Incorrect Tax Forms Cause Major Headaches for 800,000 Americans
One of the biggest changes facing tax filers this year is proving that they have health care coverage due to the requirements of the Affordable Care Act (AFA). Additionally, filers must also prove that their income qualifies them for subsidy payments, which they have already been receiving. Unfortunately, some serious errors by government officials have just made this process even harder. Over 800,000 filers in 37 states, who thought they were prepared to file, have been notified that the government sent them incorrect paperwork. Even worse, at least 50,000 people who have already filed their taxes using the wrong documentation will have to file amend returns once they receive the corrected form.
The Problem
The error only affects individuals and families who obtained health care coverage through the HealthCare.gov federal exchange and received subsidies. Subsidies are granted by the government to help individuals under certain income limits pay for their health insurance premiums. The 2014 subsidies were based on the projected household income at the time of enrollment. The government recent mailed out 1095-A forms, which report the average benchmark premium in an individual’s area and the amount of subsidy that they qualified for. The premium amount is how the government determines the amount of premium tax credit filers are eligible to receive. A blog post on the HealthCare.gov website stated that the initial 1095-A forms contained 2015 premium benchmarks instead of the ones for 2014. Speaking on behalf of the Centers for Medicare and Medicaid Services, Andrew M. Slavitt said that they do not know how or why the mistake occurred. Officials estimate that individuals will receive a corrected Form 1095-A in the first week of March.
Unfortunately, it wasn’t just the federal health care exchange that had reporting issues. James F. Scullary, a spokesman for the California healthcare exchange, said that they were in the process of sending out over 100,000 corrected forms to households in that state.
The Impact
Affected households were notified via email and phone calls as soon as the error was detected. Filers can also login in to their HealthCare.gov accounts, where they will see a message indicating whether they were affected. Additionally, they can call the federal customer service center at 800-318-2596. The 50,000 tax filers who have already filed their income tax returns will receive special instructions from the Treasury Department as to how they can file amended returns.
These errors are particularly difficult for lower-income families who received subsidies for their heath care premiums. Many of these families rely on their annual tax refunds to pay critical household bills. Waiting to file taxes until a new form is mailed out places them in a tough financial position.
Healthcare Enrollment Extended
In related news, millions of households who are still uninsured are also getting surprises when they file their taxes. Steep penalties are subtracted from a household’s tax refund if they cannot prove that they had health insurance coverage for 2014. The penalty is $95 per adult or 1 percent of income. In 2015, the fees rise to $325 per adult or 2 percent of income. To help mitigate these penalties, President Obama announced a special enrollment period for healthcare that runs from March 15th to April 30th. This allows uninsured individuals to sign up for healthcare on HealthCare.gov and not have to pay penalties for 2015. These individuals are still responsible for paying the penalties for not having insurance during the 2014 year. Only taxpayers who live in states with a Federally-facilitated Marketplace (FFM) are eligible to take advantage of this special enrollment period.
Tom Brady Avoids Tax Penalty Associated with Giving Chevy to Malcolm Butler
When Chevrolet prepared to give a brand new 2015 Chevy Colorado to New England Patriots quarterback Tom Brady for being Super Bowl XLIX MVP, Brady did the honorable thing and said he would give it to cornerback Malcolm Butler instead. After all, it was Butler who intercepted a pass on the goal line to secure the Patriots' Super Bowl win. However, after considering the tax consequences of Brady giving away the vehicle himself, Chevy decided to give it directly to Butler instead, thus shifting the tax consequences to him.
You see, the IRS considers vehicles a taxable prize under the Internal Revenue Code, section 74. If Brady had received the vehicle and then given it to Butler, Brady would have had to pay $13,500 in income taxes just for receiving it (based on his 39.6 percent tax bracket). Brady would then have had to pay an additional $8,000 to cover the gift tax that the IRS charges when someone gives away items of value. The IRS allows individuals to give away money or property valued at $14,000 each year. If the item or monetary amount is higher than this and the giver must pay it. Now granted, money isn’t a problem for Tom Brady. Taxes in this case, however, would have been almost as much as a new vehicle. Since a new Chevy Colorado only costs $34,000, it begs the question of whether it’s worth it to go through the hassle of dealing with all of the IRS regulations related to gifting one. By giving the vehicle directly to Butler, the gift tax penalty was eliminated for Brady. Additionally, Butler is now the one who must pay income taxes on the vehicle.
