The importance of healthcare insurance and the tax penalties you could face
Under the provisions of the Affordable Care Act, commonly referred to as ‘Obamacare’, federal tax penalties may be due in 2015 if you do not have healthcare coverage. This is intended to act as an incentive to motivate everyone who can afford healthcare to ensure that they are covered. For a healthcare plan to qualify it must be an insurance plan that provides ‘minimum essential coverage’ as defined under the act. Special insurance plans limited to a specific disease will likely not qualify, nor do vision or dental only plans.
The requirement to have health insurance to avoid related penalties started in 2014 and the penalties are even greater in 2015. There are certain exceptions to this requirement based on financial hardship, but, in essence, if you do not have healthcare through an employer and can afford it in the marketplace but do not buy it, you can expect to face a penalty. This is sometimes referred to by other terms, such as the ‘individual mandate’ or the ‘shared responsibility payment’.
The penalties in 2015 will be the greater of $325 per adult or 2 percent of income, and are projected to rise even further in 2016 to $695 per adult or 2.5 percent of income, again with the greater amount due. The law does not allow the IRS to apply liens, levies such as wage garnishment, or any criminal penalties in connection with not paying the penalty. However, if, like many taxpayers, you are due for a tax refund, the penalty amount will be held back, so you will in effect be paying it.
Given that these penalties may compare with the cost of basic plans in the marketplace, it is definitely worth looking into what options are available if you are not covered, especially as you will also be benefiting from peace of mind knowing that you have medical insurance coverage if needed.
Calculating your deduction for automobile expenses
Calling all business owners! How are you calculating your deduction for your automobile usage? Are you sure you are maximizing your deduction?
There are two options:
- You can take the standard mileage rate on the business miles driven.
For 2012, the rate is 55.5 cents per business mile, and in 2013, it is going up 1 cent to 56.5 cents per business mile.
Now, there are a few additional rules with using the standard mileage rate:
-For purchased automobiles, you must use this rate for the first year your car is used for business use. After the first year, you can choose to use the actual car expense method
-For leased vehicles, once you choose the standard mileage rate, you must use this method until the end of the lease term
-You cannot use the standard mileage rate if you already claimed a depreciation deduction for the vehicle
- Actual automobile expenses
With this method you are able to calculate your deduction by taking all automobile expenses, including: repairs, maintenances, licenses, gas, tolls, insurance, depreciation, etc. and multiply this total by your business use percentage
In choosing the method to use, make sure you take time and compute the calculation which will provide a higher deduction. It is a simple step that can make big differences.
*Please note that the above information provides the basic steps for car expense calculation. There are certain exceptions to the rules.
For more information contact us at MEspinoza@me-cpa.com.
IRS Circular 230 – In simple terms – Article for other tax return preparers
We see it on our emails and refer to them in our websites, but what does Circular 230 and this section of law really mean? What does it include?
Last week, I viewed a seminar on Circular 230 on the IRS website and here are some of my notes:
Circular 230 is not a part of the Internal Revenue Code, but instead a part of the U.S. Code, Title 31 and is overseen by the Office of Professional Responsibility (OPR). OPR oversees obligations and duties of ALL individuals who represent others before the IRS.
Circular 230 is a publication of certain U.S. Treasury regulations which include the rules governing practice before the Internal Revenue Service and is guidance for all administrative practice conduct.
It includes four main subparts:
- Authority to practice
- Duties and restrictions relating to practice
- Sanctions for Violations
- Disciplinary Procedures
Now, in saying the word practice, the OPR has described it as the following:
- All matters connected with a presentation to the IRS relating to taxpayer’s rights, privileges, or liabilities under the laws administered by the IRS
- Preparing or filing documents, corresponding and communicating with the IRS, rendering written advice, and representing clients at a hearing, meeting or conference.
- Practice is all tax return preparation
As CPAs and tax return preparers, we are obligated to adhere to the rules and regulations stated in IRS Circular 230. The rules in offering certain opinions are complex and have substantial requirements, so therefore when writing an email or any other correspondence that is not meant for a client reliance opinion, preparers should protect themselves with the following IRS Circular 230 disclaimer:
To ensure compliance with IRS Circular 230, any U.S. federal tax advice provided in this communication is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer (i) for the purpose of avoiding tax penalties that may be imposed on the recipient or any other taxpayer, or (ii) in promoting, marketing or recommending to another party a partnership or other entity, investment plan, arrangement or other transaction addressed herein.
For clients, please be sure that your CPA or tax return preparer is adhering to the following regulations under IRS Circular 230:
- Sign all returns they prepare for you
- Return all your original documents
- Provide you a copy of your prepared tax return
- Submit records to the IRS in a timely manner
- Exercise due diligence and use best practices of the profession
For more information, contact us at MEspinoza@me-cpa.com or go to www.irs.gov. See Tax professionals then Circular 230 Tax Pros. Or go to: www.irs.gov/pub/irs-pdf/pcir230.pdf.
What is the fiscal cliff?
As the election is over and we move to year end, you have probably heard about the fiscal cliff, but what is it?
The fiscal cliff is a combination of the following events:
1) Possible expiration of some or all of the Bush tax cuts.
This includes income tax rates rising to 15%, 28%, 31%, 36% and 39.6%, up from 10%, 15%, 25%, 28%, 33% and 35%. It also includes capital gain rates rising to 20% from 15% for most filers, along with the possibility of dividends being taxed at ordinary income tax rates instead of at capital gain rates.
2) The imposition of a new Medicare tax on investments and wages.
This includes an additional 3.8% tax on the lesser of 1) your net investment income or 2) amount over $250,000 for MFJ or $125,000 for singles of your modified adjusted gross income.
Also, an additional .9% surtax on earned income/wages over $200,000 ($250,000 for Married Filing Joint)
3) Expiration or reduction of other tax cuts and tax credits.
This includes the expiration of the 2% social security tax cut on employees’ wages, along with the reduction of the Child Tax, Earned Income and American Opportunity Tax credits.
Although upcoming law proposals are still uncertain, we as taxpayers need to be sure that we have properly planned for the possibilities of the 2013 tax year.
Some questions, you may want to ask yourself are the following:
1) Do you earn passive investment income, including interest, dividends, capital gains, and rental income?
2) Is your modified Adjusted Gross Income over $200,000 for Married Filing Joint and $125,000 for Singles?
3) Are you a beneficiary in a trust or estate?
If you answered yes to any of these questions, you will want to contact your tax advisor so you can be sure you are properly protected for the uncertainties of 2013.
Contact ME & Associates for more information.
