2013 TAX CHANGES FOR INDIVIDUALS – TAX CREDITS

ABA Tax Accounting | Income Tax Service for Individuals

Adoption Credit
In 2013 a nonrefundable (i.e. only those with a tax liability will benefit) credit of up to $12,970 is available for qualified adoption expenses for each eligible child.

Child and Dependent Care Credit
The child and dependent care tax credit was permanently extended for taxable years starting in 2013. If you pay someone to take care of your dependent (defined as being under the age of 13 at the end of the tax year or incapable of self-care) in order to work or look for work, you may qualify for a credit of up to $1,050 or 35 percent of $3,000 of eligible expenses.

For two or more qualifying dependents, you can claim up to 35 percent of $6,000 (or $2,100) of eligible expenses. For higher income earners the credit percentage is reduced, but not below 20 percent, regardless of the amount of adjusted gross income.

Child Tax Credit
For tax year 2013, the child tax credit is $1,000. A portion of the credit may be refundable, which means that you can claim the amount you are owed, even if you have no tax liability for the year. The credit is phased out for those with higher incomes.

Earned Income Tax Credit (EITC)
For tax year 2013, the maximum earned income tax credit (EIC) for low and moderate income workers and working families rises to $6,044, up from $5,891 in 2012. The maximum income limit for the EITC rises to $51, 567 (up from $50,270 in 2012) for married filing jointly. The credit varies by family size, filing status and other factors, with the maximum credit going to joint filers with three or more qualifying children.

Please contact us if you need help understanding which deductions and tax credits you are entitled to. We are always available to assist you.
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Three Year-End Tax Tips to Help You Save

Payroll Service for Small Businesses – Although the year is almost over, you still have time to take steps that can lower your 2013 taxes. Now is a good time to prepare for the upcoming tax filing season. Taking these steps can help you save time and tax dollars. They can also help you save for retirement. Here are three year-end tips from the IRS for you to consider:

1. Start a filing system. If you don’t have a filing system for your tax records, you should start one. It can be as simple as saving receipts in a shoebox, or more complex like creating folders or spreadsheets. It’s always a good idea to save tax-related receipts and records. Keeping good records now will save time and help you file a complete and accurate tax return next year.

2. Make Charitable Contributions. If you plan to give to charity, consider donating before the year ends. That way you can claim your contribution as an itemized deduction for 2013. This includes donations you charge to a credit card by Dec. 31, even if you don’t pay the bill until 2014. A gift by check also counts for 2013 as long as you mail it in December. Remember that you must give to a qualified charity to claim a tax deduction.
Make sure to save your receipts. You must have a written record for all donations of money in order to claim a deduction. Special rules apply to several types of property, including clothing or household items, cars and boats. For more about these rules see Publication 526, Charitable Contributions.

If you are age 70½ or over, the qualified charitable distribution allows you to make tax-free transfers from your IRAs to charity. You can give up to $100,000 per year from your IRA to an eligible charity, and exclude the amount from gross income. You can use the excluded amount to satisfy any required minimum distributions that you must otherwise receive from your IRAs in 2013. This benefit is available even if you do not itemize deductions. This special provision is set to expire at the end of 2013.

3. Contribute to Retirement Accounts. You need to contribute to your 401(k) or similar retirement plan by Dec. 31 to count for 2013. On the other hand, you have until April 15, 2014, to set up a new IRA or add money to an existing IRA and still have it count for 2013.

The Saver’s Credit, also known as the Retirement Savings Contribution Credit, helps low- and moderate-income workers in two ways. It helps people save for retirement and earn a special tax credit. Eligible workers who contribute to IRAs, 401(k)s or similar workplace retirement plans can get a tax credit on their federal tax return. The maximum credit is up to $1,000, $2,000 for married couples. Other deductions and credits may reduce or eliminate the amount you can claim. We are always available to assist you.
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2013 TAX CHANGES FOR INDIVIDUALS

Income Tax Service For Individuals – From personal deductions to tax credits and educational expenses, many of the tax changes affecting individuals were related to the signing of the American Taxpayer Relief Act (ATRA), which modified, made permanent, or extended a number of tax provisions that expired in 2010 and 2011. With that in mind, here’s what individuals and families need to know about tax changes that took effect in 2013.

Personal Exemptions
The personal and dependent exemption for tax year 2013 is $3,900.