It’s not the first time that this issue has arisen for Brady, a Super Bowl veteran. He also gave away the car he received for being the Super Bowl XXXVIII MVP to his high school, which raffled it off to raise money.
This story highlights the serious tax consequences that come with receiving a free gift, especially one valued at $35,000 like the Colorado in this story. While the average American won’t win a car, they do often give relatives property or money for down payments. This means that they are subject to the IRS’s gift tax and income tax regulations. However, there are ways to mitigate the tax implications of giving away high-value property or amounts. Those considering gifting large amounts should talk with a tax professional who can advise you on how to do it with the least amount of tax consequences.
Turbo Tax and Do-It-Yourself VS. Professional Tax Preparer
Tax time brings a multitude of financial decisions, including whether to hire a tax professional or prepare your own taxes using software like TurboTax. While the low cost and advertised ease of do-it-yourself tax products may be tempting, they aren’t always what they claim to be. In fact, many tax filers find them frustrating and time consuming with very little actual cost savings. These drawbacks and increased stress often makes hiring a professional tax preparer a smart move.
The Dangers of Do It Yourself Taxes
When people consider using do-it-yourself tax filing software, they typically focus on the positives, like the low cost and ability to use them from their couch. However, these programs have quite a few negatives as well, which could wind up causing an audit, late penalties and even interest charges. Here are a few problem areas:
- They’re time consuming and stressful- Tax software promises to walk you through all the steps, but what happens when you don’t understand the steps? Online help systems and FAQs are often insufficient to help you understand what to enter. For example, health insurance premiums can be deducted in some instances but not all.
- You can enter any numbers into the return – The ability to enter any number into the software may seem like a good idea, but it can be dangerous. A higher charitable contribution amount or inflated IRA may get you a bigger return, but it can also get you into serious trouble down the line.
- You don’t know if you did it correctly – There are few tax topics that apply to everyone. Most only apply to some people in some cases. Many software programs don’t ask enough questions to find out if you are truly qualified for a deduction, for example mileage deduction for a vehicle.
- There’s no continuity- Even if you use the same tax program every year, it can make errors. Most programs say that they import information from the previous year, but would you know if they didn’t? Most people don’t and end up losing deductions or credits that they qualify for.
Big Box Drawbacks
Some people know that they don’t have the skills or patience to do their own taxes. However, to save on costs they go to a big box tax service like H &R Block or Liberty Tax Service. While the price may be right for these services, there are some things you should know. Primarily, they use untrained staff to prepare taxes. Most of their preparers have only taken a four to six-week course in taxes. They aren’t even required to have previous experience in accounting and rely on software programs to do most of the work. That means they aren’t any more knowledgeable than you are. In addition, many of these stores close on April 17th, which means they aren’t around if you are audited by the IRS.
Benefits of Professional Tax Preparers
Professional tax preparers have years of knowledge, advanced degrees and certifications, such as Master’s Degrees and CPA and EA licenses. Their experience and education is what will ensure that their clients get all of the deductions and credits that they deserve.
Here are a few more advantages that these tax professionals can put to work for you:
- They can often represent you if you are audited and help you handle collection matters.
- They provide tax planning to help you make tax saving decisions early.
- They spot opportunities to help you make smart tax decisions like converting ordinary income into capital gains.
- Their office is open year-round to answer your questions
At Dukhon Tax, we understand taxes down to a theoretical and statutory level, which is much better for our clients! Visit our website for a free, no obligation consultation! We even offer a special package for students!
We love students!
At Dukhon Tax and Accounting, we have a special place in our heart for our local student population. Remember, we were once students too – and of course, we always remain studious and continue learning! As such, we’d like to show how much we appreciate the great minds of our local college community by offering a special price on tax preparation. Plus, we’ve made it very easy to upload your documents and connect with us.
During the month of February, we will be offering a special price for tax preparation to local students. We know that winter semester is a busy time. However, getting your tax refund quickly and easily should brighten up your spirits!
For local students who present a valid student ID, we will be offering a flat rate of $100 for basic preparation of tax returns*.
Instead of using online tax software or waiting in line at one of the large national firms, come see us for tax expertise and a modern service model.
- Contact Dukhon Tax and Accounting by
PHONE: 617-651-0531
EMAIL: [email protected]
ONLINE FORM: Click Here » - We will send you a link to our client portal and contact you to discuss your situation. If you’d like to stop by our office to chat, we can setup an appointment.
