Monthly Archives: January 2015

Pervasive Telephone Scams: Did you get a call from the IRS?

Identity theft comes in many ways, shapes and sizes. Thieves will stop at nothing to get ahold of your personal information. The best way for them to do this is to make you very afraid. And what are most people afraid of? The IRS.

Pervasive Telephone Scams

Well, the IRS has issued warnings recently about ‘Pervasive Telephone Scams

The IRS will always send taxpayers a written notification of any tax due via the U.S. mail. Additionally, the IRS never asks for credit card, debit card, or prepaid card information over the telephone.  In the case of the recent scams, potential victims are threatened with deportation, arrest, having their utilities shut off, or having their driver’s licenses revoked.

This is also the same for IRS emails.

Are you concerned about protecting your personal information when filing your taxes?

Do you have thoughts, questions or concerns regarding how your taxes are filed? WorthTax uses a triple check accuracy system. We also though great lengths to protect your information on secured servers. Please feel free to contact us, leave your comments below or post to on our FacebookGoogle+ or LinkedIn pages.

Maybe you know someone who can benefit from this information, feel free to share:
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Tax Season is Here!

Time flies – before it slips away, call Alex Franch, EA at 781-849-7200 for your appointment and learn about our client discounts here.

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Tax Penalties, Outrage and Indignation

By: Alex Franch, BS EA

If you ever filed and paid your taxes late, you may have first-hand experience with tax penalties. Sometimes this results in a little bit of interest being charged but other times it can lead to substantial dollar amounts. The IRS and Mass DOR each have their own tax penalties. Here are a few amounts:

Failure to Pay a Tax When Due

You may be subject to a maximum penalty of 25% of the tax due.  Mass DOR and the IRS both can assess a version of this penalty. This sounds like a lot, but they typically do not go from zero to sixty on this one.  Still, 25% is a hefty amount.

Failure to File a Partnership Return

Massachusetts can charge $5 for every day the partnership fails to file. Partnerships typically do not pay tax since the income passes through to the owners. This is so they cannot charge a percentage of tax owed. Nevertheless, $5 per day can add up quickly. This pales in comparison to the IRS penalty of $195 per partner, per month. This can get out of control very quickly. The good news is that the IRS penalty is capped at 12 months. Eventually however, after several years and depending on the number of partners, the Massachusetts $5/day penalty might catch up to the IRS penalty.

Failure to Satisfy a Required Minimum Distribution

The IRS is great for tax deferred growth but eventually the money has to come out.  Taxpayers are required to begin taking distributions by April 1st in the year following the year in which they turn 70-½.  If you forget – bam, 50% penalty on the required distribution.  Take that, grandma.  Outrage and Indignation to follow.

Failure to Report a Foreign Account

FCEU Tax PenaltiesAmong other tax penalties is failing to report a foreign financial account can get you in hot water with the IRS. Previously, one would file Form TDF 90-22.1 with the Department of Treasury. This was updated recently to FinCEN Form 114 and gets filed electronically with the Financial Crimes Enforcement Network (FinCEN).  They threshold for filing is $10,000 at any point during the year.  The penalty for non-willful violations is $10,000.  The penalty for willful cases is the greater of 50% of the account balance or $100,000 with the possibility of criminal prosecution.  Ouch is an understatement to say the least.

Are you looking to avoid tax penalties?

As mentioned, tax penalties can cost you a lot of money. And we believe, better money in your pocket than someone else’s pocket. The best way to avoid tax penalties is to have a trusted professional. Are you are at a place in your business you need tax advice? Do you have thoughts, questions or concerns regarding how to claim the start-up costs for your small business? Please feel free to contact us, leave your comments below or post on our FacebookGoogle+ or LinkedIn pages.

Maybe you know someone who can benefit from this information, feel free to share:
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Tax Season is Here!

Time flies – before it slips away, call Alex Franch, EA at 781-849-7200 for your appointment and learn about our client discounts here.

