Tax Changes & Updates

WINTER MONTHS BRING BIG CHANGES IN THE TAX WORLD

The following is a summary of some of the more important tax developments that have occurred in the past three months that may affect you, your family, your investments, and your livelihood. Please contact us at Davidson & Nick, CPAs rtinel@dncpas.com for information about any of these developments and what steps you should implement to take advantage of favorable developments and to minimize the impact of those that are unfavorable.

Delayed start date for 2014 tax filing season. In October 2013, the IRS said that the start date of the 2014 tax filing season would be delayed past the original Jan. 21, 2014 start date because of the government shutdown. However, at that time, it did not provide a specific delayed start date. It has now done so. Late in 2013, the IRS announced that the start date for the 2014 tax season would be Jan. 31, 2014. But it stressed that the Apr. 15, 2014 due date is not extended. Those unable to meet the deadline can apply for an automatic six-month extension, the IRS noted.

Guidance on the new 3.8% surtax on net investment income. The IRS has issued final and proposed regulations on the new 3.8% surtax on net investment income (NII) that first went into effect in 2013. The surtax is 3.8% of the lesser of: (1) NII, or (2) the excess of modified adjusted gross income (MAGI) over an unindexed threshold amount ($250,000 for joint filers or surviving spouses, $125,000 for a married individual filing a separate return, and $200,000 in any other case). The final regulations are voluminous and clarify many aspects of this new tax. They explain, among other items, how NII is calculated, the individuals and entities subject to or excepted from the tax, and the deductions taken into account in figuring the tax. The proposed regulations (upon which taxpayers may rely) provide guidance on the computation of NII with respect to a number of specialized provisions and situations including various payments to partners and former partners.

Guidance on the new additional Medicare tax. The IRS has issued final regulations on the new additional 0.9% Medicare (hospital insurance, or HI) tax that first applies for tax years beginning after 2012. This tax applies to individuals receiving wages with respect to employment in excess of $200,000 ($250,000 for married couples filing jointly and $125,000 for married couples filing separately). Likewise, the Medicare tax on self-employment income for any tax year beginning after Dec. 31, 2012 is increased by an additional 0.9% on self-employment income which exceeds the same thresholds as apply for employees. The regulations cover many aspects of this new tax including the employer’s withholding requirement, reporting the tax on new Form 8959, and payment of the tax by self-employed individuals who also have employment income, among other items.

-“Use-it-or-lose-it” rule relaxed for health FSAs. Last fall, the IRS modified the “use-or-lose” rule for health flexible spending arrangements (health FSAs) in order to allow, at the plan sponsor’s option, participating employees to carry over up to $500 of unused amounts remaining at year-end. Previously, any amounts that weren’t used by year-end would be forfeited. The IRS emphasized that the plan sponsor can specify a lower amount as the permissible maximum carryover amount, or it can decide to not allow any carryover at all.

-Standard mileage rates down. The optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) has decreased by 0.5¢ to 56¢ per mile for business travel after 2013. The rate for using a car to get medical care or in connection with a move that qualifies for the moving expense also has decreased by 0.5¢ to 23.5¢ per mile for 2014.

As noted by the above and other regulatory changes, there will continue to be significant changes in the tax compliance and planning world and we will continue to do our best to serve you at Davidson & Nick, CPA’s

Uncategorized

Same-Sex Marriage for Federal Tax Purposes

All Legal Same-Sex Marriages Will Be Recognized For Federal Tax Purposes effective September 16, 2013 under Revenue Ruling 2013-17 : 

The U.S. Department of the Treasury and the Internal Revenue Service recently ruled that same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes. The ruling applies regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage or a jurisdiction that does not recognize same-sex marriage.

Any same-sex marriage legally entered into in one of the 50 states, the District of Columbia, a U.S. territory or a foreign country will be covered by the ruling. However, the ruling does not apply to registered domestic partnerships, civil unions or similar formal relationships recognized under state law.

Under the ruling, same-sex couples will be treated as married for all federal tax purposes, including income, gift and estate taxes. The ruling applies to all federal tax provisions where marriage is a factor, including filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA and claiming the earned income tax credit or child tax credit.

For tax year 2013 and going forward, same-sex spouses generally must file using a married filing separately or jointly filing status.  For tax year 2012 and all prior years, same-sex spouses who file an original tax return on or after Sept. 16, 2013 (the effective date of Rev. Rul. 2013-17), generally must file using a married filing separately or jointly filing status.

