February 5

What are my obligations under the Affordable Care Act (ACA)?

The requirements under the Affordable Care Act (ACA), commonly referred to as Obamacare, went into effect on January 1, 2014.  ACA requires all U.S. citizens (and certain non U.S. citizens) meet the requirement to carry “minimum essential coverage” for health care unless they had a “qualifying exemption”.

When filing your 2014 taxes you will report for each month, whether you and your dependents carried qualifying health care coverage or had a qualifying exemption.  If neither requirement was met, you will be assessed and must pay a shared responsibility payment for each month the requirement was not met.

What is “minimum essential coverage”?

A health care plan or arrangement specifically identified under the law as providing minimum essential coverage, including:

  • Government sponsored programs like Medicare Part A, Medicare Advantage, most Medicaid, TRICARE and CHIP programs, and comprehensive health care coverage for veterans;
  • Employer-sponsored group health plans (including self-insured programs);
  • Qualified insurance obtained through the Healthcare marketplace or through individual plans purchased from an insurance company;
  • Grandfathered health plans (plans in existence prior to ACA’s enactment that have not changed since its enactment); and
  • Other plans or programs that the Department of Health and Human Services has recognized as minimum essential coverage.

For more information on whether your plan qualifies, go to http://www.irs.gov/Affordable-Care-Act/Individuals-and-Families/ACA-Individual-Shared-Responsibility-Provision-Minimum-Essential-Coverage.

What is a “qualifying exemption”?

Some individuals may qualify for an exemption because of:

If you believe that you or your dependents qualify for an exemption, you should apply as soon as possible.  Even if you failed to apply for an exemption if you believe that you may qualify you should inform your tax professional.

How will I report compliance with ACA on my 2014 tax return?

You will report for each month in 2014 that you and every dependent on your return carried qualifying coverage or had a qualifying exemption.  If you obtained coverage during a month, the law considers you to have coverage for the entire month.

  • Qualifying Coverage for the Entire Year: If you and your dependents had qualifying coverage every month in 2014, you simply check the box on Form 1040, 1040A or 1040EZ indicating full-year coverage.
  • Coverage Obtained Through the Healthcare Marketplace:  If your coverage was obtained through the Healthcare Marketplace and you received a subsidy, you will receive Form 1095-A reporting the subsidy amount.  This subsidy must be reported on your tax return or the processing of your return may be delayed. If you received a subsidy, your actual household income on the 2014 return will be compared to the projected household income you entered when applying for healthcare coverage.  If actual household income was less than projected income, you are eligible for an additional subsidy.  If actual income was more, you are required to repay the excess subsidy you received.
  • Qualifying Exemption: If you had a qualifying exemption every month in the year, you must claim this exemption on Form 8965 and file it with your tax return.
  • No Coverage or Part-Year Coverage: If you had no coverage or coverage for just part of the year, you must calculate your shared responsibility payment on Form 8965 and file it with the tax return.  The shared responsibility payment reduces any refund you are due on the return.  If no refund is due, the shared responsibility payment will be added to the tax you owe on the return.

How is the shared responsibility payment calculated?

For 2014, the shared responsibility payment is calculated as:

  • The greater of:

Percentage of Income:  1% of your household income that is above the tax return filing threshold for your
filing status;  or

Flat Dollar Amounts: Your family’s flat dollar amount, which is $95 per adult and $47.50 per child under the
age of 18, limited to a family maximum of $285.

  • Maximum Cap: the maximum amount owed is capped at the national average cost of a bronze level health plan available through the Marketplace. In 2014, this was $204 per month per individual or $1,020 per month for a family of five.

For example, a married couple with three children under the age of 18 with a   household income of $160,000, and no coverage or qualifying exemption for the entire year would pay $1,397 because the Percentage of Income is greater than the Flat Dollar Amount but is less than the Maximum Cap.

The Percentage of Income and Flat Dollar Amounts increase each year.  In 2015, the percentage is 2% and flat dollar amounts are $325 per adult and $162.50 per child.  In 2016, the percentage of income is 2.5% and the flat dollar amounts are $695 per adult and $347.50 per child.  After 2016, these figures will be increased for inflation.

For questions regarding the Affordable Care Act and how it affects you and your business please contact Terri Brunsdon, CPA, Esq., at 330-374-1166.

January 15

Terri recently sat down with Suzanne Kearns of Intuit Quickbooks to discuss what options small-business owners have available to them when they find themselves behind in their taxes owed to the IRS. Here are some highlights from Terri’s interview:

Small Business Center: What are some of the reasons that small-business owners fall behind in their taxes owed to the IRS?

Terri Brunsdon: One example is that a business suffers an economic slump and, instead of paying taxes, it pays vendors. The biggest issue I encounter is a business’s failure to remit payroll tax withholdings. Because payroll withholdings are fiduciary taxes (meaning it has been collected from employees on behalf of the IRS), the IRS will hold the business owners, accountant, and any other responsible parties personally liable for the tax.

What power does the IRS have over business owners to force them to pay overdue taxes?

If a business fails to pay its taxes, the IRS can levy and lien its assets. To levy means the IRS seizes financial assets, usually cash in bank accounts or payments from customers. On the other hand, a lien is public notice that the IRS has a priority claim on the business’s assets that must be satisfied before they may be sold. A lien also affects the credit rating of the business. If the unpaid tax is fiduciary, the IRS can levy or lien the assets of the owners and any other responsible party.

To learn more about Terri’s advice to small-business owners, read the full interview from Intuit Quickbooks.

February 28

On February 26, 2014, the Ohio Senate passed bill S.B.243 that authorizes an annual three-day sales tax holiday the first Friday in August. The bill covers items such as computers (less any manufacturer’s rebate) costing $1,000 or less, computer supplies (less manufacturer’s rebate) costing $750 or less, clothing costing $100 or less, school supplies costing $20 or less and school instructional materials costing $20 or less. The legislation was co-sponsored by Senators Faber, Hit, Hughes, Jones, Lehner, Obhof, Oelslager and Schaffer. The bill now goes to the House for approval.

February 12

Have you ever wondered what is “alternative minimum tax” and how it affects you? To answer the first question, alternative minimum tax, AMT for short, was enacted in 1969 as an attempt to make sure that wealthy taxpayers – usually taxpayers having the largest tax deductions – paid at least a “minimum” amount in tax. However, middle income taxpayers soon found themselves subject to the tax because Congress had failed to inflation index the AMT exemption brackets (exemption brackets are per filing status, dollar based thresholds used to exempt taxpayers from the tax). In 2013, Congress finally passed an AMT fix by permanently inflation indexing the brackets.

So does AMT affect you? You may be subject to AMT if you have taxable income, plus certain deductions, exceeding your AMT exemption bracket. For 2013, the exemption bracket for Single or Head of Household filers is $51,900. If you file Married Filing Joint or Qualifying Widow(er), the exemption is $80,800. For Married Filing Separate, the exemption is $40,400.

The rules for calculating AMT are complex. However, in a nutshell, you begin with taxable income as computed under regular tax rules and add back certain Schedule A deductions (like state and local income taxes, investment interest expense, certain home mortgage interest, etc.) and other deductions like net operating losses, certain depletion and depreciation expenses, etc. You then compute the amount of alternative tax that would be due on the AMT taxable income. If the alternative tax is higher than the regular tax, you pay the alternative tax. In other words, if the amount of tax you owe under normal tax rules is not high enough, you must pay the higher alternative tax.

You should contact your tax or legal advisor if you would like more guidance on how AMT affects you. In addition, the IRS provides an AMT Assistant tool to help you assess.

 

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