Affordable Care Act and Employers: Understanding Affordable and Minimum Value Coverage

In general, under the employer shared responsibility provisions of the Affordable Care Act, an applicable large employer

may either offer affordable minimum essential coverage that provides minimum value to its full-time employees and their dependents or potentially owe an employer shared responsibility payment to the IRS.

Here are definitions to help you understand affordable coverage and minimum value coverage.

Affordable coverage: If the lowest cost self-only only health plan is 9.5 percent or less of your full-time employee’s household income then the coverage is considered affordable. Because you likely will not know your employee’s household income, for purposes of the employer shared responsibility provisions, you can determine whether you offered affordable coverage under various safe harbors based on information available to the employer.

Minimum value coverage: An employer-sponsored plan provides minimum value if it covers at least 60 percent of the total allowed cost of benefits that are expected to be incurred under the plan.

Under existing guidance, employers generally must use a minimum value calculator developed by HHS to determine if a plan with standard features provides minimum value. Plans with nonstandard features are required to obtain an actuarial certification for the nonstandard features. The guidance also describes certain safe harbor plan designs that will satisfy minimum value.

If you have any questions, please feel free to contact our office.

Source: IRS

Tips for Taxpayers Starting a New Business

Anyone starting a new business should be aware of his or her federal tax responsibilities. Here are several things you should know if you plan on opening a new business this year.

1. First, you must decide what type of business entity you are going to establish. The type of business you open will determine which tax form has to be filed. The most common types of business are the sole proprietorship, partnership, corporation, and S corporation

2. The type of business you operate will determine what taxes must be paid and how you pay them. The four general types of business tax are income tax, self-employment tax, employment tax, and sales or excise tax.

3. An employer identification number is used to identify a business entity. Most businesses need an EIN, and your business will definitely need one if you hire employees, regardless of the type of business entity selected. Please call this office to determine whether your business needs an EIN and get assistance in obtaining one if it does.

4. Good records will help ensure the successful operation of your new business. You may choose any record-keeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law does not require any special kinds of records. However, the business you are in will affect the types of records that will have to be kept for federal tax purposes. If you need assistance or guidance in setting up your business records, please give this office a call.

5. Every business taxpayer must figure taxable income on an annual accounting period called a tax year. The calendar year and the fiscal year are the most common tax years used.

6. Each taxpayer must also use a consistent accounting method, which is a set of rules for determining when to report income and expenses. The most commonly used accounting methods are the cash method and accrual method. Under the cash method, income is generally reported in the tax year it is received, and expenses are deducted in the tax year they are paid. Under an accrual method, income is generally reported in the tax year it was earned, if not yet received, and expenses are deducted in the tax year they are incurred, even though they are not yet paid.

If you are contemplating starting a business or if you already have one, please contact our office if you need assistance with your accounting, bookkeeping, payroll or sales tax reporting, or other federal or state compliance issues.

 

Top Tax Write-Offs for Small Business Owners

With each tax deduction you take, you reduce your overall tax burden. And as a small-business owner, you can use all the relief you can get.

Make sure you don’t leave money on the table this tax season by taking advantage of these top tax write-offs:

Home Office

If you use a portion of your home regularly and exclusively for work purposes and your home is the principal place that you conduct your business, you can deduct the expense.

To calculate your deduction, you have two options: You can go the simpler route and multiply a prescribed rate by the allowable square footage of the office to come up with the deduction. Or you can follow the more complex regular method, which requires you to determine the actual expenses of your home office, including mortgage interest, insurance, utilities, repairs, and depreciation based on the percentage of your home devoted to business use.

Note: The more complex option may take up more of your time, but if you’ve kept accurate records, you will likely receive a higher deduction going that route.

Meals and Entertainment

If you provide yourself, employees, or clients with meals or entertainment regularly for business purposes, you can deduct the expenses — as long as the reason for the expense furthered your business in some way (resulted in a sale, new client lead, or referral, for example). Meals include the amount you spend on food, beverages, taxes, and tips.