For tax year 2012,  same-sex spouses who filed their tax returns before September 16, 2013 may choose (but are not required) to amend their federal tax returns to file as married filing jointly or married filing separately.  Similarly, for tax years 2011 and earlier, same-sex spouses who filed their tax return timely may (but are not required to) amend their federal tax returns to file as married filing jointly or married filing separately if the statute of limitations for amending the return has not expired.   Generally, the statute of limitations for filing a refund claim is three years from the date the return was filed or two years from the date the tax was paid, whichever is later. As a result, refund claims can still be filed for tax years 2010, 2011 and 2012.

There are additional benefits to employees and employers regarding same-sex spouse health benefits.

Furthermore, qualified retirement plans are required to comply with the following rules pursuant to Rev. Rul. 2013-17.  You should check with your Retirement Plan Administrator as to the possible benefits of this ruling.

As this can be a really good opportunity for tax savings, we encourage our clients to take advantage of this new ruling.  Please contact Maria at our office for more information.

Uncategorized

Upcoming Requirements of the Healthcare Reform Act for Employers

As part of the PPC Healthcare Reform Guide, we are providing guidance for the upcoming Notice of Availability of State Insurance Marketplaces. The required written notices must be provided to the employees by October 1, 2013.

Employers must notify all employees (a) of the existence of an insurance marketplace, (b) that the employee may be eligible for premium assistance and a subsidy under the marketplace, and (c) that if the employee purchases a policy through the insurance marketplace, he or she may lose the employer contribution to any health benefits offered by the employer.

• October 1, 2013 (for employees employed before October 1, 2013).

• On date of hiring, for employees hired on or after October 1, 2013. However, for 2014, a notice provided within 14 days of an employee’s start date will be considered provided at the time of hiring

Employers (including those who do not offer health coverage to their employees) must distribute the appropriate notice to all employees (regardless of plan enrollment status or part-time or full-time status). For all employees who are employed before October 1, 2013, the notice must be provided by October 1, 2013. For employees hired after September 30, 2013, the notice must be provided at the time of hiring; however, for 2014, a notice provided within 14 days of an employee’s start date will be considered provided at the time of hiring (EBSA Technical Release 2013-02). Informally, the Department of Labor (DOL) has indicated that for October-December 2013, new employees should receive the notice as soon as possible but no longer than 14 days after their start date. A separate notice does not need to be provided to employees’ dependents or other individuals who are or may become eligible for coverage under the plan but who are not employees. The DOL issued two model notices in May 2013 that may be used for current and new employees. One model is for employers who offer employer-provided health insurance coverage to some or all of their employees and the other model is for employers who do not offer employer-provided health insurance coverage.

The model notices must be revised by employers to include identifying and contact information. In addition, employers who offer health insurance coverage must provide information on which employees are offered coverage, eligibility requirements, and a statement as to whether the coverage meets the minimum value standard and whether the cost of the coverage to the employee is intended to be affordable based on the employee’s wages.

Most employers will be required to provide the notice because it applies to employers covered by the FLSA. In general, the FLSA applies to employers that have (a) one or more employees who are engaged in commerce and (b) gross annual sales of $500,000 or more. The FLSA is enforced by the Department of Labor (DOL), which has guidance relating to the applicability of the FLSA in general including a compliance assistance tool to determine applicability of the FLSA at www.dol.gov/elaws/esa/flsa/scope/screen24.asp

Uncategorized

Business Census Forms Overdue

The Census Bureau would like to remind businesses to fill out their 2012 census forms because they are overdue.

Last fall, the U.S. Census Bureau mailed 2012 Economic Census forms to more than 4 million businesses. The Census Bureau pointed out that reliable statistics are needed for economic development, decision making and strategic planning.

The Economic Census is the U.S. government’s official five-year measure of American business and the economy. For those businesses that have responded to the Economic Census, the Census Bureau thanks them. But for those businesses that were mailed a form but have not yet responded to the survey, the Census Bureau is urging them to do so as soon as possible.

The census law (Title 13, United States Code, Section 224), coupled with the Sentencing Reform Act of 1984 (Title 18, Sections 3551, 3559, and 3571), provides for penalties of up to $5,000 for failure to report, and $10,000 for intentionally providing false information.

Our firm is available to assist you in completing this form.
Please contact our office at 239-261-8337 for more information.
Tax Tips

Did you know?

That certain individuals are exempt from U.S. Social Security and Medicare taxes?

In general aliens performing services in the United States as employees are liable for U.S. Social Security and Medicare taxes. Certain classes of nonimmigrants and nonresident aliens are exempt from U.S. Social Security and Medicare taxes.

Nonresident aliens, in general, are also liable for Social Security/Medicare Taxes on wages paid to them for services performed by them in the United States, with certain exceptions based on their nonimmigrant status.