Standard Deductions
In 2013 the standard deduction for married couples filing a joint return is $12,200. For singles and married individuals filing separately, it’s $6,100, and for heads of household the deduction is $8,950.

The additional standard deduction for blind people and senior citizens increases in 2013 to $1,200 for married individuals and $1,500 for singles and heads of household.

Income Tax Rates
Beginning in tax year 2013, a new tax rate of 39.6 percent has been added for individuals whose income exceeds $400,000 ($450,000 for married taxpayers filing a joint return). The other marginal rates–10, 15, 25, 28, 33 and 35 percent–remain the same as in prior years.

Due to inflation, tax-bracket thresholds increased for every filing status. For example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $72,500 for a married couple filing a joint return.

Estate and Gift Taxes
The recent overhaul of estate and gift taxes means that there is an exemption of $5.25 million per individual for estate, gift and generation-skipping taxes, with a top rate of 40%. The annual exclusion for gifts is $14,000.

Alternative Minimum Tax (AMT)
AMT exemption amounts were made permanent and indexed for inflation retroactive to 2012. In addition, non-refundable personal credits can now be used against the AMT. For 2013 exemption amounts are $51,900 for single and head of household filers, $80,800 for married people filing jointly and for qualifying widows or widowers, and $40,400 for married people filing separately.

Marriage Penalty Relief
For 2013, the basic standard deduction for a married couple filing jointly is $12,200.

Pease and PEP (Personal Exemption Phaseout)
Pease (limitations on itemized deductions) and PEP (personal exemption phase-out) limitations were made permanent by ATRA and affect taxpayers with income at or above $250,000 (single filers) and $300,000 for married filing jointly starting with tax year 2013.

Flexible Spending Accounts (FSA)
Flexible Spending Accounts are limited to $2,500 per year starting in 2013 (indexed to inflation) and apply only to salary reduction contributions under a health FSA. The term “taxable year” as it applies to FSAs refers to the plan year of the cafeteria plan, which is typically the period during which salary reduction elections are made.

Specifically, in the case of a plan providing a grace period (which may be up to two months and 15 days), unused salary reduction contributions to the health FSA for plan years beginning in 2012 or later that are carried over into the grace period for that plan year will not count against the $2,500 limit for the subsequent plan year.

Further, the IRS is providing relief for certain salary reduction contributions exceeding the $2,500 limit that are due to a reasonable mistake and not willful neglect and that are corrected by the employer.

Long Term Capital Gains
In 2013 tax rates on capital gains and dividends for taxpayers whose income is at or below $400,000 ($450,000 married filing jointly) remains at 2012 rates. For taxpayers in the lower tax brackets (10% and 15%), the rate remains at 0%, (the same as in 2012). For taxpayers in the middle tax brackets however, the rate increases to 15%. For taxpayers whose income is at or above $400,000 ($450,000 married filing jointly), the rate for both capital gains and dividends is capped at 20% (up from 15% in 2012).

Please contact us if you need help understanding which deductions and tax credits you are entitled to. We are always available to assist you.
ABA Tax Accounting
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10 TAX BREAKS SET TO EXPIRE IN 2013

Income Tax Service For Small Businesses – Federal tax breaks come and go, and this year is no exception. Unless Congress takes action, 55 of them are set to expire on December 31, 2013. Let’s take a look at the ones that are most likely to affect taxpayers like you. 

1. Teachers’ Deduction for Certain Expenses

Primary and secondary school teachers buying school supplies out-of-pocket may be able to take an above-the-line deduction of up to $250 for unreimbursed expenses. An above the line deduction means that it can be taken before calculating adjusted gross income.

2. State and Local Sales Taxes

Taxpayers that pay state and local sales tax can deduct the amounts paid on their federal tax returns (instead of state and local income taxes)–as long as they itemize. In other words, if you’re thinking of buying a big ticket item such as a boat or car and live in a state with sales tax, you might want to think about buying it this year.

3. Mortgage Insurance Premiums

Mortgage insurance premiums (PMI) are paid by homeowners with less than 20% equity in their homes. These premiums were deductible in tax years 2012 and 2013; however, this tax break is scheduled to end on December 31, 2013. Mortgage interest deductions for taxpayers who itemize are not affected.