Save all your receipts and note on the receipt or in your calendar/planner the business-related purpose of the meeting. If you are audited, you will have to prove that the expenses were solely for the good of the business.

Note: You cannot deduct expenses for lavish or extravagant meals, so keep your expenditures reasonable.

Mileage

If you rack up the miles on your car for business purposes, you can claim the deduction in one of two ways: Total your mileage and multiply it by the 2015 Standard Mileage Rate of 56 cents. Or you can compare business use of your car against your personal use and deduct a portion of your expenses, including gas, repairs, depreciation, registration fees, and insurance.

Note: Your mileage meter starts at your first business-related destination (for example, your store or a client’s location) and you can’t include your commute to and from home.

Travel

Ordinary and necessary expenses you accrue when you or employees travel for business are deductible. These expenses include:

• Transportation by airplane, train, bus, or car between your home and a business destination (special rules apply to luxury water travel and cruise ships).
• Fares for taxis, buses, and limousines that take you to the airport and from your hotel to your business-related event.
• The cost of shipping baggage and materials used for business purposes.
• Expenses associated with operating and maintaining your car when you are traveling for business. (You can deduct actual expenses or the standard mileage rate; pick whichever one provides you with the highest deduction.)
• Tolls and parking.
• Car rental fees for the business-related portion of your trip.
• Lodging and meals if you are required to stay overnight or long enough that you need to stop and rest.
• Dry cleaning and laundry services you use during a business trip.
• Any business calls or fax expenses you accrue while traveling.
• Employee expenses — if the person has a business purpose for traveling with you and the expenses are permissible by IRS standards.
• Business associate expenses (for example, a current or prospective customer, client, supplier, employee, agent, partner, or professional adviser) — if the person has a business purpose for traveling with you and the expenses are permissible by IRS standards.

Maintain very thorough records of all of your expenses so that you can accurately calculate your deductions and explain any expenses should you be audited.

Employee Expenses

You can typically deduct the amount you pay employees for working for you. In addition, you can deduct the amount of money you put into employees’ (and your) retirement plans.

Business Expenses

If you rent property — and have no equity or title in it — you can deduct rent as a business expense. If you pay interest on money you borrowed for business activities, you can also deduct that cost.

In addition, you typically can deduct the ordinary and necessary cost of insurance as a business expense if it is for your trade, business or profession. Finally, if you purchase off-the-shelf computer software “that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified,” you can deduct the expense.

Education

You can deduct learning and professional development activities and resources for you and your employees, if those activities and resources are related directly to your business. Courses, workshops, seminars, trade shows, and even books, DVDs, magazines, and other training materials are deductible.

The potential for deductions doesn’t end with this list. Be sure that you can take advantage of every tax write-off available to you by doing your research — and preparing your documentation — sooner rather than later.

If you have any questions about your business accounting and taxes, please feel free to contact our office.

Top 10 Tips for Deducting Losses from a Disaster

To mark National Hurricane Preparedness Week, the IRS wants you to know it stands ready to help. If you suffer damage to your home or personal property, you may be able to deduct the losses you incur on your federal income tax return. Here are 10 tips you should know about deducting casualty losses:

1.    Casualty loss.  You may be able to deduct losses based on the damage done to your property during a disaster. A casualty is a sudden, unexpected or unusual event. This may include natural disasters like hurricanes, tornadoes, floods and earthquakes. It can also include losses from fires, accidents, thefts or vandalism.

2.    Normal wear and tear.  A casualty loss does not include losses from normal wear and tear. It does not include progressive deterioration from age or termite damage.

3.    Covered by insurance.  If you insured your property, you must file a timely claim for reimbursement of your loss. If you don’t, you cannot deduct the loss as a casualty or theft. You must reduce your loss by the amount of the reimbursement you received or expect to receive.

4.    When to deduct.  As a general rule, you must deduct a casualty loss in the year it occurred. However, if you have a loss from a federally declared disaster area, you may have a choice of when to deduct the loss. You can choose to deduct the loss on your return for the year the loss occurred or on an amended return for the immediately preceding tax year. Claiming a disaster loss on the prior year’s return may result in a lower tax for that year, often producing a refund.