Who are they?

  • A-visas. Employees of foreign governments are exempt on salaries paid to them in their official capacities as foreign government employees.
    • The exemption does not automatically apply to servants of employees of such foreign governments.
    • The exemption does not apply to spouses and children of A nonimmigrants who are employed in the United States by anyone other than a foreign government.
  • D-visas. Crew members of a ship or aircraft may be exempt if the vessel is a foreign vessel and the employer is a foreign employer, or if the services are performed outside of the United States.
    • Crew members of an American vessel or aircraft who perform services within the United States ARE subject to Social Security and Medicare taxes.
    • Crew members of an American vessel or aircraft who perform services outside the United States ARE subject to Social Security and Medicare taxes if:
      • the employee signed on the vessel or aircraft in the United States; or
      • the employee signed on the vessel or vessel outside the United States but the vessel or aircraft touches a U.S. port while he is employed thereon.
  • F-visas, J-visas, M-visas, Q-visas. Nonresident Alien students, scholars, professors, teachers, trainees, researchers, physicians, au pairs, summer camp workers, and other aliens temporarily present in the United States in F-1,J-1,M-1, or Q-1/Q-2 nonimmigrant status are exempt on wages paid to them for services performed within the United States as long as such services are allowed by USCIS for these nonimmigrant statuses, and such services are performed to carry out the purposes for which such visas were issued to them.
    • Exempt Employment includes:
      • On-campus student employment up to 20 hours a week (40 hrs during summer vacations).
      • Off-campus student employment allowed by USCIS.
      • Practical Training student employment on or off campus.
      • Employment as professor, teacher or researcher.
      • Employment as a physician, au pair, or summer camp worker.
    • Limitations on exemption:
      • The exemption does not apply to spouses and children in F-2, J-2, M-2, or Q-3 nonimmigrant status.
      • The exemption does not apply to employment not allowed by USCIS or to employment not closely connected to the purpose for which the visa was issued.
      • The exemption does not apply to F-1,J-1,M-1, or Q-1/Q-2 nonimmigrants who change to an immigration status which is not exempt or to a special protected status.
      • The exemption does not apply to F-1,J-1,M-1, or Q-1/Q-2 nonimmigrants who become resident aliens.
  • G-visas. Employees of international organizations are exempt on wages paid to them for services performed within the United States by employees of such organizations.
    • The exemption does not automatically apply to servants of employees of such international organizations.
    • The exemption does not apply to spouses and children of G nonimmigrants who are employed in the United States by anyone other than an international organization.
  • H-visas. Certain nonimmigrants in H-2 and H-2A status are exempt as follows:
    • An H-2 nonimmigrant who is a resident of the Philippines and who performs services in Guam.
    • An H-2A nonimmigrant admitted into United States temporarily to do agricultural labor

 

Source used: www.irs.gov

 

Tax Changes & Updates, Tax Tips

Blog 06 11 13 – The Small Employer Health Insurance Premiums Tax Credit

Blog 06 11 13 – The Small Employer Health Insurance Premiums Tax Credit

The Small Employer Health Insurance Tax Credit (Code Sec. 45R) was created as part of the Patient Protection and Affordable Care Act, or more commonly referred to as “Obamacare”.  It is a tax credit of health insurance premiums paid by small employers.  This credit can be claimed on Form 8941 which needs to be included on the business tax return.

For tax years 2010 through 2013, small employers can receive up to 35% of premiums paid (maximum credit of $51,000), and tax exempt organizations up to 25% of premiums paid (maximum credit of $36,700).

For tax years 2014 through 2015, small employers can receive up to 50% of premiums paid (maximum credit $73,500), and tax exempt organizations up to 35% of premiums paid (maximum credit $58,800).

The amount of the credit per “Full Time Equivalent” (FTE) employees is capped at different amounts for different states.

To be eligible, a for-profit or not-for-profit small employer must; Employ fewer than 25 Full Time Equivalents, have average annual compensation of less than $50,000, and provide health insurance coverage for its employees.

When calculating FTE for purposes of the credit, owners, owners’ family, and seasonal employees who work fewer than 120 days are not considered.  However, the premiums for seasonal workers are included.

Employers who also employee household or non-business employees must also include them in the FTE count.

The definition for health insurance is: Benefits consisting of medical care (provided directly, through insurance or reimbursement, or otherwise) under any hospital or medical service policy or certificate, offered by a licensed health insurance company.

It can include dental or vision plans, long term care, nursing home plans, Medicare supplement, and others (please see IRS site for complete listing).

It does not include HSAs, HRAs, Credit-only insurance, coverage for on-site medical clinics, automobile medical payment insurance, coverage only for accident, or liability insurance.

