By now, most people know that they need to have health insurance (or a qualifying exemption) or they’ll have to pay a penalty along with their income taxes. That’s one of the main requirements of the Affordable Care Act (ACA).
The good news is that it’s easy to get health insurance coverage. We’ve broken downthe different plans to help you understand what’s covered under each. Even having the bare minimum – say, catastrophic coverage for those who qualify – is enough to avoid paying a tax penalty. You also don’t have to buy a plan through the Marketplace to avoid paying the fee; any coverage that qualifies as “minimum essential coverage” is enough.
Why does the law include a penalty if I don’t have health insurance?The penalty is one way of making sure enough consumers are obtaining the required coverage.. As of 2014, the number of uninsured Americans had dropped to a seven-year low of about 10%. More than 16 million people who were uninsured have now gained coverage, but that still leaves millions who may have to pay the penalty.
How much is the penalty?If you did not have coverage in 2015, and didn’t qualify for an exemption, you’ll pay the greater of these two amounts:
The amount of the penalty goes up in 2016, so make sure you’ve purchased health care by then or obtained a qualifying exemption. The open enrollment period for 2016 began November 1, and coverage can begin as soon as January 1 if you enroll by December 15. Keep in mind that if you’re enrolling in Medicaid or CHIP, you can sign up any time.
What if I only had health insurance for part of 2015?If you spent less than three consecutive months uninsured in 2015, you still can avoid the penalty. But beginning in 2015, the exemption for short gaps in coverage will look back to the end of 2014 to determine if this exemption will apply if there’s a gap in coverage at the beginning of 2015. Any more than that, and you may have to pay unless you qualify for another type of exemption. The penalty is then calculated as 1/12 of the annual penalty for each month you spent uninsured.
What are other exemptions?If you qualify for an exemption, you can avoid a penalty. There are a variety of exemptions, many of which can be claimed on your federal tax return. Some common exemptions from the penalty for not having health coverage include having too little income, religious objections, incarceration or being out of the country. There are also “hardship” exemptions, which can be claimed if tough life situations prevented you from getting health insurance. See our article about the different kinds of exemptions and how to apply for them.
If I have a penalty, how do I pay it?If you owe a penalty, you can use the worksheets located in the instructions to Form 8965, Health Coverage Exemptions, to figure the amount due. The IRS has more information on the process, and Virtual Bookkeepers USA tax professional can also help. 850-725-5696. www.VirtualBookkeepersUSA.com. or visit our Pensacola Florida Income Tax Site now.
IRS Problems • You haven’t filed your tax returns • You owe Back Taxes • Payroll Tax Problems • Have you received notice of an IRS tax lien? • Is the IRS threatening levies against your assets? • Has the IRS implemented a Wage Garnishment against you? • Is the IRS threatening property seizures? IRS Solutions • Do you want to arrange an Offer in Compromise for money you owe the IRS? • Do you need to arrange an IRS Payment Plan? • Are you thinking of contacting the IRS bankruptcy department? • Do you think you qualify for debt spousal tax debt relief? • Would you like to see your IRS File? IRS Problems Non-filed Tax Returns Failing to file your tax returns is a criminal offense.
If you do not file, you can be prosecuted and punished with potential jail time - one year for each year not filed. www.VirtualBookkeepersUSA.com give you the peace of mind you deserve by helping your legal compliance. If you voluntarily file your delinquent returns you’ll likely avoid further problems other than having to pay the actual taxes, interest and penalties. When www.VirtualBookkeepersUSA.com proactively files your delinquent returns, we ensure that you receive the deductions you are entitled to. Before other steps can be taken to resolve the problems caused by non-filing, you must first be current. Once we review your records, we’ll set a course of action to bring you in compliance both now and keep you there in the future. Back Tax Returns You filed your returns but didn’t have the money to pay what was owed and perhaps you thought you could catch up the following tax year. Before you realized it you were several years in arrears and received a notice from the IRS, stating that you owe three or four times the original amount. While you can choose to wait until the IRS catches up with you, that’s not the wisest course of action. It’s much better to seek the help you need from www.VirtualBookkeepersUSA.com. We offer several options when it comes to resolving unpaid taxes. Payroll Tax Problems Because it is withheld from their earnings, the IRS views failing to pay payroll taxes as tantamount to stealing your employees’ money. As a result, penalties for failing to pay your payroll taxes or filing your payroll tax returns late may be more severe than many other types of penalties. Those penalties can drastically multiply the amount you owe in a very short time. If you are behind on your payroll taxes, www.VirtualBookkeepersUSA.com strongly advises against meeting with the IRS on your own. How you answer their initial questions can determine a great deal about the disposition of your case. We can help! 850.725.5696. BestVirtualBookkeepers@gmail.com.