5.    Amount of loss.  You figure the amount of your loss using the following steps:

• Determine your adjusted basis in the property before the casualty. For property you buy, your basis is usually its cost to you. For property you acquire in some other way, such as inheriting it or getting it as a gift, you must figure your basis in another way. For more see Publication 551, Basis of Assets.
• Determine the decrease in fair market value, or FMV, of the property as a result of the casualty. FMV is the price for which you could sell your property to a willing buyer. The decrease in FMV is the difference between the property’s FMV immediately before and immediately after the casualty.

• Subtract any insurance or other reimbursement you received or expect to receive from the smaller of those two amounts.

6.    $100 rule.  After you have figured your casualty loss on personal-use property, you must reduce that loss by $100. This reduction applies to each casualty loss event during the year. It does not matter how many pieces of property are involved in an event.

7.    10 percent rule.  You must reduce the total of all your casualty or theft losses on personal-use property for the year by 10 percent of your adjusted gross income.

8.    Future income.  Do not consider the loss of future profits or income due to the casualty as you figure your loss.                         

9.    Form 4684.  Complete Form 4684, Casualties and Thefts, to report your casualty loss on your federal tax return. You claim the deductible amount on Schedule A, Itemized Deductions.

10.    Business or income property.  Some of the casualty loss rules for business or income property are different than the rules for property held for personal use.

If you have any questions, please feel free to contact our office.

Small Business and the Affordable Care Act

Whether you’re self-employed or run a small business, here’s a quick look at what you need to know about the Affordable Care Act.

Self-Employed

If you run an income-generating business with no employees, then you’re considered self-employed. You can get coverage through the Healthcare Marketplace and use it to find coverage that fits your needs.

Note: You are still considered self-employed even if you hire independent contractors to do work for you.

If you currently have individual insurance–a plan you bought yourself and not the kind you get through an employer–you may be able to change to a Marketplace plan.

Note: You can’t be denied coverage or charged more because you have a pre-existing health condition.

Small Businesses (50 or Fewer Employees)

If you have 50 or fewer full-time equivalent (FTE) employees (generally, workers whose income you report on a W-2 at the end of the year) you are considered a small business under the health care law.

As a small business, you may get insurance for yourself and your employees through the SHOP (Small Business Health Options Programs) Marketplace. This applies to non-profit organizations as well.

Note: Beginning in 2016, the SHOP Marketplace will be open to employers with 100 or fewer FTEs.

As an employer, you must provide notification to your employees of coverage options available through the Marketplace and are required to provide this notice to all current employees and to each new employee regardless of plan enrollment status or full or part-time employment. The Department of Labor has sample notices that employers can use to comply with this regulation. One notice is for employers who do not offer a health care plan and the second for employers who offer a health care plan.

If you have fewer than 25 employees, you may qualify for the Small Business Tax Credit (see next section). Non-profit organizations may be eligible for the tax credit as well.

Small Business Health Care Tax Credit

Small businesses and tax-exempt organization that employ 25 or fewer, full-time equivalent workers with average incomes of $51,000 or less (adjusted annually for inflation), and that pay at least half (50 percent) of the premiums for employee health insurance coverage are eligible for the Small Business Health Care Tax Credit.

Starting in 2014, the tax credit is worth up to 50 percent of your contribution toward employees’ premium costs (up to 3 percent for tax-exempt employers). The tax credit is highest for companies with fewer than 10 employees who are paid an average of $25,000 or less. The smaller the business, the bigger the credit is.

For tax years 2010 through 2013, the maximum credit was 35 percent for small business employers and 25 percent for small tax-exempt employers such as charities.

Businesses that have already filed and later find that they qualified in 2013 or an earlier year can still claim the credit by filing an amended return for the affected years. A three-year statute of limitations normally applies to these refund claims.

Note: The credit is available only if you get coverage through the SHOP Marketplace and is available to eligible employers for two consecutive taxable years.

If you are a small business employer who did not owe tax during the year, you can carry the credit back or forward to other tax years. In addition, because the amount of the health insurance premium payments is more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit–in other words, both a credit and a deduction for employee premium payments.