For more information visit our website at www.dncpas.com or give one of our accountants a call at 239-261-8337. Davidson and Nick CPAs has been serving Southwest Florida in helping individuals and businesses as CPAs and most trusted advisor since 1989.

Tax Changes & Updates

Blog 06 04 13 – Health Care Insurance and Large Employers

Blog 06 04 13 – Health Care Insurance and Large Employers

The Patient Protection and Affordable Care Act, which was amended by the Health Care and Education Reconciliation Act of 2010, does not mandate an employer to offer employees acceptable health insurance, but does require that certain employers with at least 50  Full-Time Equivalent Employees pay a penalty starting in 2014.  This is if one or more of their Full-Time Employees obtain a premium credit through a health insurance exchange.  Employees can be eligible for a premium credit if the employer does not offer coverage to their employees or the employer offers coverage that is not “affordable” or provide “minimum value”.

This mandate is only applicable to Large Employers.  A large employer is defined as an employer with more than 50 full-time equivalent employees during the preceding calendar year.  To calculate the equivalents, both full and part-time employees are considered.  Full-Time employees are those working 30 or more hours per week, but exclude full-time seasonal employees who work less than 120 days.

In the calculation of the penalty, only Full-Time employees are used, part-time and seasonal workers are not included for penalty calculations.  They are only included to determine if the employer is a Large Employer.

Premium Credits for Individuals

In 2014 individuals who are not offered employer-sponsored health insurance coverage, are not eligible for Medicaid or other programs, may be eligible for coverage through an exchange.  These individuals will have income between 138% and 400% of the federal poverty level.  Those offered health insurance from their employers can only receive the premium credits for exchange coverage if they are not enrolled in their employer’s coverage, or the employer offers coverage that is not “affordable” or provide “minimum value”.  In determining if the coverage is “affordable” or does not provide “minimum value”, the individuals require contribution to the plan premium for self-only coverage exceeds 9.5% of their household income, or the plan pays for less than 60% on average of covered health care expenses.

Penalty Amounts

In 2014, the monthly penalty to be assessed to a Large Employer for each full-time employee who receives the premium credit will be one-twelfth of $3,000 for any applicable month.  The total penalty is limited by an extensive calculation.  After 2014 the penalty amounts will be indexed by the premium adjustment percentage for the calendar year.

Additionally, firms with over 200 full-time employees that offer insurance must automatically enroll new employees in the plan.  Employees must be given adequate notice, or an option to opt out.

Planning steps to take before the end of 2012, or early in 2013:

If you have “around” 50 employees, discuss the costs associated with the employer mandate with your accountant.

Should the business consider downsizing so that the business has less than 50 FTEs starting in 2014.

Is there a competitive advantage to providing health insurance to employees, if not and there are less than 50 FTEs, consider terminating insurance coverage.

Compare the cost of insurance with the cost of the penalty for not buying insurance – most businesses are financially better off paying a penalty, even with the loss of a tax deduction for health insurance expense.

The final decision does not need to be made until January of 2014, but discussing now can help plan for the implementation.

For more information visit our website at www.dncpas.com or give one of our accountants a call at 239-261-8337. Davidson and Nick CPAs has been serving Southwest Florida in helping individuals and businesses as CPAs and most trusted advisor since 1989.

Uncategorized

2013 Tax Benefit Adjustments

May 9, 2013 Tax Blog

In 2013, Various Tax Benefits Increase Due to Inflation Adjustments:

For tax year 2013, the Internal Revenue Service announced the annual inflation adjustments for more than two dozen tax provisions.

  • The annual exclusion for gifts rises to $14,000 for 2013, up from $13,000 for 2012.
  • The amount used to reduce the net unearned income reported on a child’s tax return subject to the “kiddie tax,” is $1,000, up from $950 for 2012.
  • The foreign earned income exclusion rises to $97,600, up from $95,100 in 2012.

Details on these inflation adjustments and others such as the low-income housing credit, the dollar limits for high-deductible health plans and other amounts can be found in Revenue Procedure 2012-41.

IRS Announces 2013 Pension Plan Limitations; Taxpayers May Contribute Up to $17,500 to Their 401(k) Plans in 2013:

The Internal Revenue Service announced cost-of-living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2013. In general, many of the pension plan limitations will change for 2013 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged because the increase in the index did not meet the statutory thresholds that trigger their adjustment.