- Upload your tax forms (W-2s, 1098-T, Student Loan Interest Statements)
- We prepare your return and you receive your refund by direct deposit.
Fast and accurate tax refunds – make sure you get all the money that is owed to you. No need to lose a weekend using the “do-it-yourself” software.
We look forward to serving our local student population and all of our clients during this tax season!
Sincerely,
The Staff at Dukhon Tax and Accounting
*Basic return are 3 or less W-2s, education credit, student loan interest, and no other deductions or attached form schedules. Valid student ID required. Offer lasts 02/01/2015 to 02/28/2015, please contact our office during that time.
Fast Facts: Affordable Care Act
Dukhon Tax advisors have been answering many questions in relation to ObamaCare and the Affordable Care Act (ACA). We hope these fast facts help with your 2014 tax preparation.
- The IRS opens the 2014 tax filing season on Tuesday, January 20, 2015.
- Taxes must be filed by the IRS deadline: Wednesday, April 15, 2015.
- When filing 2014 taxes, you must report the status of your health care coverage and any cost assistance you received.
- Forms 1095-A, 1095-B or 1095-C from your insurer will detail the months you had coverage. In the event you have multiple sources of coverage, you will receive multiple forms.
- Did you, or a dependent household member, go three months or more without minimum essential coverage? You will need to make a Shared Responsibility Payment or file an exemption.
- Exemptions are only valid with an Electronic Confirmation Number (ECN). This number is provided by the Health Insurance Marketplace. Exemption requests take time to process. Ensure you apply early to avoid late tax filing penalties.
- Taxes filed in 2015 are subject to the 2014 fee rate. Cost assistance is based on the 2013 Federal Poverty Guidelines. Annual fee rate for not having insurance (2014) is $95/adults, $47.50/child, family $285, or 1% of household income to a max threshold. In 2015, the annual fee rate for not having insurance jumps to $325/adult, $162.50/child, family $975, or 2% of household income to a max threshold.
- Income below the minimum threshold for filing a tax return? You are exempt from the fee for not having coverage, but may qualify for Medicaid or Marketplace cost assistance.
- Made less than you projected? Opted not to take the full tax credit in advance? If you did not update your Marketplace information, you need to deduct the remaining amount on your Federal income taxes. See Form 8962 – Premium Tax Credit (PTC).
- Small business owners can use the Small Business Health Options Program (SHOP) to obtain coverage and credits for their employees.
- Minimum essential coverage can only be obtained during open enrollment.
- Unlike the typical methods of collection (liens, jail time), the IRS is not able to enforce the Individual Shared Responsibility Provision. Instead, the IRS will withhold your Federal Income Tax refund.
To learn more about the Affordable Care Act, the Individual Shared Responsibility Provision or view IRS publications, please visit: http://www.irs.gov/Affordable-Care-Act/Individuals-and-Families/Individual-Shared-Responsibility-Provision
For personal or business tax preparation, or to obtain guidance with the Affordable Care Act, the team at Dukhon Tax is ready to help. Visit us at DukhonTax.com
Reporting Your Affordable Care Act ("ObamaCare") 2014 Taxes
Confused by the tax filing requirements under the Affordable Care Act (ACA)? You are not alone. Filers for 2014 must report healthcare coverage on form 1040 in the taxes section on page 2.
Read more
We Love Students!
At Dukhon Tax and Accounting, we have a special place in our heart for our local student population.
Remember, we were once students too - and of course, we always remain studious and continue learning! As such, we'd like to show how much we appreciate the great minds of our local college community by offering a special price on tax preparation and online tax filing services.
During the month of February, we will be offering a special price on tax preparation for local students. We know that winter semester is a busy time. However, getting your tax refund quickly and easily should brighten up your spirits!
For local students who present a valid student ID, we will be offering a flat rate of $100 for basic preparation of tax returns*.
Instead of using online tax software or waiting in line at one of the large national firms, come see us for tax expertise and a modern service model.
- 1. Contact Dukhon Tax and Accounting by
PHONE: 617 651 0531
EMAIL: [email protected]
ONLINE FORM: Click Here - We will register you for access to our client portal and ask you a few questions.
- Upload your tax forms (W-2s, 1098-T, Student Loan Interest Statements)
- We prepare your return and you receive your refund by direct deposit (check, direct debit, and other options available too).
Also, in most cases you can have the return prepared without paying any money upfront. We can withhold our fee from your refund.
Fast and accurate tax refunds - make sure you get all the money that is owed to you.