The credit is refundable for small tax-exempt employers as well, so even if you have no taxable income, you may be eligible to receive the credit as a refund as long as it does not exceed your income tax withholding and Medicare tax liability.

Additional Tax on Businesses Not Offering Minimum Essential Coverage

Effective January 1, 2015 an additional tax will be levied on businesses with 100 or more full-time equivalent (FTE) employees that do not offer minimum essential coverage. However, it will not apply until 2016 to employers with at least 50 but fewer than 100 full-time employees.

Employers subject to the employer responsibility provisions in 2015 must offer coverage to at least 70 percent of full-time employees as one of the conditions for avoiding an assessable payment, rather than 95 percent which begins in 2016.

This penalty is sometimes referred to as the Employer Shared Responsibility Payment.

You may have to pay this additional tax if you have 50 or more full-time equivalent employees and at least one of your full-time employees gets lower costs on their monthly premiums through the Marketplace.

Note: Employers with fewer than 50 FTE employees are considered small businesses and are exempt from the additional tax.

The amount of the annual Employer Shared Responsibility Payment is based partly on whether you offer insurance.

• If you don’t offer insurance, the annual payment is $2000 per full-time employee (excluding the first 30 employees for business with 50-99 full time employees and excluding the first 80 employees for those with 100 or more full time employees)

Note: For purposes of this calculation, a full-time employee does not include a full-time equivalent.

• If you do offer insurance, but the insurance doesn’t meet the minimum requirements, the annual payment is the lesser of $3000 per full-time employee who qualifies for premium savings in the Marketplace or $2,000 per full-time employee (minus 30 full-time employees).

Note: Unlike employer contributions to employee premiums, the Employer Shared Responsibility Payment is not tax deductible.

A health plan meets minimum value if it covers at least 60 percent of the total allowed costs of benefits provided under the plan. To determine whether other coverage meets minimum value, please contact us for assistance.

Note: All plans in the Marketplace meet minimum value, so any coverage offered through the SHOP Marketplace should qualify.

Excise Tax on High Cost Employer-Sponsored Insurance

Effective in 2018, a 40 percent excise tax indexed for inflation will be imposed on employers with insurance plans where the annual premium exceeds $10,200 (individual) or $27,500 (family). For retirees age 55 and older, the premium levels are higher, $11,850 for individuals and $30,950 for families.

Excise Tax on Medical Devices

Effective January 1, 2014, a 2.3 percent tax will be levied on manufacturers and importers on the sale of certain medical devices.

Indoor Tanning Services

A 10 percent excise tax on indoor tanning services went into effect on July 1, 2010. The tax doesn’t apply to phototherapy services performed by a licensed medical professional on his or her premises. There’s also an exception for certain physical fitness facilities that offer tanning as an incidental service to members without a separately identifiable fee.

Don’t hesitate to call us if you need assistance navigating the complexities of the new health care act. We’re here to help.

Hobby or Business?

Millions of Americans have hobbies such as sewing, woodworking, fishing, gardening, stamp and coin collecting, but when that hobby starts to turn a profit, it might just be considered a business by the IRS.

Definition of a Hobby vs. a Business

The IRS defines a hobby as an activity that is not pursued for profit. A business, on the other hand, is an activity that is carried out with the reasonable expectation of earning a profit.

The tax considerations are different for each activity so it’s important for taxpayers to determine whether an activity is engaged in for profit as a business or is just a hobby for personal enjoyment.

Of course, you must report and pay tax on income from almost all sources, including hobbies. But when it comes to deductions such as expenses and losses, the two activities differ in their tax implications.

Is Your Hobby Actually a Business?

If you’re not sure whether you’re running a business or simply enjoying a hobby, here are nine factors you should consider:

• Whether you carry on the activity in a businesslike manner.
• Whether the time and effort you put into the activity indicate you intend to make it profitable.
• Whether you depend on income from the activity for your livelihood.
• Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business).
• Whether you change your methods of operation in an attempt to improve profitability.
• Whether you, or your advisors, have the knowledge needed to carry on the activity as a successful business.
• Whether you were successful in making a profit in similar activities in the past.
• Whether the activity makes a profit in some years, and how much profit it makes.
• Whether you can expect to make a future profit from the appreciation of the assets used in the activity.

