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Archives for January 2015

Business Tax Benefits Extended for 2014 Tax Returns

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In a prior post, I listed some of the beneficial tax provisions affecting individual taxpayers.  This post lists some of the most popular tax extensions for businesses.

First Year Expensing of Business Asset Purchases

Section 179 allows businesses to deduct up to $500,000 of qualifying asset purchases in the year the asset is placed into service.  If this law had not been extended, first year expensing would have been limited to only $25,000.

50% Bonus Depreciation

Normally, when you buy long lived property, you can’t deduct the full cost of the property in the year you purchase it.  The purchase price is deducted over the expected life of the property.  Bonus depreciation allows 50% of the cost of qualifying property to be deducted in the year the asset is placed into service.

Accelerated Depreciation of Qualified Leasehold, Restaurant, and Retail Property

In 2010, Congress passed a law that allowed a $250,000 Section 179 deduction on qualifying real property.  The law allowed Section 179 deductions on real property placed in service during 2010 and 2011.  The law has been extended through 2014.

Research & Development Tax Credit

This is a general business tax credit for companies that incur R&D expenses in the U.S.  This credit has repeatedly been extended since its original passage in 1981.

The Work Opportunity Tax Credit

The Work Opportunity Tax Credit is available for a portion of first-year wages paid to certain qualifying employees who begin work during 2013 (now extended through 2014).  The credit is available for employers who hire members of the following targeted groups:

  • Veterans
  • Ex-felons
  • Long term family assistance recipients
  • Vocational rehabilitation referrals
  • Summer youth employees
  • Nutrition assistance recipients
  • Social security income recipients
  • Designated community residents
  • Qualified IV-A recipients

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Buzzkill Disclaimer:  This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.

 

How the Affordable Care Act Will Affect this Tax Season

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This is the first tax season that will be impacted by the Affordable Care Act’s premium subsidy and penalty for not having health insurance.  This post will provide an overview of what to expect over the next few months.  I have included links to prior blog posts about specific aspects of the Affordable Care Act.

 The Challenge for this Tax Season

Beginning with 2014 tax returns, individuals must prove that they had qualifying health insurance for each month of the year.  Providers of health insurance coverage will be required to report health insurance information to individuals so they have proof of coverage for each month of the year. The challenge for the 2014 coverage year is that only individuals who purchased coverage through the health insurance exchange will receive Form 1095-A  that reports to them the months they had coverage, who in their family had coverage, and the amount of any premium assistance credit they received during the year.  Other health insurance providers (e.g., employers) are not required to provide this information for the 2014 year—they will be required to report this information on Form 1095 beginning with the 2015 coverage year.

 Reconciling the Premium Assistance Credit

During 2014, qualifying individuals received the Premium Assistance Credit based on estimated 2014 income they provided last year when they applied for coverage.  Now that their 2014 income is known, they will reconcile the Premium Assistance Credit received based on estimated income with their actual income.  They will be required to either refund any excess credit (actual income higher than estimated), or may be entitled to an additional credit (actual income lower than expected).  The amount of credit required to be paid back to the government may be limited.  The reconciliation is done on Form 8962.

 The Penalty for Not Having Health Insurance

Individuals who did not have health insurance for each month of the year will be subject to the Shared Responsibility Penalty.  There are a number of exemptions an individual may qualify for that allows her to avoid the penalty.  These exemptions are claimed on Form 8965.  However, individuals are required to apply for certain exemptions directly from the exchange (and before they file their tax return).

As mentioned above, only individuals who purchased coverage through an exchange will receive a Form 1095-A that establishes the months they had qualifying coverage.  All other individuals must maintain their own proof of coverage (e.g., monthly health insurance statements, employer summary plan descriptions, etc.)  While the IRS cannot enforce the Shared Responsibility Penalty by lien or levy, they can reduce an individual’s refund by the amount of the penalty and/or send tax notices to individuals.  Neither situation will be pleasing.

 There’s Always Next Year…

Beginning with the 2015 coverage year (relevant to next tax season), applicable large employers who are required to provide health insurance to their employers will issue Form 1095-C .  Other employers will report health insurance information to their employers via Form 1095-B.

 

If you have questions about how this applies to you, please contact us.

 

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Buzzkill Disclaimer:  This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.

Tax Benefits Extended for Individuals for 2014 Tax Returns

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Under the category, “Better Late than Never,” Congress extended many expiring tax provisions through 2014.  This was done through the Tax Increase Prevention Act of 2014 signed by the president on December 19, 2014.

The law extended favorable tax provisions affecting individuals and businesses.  This post will focus on the most relevant provisions affecting individuals.

Above the Line Deduction for Higher Education Expenses

Eligible individuals can deduct higher education expenses of the taxpayer, his spouse, or dependents.  The maximum deduction is $4,000 for an individual whose AGI for the year doesn’t exceed $65,000 ($130,000 for joint filers).

 

Qualified IRA Distributions to Charity

Taxpayers who are age 70 and a half or older can make tax-free distributions to a charity directly from an IRA of up to $100,000 per year.  These distributions qualify as minimum required distributions and do not count towards the charitable contribution percentage limits (e.g., cash contributions to certain charities are limited to 50% of AGI).

 

Exclusion of Discharged Mortgage Debt from Income

Discharge of indebtedness from qualified principal residence debt, up to $2 million, continues to be excluded from gross income.

 

Deduction for Mortgage Insurance Premiums

Mortgage insurance premiums in connection with acquisition debt for a qualified residence are treated as deductible mortgage interest, subject to an income phaseout of $100,000 for joint filers and $50,000 for married filing separate.

 

State & Local Sales Tax Deduction

Taxpayers who itemize may elect to deduct state and local sales taxes instead of deducting state income tax payments.

 

Above the Line Deduction for Educator Expenses

Eligible elementary and secondary school teachers may claim an above the line deduction for up to $250 per year of expenses paid for books, certain supplies, computer and other equipment, and supplementary materials used in the classroom.

If you have questions about how this applies to you, please contact us.

 

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Buzzkill Disclaimer:  This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.