We look forward to serving our local student population and all of our clients during this tax season!
Sincerely,
The Staff at Dukhon Tax and Accounting
*Basic return are 3 or less W-2s, education credit, student loan interest, and no other deductions or attached form schedules. Valid student ID required. Offer lasts 02/01/2014 to 02/28/2014, please contact our office during that time.
Tax Filing Begins January 31st!
It's tax time again! We are looking forward to providing you with outstanding tax consulting and preparation services for the 2013 tax year filing period. We'd like to inform you of some resources available to help you organize your tax documents and schedule an appointment with us.
Tax Organizers
*These organizers are optional but are very helpful when gathering your tax information.
- Individual Extended Organizer (for lengthy returns) - Includes Tax Tips!
- Individual Short Form Organizer (for standard returns)
- Partnership or LLC Organizer
- S Corporation Organizer
- For other organizers, please submit a request on our website.
Options for Submitting Your Tax Information
- By Appointment - We invite you to schedule an appointment with us!
- Call us at 617 651 0531
- E-mail at [email protected]
- Submit an appointment request on our website and we will confirm within 15 minutes.
- Mail In - You may mail your tax documents and organizer to our office at:
Dukhon Tax and Accounting
60 Brighton Ave Suite A
Allston, MA 02134
- CLIENT PORTAL - You may use our secure client portal to submit your tax documents. The portal is an electronic file cabinet where you may upload your tax documents. It is safe and secure and will protect your data. Also, we will upload your tax returns and other documents for easy access any time in the future!
- To request access: E-mail [email protected] or submit a request through our website.
- To access the portal: Please login at Client Portal or just click the link in the banner above.
- Upload your documents and we will promptly prepare your return.
Tax Filing will begin on January 31st 2014. In most cases, you will be eligible for electronic filing of your return. This is the fastest and most accurate way to file your tax return. If you elect direct deposit of your refund, you can receive it in as little as 5 business days.
We look forward to speaking to you very soon! If you have any questions/concerns, please contact our office 617 651 0531 or [email protected].
Sincerely,
Dmitry Dukhon
Strategies for Avoiding or Reducing the new 3.8% Net Investment Income Tax
Dukhon Tax shares strategies for Avoiding or Reducing the new 3.8% Net Investment Income Tax
As of the beginning of 2013, new Code section 1411 imposes an additional tax of 3.8% on unearned net investment income. The so-called "Net Investment Tax" or "NIT" kicks in after certain thresholds effectively pushing up the top marginal tax rate for individuals, trusts, and estates. The tax is actually a Medicare tax that is newly imposed upon investment income as of 2013 by the "fiscal cliff deal" or The American Taxpayer Relief Act of 2012. Some people may not remember that specific government delay amongst the many we've had this year but it was the reason many people could not file their returns until mid to late February in 2013. Also, the legislature extended many favorable deductions, credits, and provisions of the tax code but also introduced some increased rates and additional taxes (such as the "NIT").
"Net investment income includes, but is not limited to: interest, dividends, rental and royalty income, non-qualified annuities, income from businesses involved in trading of financial instruments or commodities, and business that are passive activities to the tax payer. Net capital gains are also included, as well, including gains from the sale of real estate and gains from the sale of interests in partnerships and S corporations as to which the taxpayer is a passive owner." Short-term capital gains are taxed at ordinary income rates but can be offset by long-term capital losses. Income from S corporations or partnerships in which the taxpayer actively participates is not included as well (more on that in just a bit).
How is net investment income computed?
In short, the tax is equal to 3.8% of the lesser of a) your net investment income for such taxable year or b) the excess (if any) of your MAGI over the threshold amount. Got that? Let's simplify this a bit. First, MAGI is modified adjusted gross income and, for purposes of this section, it's equal to Adjust Gross Income (see the bottom of your 1040) increased by your foreign income that would otherwise be reduced by your foreign income tax credit. Basically, you have to include your foreign source income regardless of the foreign tax credit. For most people, MAGI is equivalent to AGI. Now, the thresholds are $250,000 for married filers, $200,000 for individual filers, and $125,000 for married filing separate filers. Once your MAGI goes above those thresholds you become "open" to the tax. You must then compare your net investment income against the amount of MAGI over the threshold and the lesser of those two, multiplied by 3.8%, is your net investment tax. Easy enough, right?