An activity is presumed to be for profit if it makes a profit in at least three of the last five tax years, including the current year (or at least two of the last seven years for activities that consist primarily of breeding, showing, training, or racing horses).

The IRS says that it looks at all facts when determining whether a hobby is for pleasure or business, but the profit test is the primary one. If the activity earned income in three out of the last five years, it is for profit. If the activity does not meet the profit test, the IRS will take an individualized look at the facts of your activity using the list of questions above to determine whether it’s a business or a hobby. (It should be noted that this list is not all-inclusive.)

Business Activity: If the activity is determined to be a business, you can deduct ordinary and necessary expenses for the operation of the business on a Schedule C or C-EZ on your Form 1040 without considerations for percentage limitations. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is appropriate for your business.

Hobby: If an activity is a hobby, not for profit, losses from that activity may not be used to offset other income. You can only deduct expenses up to the amount of income earned from the hobby. These expenses, with other miscellaneous expenses, are itemized on Schedule A and must also meet the 2 percent limitation of your adjusted gross income in order to be deducted.

What Are Allowable Hobby Deductions?

If your activity is not carried on for profit, allowable deductions cannot exceed the gross receipts for the activity.

Note: Internal Revenue Code Section 183 (Activities Not Engaged in for Profit) limits deductions that can be claimed when an activity is not engaged in for profit. IRC 183 is sometimes referred to as the “hobby loss rule.”

Deductions for hobby activities are claimed as itemized deductions on Schedule A, Form 1040. These deductions must be taken in the following order and only to the extent stated in each of three categories:

• Deductions that a taxpayer may claim for certain personal expenses, such as home mortgage interest and taxes, may be taken in full.
• Deductions that don’t result in an adjustment to the basis of property, such as advertising, insurance premiums, and wages, may be taken next, to the extent gross income for the activity is more than the deductions from the first category.
• Deductions that reduce the basis of property, such as depreciation and amortization, are taken last, but only to the extent gross income for the activity is more than the deductions taken in the first two categories.

If your hobby is regularly generating income, it could make tax sense for you to consider it a business because you might be able to lower your taxes and take certain deductions.

Still wondering whether your hobby is actually a business? Contact our office and we’ll help you figure it out.

Turn Your Vacation into a Tax Deduction

Tim, who owns his own business, decided he wanted to take a two-week trip around the US. So he did–and was able to legally deduct every dime that he spent on his vacation. Here’s how he did it.

1. Make all your business appointments before you leave for your trip.
Most people believe that they can go on vacation and simply hand out their business cards in order to make the trip deductible.

Wrong.

You must have at least one business appointment before you leave in order to establish the “prior set business purpose” required by the IRS. Keeping this in mind, before he left for his trip, Tim set up appointments with business colleagues in the various cities that he planned to visit.

Let’s say Tim is a manufacturer of green office products and is looking to expand his business and distribute more of his products. One possible way to establish business contacts–if he doesn’t already have them–is to place advertisements looking for distributors in newspapers in each location he plans to visit. He could then interview those who respond when he gets to the business destination.

Example: Tim wants to vacation in Hawaii. If he places several advertisements for distributors, or contacts some of his downline distributors to perform a presentation, then the IRS would accept his trip for business.

Tip: It would be vital for Tim to document this business purpose by keeping a copy of the advertisement and all correspondence along with noting what appointments he will have in his diary.

2. Make Sure your Trip is All “Business Travel.”
In order to deduct all of your on-the-road business expenses, you must be traveling on business. The IRS states that travel expenses are 100 percent deductible as long as your trip is business related and you are traveling away from your regular place of business longer than an ordinary day’s work and you need to sleep or rest to meet the demands of your work while away from home.

