engaged in that business and conducts substantial activity with respect to the business. The subsidiary also has to pass an entity level income test to demonstrate that the income is active income and not passive income. Thus, this income from the active conduct of a banking, financing or similar business, or from the conduct of an insurance business (collectively referred to as "active financing income") is excluded from the definition of Subpart F income.

Under pre-Act law, this exception applied for tax years of foreign corporations beginning after Dec. 31, '98 and before Jan. 1, 2014, and tax years of U.S. shareholders with or within which such tax years of the foreign corporations end.

New law. TIPA retroactively extends the exclusions for active financing income for one year to tax years of a foreign corporation beginning after Dec. 31, 2013 and before Jan. 1, 2015, and tax years of U.S. shareholders with or within which such tax years of foreign corporations ended.

Look-Through Rule for Payments Between Related CFCs under Foreign Personal Holding Company Income Rules Extended

For tax years beginning before Jan. 1, 2014, dividends, interest, rents, and royalties received by one controlled foreign corporation (CFC) from a related CFC are not treated as foreign personal holding company income (FPHCI) to the extent attributable or properly allocable to non-subpart-F income, or income that was not effectively connected with the conduct of a U.S. trade or business of the payor (look-through treatment).

Under pre-Act law, this look-thru rule applied to tax years of foreign corporations beginning after Dec. 31, 2005 and before Jan. 1, 2014, and to tax years of U.S. shareholders with or within which such tax years of foreign corporations ended.

New law. TIPA retroactively extends look-through treatment for related CFCs for one year, to tax years of a foreign corporation before Jan. 1, 2015, and tax years of U.S. shareholders with or within which such tax years of foreign corporations end

Reduction in S Corp Recognition Period for Built-In Gains Tax Extended

An S corporation generally is not subject to tax, but instead passes through its income to its shareholders, who pay tax on their pro-rata shares of the S corporation's income. Where a corporation that was formed as a C corporation elects to become an S corporation (or where an S corporation receives property from a C corporation in a nontaxable carryover basis transfer), the S corporation is taxed at the highest corporate rate (currently 35%) on all gains that were built-in at the time of the election if the gain is recognized during a recognition period.

Under pre-Act law, for S corporation tax years beginning in 2012 and 2013, the recognition period was five years (instead of the generally applicable ten year period). Thus, the recognition period was the five-year period beginning with the first day of the first tax year for which the corporation was an S corporation (or beginning with the date of acquisition of assets if the rules applicable to assets acquired from a C corporation applied). If an S corporation disposed of such assets in a tax year beginning in 2012 or 2013 and the disposition occurred more than five years after the first day of the relevant recognition period, gain or loss on the disposition wasn't taken into account in determining the net recognized built-in gain.

New law. TIPA provides that for determining the net recognized built-in gain for tax years beginning in 2014, the recognition period is a 5-year period-the same rule that applied to tax years beginning in 2012 and 2013

Exclusion of 100% of Gain on Certain Small Business Stock Extended

A taxpayer may exclude all of the gain on the disposition of qualified small business stock acquired after Sept. 27, 2010 and before Jan. 1, 2014. None of the excluded gain is subject to the alternative minimum tax.

Under pre-Act law, the exclusion was to be limited to 50% of gain for stock acquired after Dec. 31, 2013, and 7% of the excluded gain was to be an alternative minimum tax preference.

New law. The Act extends the 100% exclusion and the exception from minimum tax preference treatment for one year (i.e., for stock acquired before Jan. 1, 2015).

Lower Shareholder Basis Adjustments for Charitable Contributions by S Corporations Extended

Before the Pension Protection Act of 2006 (PPA), if an S corporation contributed money or other property to a charity, each shareholder took into account his pro rata share of the fair market value of the contributed property in determining his own income tax liability. The shareholder reduced his basis in his S stock by the amount of the charitable contribution that flowed through to him. The PPA amended this rule to provide that the amount of a shareholder's basis reduction in S stock by reason of a charitable contribution made by the corporation is equal to his pro rata share of the adjusted basis of the contributed property.

Under pre-Act law, the PPA rule did not apply for contributions made in tax years beginning after Dec. 31, 2013.

New law. TIPA retroactively extends the PPA rule for one year so that it applies for contributions made in tax years beginning before Jan. 1, 2015

Special Rule for Payments to a Charity From a Controlled Entity Extended

For 2006-2013, interest, rent, royalties, and annuities paid to a tax-exempt organization from a controlled entity are excluded from the unrelated business taxable income (UBTI) of the tax-exempt organization, to the extent the payment reduced the net unrelated income (or increased any net unrelated loss) of the controlled entity.

For payments made pursuant to a binding written contract in effect on Aug. 17, 2006 (or renewal of such a contract on substantially similar terms), the above rule applies only to the portion of payments received or accrued in a tax year that exceeds the amount of the payment that would have been paid or accrued if the amount of such payment had been determined under the principles of Code Sec. 482 (i.e., at arm's length). A 20% penalty applies to that excess.

