Tax

Beginning in 2014, an eligible individual or family member covered under a qualified health plan through a Health Insurance Marketplace (Exchange) is allowed a premium tax credit.

The premium tax credit offsets the cost of premiums paid for healthcare coverage in a qualified health plan. It is unusual in that taxpayers are able to take advantage of the credit in advance of filing an income tax return for the taxable year of coverage.

Advance credit payments are made directly to the insurance provider. The amount of the advance credit payments is determined when an individual enrolls in a qualified health plan through an Exchange and is based on projected household income and family size for the year of coverage.

When a taxpayer claims the credit on their income tax return the amount of premium tax credit allowed on the tax return (based on actual household income and family size for the year of coverage) must be reconciled, or compared, with advance credit payments.

Taxpayers who have a balance due on their 2014 income tax return as a result of reconciling advance payments of the premium tax credit against the premium tax credit allowed on the tax return have been granted penalty relief by the IRS.

This relief applies only to tax year 2014 and does not apply to any underpayment of the individual shared responsibility payment.

Penalties

Two types of penalties may be imposed by the IRS. The first is a failure-to-pay penalty (unless granted relief for reasonable cause) and applies to taxpayers who do not pay tax due by the April 15 filing date. The second is a penalty for failure-to-pay estimated tax and applies to taxpayers who underpay tax as a result of reconciliation.

With regard to failure-to-pay estimated tax, generally, taxpayers are required to make tax payments on nonwage income in quarterly installments. An underpayment of estimated tax is the excess of the required quarterly estimated tax payment over the amount actually paid on or before the due date for the payment.

Most taxpayers are able to avoid this penalty if they owe less than $1,000 in tax on their 2014 income tax return after subtracting their withholding, or if their withholding and estimated taxes total at least 90 percent of the tax for taxable year 2014 or 100 percent of the tax shown on their 2013 taxable year return.

To qualify for IRS penalty relief, taxpayers must meet certain requirements:

• Taxpayers must be current with their filing and payment obligations;
• Taxpayers must have a balance due for tax year 2014 due to excess advance payments of the premium tax credit; and
• Taxpayers must report the amount of excess advance credit payments on their 2014 tax return timely filed, including extensions.

Requesting relief from the failure-to-pay penalty

Generally, the IRS automatically assesses the penalty against taxpayers and sends a notice demanding payment. When responding to such a notice, taxpayers should submit a letter to the address listed in the notice that contains the statement: “I am eligible for the relief granted under Notice 2015-9 because I received excess advance payment of the premium tax credit.”

Taxpayers who file their returns by April 15, 2015 will be entitled to relief even if they have not fully paid the underlying liability by the time they request relief.

Taxpayers who file their returns after April 15, 2015 must fully pay the underlying liability by April 15, 2016 to be eligible for relief. Interest will accrue until the underlying liability is fully paid.

Requesting relief from the failure-to-pay estimated tax penalty

To request a waiver of the failure-to-pay estimated tax, taxpayers should check box A in Part II of Form 2210, complete page 1 of the form, and include the form with their return, along with the statement: “Received excess advance payment of the premium tax credit.”

Taxpayers do not need to attach documentation from the Exchange, explain the circumstances under which they received an excess advance payment or complete any page other than page 1 of the Form 2210. Taxpayers also do not need to figure the amount of penalty for the penalty to be waived.

If you have any questions about penalty relief for overpayment of ACA premium tax credits, please call.

• By Leon Clinton
• March 11, 2015

Whether you’re self-employed or an employee, if you use a car for business, you get the benefit of tax deductions.

There are two choices for claiming deductions:

1. Deduct the actual business-related costs of gas, oil, lubrication, repairs, tires, supplies, parking, tolls, drivers’ salaries, and depreciation.
2. Use the standard mileage deduction in 2014 and simply multiply 56 cents by the number of business miles traveled during the year. Your actual parking fees and tolls are deducted separately under this method.

Which Method Is Better?

For some taxpayers, using the standard mileage rate produces a larger deduction. Others fare better tax-wise by deducting actual expenses.

Tip: The actual cost method allows you to claim accelerated depreciation on your car, subject to limits and restrictions not discussed here.

The standard mileage amount includes an allowance for depreciation. Opting for the standard mileage method allows you to bypass certain limits and restrictions and is simpler– but it’s often less advantageous in dollar terms.

Caution: The standard rate may understate your costs, especially if you use the car 100 percent for business, or close to that percentage.

Generally, the standard mileage method benefits taxpayers who have less expensive cars or who travel a large number of business miles.

How to Make Tax Time Easier

Keep careful records of your travel expenses and record your mileage in a logbook. If you don’t know the number of miles driven and the total amount you spent on the car, we won’t be able to determine which of the two options is more advantageous for you.

Furthermore, the tax law requires that you keep travel expense records and that you give information on your return showing business versus personal use. If you use the actual cost method for your auto deductions, you must keep receipts.

Tip: Consider using a separate credit card for business, to simplify your recordkeeping.