4. Exclusion of Discharge of Principal Residence Indebtedness

Typically, forgiven debt is considered taxable income in the eyes of the IRS; however, this tax provision, which expires at the end of this year, allows homeowners whose homes have been foreclosed on or subjected to short sale to exclude up to $2 million of cancelled mortgage debt. Also included are taxpayers seeking debt modification on their home.

5. Distributions from IRAs for Charitable Contributions

Taxpayers who are age 70 ½ or older can donate up to $100,000 in distributions from their IRA to charity. Some people do not want to take the mandatory minimum distributions (which are counted as income) upon reaching this age and instead can contribute it to charity, using it as a strategy to lower income enough to take advantage of other tax provisions with phaseout limits.

6. Mass Transit Fringe Benefits

In 2013, commuters using mass transit can exclude from income up to $245 per month on transit benefits paid by their employers such as monthly rail or subway passes, making it on par with parking benefits (also up to $245 pre-tax). This provision is set to expire at the end of the year, however and in 2014, pre-tax benefits for mass transit commuters drop to a maximum of $130 per month, while parking benefits remain the same.

7. Energy Efficient Appliances

This tax break has been around for a while, but if you’re still thinking about making your home more energy efficient, now is the time to take advantage of this tax credit, which reduces your taxes (as opposed to a deduction that reduces your taxable income). The credit is 10% of the cost of building materials for items such as insulation, new water heaters, or a wood pellet stove.

Note: This tax is cumulative, so if you’ve taken the credit in any tax year since 2006, you will not be able to take the full $500 tax credit this year. If, for example, you took a credit of $300 in 2011, the maximum credit you could take this year is $200.

8. Electric Vehicles

Buy a four-wheel electric vehicle such as a Ford Focus Electric (Model years 2012-2014), BMW i3 Sedan (Model year 2014), Fiat 500e (Model year 2013), and Nissan Leaf (Model years 2011-2013) and take a tax credit of $7,500. Other vehicles, such as a 2014 Accord Plug-In Hybrid and the Toyota Prius Plug-in Electric Drive Vehicle (Model years 2012-2014) are eligible for a lesser tax credit. Call us for additional information on tax credits for electric vehicles.

Note: The credit begins to phase out for a manufacturer’s vehicles when at least 200,000 qualifying vehicles manufactured by that manufacturer have been sold for use in the United States.

9. Donation of Conservation Property

Also expiring this year is a tax provision that allows taxpayers to donate property or easements to a local land trust or other conservation organization and receive a tax break in return.

10. Small Business Stock

If you’ve been thinking about investing in a small business such as a start-up C-corporation, consider doing it this year because this tax provision expires on December 31. If you hold onto this stock for five years, you can exclude 100% of the capital gains–in other words, you won’t be paying any capital gains. If you wait until January, you will only be able to exclude 50% of the capital gains.

To learn more about whether you should be taking advantage of these and other tax credits and deduction set to expire at the end of 2013, please give us a call today. We’re here to help. For no obligation free consultation contact us today!

ABA Tax Accounting

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10 THINGS TO KNOW ABOUT CAPITAL GAINS

Accounting Services For Small Businesses – Did you know that almost everything you own and use for personal or investment purposes is a capital asset? Capital assets include a home, household furnishings and stocks and bonds held in a personal account.

When you sell a capital asset, the difference between the amount you paid for the asset and its sales price is a capital gain or capital loss. Here are 10 facts you should know about how gains and losses can affect your federal income tax return.
1. Almost everything you own and use for personal purposes, pleasure or investment is a capital asset.
2. When you sell a capital asset, the difference between the amount you sell it for and your basis — which is usually what you paid for it — is a capital gain or a capital loss.
3. You must report all capital gains.
4. You may only deduct capital losses on investment property, not on personal-use property.
5. Capital gains and losses are classified as long-term or short-term. If you hold the property more than one year, your capital gain or loss is long-term. If you hold it one year or less, the gain or loss is short-term.
6. If you have long-term gains in excess of your long-term losses, the difference is normally a net capital gain. Subtract any short-term losses from the net capital gain to calculate the net capital gain you must report.
7. The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income. For 2013, the maximum capital gains rate is 20 percent; however that rate only applies to taxpayers in the highest tax bracket (39.6%) whose income exceeds $400,000 (single filers) or $450,000 (joint filers). Taxpayers in the middle tax brackets pay a maximum of 15 percent. For taxpayers in the lowest tax brackets (under 15%) the rate may be 0 percent on some or all of the net capital gain. Rates of 25 or 28 percent may apply to special types of net capital gain.
8. If your capital losses exceed your capital gains, you can deduct the excess on your tax return to reduce other income, such as wages, up to an annual limit of $3,000, or $1,500 if you are married filing separately.
9. If your total net capital loss is more than the yearly limit on capital loss deductions, you can carry over the unused part to the next year and treat it as if you incurred it in that next year.
10. A new form (Form 8949, Sales and Other Dispositions of Capital Assets) was introduced in 2011 to calculate capital gains and losses and list all capital gain and loss transactions. Subtotals are then carried over to Schedule D (Form 1040), where gain or loss is calculated.