Under pre-Act law, these rules didn't apply to payments received or accrued after Dec. 31, 2013.

New law. TIPA retroactively extends these rules for one year, so that they apply for payments received or accrued by a tax-exempt organization through Dec. 31, 2014

Qualified Zone Academy Bond Limitation Extended

Qualified zone academy bonds are qualified tax credit bonds designed to allow low-income populations to save on interest costs associated with public financing school renovations, repairs, and teacher training. A taxpayer holding a qualified zone academy bond on the "credit allowance date" is entitled to a credit.

Under pre-Act law, except for carryovers of unused issuance limitations, the national bond volume limitation was $400 million for 2011, 2012, and 2013.

New law. TIPA provides that the national bond volume limitation is $400 million per year for 2011 through 2014. (

Exemption for RIC Interest-Related Dividends and Short-Term Capital Gains Dividends Extended

Under pre-Act law, a regulated investment company (RIC) may designate and pay (1) interest-related dividends out of interest that would generally not be taxable when received directly by a nonresident alien individual or foreign corporation and (2) short-term capital gains dividends out of short-term capital gains. RIC dividends designated as interest-related dividends and short-term capital gains dividends are generally not taxable when received by a nonresident alien individual or foreign corporation and aren't subject to the withholding tax imposed on nonresident alien individuals and foreign corporations.

Under pre-Act law, these provisions didn't apply to dividends with respect to any tax year of a RIC beginning after Dec. 31, 2013.

New law. TIPA retroactively extends the rules exempting from gross basis tax and withholding tax the interest-related dividends and short-term capital gain dividends received from a RIC, for dividends with respect to tax years of a RIC beginning before Jan. 1, 2015.

Treatment of RIC As Qualified Investment Entity Extended

Gain from the disposition of a U.S. real property interest (USRPI) by a foreign person is treated as income effectively connected with a U.S. trade or business and is subject to tax and to Code Sec. 1445 withholding under the Foreign Investment in Real Property Tax Act (FIRPTA) provisions. A USRPI does not include an interest in a domestically controlled "qualified investment entity."

Under pre-Act law, before Jan. 1, 2014, a RIC that met certain requirements could be treated as a "qualified investment entity."

New law. TIPA retroactively extends the inclusion of a RIC within the definition of a "qualified investment entity" for one year, through Dec. 31, 2014.

Still time to Act to avoid surprises during the tax time

Even though only a few months remain in 2014, you still have time to act so you aren’t surprised at tax-time next year. You should take steps now to avoid owing more taxes or getting a larger refund than you expect.  Here are some actions you can take to bring the taxes you pay in advance closer to what you’ll owe when you file your tax return:

• Adjust your withholding.  If you’re an employee and you think that your tax withholding will fall short of your total 2014 tax liability, you may be able to avoid an unexpected tax bill by increasing your withholding. If you are having too much tax withheld, you may get a larger refund than you expect. In either case, you can complete a new Form W-4, Employee's Withholding Allowance Certificate and give it to your employer. Enter the added amount you want withheld from each paycheck until the end of the year on Line 6 of the W-4 form. You usually can have less tax withheld by increasing your withholding allowances on line 5. 
• 
  
• Report changes in circumstances.  If you purchase health insurance coverage through the Health Insurance Marketplace, you may receive advance payments of the premium tax credit in 2014. It is important that you report changes in circumstances to your Marketplace so you get the proper type and amount of premium assistance. Some of the changes that you should report include changes in your income, employment, or family size. Advance credit payments help you pay for the insurance you buy through the Marketplace. Reporting changes will help you avoid getting too much or too little premium assistance in advance.
• Change taxes with life events.  You may need to change the taxes you pay when certain life events take place. A change in your marital status or the birth of a child can change the amount of taxes you owe. When they happen you can submit a new Form W–4 at work or change your estimated tax payment.
• Be accurate on your W-4.  When you start a new job you fill out a Form W-4. It’s important for you to accurately complete the form. For example, special rules apply if you work two jobs or you claim tax credits on your tax return. Your employer will use the form to figure the amount of federal income tax to withhold from your pay.
• Pay estimated tax if required.  If you get income that’s not subject to withholding you may need to pay estimated tax. This may include income such as self-employment, interest, or rent. If you expect to owe a thousand dollars or more in tax, and meet other conditions, you may need to pay this tax. You normally pay the tax four times a year. 

Filing Past Due Tax Returns

File all tax returns that are due, regardless of whether or not you can pay in full. File your past due return the same way and to the same location where you would file an on-time return. 

If you have received a notice, make sure to send your past due return to the location indicated on the notice you received.

Why you should file your past due return now

Avoid interest and penalties

File your past due return and pay now to limit interest charges and late payment penalties.

Claim a refund

You risk losing your refund if you don't file your return. If you are due a refund for withholding or estimated taxes, you must file your return to claim it within 3 years of the return due date. The same rule applies to a right to claim tax credits such as the Earned Income Credit.

