Don't Want to Buy Health Insurance? Look Into Market Place Hardship Exemptions
If you can afford health insurance but you don't wish to buy it expect a higher federal income tax bill for 2015. Under the Affordable Care Act, unless you have a health coverage exemption, the IRS will assess an additional penalty, using the higher result of the following two criteria:
- 2% of your yearly earnings: The amount of income above about $10,150, the tax-filing threshold, is what you use to calculate the penalty. The amount is capped according to what the IRS figures is the "average bronze plan premium."
- $325 per person for 2015--$162.50 per child under age 18: The maximum family penalty per family using this method is $975.
What qualifies as health coverage--and what does not
Most health plans, including any Marketplace plan, or individual insurance plan you already have qualifies as coverage. Any job-based or retirement plans, Medicare Parts A or C, and TRICARE plans for military retirees also qualify.
Not all plans offered outside the Marketplace will qualify for minimum essential coverage, though.
Plans that would not qualify include:
- health plans that cover a fixed, limited term
- health plans that have fixed benefit restrictions
- Medicare supplemental plans only, like Part D and Medigap
- certain Medicaid schemes covering only specific benefits
- limited-benefit plans, e.g., vision only, dental only
Exemptions and how to get them
For tax year 2015, you can apply for an exemption to avoid paying the tax penalty. The exemptions are income, health, and group membership related. They also cover anyone serving a prison sentence, U.S. citizens living abroad, and certain non-citizens.
Income-related
You could qualify for an income-related exemption if:
- the least expensive health coverage available (Marketplace or job-based) would amount to more than 8.05 percent of your household income
- you do not earn enough to be required to file an income tax return
Health coverage related
These apply when:
- your lack of health insurance coverage was for no more than two consecutive months
- your home state failed to expand its Medicaid program to meet the requirements of the Affordable Care Act, but if it had, you would have qualified
Group membership related
Certain groups are exempted:
- members of a federally recognized Native American tribes
- members of a recognized health care sharing ministry
- religious sects that object to health insurance, Medicare and Social Security
Hardship exemptions
Some life situations can prevent you from getting health insurance. Examples of hardships that qualify include homelessness, eviction or foreclosure, domestic violence, natural disaster, family tragedy, etc.
To qualify for a hardship exemption, you must complete a paper application and mail it to the Marketplace. For a list of qualifying hardships and instructions on how to apply, go to the Healthcare.gov webpage.
Loss of previous coverage
Likewise, if your insurance company canceled your plan, and you believe other Marketplace plans are unaffordable, you can apply for an exemption. The above-mentioned 8.05 percent of the household income criteria applies.
You can apply for this exemption either on your 2015 income tax return or completing a separate Marketplace exemption application. Download the application forms and instructions from the Marketplace.cms.gov website.
Need some help?
Your health coverage now affects your 2015 federal income tax return. The fees for not having health insurance could be another unexpected financial hit. Need some help or advice on addressing tax implications on yourself, your family or your employees? Dukhon Tax and Accounting has the expertise and experience to help you through tax year 2015 and beyond with the plans and strategies you need for the best tax planning.
Avoiding Tax Identity Theft
"Identity theft is one of the fastest growing crimes nationwide, and refund fraud caused by identity theft is one of the biggest challenges facing the IRS."…IRS Tips for Taxpayers, FS-2014-2, January 2014
According to an IRS report, Mauricio Warner, a Georgia resident, had a $10 million tax fraud and identity theft operation underway before he was caught and convicted. Warner used the names and social security numbers of online victims who "were told they could submit an application for an 'Obama stimulus payment' or 'Free Government Money.'”
Warner was sentenced to 240 months in federal prison and three years supervised probation, ordered to pay over $5 million in restitution, and forfeited his $4.1 million bank account.
The IRS has been aggressive in tracking down identity thieves and criminals like Warner. Its Identity Theft Clearing House since its inception in 2012 has pursued over 7,600 leads involving 1.47 million fraudulent returns amounting to almost $7 billion.
Avoiding Tax Identity Fraud
If you're the victim of a tax-identity theft, your tax return may only be the beginning. The IRS recommends the following precautions:
Don't fall for scams
Any email addressed directly to you claiming to be from the IRS is fraudulent. The IRS never contacts taxpayers by email or social media. They do not use the web to demand payment or offer refunds to taxpayers. Forward suspicious email to [email protected].
