Healthcare

Premium Tax Credit: 3 ways to reduce the chance of owing taxes

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Taxpayer Advocate Service

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This past filing season saw some people owing money at tax time that they didn’t expect. Why? Because they didn’t provide an accurate income estimate to the Marketplace when enrolling for health insurance or they forgot to report changes to the Marketplace immediately. Don’t let that be you next year!

Here are three ways to help lessen your chances of owing money at tax time, if you chose to have advance payments of the Premium Tax Credit paid to your insurer.

1) Make sure you include ALL your income in your estimate.

Remember that it’s more than just your paycheck that needs to be included. Pay special attention to these items:

  • Unemployment compensation
  • All household members’ income (not just yours)
  • Additional types of income, including interest income, capital gains, cash support, and alimony.
  • Most withdrawals and distributions from traditional IRAs and 401ks. (See IRS Publication 590-B Distributions from Individual Retirement Arrangements (IRAs) for more information.)

Some unexpected balances were due to a lump sum payment received or withdrawn during the year that was not included in the initial income estimate. Lump sum payments can be issued through retirement account distributions, Social Security or disability payments and awards from law suits. These amounts are reported to you on a IRS Form 1099.

Healthcare.gov’s “Get Answers” has many articles to help you estimate your income more accurately.

2) Consider having a lower amount of the estimated Premium Tax Credit paid directly to the insurer where possible.

When possible, opt to have less than 100% of the calculated credit used as advance payments. If you are eligible for a larger credit, you will receive the difference when you file your tax return. So if you can afford to take less, even a little bit, doing this will give you at least some cushion of safety should the unexpected happen or you miscalculated your income.

3) Report all income and life changes to the Marketplace immediately.

Don’t wait to report changes. The longer you wait to report changes to the Marketplace the larger the difference between the advance payments and the final allowable credit will be. Changes can also affect your insurance coverage.

Don’t know which changes to report? Healthcare.gov has information on which changes should be reported. Or see IRS Publication 5152, Report changes to the Marketplace as they happen (also available in Spanish).

Another handy tool is our Premium Tax Credit Change Estimator. The Premium Tax Credit Change Estimator can help you estimate how much your premium tax credit will change if your income or family size changes during the year. It won’t report those changes to the Marketplace, you must do that yourself, but it will give you a better idea of how those life changes affect the total amount of your premium tax credit.

Of course you never know what’s going to happen in the coming year. That’s why it’s so important to update your Marketplace information all year round whenever you have income or household changes that could affect your coverageand your taxes.

If you should you find yourself owing money to the IRS at tax time, but can’t afford to pay it all at once, there are options. See I can’t pay my taxes for more information.

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.

2015 HSA amounts

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

2015 HSA amounts HSA-piggy_360_360_95

Health Savings Accounts (HSAs) were created as a tax-favored framework to provide health care benefits mainly for small business owners, the self-employed, and employees of small to medium-size companies who do not have access to health insurance.

The tax benefits of HSAs are quite substantial. Eligible individuals can make tax-deductible (as an adjustment to AGI) contributions into HSA accounts. The funds in the account may be invested (somewhat like an IRA), so there is an opportunity for growth. The earnings inside the HSA are free from federal income tax, and funds withdrawn to pay eligible health care costs are tax-free.

An HSA is a tax-exempt trust or custodial account established exclusively for the purpose of paying qualified medical expenses of the participant who, for the months for which contributions are made to an HSA, is covered under a high-deductible health plan. Consequently, an HSA is not insurance; it is an account, which must be opened with a bank, brokerage firm, or other provider (i.e., insurance company). It is therefore different from a Flexible Spending Account in that it involves an outside provider serving as a custodian or trustee.

The recently released 2015 inflation-adjusted contribution limit for individual self-only coverage under a high-deductible plan is $3,350, while the comparable amount for family coverage is $6,650. For 2015, a high-deductible health plan is defined as a health plan with an annual deductible that is not less than $1,300 for self-only coverage and $2,600 for family coverage, and the annual out-of-pocket expenses (including deductibles and copayments, but not premiums) must not exceed $6,450 for self-only coverage or $12,900 for family coverage.

 

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.

Required Health Insurance for 2014

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

What you need to know about required health insurance coverage for 2014.