Highlights include:

  • 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 is increased from $17,000 to $17,500.
  • The catch-up contribution limit for employees aged 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.
  • The limit on annual contributions to an Individual Retirement Arrangement (IRA) rises to $5,500, up from $5,000 in prior years.
  • 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 $59,000 and $69,000, up from $58,000 and $68,000 in 2012. 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 $95,000 to $115,000, up from $92,000 to $112,000. 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 $178,000 and $188,000, up from $173,000 and $183,000.
  • The AGI phase-out range for taxpayers making contributions to a Roth IRA is $178,000 to $188,000 for married couples filing jointly, up from $173,000 to $183,000 in 2012. For singles and heads of household, the income phase-out range is $112,000 to $127,000, up from $110,000 to $125,000. For a married individual filing a separate return who is covered by a retirement plan at work, the phase-out range 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 $59,000 for married couples filing jointly, up from $57,500 in 2012; $44,250 for heads of household, up from $43,125; and $29,500 for married individuals filing separately and for singles, up from $28,750.

For more information visit our website at www.dncpas.com or give one of our accountants a call at 239-261-8337. Davidson and Nick CPAs has been serving Southwest Florida in helping individuals and businesses as CPAs and most trusted advisor since 1989.

Tax Changes & Updates

Education Tax Incentives

April 3, 2013 Tax Blog

Education Tax Incentives

With the enactment of the American Taxpayer Relief Act on January 2, 2013, two college tax benefits were extended thru 2017 and the tuition and fees deduction through 2013.  The 3rd college tax benefit, the lifetime learning credit, is already a permanent part of the tax code and did not nor does not require extending.

Only one of the tax benefits can be claimed per year per qualifying expenses per eligible student.

The American opportunity credit yields the maximum annual of $2,500 per eligible student.   In order to receive the maximum credit, an eligible student must pay $4,000 or more in qualified expenses.  The amount of the credit is also phased out depending on the modified adjusted income of the taxpayer.  A $1,000 is refundable even if the taxpayer does not owe tax, unlike other college tax benefits.

With the lifetime learning credit, $2,000 credit is available per return.  It however is not based on per eligible student as the American opportunity credit is, but on each tax return.  Also, unlike the American opportunity credit it is only available for graduate or post secondary education, or for skill and job improvements.  A taxpayer must pay $10,000 or more in qualified expenses to receive the maximum credit, and have sufficient tax liability to receive it.  There are phase outs on modified adjusted gross income for this credit.  This credit does not require a student have to be enrolled at least half time to receive the lifetime learning credit.

The tuition and fees deduction is an above-the-line deduction for qualified higher education expenses.  This means it is a deduction taken to reduce your modified adjusted gross income.  The deduction, like the lifetime learning credit, is phased out based on your adjusted gross income before the deduction.  The maximum deduction is $4,000.

For more information visit our website at www.dncpas.com or give one of our friendly tax accountants a call at 239-261-8337. Davidson and Nick CPAs has been serving Southwest Florida in helping individuals and businesses as CPAs and most trusted advisor since 1989.

Tax Tips

Identity Theft, Tax Fraud, and Phishing

March 1, 2013 Tax Blog

Identity Theft, Tax Fraud, and Phishing

The IRS has made protecting tax payers, their refunds from identity theft, and the victims of such a top priority.  In 2012, the IRS more than doubled its employees who work on tax identity theft.  They also were able to prevent the refund of $20 billion in fraudulently filed refunds last year.  The IRS has arrested more than 100 people in connection to these crimes.  In January of 2013, they gave out 734 enforcement action against the targeted 389 suspects they focused on in that month alone.

Victims more often than not don’t learn that their identity was used to file fraudulent returns to claim a refund until they try to file their actual tax return and it is refused by the IRS.  The IRS urges taxpayers to quickly act and respond to notices from them that they might receive, so that they can start the process of correcting and securing your tax account and identity.

The IRS additionally urges taxpayers to not respond to emails or electronic media that appears to come from them.  This is referred to as “Phishing”, and is a method used to gain information needed to steal your identity.  No matter how official it may appear the IRS does not initiate contact with taxpayers electronically.  They will not electronically ask for pertinent personal information either.

Any suspicious correspondence should be forwarded to the IRS at phishing@irs.gov.

For more information on identity theft and fraud, visit www.irs.gov and click on their “Identity Theft” link at the bottom of the page.

If you suspect you have been the victim of identity theft and fraudulently filed tax refunds, call the IRS Identity Theft Hotline at 1-800-908-4490.

For more information on phishing, visit www.irs.gov and click on “Reporting Phishing” link at the bottom of the page.

For more information visit our website at www.dncpas.com or give one of our friendly tax accountants a call at 239-261-8337. Davidson and Nick CPAs has been serving Southwest Florida in helping individuals and businesses as CPAs and most trusted advisor since 1989.