Likewise, unexpected phone calls from someone claiming to be an IRS agent are impersonation scams. The caller might ask for personal information to send you a refund or threaten you with arrest or deportation if you don't pay an overdue tax bill. Report these impersonation scams online or call 1-800-366-4484.
Finally, any website that claims to be an official IRS site but does not begin with www.irs.gov is bogus. Make a phishing report at the link cited above.
File early and hold your personal information close
File your tax return as early as possible. Income tax identity thieves strike early in the year.
Safeguard your social security number and never give it out unless you have initiated contact requiring its disclosure. Never routinely carry a social security card or documents that display your social security number.
Protect all personally identifiable information on your computer. Use firewalls, anti-spam and virus detection software, and use secure passwords for Internet accounts. Be especially discrete with your online activity in public places over non-secure networks.
If you become a victim
The signs
You are likely to have become a victim of tax fraud if the IRS informs you that:
- they have received more than one tax return filed under your social security number
- you owe the IRS money for a refund overpayment
- you reported wages from an employer you never heard of
What to do
Don't procrastinate; work with the IRS. In addition to following the FTC-recommended steps to limit the damage of identity theft:
- respond to the IRS notice right away using the telephone number and contact information on the notice
- complete IRS Form 14039, the Identity Theft Affidavit. Go to IRS.gov/pub/irs-pdf/f14039.pdf and follow the instructions for transmitting the form to the IRS.
- pay your taxes and file your tax return, even if you must use paper documents
It might take a while, and you could use some help
Tax identity fraud cases can become complex and perplexing. An IRS resolution to tax identity fraud could drag on for months. If you need help in extricating yourself from identity-theft problems, Dukhon Tax and Accounting offers just the expertise, advice and services to individuals and businesses on a year-round basis.
Estimated Taxes: Who Has to Pay Them and How?
The majority of taxpayers pay their taxes due annually when filing their tax return for the year. In some circumstances, however, taxes must be paid to the IRS on a quarterly basis. These tax payments are called estimated taxes because they are based on the amount of income that an individual or business expects to make for the year.
Read more
Filing your federal tax return after filing for an extension
April 15th may be more than six months away but it is never too soon to start thinking about how and when you will file your tax return. If all taxes due are not paid on time, you run the risk of penalties and interest. This is not a situation most people want to be in.
You avoid penalties by withholding a sufficient amount from your earnings or paying a quarterly estimated tax. However, you can get a waiver of the penalty for underpayment if:
- you suffered some financial misfortune caused by a disaster or “unusual circumstance” and it just wouldn’t be fair to impose a penalty, or
- you retired after age 62 or became disabled during the tax year
So long as your underpayment was not due to “willful neglect,” the IRS will consider overlooking the penalty. Naturally, you still have to report the estimated tax penalty in your return.
Speaking of penalties…
If you miss the April 15th tax filing date, an additional clock starts ticking. The penalties and interest on what you owe mount, and they will not stop until the matter is resolved. There are some automatic 6-month extensions for filing individual tax returns for citizens living and serving in the Armed Forces outside the United States.
Everyone else can apply for an automatic 6-month extension by filing IRS Form 4868. The form must be filed by April 15th.
If you are owed a refund, there is no penalty for missing the April 15th filing date.
The big “however”…
The IRS makes it clear that an extension of time to file your return does not grant you any extension of time to pay your tax liability.
Nevertheless, there are valid reasons…
Our personal and financial lives are fraught with the unexpected. Unforeseen circumstances--fire, flooding, business reversals--can place records keeping and tax accounting on the back burner.
On the other hand, unexpected financial windfalls or unanticipated income could have tax liability consequences. The extra filing time could provide the breathing room to gather the documentation, fill out those additional forms and take advantage of what our tax code offers to reduce that tax bill.
To recap…
When You File that Extension Request, the Due Date Gets Pushed, but...
- You still owe outstanding taxes
- The tax must be paid by April 15, or penalties/interest will accrue
- If you cannot pay all/anything, consider requesting a time payment or offer in compromise. (Note: Expect an additional charge to set up a payroll deduction or direct debit agreement to pay off your tax bill.)