Give us a call us if you need more information about reporting capital gains and losses. We’re here to help. For no obligation free consultation contact us today!
ABA Tax Accounting
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RETIREMENT CONTRIBUTIONS LIMITS ANNOUNCED FOR 2014

Income Tax Service For Small Businesses – The Internal Revenue Service announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for Tax Year 2014.

In general, some pension limitations such as those governing 401(k) plans and IRAs will remain unchanged because the increase in the Consumer Price Index did not meet the statutory thresholds for their adjustment. However, other pension plan limitations will increase for 2014.

Here are the highlights:
• The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $17,500.

• The catch-up contribution limit for employees age 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $5,500.

• Contribution limits for SIMPLE retirement accounts remains at $12,000.

• The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $60,000 and $70,000, up from $59,000 and $69,000 in 2013. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $96,000 to $116,000, up from $95,000 to $115,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $181,000 and $191,000, up from $178,000 and $188,000. For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

• The AGI phase-out range for taxpayers making contributions to a Roth IRA is $181,000 to $191,000 for married couples filing jointly, up from $178,000 to $188,000 in 2013. For singles and heads of household, the income phase-out range is $114,000 to $129,000, up from $112,000 to $127,000. For a married individual filing a separate return, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

• The AGI limit for the saver’s credit (also known as the retirement savings contribution credit) for low- and moderate-income workers is $60,000 for married couples filing jointly, up from $59,000 in 2013; $45,000 for heads of household, up from $44,250; and $30,000 for married individuals filing separately and for singles, up from $29,500.

Questions? Give us a call. We’re here to help. For no obligation free consultation contact us today!
ABA Tax Accounting
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TAP YOUR RETIREMENT MONEY EARLY; MINIMIZE PENALTIES

Income Tax Service For Individuals – The purpose of retirement plans such as the 401(k) and Individual Retirement Account (IRA) is to save money for your retirement years. As such, the IRS imposes a penalty of 10% for early withdrawals taken from qualified retirement plans before age 59 1/2. Qualified retirement plans include section 401(k) plans, individual retirement accounts (IRAs), and 401(k) plan, tax-sheltered annuity plans under section 403(b) for employees of public schools or tax-exempt organizations.

While you should always think carefully about taking money out of your retirement plan before you’ve reached retirement age, there may be times when you need access to those funds, whether it’s buying a new house or paying for out of pocket medical expenses. Fortunately, IRS provisions allow a number of exceptions that may be used to avoid the tax penalty.
1. If you are the beneficiary of a deceased IRA owner, you do not have to pay the 10% penalty on distributions taken before age 59 1/2 unless you inherit a traditional IRA from your deceased spouse and elect to treat it as your own. In this case, any distribution you later receive before you reach age 59 1/2 may be subject to the 10% additional tax.

2. Distributions made because you are totally and permanently disabled are exempt from the early withdrawal penalty. You are considered disabled if you can furnish proof that you cannot do any substantial gainful activity because of your physical or mental condition. A physician must determine that your condition can be expected to result in death or to be of long, continued, and indefinite duration.

3. Distributions for qualified higher educational expenses are also exempt, provided they are not paid through tax-free distributions from a Coverdell education savings account, scholarships and fellowships, Pell grants, employer-provided educational assistance, and Veterans’ educational assistance. Qualified higher education expenses include tuition, fees, books, supplies, and equipment required for the enrollment or attendance of a student at an eligible educational institution, as well as expenses incurred by special needs students in connection with their enrollment or attendance. If the individual is at least a half-time student, then room and board are considered qualified higher education expenses. This exception applies to expenses incurred by you, your spouse, children and grandchildren.