Example: Tim wanted to go to a regional meeting in Boston, which is only a one-hour drive from his home. If he were to sleep in the hotel where the meeting will be held (in order to avoid possible automobile and traffic problems), his overnight stay qualifies as business travel in the eyes of the IRS.

Tip: Remember: You don’t need to live far away to be on business travel. If you have a good reason for sleeping at your destination, you could live a couple of miles away and still be on travel status.

3. Be sure to deduct all of your on-the-road-expenses for each day you’re away.
For every day you are on business travel, you can deduct 100 percent of lodging, tips, car rentals, and 50 percent of your food. Tim spends three days meeting with potential distributors. If he spends $50 a day for food, he can deduct 50 percent of this amount, or $25.

Tip: The IRS doesn’t require receipts for travel expense under $75 per expense–except for lodging.

Example: If Tim pays $6 for drinks on the plane, $6.95 for breakfast, $12 for lunch, $50 for dinner, he does not need receipts for anything since each item was under $75.

Tip: He would, however, need to document these items in your diary. A good tax diary is essential in order to audit-proof your records. Adequate documentation includes amount, date, place of meeting, and business reason for the expense.

Example: If, however, Tim stays in the Bates Motel and spends $22 on lodging, will he need a receipt? The answer is yes. You need receipts for all paid lodging.

Tip: Not only are your on-the-road expenses deductible from your trip, but also all laundry, shoe shines, manicures, and dry-cleaning costs for clothes worn on the trip. Thus, your first dry cleaning bill that you incur when you get home will be fully deductible. Make sure that you keep the dry cleaning receipt and have your clothing dry cleaned within a day or two of getting home.

4. Sandwich weekends between business days.
If you have a business day on Friday and another one on Monday, you can deduct all on-the-road expenses during the weekend.

Example: Tim makes business appointments in Florida on Friday and one on the following Monday. Even though he has no business on Saturday and Sunday, he may deduct on-the-road business expenses incurred during the weekend.

5. Make the majority of your trip days count as business days.
The IRS says that you can deduct transportation expenses if business is the primary purpose of the trip. A majority of days in the trip must be for business activities; otherwise, you cannot make any transportation deductions.

Example: Tim spends six days in San Diego. He leaves early on Thursday morning. He had a seminar on Friday and meets with distributors on Monday and flies home on Tuesday, taking the last flight of the day home after playing a complete round of golf. How many days are considered business days?

All of them. Thursday is a business day since it includes traveling – even if the rest of the day is spent at the beach. Friday is a business day because he had a seminar. Monday is a business day because he met with prospects and distributors in pre-arranged appointments. Saturday and Sunday are sandwiched between business days, so they count, and Tuesday is a travel day.

Since Tim accrued six business days, he could spend another five days having fun and still deduct all his transportation to San Diego. The reason is that the majority of the days were business days (six out of eleven). However, he can only deduct six days’ worth of lodging, dry cleaning, shoe shines, and tips. The important point is that Tim would be spending money on lodging, airfare, and food, but now most of his expenses will become deductible.

To make sure that you can legally deduct your vacation when you combine it with business, call the office before you plan your trip.

Small Business and the Affordable Care Act

Whether you’re self-employed or run a small business, here’s a quick look at what you need to know about the Affordable Care Act.

Self-Employed

If you run an income-generating business with no employees, then you’re considered self-employed. You can get coverage through the Healthcare Marketplace and use it to find coverage that fits your needs.

Note: You are still considered self-employed even if you hire independent contractors to do work for you.

If you currently have individual insurance–a plan you bought yourself and not the kind you get through an employer–you may be able to change to a Marketplace plan.

Note: You can’t be denied coverage or charged more because you have a pre-existing health condition.

Small Businesses (50 or Fewer Employees)

If you have 50 or fewer full-time equivalent (FTE) employees (generally, workers whose income you report on a W-2 at the end of the year) you are considered a small business under the health care law.

As a small business, you may get insurance for yourself and your employees through the SHOP (Small Business Health Options Programs) Marketplace. This applies to non-profit organizations as well.

Note: Beginning in 2016, the SHOP Marketplace will be open to employers with 100 or fewer FTEs.