Your extension request is in. Now what?
If you need assistance with filing your tax return that is on extension or are considering extending a tax return in the next tax year, reach out to us. We can assist you with the process from start to finish.
Lower your Tax Liability with Deductions and Credits
Tax deductions and credits help taxpayers reduce their tax liability. The differences between the two are in their definitions:
- A tax deduction reduces your gross income and arises from a deductible expense. Taxpayers can take a standard deduction up front or itemize expenses.
- A tax credit is an amount of money applied directly to the tax liability. Tax credits are far less common.
About Tax Deductions
Say your adjusted gross income for 2014 was $75,000. If you filed jointly with a spouse and were born before January 2, 1950, your standard deduction would have been $14,800. You figure your income tax bill based on a reduced income of $60,200.
There are, however, other “above-the-line” deductions you can claim to lower the aforementioned $75,000 adjusted gross income. For tax year 2014, those deductions are listed on lines 16 through 21 on Form 1040A and lines 23 through 37 on Form 1040. Deductions common to both forms are:
- Educator expenses
- IRA deductions
- student loan interest payments
- tuition and fees
Taxpayers wanting to take advantage of business, health savings, moving, self-employment, alimony payments and other expenses, need to file Form 1040, fill out the additional IRS forms and hope for the best -- the “best” being avoidance of an IRS audit trigger.
The alternative to taking the standard deduction is to fully itemize your expenses for the tax year. To be worth the trouble, your itemized expenses must exceed the standard deduction. Attach Schedule A to Form 1040 to document the following:
- Medical and dental expenses that exceed 7.5% for seniors’ and 10% of younger taxpayers’ adjusted gross income
- State and local taxes
- Interest payments on home mortgages, etc.
- Charitable gifts of at least $250 in cash or $500 in other than cash
- Casualty or theft losses
- Unreimbursed job expenses
- Other miscellaneous deductions specified in the Schedule A instructions
If your adjusted gross income was not over $152,525 for 2014, your deduction was not limited. Wealthier taxpayers must use a worksheet that reduces the overall deduction that can be claimed.
About Tax Credits
If you can claim a tax credit (lines 31 through 38 on form 1040A and lines 48 through 54 on Form 1040), you can subtract that amount from the taxes you owe. It is a 100 percent, dollar-for-dollar tax relief, regardless of your taxable income. Tax credits for individual taxpayers are far less common and generally apply to the following:
- earned income tax credit
- education credits
- child and dependent care credits
- child adoption credits
- saver’s credits
Business tax credits, on the other hand, run the gamut from general business, investment, electric vehicle and other energy credits to mine rescue team training. The credits are designed, among other things, as incentives for community development, research and energy savings.
The Bottom Line:
For the average taxpayer, tax deductions lower the amount of income subject to federal income tax. Unless you have had large deductible expenses during the tax year, taking the standard deduction is the easiest way to complete your tax return. If you can qualify for a tax credit, which will apply dollar-for-dollar to reduce your tax bill, you can offset your tax liability.
Contact Dmitry Dukhon at Dukhon Tax to help you get organized, file your returns and answer any questions you may have. We can be an invaluable resource for you to make the process as smooth as possible.
Use tax software or hire a human? -- DIY vs. DPB
Should you try to file that complicated tax return with using commercial tax software or get the help of a qualified tax preparer? Unless you're a qualified tax accountant, you should consider the pros and cons of DIY versus DPB. The former is fraught with pitfalls; the latter is more conducive to peace of mind.
A note on the aforementioned abbreviations: You probably recognize DIY as short for "do it yourself." DPB stands for "done by professionals." When it comes to preparing complicated tax returns, each method has its advantages. DIY will save tax preparer fees; DPB will add the focus of human attention on your unique circumstances.
Two methods for DIY: The “stubby-pencil” and the tax software alternative
Before automation, the "stubby-pencil" method in preparing a tax return required a pencil with a good eraser, a calculator and a knowledge of the fine print in the tax instruction booklet. Tax software stores and automates all that complicated verbiage, catches mistakes and omissions and saves paper and effort. It is the weapon of choice in the DIY category.