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Start-Up Costs for a New Business

By: Cindy Toran, MBA, BA

Start-up costs for a small business are often not “small” at all. These are costs for:

  1. Start Up Costs for Small BusinessInvestigating the creation of or acquisition of an active trade or business, OR,
  2. Creating the business, OR,
  3. Is a cost you pay before the day the business begins operation.

Examples include:

  • Travel to obtain customers and suppliers
  • Costs to conduct market surveys
  • Advertisements for the opening of the business
  • Costs to analyze available facilities, labor, supplies, etc.
  • Salaries to train employees (Last week’s blog was about Hiring Your Spouse and Providing Health Benefits).
  • Fees for consultants and other professional services

These costs must be amortized over 15 years unless you make an irrevocable election to expense up to $5,000 in the first year, reduced by any amount of costs that exceed $50,000. For example, if you spent $52,000 on start-up costs you could write-off $3,000 in the first year of the business [$5K less ($52K minus $50K)] plus amortize $49,000 over 15 years beginning with the month the business commenced.

The business begins on the date it starts to function as a going concern and performs the activities for which it was organized.

If the attempt to go into business is not successful, the start-up costs may or may not be deductible:

  • Costs incurred before making a decision to acquire or begin a specific business are personal and non-deductible. (e.g., A taxpayer in public relations work was denied a deduction for expenses in investigating a candy dispenser business and sandwich vending machine business in which he didn’t actually engage.)
  • Costs incurred in the attempt to acquire or begin a specific business are capital expenses and can be deducted as a capital loss. (e.g., a lawyer’s fee for negotiating a lease or the cost of a land survey to purchase business assets). Note that these costs would be capitalized as part of the basis of the business if successfully started, so they would not qualify as amortizable start-up costs per se.

Whether or not to elect to expense or amortize start-up costs depends on the situation. If you expect a loss or only small gain in the first year of business and significant gains thereafter, it may make sense to amortize 100% of the costs to offset future profits. Your accountant or tax professional can provide advice on your specific situation.

Do you have a trusted tax professional?

Are you are at a place in your business you need tax advice. Do you have thoughts, questions or concerns regarding how to claim the start-up costs for your small business? Please feel free to contact us, leave your comments below or post to on our FacebookGoogle+ or LinkedIn pages.

Maybe you know someone who can benefit from this information, feel free to share:
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Tax Season is Here!

Time flies – before it slips away, call Alex Franch, EA at 781-849-7200 for your appointment and learn about our client discounts here.

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Hiring Your Spouse and Providing Health Benefits

By: Cindy Toran, MBA, BA

hiring your spouseHave you ever thought of hiring your spouse? If you did, should you provide them with health insurance?

There are potential advantages and disadvantages to formally hiring your spouse if you own a small business as a sole proprietor or single-member LLC. Keep in mind that you can only do so if he or she plays a bona fide role in providing services to your business, such as office work or marketing.

The disadvantage to hiring your spouse is that it may result in added employment tax filing (such as FICA, Medicare, but not FUTA). However, this also reduces taxable income.

Advantages to Hiring Your Spouse

  • Your spouse is able to build up Social Security benefits.
  • Reduction in self-employment tax for sole proprietor (15.3% up to $117,000 earnings for 2014). However, 50% of the amount paid reduces the Adjusted Gross Income (AGI). This could impact other tax deductions.
  • Your spouse can be provided health insurance coverage that includes all family members (including the sole proprietor).

NOTE: This can be a significant advantage. If you are hiring your spouse as your only employee, this will provide the maximum benefit. This fringe benefit will reduce both income tax and self-employment tax.

Here is how the last advantage works for hiring your spouse. There is a 100% tax deduction for the following medical expenses for the employee and family (including the employer’s spouse):

  • Health insurance premiums
  • Uninsured medical, dental and vision care expenses
  • Other deductible benefits, such as premiums for term life insurance up to $50K, accident and disability.

Thus, all medical expenses and insurance premiums would be 100% deductible expenses of the business, assuming the total compensation package is considered reasonable for the duties being performed.