As an employer, you must provide notification to your employees of coverage options available through the Marketplace and are required to provide this notice to all current employees and to each new employee regardless of plan enrollment status or full or part-time employment. The Department of Labor has sample notices that employers can use to comply with this regulation. One notice is for employers who do not offer a health care plan and the second for employers who offer a health care plan.

If you have fewer than 25 employees, you may qualify for the Small Business Tax Credit (see next section). Non-profit organizations may be eligible for the tax credit as well.

Small Business Health Care Tax Credit

Small businesses and tax-exempt organization that employ 25 or fewer, full-time equivalent workers with average incomes of $51,000 or less (adjusted annually for inflation), and that pay at least half (50 percent) of the premiums for employee health insurance coverage are eligible for the Small Business Health Care Tax Credit.

Starting in 2014, the tax credit is worth up to 50 percent of your contribution toward employees’ premium costs (up to 3 percent for tax-exempt employers). The tax credit is highest for companies with fewer than 10 employees who are paid an average of $25,000 or less. The smaller the business, the bigger the credit is.

For tax years 2010 through 2013, the maximum credit was 35 percent for small business employers and 25 percent for small tax-exempt employers such as charities.

Businesses that have already filed and later find that they qualified in 2013 or an earlier year can still claim the credit by filing an amended return for the affected years. A three-year statute of limitations normally applies to these refund claims.

Note: The credit is available only if you get coverage through the SHOP Marketplace and is available to eligible employers for two consecutive taxable years.

If you are a small business employer who did not owe tax during the year, you can carry the credit back or forward to other tax years. In addition, because the amount of the health insurance premium payments is more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit–in other words, both a credit and a deduction for employee premium payments.

The credit is refundable for small tax-exempt employers as well, so even if you have no taxable income, you may be eligible to receive the credit as a refund as long as it does not exceed your income tax withholding and Medicare tax liability.

Additional Tax on Businesses Not Offering Minimum Essential Coverage

Effective January 1, 2015 an additional tax will be levied on businesses with 100 or more full-time equivalent (FTE) employees that do not offer minimum essential coverage. However, it will not apply until 2016 to employers with at least 50 but fewer than 100 full-time employees.

Employers subject to the employer responsibility provisions in 2015 must offer coverage to at least 70 percent of full-time employees as one of the conditions for avoiding an assessable payment, rather than 95 percent which begins in 2016.

This penalty is sometimes referred to as the Employer Shared Responsibility Payment.

You may have to pay this additional tax if you have 50 or more full-time equivalent employees and at least one of your full-time employees gets lower costs on their monthly premiums through the Marketplace.

Note: Employers with fewer than 50 FTE employees are considered small businesses and are exempt from the additional tax.

The amount of the annual Employer Shared Responsibility Payment is based partly on whether you offer insurance.

• If you don’t offer insurance, the annual payment is $2000 per full-time employee (excluding the first 30 employees for business with 50-99 full time employees and excluding the first 80 employees for those with 100 or more full time employees)

Note: For purposes of this calculation, a full-time employee does not include a full-time equivalent.

• If you do offer insurance, but the insurance doesn’t meet the minimum requirements, the annual payment is the lesser of $3000 per full-time employee who qualifies for premium savings in the Marketplace or $2,000 per full-time employee (minus 30 full-time employees).

Note: Unlike employer contributions to employee premiums, the Employer Shared Responsibility Payment is not tax deductible.

A health plan meets minimum value if it covers at least 60 percent of the total allowed costs of benefits provided under the plan. To determine whether other coverage meets minimum value, please contact us for assistance.

Note: All plans in the Marketplace meet minimum value, so any coverage offered through the SHOP Marketplace should qualify.

Excise Tax on High Cost Employer-Sponsored Insurance

Effective in 2018, a 40 percent excise tax indexed for inflation will be imposed on employers with insurance plans where the annual premium exceeds $10,200 (individual) or $27,500 (family). For retirees age 55 and older, the premium levels are higher, $11,850 for individuals and $30,950 for families.