On the other hand, tax software is programmed by experts to be used by the rest of us. So the software designers must make some reasonable assumptions about the end user:
- The user clearly understands everything in the series of “interview” questions posted by the software.
- The user also understands the tax jargon and terminology used in the software.
- The user is reasonably adept at accessing and manipulating the software and has the patience to follow instructions and the sense not to override built-in warnings.
Pitfalls of tax software
Then there is the built-in caveat emptor -- buyer beware -- that is the small print of any software product:
- The tax software product has no guarantee that the return will be error free. The vendor only guarantees an accurate calculation based on what the user enters.
- If the taxpayer fails to answer or overlooks a deduction question while completing the return, the software won’t include a potential deduction in the return.
- No software is disaster proof. Answer "yes" after the question "Are you sure you want to delete your entire tax return?" and the software will follow your directions precisely.
So with the DIY approach the taxpayer is alone in the process and could easily overlook deductions and credits. Any problems that might result from errors and the taxpayer must face the IRS alone. Yes, tax software vendors "are standing by" as long as you're willing to "wait for the next available customer service representative" -- who probably isn't a tax expert. (Well, what do you expect for your $40 to $60 investment?)
The peace of mind of the DBP approach
- The professional tax preparer knows the answers to questions you might not have thought of, or simply don't know to ask.
- You'll be confident that you have included every deduction and gotten the best result from your tax filing.
- Any IRS questions or audits will be handled by the professional you hired.
- The savings in time and the increased tax savings/refund are positive return on the fee you pay the professional.
Then there’s the valuable but intangible peace-of-mind factor knowing that everything was done by an actual person -- and correctly. Also, when you hire a tax professional you get the benefit from advice on tax strategies that could save more money in the future by avoiding the mistakes of the past.
Contact Dmitry Dukhon at Dukhon Tax to help you get organized, file your returns and answer any questions you may have. We can be an invaluable resource for you to make the process as smooth as possible.
Plan Ahead for Your 2015 Tax Filing
Experience can be a good teacher, but we shouldn’t learn everything through our mistakes. For example, if the IRS penalized you last April because you underpaid your taxes, you can fix that for this tax year. Consider having your employer deduct more from your wages, or at least going the estimated tax payment route.
We may be halfway through 2015 but there is still time for you to map out a strategy for this year. Here are 3 things you can start doing right now:
- Get organized.Getting organized might not cut your taxes, but good record keeping avoids the number 1 and number 2 hassles of tax preparation: 1) Bad records keeping makes it impossible to do a thorough and timely job on your tax return; and 2) The IRS requires documentation if you get audited.To get organized, at a minimum you should:
- keep last year’s tax return handy
- use personal finance software to keep track of tax-related income and expenditures
- throughout the year collect and group receipts and papers that affect your taxes and keep everything in a separate file
- safeguard the W-2s, 1099s, bank interest, mortgage statements, etc., that typically arrive in January
- plan to store your files for at least 3 years (7 years is optimum, since IRS audits can go back that far.)
- Itemize your tax deductions.
- Visit the IRS website and see Topic 500 - Itemized Deductions. You will need Form 1040, Schedule A and its accompanying instructions. Before you get to Schedule A, however, there are deductions like IRA contributions that don’t need to be itemized and can reduce your taxable income. You’ll find them in items 31 through 38 on IRS Form 1040A and 48 through 54 on Form 1040. For each deduction you’ll need to attach a corresponding IRS Form.Don’t forget to look into tax credits, which can also reduce your tax bill dollar-for-dollar. They are, however, less common than tax deductions.
- Gather the tax forms you need.
- Go right to the source on this one. The IRS has a complete catalog of forms and publications on its website. While there’s still time, it won’t hurt to review the forms and instructions for changes or additional documentation. Make a list of the forms you need; download them and shake your head in wonderment at the enormously complex tax code we live under.Above all, be on time.The end result of all that planning is that you have a complete and accurate tax return ready for submission on or before the tax-filing deadline. Even if unforeseen circumstances keep you from meeting the due date, you still must make a reasonable estimate of your tax liability and pay any balance due with your extension request. Even though the IRS holds all the cards, your ace in the hole will be your preparation and planning.…And Get Help.If after reading all the advice above, you’d rather leave tax planning to experts so that you can get on with your life and business, consider working with a knowledgeable tax advisor. Contact Dmitry Dukhon at Dukhon Tax to help you get organized, file your returns and answer any questions you may have. We can be an invaluable resource for you to make the process as smooth as possible.