Protect Social Security benefits

If you are self-employed and do not file your federal income tax return, any self-employment income you earned will not be reported to the Social Security Administration and you will not receive credits toward Social Security retirement or disability benefits.

Avoid issues obtaining loans

Loan approvals may be delayed if you don't file your return. Copies of filed tax returns must be submitted to financial institutions, mortgage lenders/brokers, etc., whenever you want to buy or refinance a home, get a loan for a business, or apply for federal aid for higher education.

If you owe more than you can pay

If you cannot pay what you owe, you can request an additional 60-120 days to pay your account in full through the Online Payment Agreement application. If you need more time to pay, you can request an installment agreement or you may qualify for an offer in compromise.

What if you don’t file voluntarily

Substitute Return 

If you fail to file, we may file a substitute return for you. This return might not give you credit for deductions and exemptions you may be entitled to receive. 

If the IRS files a substitute return, it is still in your best interest to file your own tax return to take advantage of any exemptions, credits and deductions you are entitled to receive. The IRS will generally adjust your account to reflect the correct figures.

Collection and enforcement actions

The return IRS prepare for you (our proposed assessment) will lead to a tax bill, which, if unpaid, will trigger the collection process. This can include such actions as a levy on your wages or bank account or the filing of a notice of federal tax lien.

If you repeatedly do not file, you could be subject to additional enforcement measures, such as additional penalties and/or criminal prosecution.

Already filed your past due return

If you received a notice, you should send IRS a copy of the past due return to the indicated address.

Time to Send 1099s

The 1099 can be mysterious. Business owners guess at its rules and requirements. Tracking changes to the procedures  can be so exasperating, some entrepreneurs just give up and file nothing at all. This can be dangerous as penalties can add up quickly. But the 1099 doesn't need to be complicated. To help simplify things, here are the basics.

To whom are you required to send a Form 1099? As a general rule, you must issue a Form 1099-MISC to each person to whom you have paid at least $600 in rents, services (including parts and materials), prizes and awards, or other income payments. You don't need to issue 1099s for payments made for personal purposes. You are required to issue 1099 MISC reports only for payments you made in the course of your trade or business. You'll send this form to any individual, partnership, Limited Liability Company, Limited Partnership or Estate.

What are the penalties? The penalties for not doing so can vary from $30 to $100 per form ($1.5 million for the year), depending on how long past the deadline the company issues the form. If a business intentionally disregards the requirement to provide a correct payee statement, it is subject to a minimum penalty of $250 per statement, with no maximum.

What are the exceptions? The list is fairly lengthy, but the most common is that you don't need to send a 1099 to corporations or for payments of rent to real estate agents (typically property managers -- yet they are required to send them to the property owners). Additionally, you don't need to send 1099s to sellers of merchandise, freight, storage or similar items.

Lawyers get the short end of the stick. Ironically, the government doesn't trust that lawyers will report all of their income, so even if your lawyer is 'incorporated,' you are still required to send them a Form 1099 if you paid them more than $600.

The W-9 is your "best friend." One of the smartest procedures a business owner can implement is to request a W-9 from any vendor you expect to pay more than $600 before you pay them. Using this as a normal business practice will give you the vendor's mailing information, Tax ID number, and also require the vendor indicate if it is a corporation or not (saving you the headache of sending them a 1099 next year). 

The deadlines. Finally, you are required to issue and essentially mail out all of your Form 1099s to your vendors by January 31. Then you have to send in the transmittal Form 1096 to the IRS before February 28. For those of you that 'outsource' this service, your accountant with the proper system can actually submit the 1096 and stack of 1099s electronically by March 31. Don't forget as well, that depending on state law, you may also have to file the 1099-MISC with the state.

What about foreign workers? Also, if you hire a non-U.S. citizen who performs any work inside the United States, you would need to file the 1099. It is your responsibility to verify that the worker is indeed a non-U.S. citizen, and performed all work outside the United States. For that purpose, in the future you might want to have that foreign worker fill out, sign and return to you Form W-8BEN.

Moving forward in 2015, make sure to get a Form W-9 from all your vendors before they can get paid. This will save you a lot of headaches next January so you don't have to track down their mailing addresses or EINs.

Sec 179 Limits for 2014

The first year deduction limit for equipment purchases under IRS Code Section 179 is $25,000 for 2014.  This is a substantial reduction from the $500,000 limit imposed for the year 2013.  To make matters even worse for clients planning on starting new practices this year, bonus depreciation, which allowed the immediate deduction of 50% of the cost of new equipment purchases, is not available at all for 2014.  Furthermore, previously eligible leasehold improvements no longer qualify to be deducted under Code Section 179.  Unless or until  Congress gets its act together and decides to replace these incentives for start-up businesses, it will increase the after tax cost of entry into private practice.  For more information, call our office and we will be glad to discuss this and other issues that you should take into consideration when deciding whether or when to start a practice.