Keep in mind, however, that ALL employees must be offered the same benefits.

Here is an example:

John is a self-employed consultant with no employees. John hires his spouse, Peggy. Peggy’s job description is to perform bookkeeping and research duties for John.

An employment contract is prepared. The contract states that Peggy will receive $20 per hour. John prepared a written medical reimbursement plan. The plan states the following: “The employer will reimburse all employees for medical care expenses of each employee, his or her spouse and his or her dependents.”

John paid Peggy $16,000 in wages in 2014 for 800 hours of work. He also filed all employment tax returns. John reimbursed Peggy $9,000 by check for medical expenses. These included doctor and dentist bills not covered by health insurance. These medical expenses were incurred during 2014.

Peggy’s salary, payroll taxes, and the medical reimbursement are all valid business expenses.

What about you?

If this scenario fits your small business, do some calculations to see if you would benefit financially from hiring your spouse. Also, check with a trusted tax professional to be sure you meet all qualifications.

Do you have a trusted tax professional?

Maybe you are too busy to work through the calculations for how hiring your spouse may affect your tax returns. Perhaps you are at a place in your business you need tax advice. Do you have thoughts, questions or concerns regarding this subject? Please feel free to contact us, leave your comments below or post to on our FacebookGoogle+ or LinkedIn pages.

Maybe you know someone who can benefit from this information, feel free to share:
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Tax Season is Here!

Time flies – before it slips away, call Alex Franch, EA at 781-849-7200 for your appointment and learn about our client discounts here.

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2014 Income Tax Impact of the Affordable Care Act (ACA) in a Nutshell

By: Cindy Toran, MBA, BA

Affordable Care Act ACAThe Affordable Care Act (ACA), also known as Obamacare, will add a new level of complexity in preparing 2014 U.S. Income Tax Returns. Massachusetts taxpayers are familiar with state reporting requirements to verify coverage on their MA individual tax returns, however, the ACA criteria includes anyone:

  • Covered through the Marketplace, or
  • Claiming an exemption from health insurance coverage, or
  • Who had no coverage for any month out of the year.

Are new tax forms required with the Affordable Care Act in effect?

Yes. The following new tax forms may be required:

  • Form 1095-A, Health Insurance Marketplace Statement (issued by Marketplace insurer by 1/31/15)
  • Form 8965, Health Coverage Exemptions (file with 2014 tax return)
  • Form 8962, Premium Tax Credit (file with 2014 tax return)

Simplest Case with the Affordable Care Act:

Taxpayers whose entire household had qualifying health coverage for each month of their tax year will simply check a box on their federal income tax return. No further action is required.

Affordable Care Act Health Coverage Exemption(s):

If anyone in the taxpayer’s household did not have coverage for any month of the year and claims an exemption, Form 8965 will need to be attached indicating the individual’s name, Social Security number, and exemption type or reason. Exemptions include:

  • Cost of coverage exceeding 8% of household income*
    • A coverage gap of less than 3 consecutive months
    • Household income below threshold for filing a tax return
    • Coverage gap at the beginning of 2014 when purchased coverage through the Marketplace
  • Religious exemption*
  • American Indian or Alaska Native
  • Ineligible for Medicaid because your state does not participate in expansion under the Affordable Care Act*
  • Hardship, including foreclosure, unpaid medical bills, death of a close family member, eviction, domestic violence, abandonment*
  • Incarceration
* Exemption Certificate Number required from Marketplace

Shared Responsibility Payment (SRP)

If anyone in the taxpayer’s household had no coverage for any month and no exemption, the Shared Responsibility Payment (SRP) is calculated and paid as follows, allocated monthly. Form 8965 includes a worksheet to assist in the calculations.

The Shared Responsibility Payment for 2014 is the greater of:

  • 1% of the household income above the filing threshold based on filing status, or
  • $95 per adult and $47.50 per child under age 18, with a maximum of $285.