Tip: You can also deduct the interest you pay to finance a business-use car if you’re self-employed.

Note: Self-employed individuals and employees who use their cars for business can deduct auto expenses if they either (1) don’t get reimbursed, or (2) are reimbursed under an employer’s “non-accountable” reimbursement plan. In the case of employees, expenses are deductible to the extent that auto expenses (together with other “miscellaneous itemized deductions”) exceed 2 percent of adjusted gross income.

Call today and find out which deduction method is best for your business-use car. You’ll be glad you did.

• By Leon Clinton
• March 9, 2015

Most people file a tax return because they have to, but even if you don’t, there are times when you should because you might be eligible for a tax refund and not know it. This year, there are a few new rules for taxpayers who must file. The six tax tips below should help you determine whether you’re one of them.

1. General Filing Rules. Whether you need to file a tax return this year depends on a few factors. In most cases, the amount of your income, your filing status, and your age determine if you must file a tax return. For example, if you’re single and 28 years old you must file if your income was at least $10,150. Other rules may apply if you’re self-employed or if you’re a dependent of another person. There are also other cases when you must file. If you have any questions, don’t hesitate to call.

2. New for 2014: Premium Tax Credit. If you bought health insurance through the Health Insurance Marketplace in 2014, you might be eligible for the new Premium Tax Credit. You will need to file a return to claim the credit.

If you purchased coverage from the Marketplace in 2014 and chose to have advance payments of the premium tax credit sent directly to your insurer during the year, you must file a federal tax return. You should have received Form 1095-A, i>Health Insurance Marketplace Statement, in February. The new form has information that helps you file your tax return and reconcile any advance payments with the allowable Premium Tax Credit.

Note: Taxpayers who have a balance due on their 2014 income tax return as a result of reconciling of these payments please read, Penalty Relief: Overpayment of ACA Tax Credits, below.

3. Tax Withheld or Paid. Did your employer withhold federal income tax from your pay? Did you make estimated tax payments? Did you overpay last year and have it applied to this year’s tax? If you answered “yes” to any of these questions, you could be due a refund. But you have to file a tax return to get it.

4. Earned Income Tax Credit. Did you work and earn less than $52,427 last year? You could receive EITC as a tax refund if you qualify with or without a qualifying child. You may be eligible for up to $6,143. If you qualify, file a tax return to claim it.

5. Additional Child Tax Credit. Do you have at least one child that qualifies for the Child Tax Credit? If you don’t get the full credit amount, you may qualify for the Additional Child Tax Credit.

6. American Opportunity Credit. The AOTC (up to $2,500 per eligible student) is available for four years of post-secondary education. You or your dependent must have been a student enrolled at least half-time for at least one academic period. Even if you don’t owe any taxes, you still may qualify; however, you must complete Form 8863, Education Credits, and file a return to claim the credit.

Which Tax Form is Right for You?

You can generally use the 1040EZ if:

• Your taxable income is below $100,000;
• Your filing status is single or married filing jointly;
• You don’t claim dependents; and
• Your interest income is $1,500 or less.

Note: You can’t use Form 1040EZ to claim the new Premium Tax Credit. You also can’t use this form if you received advance payments of this credit in 2014.

The 1040A may be best for you if:

• Your taxable income is below $100,000;
• You have capital gain distributions;
• You claim certain tax credits; and
• You claim adjustments to income for IRA contributions and student loan interest.

You must use the 1040 if:

• Your taxable income is $100,000 or more;
• You claim itemized deductions;
• You report self-employment income; or
• You report income from sale of a property.

Choose the Right Filing Status

Wondering which filing status to use? Here’s a list of the five filing status options:

1. Single. This status normally applies if you aren’t married. It applies if you are divorced or legally separated under state law.

2. Married Filing Jointly. If you’re married, you and your spouse can file a joint tax return together. If your spouse died in 2014, you often can file a joint return for that year.

Note: Keep in mind that your marital status on Dec. 31 is your status for the whole tax year.

3. Married Filing Separately. A married couple can choose to file two separate tax returns. This may benefit you if it results in less tax than if you file a joint tax return. It’s a good idea for you to prepare your taxes both ways before you choose. You can also use it if you want to be responsible only for your own tax.

4. Head of Household. In most cases, this status applies if you are not married, but there are some special rules. You also must have paid more than half the cost of keeping up a home for yourself and a qualifying person. Don’t choose this status by mistake. Be sure to check all the rules before you file.

5. Qualifying Widow(er) with Dependent Child. This status may apply to you if your spouse died during 2012 or 2013 and you have a dependent child. Certain other conditions also apply.

Note for same-sex married couples. In most cases, you and your spouse must use a married filing status on your federal tax return if you were legally married in a state or foreign country that recognizes same-sex marriage. That’s true even if you now live in a state that doesn’t recognize same-sex marriage.

Questions?

Help is just a phone call away. Call or make an appointment now and get the answers you need today.

• By Leon Clinton
• March 6, 2015