Pitfalls and how to avoid them
For most people, this isn't a major concern. However, for individuals that invest in stocks, in real estate, have interest, and passive income, this can add up pretty fast. Your investment income may not be much but if your MAGI is high (for higher wage earners for example) then you're possibly subject to paying an extra 3.8% on every dollar of your other net investment income. If you have a modest stock portfolio or bought into a few partnerships, then you could see a noticeable increase in your tax over the prior year. If you're tax adviser has not mentioned this to you, it may be wise to make a phone call and see if this is something with which you should be concerned. Of course, the staff at Dukhon Tax and Accounting would be more than glad to help. Give us a call or e-mail: 617 651 0531 or [email protected].
Deductions
The reason we keep saying "net" when we talk about your investment income is that you are allowed deductions before you have to make the above calculations. Deductions allocable to rents and royalties are deductible, passive income deductions, investment interest are a few of the major ones. For example, the interest on a loan you took to invest in a partnership in which you are passive, that's a great deduction that will get you to the "net" amount of your investment income. Non-deductible items include many of your other miscellaneous itemized deductions and deductions attributable to non-passive trade or business.
Planning
The big question is: how can we be creative within the confines of the tax code and avoid this thing? There are several strategies, too numerous to list here, but the idea is to balance your current MAGI against your future MAGI with income shifting or other tax deferral strategies. Tax-exempt vehicles like municipal interest might be a great idea (compare your taxable to non-taxable net gains after the tax and it may cover the lower interest rates on the Muni-bonds). Tax deferred annuities may be something to consider; maybe your income is higher now and you want to try to push some of those gains out a few years. Retirement options like 401k and IRA are always a great choice. In some cases, ROTH conversions (turning a regular IRA into a Roth) may make sense for retirees who are expecting their RMDs to push them into the realm of NIT at retirement (not to mention the otherwise increased ordinary income tax rates). Installment sales are a good hedge against capital gain increases (which are also subject to the tax) and could provide savings of up to 8.8% in the event that you are subject to the new higher 20% capital gain rate AND the 3.8% Net Investment Tax versus the 15% otherwise favorable rate.
In conclusion, there's a lot to consider here and your tax adviser should be talking and thinking about these things. Once again, we welcome you to contact Dukhon Tax and Accounting to find out how we can help you reduce your tax liability and navigate the increasingly complex system of taxation we have in our great US of A.
All the best,
The Staff at Dukhon Tax
IRS to Delay Tax Season
IRS to Delay Tax Season
The Internal Revenue Service will be delaying the start of the 2013 (tax year) tax season for approximately two weeks. This is one of the residual effects of the government shutdown.
Per the IRS:
"The Internal Revenue Service today announced a delay of approximately one to two weeks to the start of the 2014 filing season to allow adequate time to program and test tax processing systems following the 16-day federal government closure.
The IRS is exploring options to shorten the expected delay and will announce a final decision on the start of the 2014 filing season in December, Acting IRS Commissioner Danny Werfel said. The original start date of the 2014 filing season was Jan. 21, and with a one- to two-week delay, the IRS would start accepting and processing 2013 individual tax returns no earlier than Jan. 28 and no later than Feb. 4. "
The delay isn't too serious. However, people who were expecting their refunds in late January will be disappointed. The IRS article mentioned the advantages of e-filing your return:
"The IRS will not process paper tax returns before the start date, which will be announced in December. There is no advantage to filing on paper before the opening date, and taxpayers will receive their tax refunds much faster by using e-file with direct deposit. "
At Dukhon Tax and Accounting we e-file all eligible returns (98% of returns, in our experience, are eligible). This is the safest and most efficient method of filing. A copy of the e-filed return is then uploaded to the client portal and tax documents are available at any time. This is a huge help when filling out those FAFSA or other financial applications!
Here's a few more fun facts from the IRS:
"IRS processes, applications and databases must be updated annually to reflect tax law updates, business process changes, and programming updates in time for the start of the filing season.
During the closure, the IRS received 400,000 pieces of correspondence, on top of the 1 million items already being processed before the shutdown. "
As we always say, the IRS and system of taxation in our country is ever increasing in complexity. Now is a great time to speak to someone in our office to see how we can help you with your tax needs. We'll begin to e-file returns as soon as the IRS allows it. In most cases, we can prepare the return and be ready to process it as soon as it is ready. Don't delay and get your refund early!
Call 617 651 0531 or e-mail [email protected] or use the contact form below!
All the best,
Staff at Dukhon Tax and Accounting