Excise Tax on Medical Devices

Effective January 1, 2014, a 2.3 percent tax will be levied on manufacturers and importers on the sale of certain medical devices.

Indoor Tanning Services

A 10 percent excise tax on indoor tanning services went into effect on July 1, 2010. The tax doesn’t apply to phototherapy services performed by a licensed medical professional on his or her premises. There’s also an exception for certain physical fitness facilities that offer tanning as an incidental service to members without a separately identifiable fee.

Don’t hesitate to contact us if you need assistance navigating the complexities of the new health care act. We’re here to help.

Renting Out a Vacation Home

Tax rules on rental income from second homes can be complicated, particularly if you rent the home out for several months of the year, but also use the home yourself.

There is however, one provision that is not complicated. Homeowners who rent out their property for 14 or fewer days a year can pocket the rental income, tax-free.

Known as the “Master’s exemption,” it is used by homeowners near the Augusta National Golf Club in Augusta, GA who rent out their homes during the Master’s Tournament (for as much as $20,000!). It is also used by homeowners who rent out their homes for movie productions or those whose residences are located near Super Bowl sites or national political conventions.

Tip: If you live close to a vacation destination such as the beach or mountains, you may be able to make some extra cash by renting out your home (principal residence) when you go on vacation–as long as it’s two weeks or less. And, although you can’t take depreciation or deduct for maintenance, you can deduct mortgage interest, property taxes, and casualty losses on Schedule A.

In general, income from rental of a vacation home for 15 days or longer must be reported on your tax return on Schedule E, Supplemental Income and Loss. Your rental income may also be subject to the net investment income tax. You should also keep in mind that the definition of a “vacation home” is not limited to a house. Apartments, condominiums, mobile homes, and boats are also considered vacation homes in the eyes of the IRS.

Further, the IRS states that a vacation home is considered a residence if personal use exceeds 14 days or more than 10 percent of the total days it is rented to others (if that figure is greater). When you use a vacation home as your residence and also rent it to others, you must divide the expenses between rental use and personal use, and you may not deduct the rental portion of the expenses in excess of the rental income.

Example: Let’s say you own a house in the mountains and rent it out during ski season, typically between mid-December and mid-April. You and your family also vacation at the house for one week in October and two weeks in August. The rest of the time the house is unused.

The family uses the house for 21 days and it is rented out to others for 121 days for a total of 142 days of use during the year. In this scenario, 85 percent of expenses such as mortgage interest, property taxes, maintenance, utilities, and depreciation can be written off against the rental income on Schedule E. As for the remaining 15 percent of expenses, only the owner’s mortgage interest and property taxes are deductible on Schedule A.

Questions about vacation home rental income? Give us a call. We’ll help you figure it out.

 

Self-employment gives you some tax breaks

When it comes to taxes, being self-employed has some advantages. Whether you work for yourself on a full-time basis or just do a little moonlighting on the side, the government has provided you with a variety of attractive tax breaks.

• Save for retirement. When you’re self-employed, you’re allowed to set up a retirement plan for your business. Remember, contributing to a retirement plan is one of the best tax shelters available to you during your working years. Take a look at the SIMPLE IRA, SEP IRA, or Solo 401(k), and determine which plan works best for you.
• Hire your kids. If your business is unincorporated, employing your child under the age of 18 might make sense. That’s because your child’s earnings are exempt from social security, Medicare, and federal unemployment taxes. This year, your son or daughter can earn as much as $6,200 and owe no income taxes. You get to deduct the wages paid as a business expense.
• Deduct health insurance. Are you paying your own medical or dental insurance? How about long-term care insurance? As a self-employed individual, you may be able to deduct 100% of the cost of these premiums as an “above the line” deduction, subject to certain restrictions.
• Take business-use deductions. Self-employed individuals can also deduct “mixed-use” items directly against their business income. Use your car for business and you can deduct 56? per business mile driven. The business-use portion of your computer purchases, Internet access, and wireless phone bills is also allowable. And if you meet the strict requirements, claiming the home office deduction makes a portion of your home expenses tax-deductible.

Please give us a call to find out more about the tax breaks available to self-employed individuals.