4. Distributions due to an IRS levy of the qualified plan.

5. Distributions those are not more than the cost of your medical insurance. Even if you are under age 59 1/2, you may not have to pay the 10% additional tax on distributions during the year that are not more than the amount you paid during the year for medical insurance for yourself, your spouse, and your dependents. You will not have to pay the tax on these amounts if all of the following conditions apply: you lost your job, you received unemployment compensation paid under any federal or state law for 12 consecutive weeks because you lost your job, you receive the distributions during either the year you received the unemployment compensation or the following year, you receive the distributions no later than 60 days after you have been reemployed.
6. Distributions to qualified reservists. Generally, these are distributions made to individuals called to active duty after September 11, 2001 and on or after December 31, 2007.

7. Distributions in the form of an annuity. You can take the money as part of a series of substantially equal periodic payments over your estimated lifespan or the joint lives of you and your designated beneficiary. These payments must be made at least annually and payments are based on IRS life expectancy tables. If payments are from a qualified employee plan, they must begin after you have left the job. The payments must be made at least once each year until age 59 1/2, or for five years, whichever period is longer.

8. If you have out-of-pocket medical expenses that exceed 10% of your adjusted gross income, you can withdraw funds from a retirement account to pay those expenses without paying a penalty. For example, if you had an adjusted gross income of $100,000 for tax year 2013 and medical expenses of $12,500, you could withdraw as much as $2,500 from your pension or IRA without incurring the 10% penalty tax. You do not have to itemize your deductions to take advantage of this exception.

9. An IRA distribution used to buy, build, or rebuild a first home also escapes the penalty; however, you need to understand the government’s definition of a “first time” home buyer. In this case, it’s defined as someone who hasn’t owned a home for the last two years prior to the date of the new acquisition. You could have owned five prior houses, but if you haven’t owned one in at least two years, you qualify.

The first time homeowner can be yourself, your spouse, your or your spouse’s child or grandchild, parent or other ancestor. The “date of acquisition” is the day you sign the contract for purchase of an existing house or the day construction of your new principal residence begins. The amount withdrawn for the purchase of a home must be used within 120 days of withdrawal and the maximum lifetime withdrawal exemption is $10,000. If both you and your spouse are first-time home buyers, each of you can receive distributions up to $10,000 for a first home without having to pay the 10% penalty.

Remember that although using the above techniques will help you avoid the 10% penalty tax, you are still liable for any regular income tax that’s owed on the funds that you’ve withdrawn. Distributions rolled over into another qualified retirement plan or distributions from a Roth IRA however, escape both the regular income tax and the 10% penalty tax. Rollovers should be made directly between your brokers, to avoid paying the 20% withholding required on distributions that you touch.

Thinking about tapping your retirement money early? Give us a call. We’ll help you figure out whether you can avoid penalties on your early withdrawals–or not. We’re here to help. For no obligation free consultation contact us today!
ABA Tax Accounting
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Tax Tips to Reduce Your Taxes with Miscellaneous Deductions

Federal, State, Local and International Taxes – If you itemize deductions on your tax return, you may be able to deduct certain miscellaneous expenses, which might reduce your federal income tax. With that in mind, let’s take a closer look at miscellaneous deductions that might benefit you this tax season.

Deductions Subject to the Two Percent Limit. You can deduct most miscellaneous expenses only if they exceed two percent of your adjusted gross income. These include expenses such as:
• Unreimbursed employee expenses.
• Expenses related to searching for a new job in the same profession.
• Certain work clothes and uniforms.
• Tools needed for your job.
• Union dues.
• Work-related travel and transportation.
Deductions Not Subject to the Two Percent Limit. Some deductions are not subject to the two percent of AGI limit. Some expenses on this list include:
• Certain casualty and theft losses. This deduction applies if you held the damaged or stolen property for investment. Property that you hold for investment may include assets such as stocks, bonds and works of art.
• Gambling losses up to the amount of gambling winnings.
• Losses from Ponzi-type investment schemes.
Miscellaneous deductions are reported on Schedule A, Itemized Deductions. Be sure to keep records of your deductions as a reminder when you file your taxes in 2014.