Reduce Your Tax Liability With These 3 Often Overlooked Tax Deductions
As the tax year matures, it is not too late to find ways to reduce your personal or small business income tax bill. Below are three areas to pay attention to throughout the year:
1. Take more charitable deductions.
You are probably aware that you can deduct the cash or value of property you give to charitable organizations. However, you might not be taking full advantage of this benefit. For example, you can deduct:
- Out-of-pocket costs for volunteer charitable work; e.g., cost of food ingredients for those pastries you donated, or stamps you bought for event mailings
- Childcare (babysitting, etc.) expenses you incurred while you did unpaid volunteer work
Make sure you fully document any charitable expenses, especially the unusual ones. A large number of deductions in this area could trigger an IRS audit.
2. Look out for unusual business expense deductions
A junkyard or scrapyard owner could, for example, deduct the cost of cat food to lure neighborhood cats and keep the rat population down. It is an unusual, but valid business expense.
More traditionally, self-employed business travelers can deduct those aggravating extra charges that airlines love to add to the cost of your ticket. Extra fees for baggage, online booking or ticket changes earn commercial air carriers billions each year. Don’t forget to add those charges to your deductible business expenses.
Again, for obvious reasons, save your receipts.
3. Deduct those job-hunting expenses.
Anyone who has lost a job and has gone to the excruciating effort of finding a new one knows that job-hunting can be as expensive as it is exhausting. If during your job search you were looking for a position in the same line of work as your most recent job, and if you’re willing to itemize and document those expenses, you can deduct them -- even if your job hunt was not successful.
Below are some deductible expenses: (The list is by no means exhaustive)
- transportation expenses incurred as part of the job search (cabs, auto, commercial, etc.)
- food and lodging expenses for out-of-town job interviews
- fees paid to an employment agency
- printing costs for résumés, business cards, advertising and postage
The foregoing deductions do not apply to a first-time job hunt. However, any moving expenses involved in landing that first job are deductible, even if you don’t itemize deductions.
Below are three more miscellaneous deductions that not many people know about.
You can deduct:
- the additional extra 7.5 percent you had to pay for self-employed Social Security tax
- health insurance premiums -- deductible at 100 percent of the premium cost for self-employed tax payers
- alternative energy equipment such as solar hot water heaters, geothermal heat pumps and wind turbines -- This tax credit is a whopping 30 percent write-off of the total cost (including labor) for those systems up through 2016.
Don't miss out
There are many more deductions and credits you should know about before you send off your next tax return. Don’t wait until next April 1st to discover that you are eligible for an array of deductions and credits, but you failed to keep the records and receipts. Contact us for the tax planning, guidance and professional tax preparation that will mean more money for you and your business.
Sources:
Principal sources for this article was the irs.gov web page, Credits & Deductions at http://www.irs.gov/Credits-&-Deductions and an online information page from TurboTax entitled "9 Things You Didn't Know Were Tax Deductions"
4 Questions You Should Ask Your Tax Advisor This Tax Year
According to a piece in Business News Daily, tax year 2015 brings some new challenges and opportunities for small business owners in Boston and throughout the U.S. business landscape. If you want to stay ahead of the curve, you probably should ask our tax advisor a few questions.
Here are four to get you going:
Question 1. How does The Affordable Care Act (aka: Obamacare) affect my business?
The challenge: The act added another 2,400 pages to the already prodigious tax code. The IRS is now the gatekeeper for employee insurance coverage rules, which go into effect as follows:
- January 1, 2015: Businesses with 100 or more workers must offer health insurance to 70 percent or more of their full-time employees.
- January 1, 2016: The minimum number of employees drops from 100 to the 59-99 range.
Tax penalties include up to $2,000 per non-covered employee. The IRS will audit employees’ W2 forms as employers report the cost of health coverage they provide. One tax expert from a Los Angeles-based tax advisory firm puts it succinctly: “It’s going to be a big regulatory nightmare.”
Question 2. I rely on online sales to out-of-state buyers. Will I have to report and collect sales taxes for states other than my own?
