Category Archives: 2014 Tax Changes

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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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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photo credit: IoSonoUnaFotoCamera via photopin cc

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Watch Out Tom Brady, the Tax Man is Coming

by Alex Franch, Tax Specialist

As football season gets going, Tom Brady and the Patriots are almost back on top. I say almost because the Bills are ahead on the divisional record to the tiebreaker goes to the Bills right now.

Let’s consider the post-season for Tom Brady and when I say post-season, I really mean tax season. This case study applies to most professional athletes who play in multiple states, but I digress. I did a search for Mr. Brady’s contract and he seems to be making about $17 million per season just from his NFL contract. Let’s call it $1 million per game for argument sake and we will only consider the top tax rates when considering the states.

OK you fantasy football number crunchers, here we go. So far Mr. Brady has made $1M in Florida, no tax; $1M in Minnesota, top tax rate of 9.85%; and not $1M, but $3M in Mass, flat rate of 5.2%. But wait, in typical Brady fashion, he was still playing in January 2014 where he made $1M in Colorado, flat rate of 4.63% and not $1M, but $2M in, not Mass, but California, top rate of 12.3%. The internet tells me he moved from California to Massachusetts this year.

Let’s recap What Tom Brady’s Tax Return Looks Like So Far

 

Massachusetts part year resident: $3M income x 5.2% = $156K in taxes

Minnesota Non-Resident return: $1M income x 9.85% = $98K in taxes

California part year resident: $2M income x 12.3% = $246K in taxes

Colorado Non-Resident return: $1M income x 4.63% = $46K in taxes

But wait, he made $5M so far but he is getting taxed on $7M; that is not right. How very astute. Tom Brady will get a credit in his resident state for the taxes paid to a non-resident state. He should get the full $46k paid to Colorado as a credit to California.

But wait, he only gets back $52k out of the $98K he paid to Minnesota because the tax rate in Massachusetts is lower.

 

Graphic-1-4-State-comparison-Part-Year-versus-Non-Resident2

Total Income $5M, Taxes to the states $448K. Oh, he owes the IRS another $1.8M, I guess I forgot to mention that.

Now that is a flea flicker.

Only 13 more games to go. Maybe we should take this one game at a time.

. . . or one out of state rental property at a time
. . . or one out of state job at a time
. . . or one out of state K-1 at a time
. . . or one multi state business at a time

Do you have an out-of-state experience you would like to discuss? You may leave a comment below or go to our Facebook or Google Plus pages.

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Tax changes that could save you money

Starting January, 2014, the IRS will implement changes to the limits in gift giving. For estate planning, this means an additional $90,000 will be tax free bringing the exclusion amount from $5,250,000 to $5,340,000. This applies not only to transfers at death, but also to gifts made during life.

Read more about how these higher limits can impact estate planning.

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Surge in One Way Tickets to Florida?

Last January, Massachusetts’s governor Deval Patrick was in favor of the ‘tech tax’ (sales tax on computer services) saying it would help fund improvements to the State’s transportation systems. Now, however, he has had a change of heart. Apparently, technology executives got through to him.

Implemented in July, Massachusetts joined a few other states that have such a tax. With the dubious distinction of the highest tax among this group, opponents argue that having to add 6.5% to cost of sales would impact the State’s economy. Massachusetts State Representative James Lyons (R-Andover) contends that this tax “. . . is going to hurt every single taxpayer in the Commonwealth. It’s going to lead to less jobs, less economic activity and less revenue.”

With the implementation of this tax, Florida’s governor, Rick Scott, saw it as an opportunity to entice companies to Florida.  In an open letter to Massachusetts business owners, he wrote, “Summer is here and millions of people are booking their trips to Florida. This year, we are asking you to make that plane reservation a “one way”. [Read the complete letter.]

Lawmakers are now ramping up to introduce a bill that would repeal this tax.

Read more on Boston.com and CRN.com.

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Updates and changes that may affect your 2013 income tax preparation

While there are several updates and changes that Congress has enacted, this post deals with Itemized Deductions on Schedule A.

If you elect to itemize your allowable personal deduction items on Schedule A then there are a few deductions that have been extended for 2013 and scheduled to expire at the end of 2013.  One item is the sales tax deduction for those taxpayers who do not pay any or little state income taxes.  Therefore, based on Tables established by the IRS you may be able to deduct the sales taxes paid on your consumption of goods and services.  In addition to the Standard Table amounts you can also deduct the sales tax paid or incurred on big ticket items such as automobiles, boats, building materials, etc.  You will need to have your receipts in order to deduct and verify the sales tax deduction.  Contact us for more information.

The other Schedule A itemized deduction that is extended and scheduled for expiration after 2013 is the deduction for Mortgage Insurance Premiums (PMI).  If you have a mortgage and are paying PMI then you could be eligible for this deduction.  The deduction does have a phase-out provision once your Adjusted Gross Income (AGI) reaches $100,000.  It is completely phased out when your AGI reaches $110,000.  If you fall into this category, it’s an opportunity worth further discussion with us.

Other changes enacted by Congress will be covered in subsequent posts.

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