Keep in mind that many expenses are not deductible. For example, you can’t deduct personal living or family expenses. If you have questions about whether your expenses are deductible or need assistance with Schedule A, don’t hesitate to give us a call. We’re here to help. For no obligation free consultation contact us today!
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TAX PROVISIONS OF THE AFFORDABLE CARE ACT

Small Business Accounting – The Patient Protection and Affordable Care Act of 2010, in concert with the enactment of the Health Care and Education Tax Credits Reconciliation Act of 2010, resulted in a number of changes to the US tax code. As such there are a number of tax implications for individuals and businesses. With healthcare exchanges set to open on October 1, it’s time to take a closer look at what it all means for you.

INDIVIDUALS

Healthcare Exchanges

Healthcare Exchanges, which are also referred to as Health Insurance Marketplaces, are officially open for enrollment on October 1, 2013. Some of these exchanges are run by the state in which you reside. Others are run by the federal government.

Individuals (including self-employed) who do not currently have insurance or buy insurance on their own can use these marketplaces to buy insurance, which becomes effective January 1, 2014. When you get health insurance through the Marketplace, you may be able to get the new advance Premium Tax Credit that will immediately help lower your monthly premium.

The Congressional Budget Office projects that seven million–primarily uninsured people–will use the exchanges to purchase private health insurance. The rest, including the 170.9 million people already covered by their employer’s insurance, as well as the 101.5 million enrolled in government health programs, are not affected and need not take any action.

Individual Mandate

Starting January 2014, United States citizens and legal residents must obtain minimum essential health care coverage for themselves and their dependents, have an exemption from coverage, or make a payment when filing a 2014 tax return in 2015. The Individual Mandate is also known as the Individual Shared Responsibility Payment.

The payment varies and is based on income level. In 2014, the basic penalty for an individual (no dependents) is $95 or 1% of your yearly income (whichever is higher), with substantial increases in subsequent years. For example, in 2015, the penalty is $325 or approximately 2% of income, whichever is higher. In 2016, it increases to $695 or 2.5% of income (again, whichever is higher), indexed for inflation thereafter.

Most people already have qualifying health care coverage and will not need to do anything more than maintain that coverage throughout 2014. Self-insured ERISA policies used by larger employers, as well as Medicare, Medicaid, and CHIP (Children’s Health Insurance Program), and all of the health insurance plans offered by the exchanges fall under the category of minimum essential health care coverage.

Note: Certain individuals are exempt from the tax and include: (1) people with religious objections; (2) American Indians with coverage through the Indian Health Service; (3) undocumented immigrants; (4) those without coverage for less than three months; (5) those serving prison sentences; (6) those for whom the lowest-cost plan option exceeds 8% of annual income; and (7) those with incomes below the tax filing threshold who do not file a tax return($10,000 for singles and $20,000 for couples under 65 in 2013).

Refundable Tax Credit

Effective in 2014, certain taxpayers will be able to use a refundable tax credit to offset the cost of health insurance premiums so that their insurance premium payments do not exceed a specific percentage of their income. Qualified individuals are those with incomes between 133 percent and 400 percent of the federal poverty level. A sliding scale based on family size will be used to determine the amount of the credit. In addition, married taxpayers must file joint returns to qualify.

FSA Contributions

FSA (Flexible Spending Arrangements) contributions are limited to $2,500 per year starting in 2013 and indexed for inflation after that.

New Rules for HSAs and Archer MSAs

Tax on non-qualified distributions from HSAs and Archer MSAs that are used to cover the cost of over the counter medicine without a script increased to 20 percent starting in 2011. Medical devices, eyeglasses, contact lenses, copays, and deductibles are not affected, nor is Insulin even if it is non-prescription.

Medicare Part D

Medicare Part D, the tax deduction for employer provided retirement prescription drug coverage, was eliminated in 2013.

Increase in AGI Limit for Deductible Medical Expenses

In 2013 the limit for deductible medical expenses increased to 10 percent of AGI (7.5% in prior years); however, the 7.5 percent threshold continues through 2016 for taxpayers aged 65 and older, including those turning 65 by December 31, 2016.

Health Coverage of Older Children

The cost of employer provided health care coverage for children (through age 26) on tax returns is excluded from gross income.

Medicare Tax Increases for High Income Earners

Starting in 2013, there is an additional 0.9 percent Medicare tax on wages above $200,000 for individuals ($250,000 married filing jointly).