The Good News

Massachusetts residents may be familiar with the state-level penalty for not having health insurance. The good news is, if you have to pay the federal penalty (Shared Responsibility Payment), you may not have to pay the full Massachusetts penalty.

According to the Massachusetts Department of Revenue, if the federal penalty is greater than the state penalty, then no state penalty is due. If the state penalty is greater, then the amount due to the state is the difference between the two.

Premium Tax Credit and Advanced Payments

If anyone in the taxpayer’s family enrolled in a health plan through the Marketplace and received advance credit payments, Form 8962 must be completed to reconcile the advance credit payments (which was based on an estimate) with the actual premium tax credit. If no advance credit payment was received, Form 8962 will calculate the amount of credit due to you, which will be claimed as a tax credit on your tax return. Generally you will be eligible for a premium tax credit for 2014 if your household income is 100% to 400% of the federal poverty line in the 48 contiguous states:

affordable care act aca healthcare

Summing up the Affordable Care Act

Your 2014 tax reporting due to the ACA may be quite simple, or it may be very complex. This is just a synopsis. For more information, visit the Affordable Care Act Information Center on our website or feel free to give us a call.

What about your thoughts?

Do you have any thoughts, questions or concerns regarding the Affordable Care Act? Please feel free to leave your comments below or post to on our FacebookGoogle+ or LinkedIn pages.

Maybe you know someone who can benefit from this information, feel free to share:
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Tax Season is Here!

Time flies – before it slips away, call Alex Franch, EA at 781-849-7200 for your appointment and learn about our client discounts here.

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What Do Barack Obama and Ronald Reagan Have in Common?

By: Alex Franch, BS EA

On paper, presidents Barack Obama and Ronald Reagan could not be more different. But despite their political differences, they do have something in common regarding their approach to taxes.

The History of Federal Income Tax

medium_536344029In the olde tyme days before Ronald Reagan, Federal tax brackets remained static from year to year. Therefore, if your pay merely kept up with inflation, you would find more and more of your income subject to higher and higher tax brackets. This reduced your purchasing power because the real value of your income had remained unchanged. This was a big problem in the 1970s when inflation was quite high. What was the solution? Congress would step in every few years and would raise the tax brackets. This allowed everyone in Congress to pat themselves on the back for across the board tax cuts every few years, even though all they were really doing was keeping taxes the same.

President Reagan

In 1981, President Reagan signed into law (as part of a broad tax overhaul) the indexing of the Federal tax brackets, the standard deductions, and the personal exemptions, to take effect in 1984. Every year after that, taxpayers would see a small tax cut before adjusting for inflation. Most of the tax changes under the early Reagan years settled into their current structure by 1986.

History of the Alternative Minimum Tax

In 1982, President Reagan enacted the present day Alternative Minimum Tax or AMT. The AMT is a separate tax rate that is parallel to the Federal Income Tax. Long story short, you get to pay whichever is higher. President Reagan must have forgotten about 1981, because AMT was not indexed to inflation. This lapse trapped more and more people every year. AMT was ‘patched’ eleven times from 1986 to 2012 under presidents Bush 41, Clinton, George W, and Barack Obama. For the record, the predecessor to AMT goes back to the prehistoric days of 1969.

What Similarities are there between Barack Obama and Ronald Reagan?

medium_15364657104In 2013, President Obama signed the American Taxpayer Relief Act of 2012. This bill, in spite of putting in place the “fiscal cliff,” delaying everyone’s tax returns, and being a symbol of dysfunction in DC, took a page out of President Reagan’s book and indexed AMT to inflation.

The Short Answer?

Barack Obama and Ronald Reagan both indexed tax brackets to inflation.

What about your thoughts?

Do you have any thoughts on this subject matter? Maybe you know of a few other similarities you want to talk about, please feel free to leave your comments below or post to our Facebook or Google+ page. Perhaps you want to know how this indexing affects your income tax bracket?

Tax Season is Here!

Time flies and before it slips away, call Alex at 781-849-7200 for your appointment.

Other Notes:

Read about the Permanent AMT Patch of 2012 here.

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