The short answer: If you do business on line, your days of out-of-state “tax-free clicks” are probably numbered. The reintroduction of the so-called “Marketplace Fairness Act” gives each state the authority to force out-of-state businesses to collect sales tax from online or catalog purchases.
The bill is now in the Senate and has bipartisan support. (See https://www.congress.gov/bill/114th-congress/senate-bill/698/actions for updates.)
Question 3. How will Republican control of both houses affect the tax laws that regulate my business?
Again, the short answer: The Republicans are in charge and “everything is on the table.” Now in control of both houses of Congress, the Republicans could have significant impact on taxes. According to the chairman Senate Finance Committee, there could be “new momentum” for overhaul of the U.S. tax code in 2015, which could impact the business tax burden.
Stay tuned to find out if Republican election promises materialize beyond the bluster, inaction and finger pointing that has characterized the U.S. Congress for so long.
Question 4. What can I do to keep from being overwhelmed by tax laws and IRS regulations?
A partial answer involves staying ahead of the curve. Business owners don’t have to become overwhelmed. Take the following steps to go from reactive to proactive:
- Keep taxes top of the mind all year long. Tax planning has to be a year-round effort. Just as in personal tax returns, waiting until the last minute complicates the process and limits options.
- Avoid business decisions based on assumptions that existing tax breaks will continue. One expert advises clients “to make sure the tax tail isn’t wagging the dog.” Don’t make business decisions based solely on taxes. Keep the business in the forefront. If the tax breaks come, that is definitely a bonus.
- Stay aware, and informed. Business owners need to keep up with laws and the myriad IRS regulations. Even with expert help, business owners need to stay alert to stay ahead.
Finally, if you haven’t already done so, hire a pro. If you overlooked business tax credits and deductions because of poor record keeping, or you are simply unready to cope with the burden of Obamacare, it’s not too late to catch up. Make 2015 the year you finally got the year-round tax planning, guidance and professional tax practice can provide.
Contact Dukhon Tax about all your tax concerns and start tax planning in advance to increase your bottom line!
Buying Time and Clearing up Your Tax Debt to the IRS
The IRS is like a collection agency on steroids. Each passing day that you owe back taxes accrues additional penalties and interest on the amount due. But you still have options -- a tax filing extension and installment plan, to name two -- if you want to avoid compounding your problems with ruinous IRS levies and liens.
The tax is due on April 15th, regardless
If your tax situation is so muddled or complicated that you cannot gather up what you need to file by April 15th, you can submit an extension request -- IRS Form 4868 -- online or by mail. Your new due date will be October 15th. However, filing the form does NOT EXTEND your due date to pay what you owe. According to a piece on the US TaxCenter website:
“[A] tax extension gives you more time to file your income tax return, but it does not extend the deadline …. This means that you need to know how much tax you owe and be ready to submit payment by April 15, whether or not you are requesting a tax extension.”
Consider filing your taxes on time if you can
So your best approach is that if you can meet the filing deadline, but don’t have the funds to pay your tax bill, file anyway. The penalty for failing to file is usually more than penalty for failing to pay your taxes. If the IRS judges that you used the extension request simply to kick the problem down the road, your request for an extension could be denied and you could be faced with additional penalties for failure to file.
Setting up a time payment plan for taxes
The good news is that according to the IRS, you can work out a monthly payment schedule through an installment plan. You are eligible for an extended time payment plan if:
- you owe no more than $50,000 in individual taxes
- you owe $25,000 or less in payroll taxes if you run a business
- have filed all required tax returns
Other conditions apply
The not-so-good news is:
- Setting up a payment schedule is not free. The IRS currently charges $120 to set up a standard agreement or payroll deduction plan -- $52 for a direct debit arrangement.
- Any future tax refunds will be applied to your debt until it is paid in full.
- You must pay your minimum monthly bill when it is due.
- You must also file future tax returns and pay all your taxes in full and on time.
To recap
So April 15th is when the IRS expects you to file your tax return and settle your tax bill. File an extension request if your situation is so complicated that you need time to gather the information you need for a complete and well-documented return. Otherwise, file on time and pay what you can and pay the rest later -- with penalties. If you want to avoid most or all of the late penalties, work out an installment payment schedule. The IRS will work with you.