Also starting in 2013, there is a new Medicare tax of 3.8 percent on investment (unearned) income for single taxpayers with modified adjusted gross income (MAGI) over $200,000 ($250,000 joint filers). Investment income includes dividends, interest, rents, royalties, gains from the disposition of property, and certain passive activity income. Estates, trusts and self-employed individuals are all liable for the new tax.

Exemptions are available for business owners and income from certain retirement accounts, such as pensions, IRAs, 401(a), 403(b), and 457(b) plans, is exempt.

BUSINESSES

Self-Employed

If you run an income-generating business with no employees, then you’re considered self-employed (not an employer) and can get coverage through the Marketplace and use it to find coverage that fits your needs.

Note: You are not considered an employer even if you hire independent contractors to do some work.

If you currently have individual insurance, that is a plan you bought yourself and not the kind you get through an employer, you may be able to change to a Marketplace plan.

Note: You can’t be denied coverage or charged more because you have a pre-existing health condition.

Small Businesses (50 or Fewer Employees)

If you have 50 or fewer full-time equivalent (FTE) employees (generally, workers whose income you report on a W-2 at the end of the year) you are considered a small business under the health care law.

As a small business, you may get insurance for yourself and your employees through the SHOP (Small Business Health Options Programs) Marketplace. This applies to non-profit organizations as well.

And, if you have fewer than 25 employees, you may qualify for the Small Business Tax Credit (see next section). Non-profit organizations can get a smaller tax credit.

Note: Beginning in 2016, the SHOP Marketplace will be open to employers with 100 or fewer FTEs.

As an employer, you must provide notification to your employees of coverage options available through the Marketplace and are required to provide this notice to all current employees and to each new employee beginning October 1st, 2013, regardless of plan enrollment status or full or part-time employment. The Department of Labor has sample notices that employers can use to comply with this regulation. One notice is for employers who do not offer a health care plan and the second for employers who offer a health care plan.

Small Business Health Care Tax Credit

Small businesses and tax-exempt organization that employ 25 or fewer, full-time equivalent workers with average incomes of $50,000 or less, and that pay at least half (50%) of the premiums for employee health insurance coverage are eligible for the Small Business Health Care Tax Credit. For tax years 2010 through 2013, the maximum credit is 35 percent for small business employers and 25 percent for small tax-exempt employers such as charities.

Starting in 2014, the tax credit is worth up to 50% of your contribution toward employees’ premium costs (up to 35% for tax-exempt employers). The tax credit is highest for companies with fewer than 10 employees who are paid an average of $25,000 or less. The smaller the business, the bigger the credit is.

Note: The credit is available only if you get coverage through the SHOP Marketplace.

Additional Tax on Businesses Not Offering Minimum Essential Coverage

Effective January 1, 2015 an additional tax will be levied on businesses with 50 or more full-time equivalent (FTE) employees that do not offer minimum essential coverage. This penalty is sometimes referred to as the Employer Shared Responsibility Payment or “Play or Pay” penalty.

You may have to pay this additional tax if you have 50 or more full-time equivalent employees and at least 1 of your full-time employees gets lower costs on their monthly premiums through the Marketplace.

Note: Employers with fewer than 50 FTE employees are considered small businesses and are exempt from the additional tax.

The amount of the annual Employer Shared Responsibility Payment is based partly on whether you offer insurance.

• If you don’t offer insurance, the annual payment is $2000 per full-time employee (excluding the first 30 employees)
• If you do offer insurance, but the insurance doesn’t meet the minimum requirements, the annual payment is $3000 per full-time employee who qualifies for premium savings in the Marketplace

Note: Unlike employer contributions to employee premiums, the Employer Shared Responsibility Payment is not tax deductible.

A health plan meets minimum value if it covers at least 60% of the total allowed costs of benefits provided under the plan. To determine whether other coverage meets minimum value, please contact us for assistance.

Note: All plans in the Marketplace meet minimum value, so any coverage offered through the SHOP Marketplace should qualify.

Excise Tax on High Cost Employer-Sponsored Insurance

Effective in 2018, a 40 percent excise tax indexed for inflation will be imposed on employers with insurance plans where the annual premium exceeds $10,200 (individual) or $27,500 (family). For retirees age 55 and older, the premium levels are higher, $11,850 for individuals and $30,950 for families.