Owning your own business means that you make all the major decisions, including the ones that can have a real impact on your taxes. One of the earliest and most importantdecisionsyou’llmakeistochoose the legal form your business should adopt. The most common forms are a sole proprietorship, a partnership, or a corporation. Each has different tax consequences and making the right choice can have a very positive effect on your tax picture. Sole Proprietorships A sole proprietor is an unincorporated business that has only one owner. It is a simple legal entity in which you are your own master. A sole proprietorship hasthree major tax advantages: You candeduct any losses you incur from your business start up costs on your personal income tax return. These start up costs can be used to reduce your taxable income from othersources. You avoid double taxation. Income generated from a regular corporation is taxed twice. First, your business pays a corporate income tax on its profits. And then, as a shareholder, you pay personal income taxes on any dividends you receive from the corporation. On the other hand, income from a sole proprietorship is taxed only once - as income on your personal income tax return. Your overalltax burden may be less depending upon the tax bracket you are in. Partnerships A partnership is similar to a sole proprietorship with the exception that it has more than one owner. Eachpartner’s share of income, loss, and deductionsisset forth in the partnership agreement. As in a sole proprietorship, these items are reflected on each partner’s personal income tax return. Partnerships have additional tax advantages: Income is taxed at each individual partner’s personal income tax rate. You avoid double taxation because a partnership does not pay taxes. As a partner, you can deduct business losses to the extent that you are liable for obligations of the partnership. You can allocate losses differently than profits. If you provide most of the start up costs, you can take a larger share of the losses, even ifthe profits are shared equally by the partners. And the way you allocate profit and loss to each partner can be changed from year to year to accommodate changes in your personal circumstances. “S” Corporations An “S” corporation is a business that is formed under the rules of Subchapter S of the Tax Code. Operating your business as an “S” corporation hasseveral tax advantages: You may pay less taxes, depending upon the tax bracket you are in. You avoid double taxation. Your businessprofitsaretaxedonlyonce, directly to you as a shareholder, on your personal income tax return. • • • • • You avoid tax penalties on excess accumulated earnings. Since “S” corporation profits are taxed to stockholders even if they don’t receive them, you can’t be penalized for accumulated excess earnings in the business as can a regular corporation. You don’t pay double taxes when your“S” corporation is liquidated. If a regular corporation is liquidated, the corporation istaxedon the gain and you and other shareholders are taxed on the portion ofthe gain which you receive. Since there are no corporate income taxes for an “S” corporation, you avoid double taxation when an“S” corporation is liquidated. Regular “C” Corporations Regular“C” corporations are a unique form of business. They are subject to a special tax structure and their earnings can be taxed twice, first at the corporate level and again when they are distributed to stockholders as dividends. The double tax can be avoided by retaining earnings in the corporation rather than distributing them as dividends. This must be carefully planned, however, since the IRS can penalize a corporation for excessive accumulation of earnings. The penalty can be avoided only if a corporation can demonstrate that it has good business reasons for accumulating earnings. Even if you own a small business, you can gain certain tax advantages from incorporating. For example, corporate tax rates on the first $75,000 of income are often lower than personal income tax rates. • • Here’s how corporate income is taxed: CORPORATE INCOME TAX RATE $0 - $50,000 15% $50,000 - $75,000 25% $75,000 - $100,000 34% $100,000 - $335,000 39% $335,000 - $10,000,000 34% $10,000,000 - $15,000,000 35% $15,000,000 - $18,333,333 38% over $18,333,333 35% Your choice of a legal form for your business can have far-reaching consequences on your income taxes. It’s best to consult your accountant before you make that important decision
The cost of education keeps going upfasterthantherateofinflation, but Congress has created tax breaks to help with education expenses. American Opportunity Tax Credit (AOTC). This can be worth up to $2,500 per student. The amount of the AOTC credit is 100% of the first $2,000 of education costs plus 25% of the next $2,000. Limitations… The credit is available only for the first four years of postsecondary education perstudent. The student must be pursuing a degreeorotherrecognizededucation credential and be enrolled at least half-time. The credit is phased out as your modified adjusted gross income (MAGI) rises from $80,000 to $90,000 on a single return, and from $160,000 to $180,000 on a joint return. Up to 40% of the credit isrefundable. It can generate a refund greater than the amount of payments you made. Lifetime Learning Credit. This can be as much as $2,000 per tax return. The credit equals 20% of the first $10,000 of education expenses(maximum credit per taxpayer regardless of the number ofstudents). The credit may be claimed for a student for any number of years. The student need not be pursuing a degree and may be taking only one course. The creditis phased out as your MAGI rises from $55,000 to $65,000 on a single return, and from $110,000 to $130,000 on a joint return. Credit planning: TheAOTCcredit andLifetime Leaning credit can’t both be claimed for the same student in the same year, but both can be claimed on the same return for different students (such as a child in college and a parent taking a work-related course). Student-loan interest deduction. This is available for up to $2,500 of loan interest even for those who don’t itemize deductions on their tax returns. Loan origination fees are deductible, too. Snag: Those who don’t itemize often overlook this deduction. The deduction is available forinterest on a loan used to finance tuition, fees, room and board, books, equipment, and other necessary expenses (such as transportation) at virtually all accredited postsecondary and vocationalschools. Limit: The deduction is phased out as MAGI increase from $65,000 to $80,000 on a single return and from $130,000 to $160,000 on a joint return. Coverdell Education Savings Accounts (ESAs). Can receive up to $2,000 per year for any single beneficiary under age 18. ESAs earn tax-deferred investment returns which can be used tax free to pay education expenses. Advantage: ESAs can be used to pay for elementary through high school, not just college. To contribute to an ESA, one must have MAGI not exceeding $110,000 on single returns or $220,000 for married filing jointly. Anyone can contribute to an ESAfor an individual, so if parents are unable to, a friend or other relative may contribute. Qualified tuition programs (Section 529 plans). These plans can hold funds that earn tax-deferred investment returns which can be spent tax free on college education costs. Or they can be prepaid tuition plans allowing a person to buy tuition now at today’s prices. Advantage: These plans can hold far more than ESAs and therefore can be used for estate planning. Yet a person who contributes funds to the plan can withdraw them in case of need – a unique instance of being able to “keep while giving away” under the Tax Code. Tax-free scholarships, fellowships, and need-based grants. These forms of aid generally are tax free when fundsreceived are applied to tuition, fees and required courserelated expenses (such as books, supplies, and equipment). Beware: Funds applied to the cost of room and board, travel, or research are taxable.
Mike McVay, Tax Accountant Blog
Certified QuickBooks ProAdvisor & Licensed Tax Accountant Pensacola, FL
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