Excise Tax on Medical Devices

Effective January 1, 2014, a 2.3 percent tax will be levied on manufacturers and importers on the sale of certain medical devices.

Indoor Tanning Services

A 10 percent excise tax on indoor tanning services went into effect on July 1, 2010. The tax doesn’t apply to phototherapy services performed by a licensed medical professional on his or her premises. There’s also an exception for certain physical fitness facilities that offer tanning as an incidental service to members without a separately identifiable fee.

Don’t hesitate to call us if you need assistance navigating the complexities of the new health care act. We’re here to help.
ABA Tax Accounting
info@abataxaccounting.com
(651) 621-5777, (952) 583-9108, (612) 224-2476, (763) 269-5396
http://www.abatax81.blogspot.com
http://www.abataxaccounting.wordpress.com
http://www.abataxaccounting.com

What you need to know about Business Travel Expenses

Small Business Accounting – Travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession, or job. Generally, employees deduct these expenses using Form 2106 or Form 2106-EZ and on Schedule A, Form 1040. You cannot deduct expenses that are lavish or extravagant or that are for personal purposes.

You are traveling away from home if your duties require you to be away from the general area of your tax home for a period substantially longer than an ordinary day’s work, and you need to get sleep or rest to meet the demands of your work while away.

Generally, your tax home is the entire city or general area where your main place of business or work is located, regardless of where you maintain your family home. For example, you live with your family in Chicago but work in Milwaukee where you stay in a hotel and eat in restaurants. You return to Chicago every weekend. You may not deduct any of your travel, meals, or lodging in Milwaukee because that is your tax home. Your travel on weekends to your family home in Chicago is not for your work, so these expenses are also not deductible. If you regularly work in more than one place, your tax home is the general area where your main place of business or work is located.

In determining which is your main place of business, take into account the length of time you are normally required to spend at each location for business purposes, the degree of business activity in each area, and the relative significance of the financial return from each area. However, the most important consideration is the length of time spent at each location.

Travel expenses paid or incurred in connection with a temporary work assignment away from home are deductible. However, travel expenses paid in connection with an indefinite work assignment are not deductible. Any work assignment in excess of one year is considered indefinite. Also, you may not deduct travel expenses at a work location if it is realistically expected that you will work there for more than one year, whether or not you actually work there that long. If you realistically expect to work at a temporary location for less than one year, and the expectation changes so that at some point you realistically expect to work there for more than one year, travel expenses become nondeductible when your expectation changes.

You may deduct travel expenses, including meals and lodging, you had in looking for a new job in your present trade or business. You may not deduct these expenses if you had them while looking for work in a new trade or business or while looking for work for the first time. If you are unemployed and there is a substantial break between the time of your past work and your looking for new work, you may not deduct these expenses, even if the new work is in the same trade or business as your previous work.

Travel expenses for conventions are deductible if you can show that your attendance benefits your trade or business. Special rules apply to conventions held outside the North American area.
Deductible travel expenses while away from home include, but are not limited to, the costs of:
• Travel by airplane, train, bus, or car between your home and your business destination,
• Using your car while at your business destination,

• Fares for taxis or other types of transportation between the airport or train station and your hotel, the hotel and the work location, and from one customer to another, or from one place of business to another,
• Meals and lodging, and
• Tips you pay for services related to any of these expenses.
Instead of keeping records of your meal expenses and deducting the actual cost, you can generally use a standard meal allowance ranging from $31 to $51 for certain high cost areas, depending on where you travel.

The deduction for business meals is generally limited to 50% of the unreimbursed cost.
If you are an employee, your allowable travel expenses are figured on Form 2106 or 2106-EZ. Your allowable unreimbursed expenses are carried from Form 2106 or 2106-EZ to Schedule A, Form l040, and are subject to a limit based on 2% of adjusted gross income. Refer to Miscellaneous Expenses for information on the 2% limit. If you do not itemize your deductions, you cannot deduct these expenses. If you are self-employed, travel expenses are deductible on Schedule C, C-EZ, or, if you are a farmer, Schedule F, Form 1040.

Good records are essential. Refer to Recordkeeping for information on record keeping.
For more information on travel expenses, for no obligation free consultation contact us today!
ABA Tax Accounting
info@abataxaccounting.com
763-269-5396
http://www.abatax81.blogspot.com
http://www.abataxaccounting.wordpress.com
http://www.abataxaccounting.com

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