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Beginning in 2014, the individual shared responsibility provision of the Affordable Care Act (ACA) requires you and each member of your family to have qualifying health insurance (called minimum essential coverage), have an exemption, or pay a shared responsibility penalty with your 2014 individual income tax return, Form 1040. Many people already have minimum essential coverage and don’t need to do anything more than maintain that coverage.

Do I have minimum essential coverage? You have minimum essential coverage if you have employer-sponsored coverage, coverage obtained through a Health Insurance Marketplace, or coverage through a government-sponsored program. Coverage under certain other plans will qualify as well. You must maintain this coverage for each month of the calendar year.

Am I eligible for an exemption? You may be exempt from the requirement to maintain minimum essential coverage if you’re a member of certain religious sects, a federally recognized Indian tribe, or a health care sharing ministry. You may also be eligible if you are suffering a hardship, meet certain income criteria, or are uninsured for less than three consecutive months of the year.

Will I have to pay a penalty? If you or any of your dependents don’t have minimum essential coverage or an exemption, you will have to pay an individual shared responsibility penalty with your tax return.

For 2014, the annual shared responsibility penalty is the greater of:

 

  • 1% of your household income that is above your tax return filing threshold, or

 

 

  • Your family’s flat dollar amount, which is $95 per adult and $47.50 per child, limited to a family maximum of $285 for 2014.

 

However, the maximum amount cannot be more than the cost of the national average premium for a bronze level health plan available through the Marketplace in 2014.

 

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.

Additional 0.9% Medicare Tax

Westchester accountant Paul Herman of Herman & Company CPA’s has all the answers to your personal finance questions! Individuals must pay an additional 0.9% Medicare tax on earned income above certain thresholds. The employee portion of the Medicare tax is increased from 1.45% to 2.35% on wages received in a calendar year in excess of $200,000 ($250,000 for married couples filing jointly; $125,000 for married filing separately). Healthcare tax update from westchester ny accountantEmployers must withhold and remit the increased employee portion of the Medicare tax for each employee whose wages for Medicare tax purposes from the employer are greater than $200,000.

There is no employer match for this additional Medicare tax. Therefore, the employer’s Medicare tax rate continues to be 1.45% on all Medicare wages. An employee is responsible for paying any of the additional 0.9% Medicare tax that is not withheld by an employer. The additional tax will be reported on the individual’s federal income tax return.

Because the additional 0.9% Medicare tax applies at different income levels depending on the employee’s marital and filing status, some employees may have the additional Medicare tax withheld when it will not apply to them (e.g., the employee earns more than $200,000, is married, filing jointly, and total annual compensation for both spouses is $250,000 or less). In such a situation, the additional tax will be treated as additional income tax withholding that is credited against the total tax liability shown on the individual’s income tax return.

Alternatively, an individual’s wages may not be greater than $200,000, but when combined with a spouse’s wages, total annual wages exceed the $250,000 threshold. When a portion of an individual’s wages will be subject to the additional tax, but earnings from a particular employer do not exceed the $200,000 threshold for withholding of the tax by the employer, the employee is responsible for calculating and paying the additional 0.9% Medicare tax. The employee cannot request that the additional 0.9% Medicare tax be withheld from wages that are under the $200,000 threshold. However, he or she can make quarterly estimated tax payments or submit a new Form W-4 requesting additional income tax withholding that can offset the additional Medicare tax calculated and reported on the employee’s personal income tax return.

For self-employed individuals, the effect of the new additional 0.9% Medicare tax is in the form of a higher self-employment (SE) tax. The maximum rate for the Medicare tax component of the SE tax is 3.8% (2.9% + 0.9%). Self-employed individuals should include this additional tax when calculating estimated tax payments due for the year. Any tax not paid during the year (either through federal income tax withholding from an employer or estimated tax payments) is subject to an underpayment penalty.

The additional 0.9% Medicare tax is not deductible for income tax purposes as part of the SE tax deduction. Also, it is not taken into account in calculating the deduction used for determining the amount of income subject to SE taxes.

Individual is responsible for paying the additional 0.9% Medicare tax

Josh and Anna are married. Josh’s salary is $180,000, and Anna’s wages are $150,000. Assume they have no other wage or investment income. Their total combined wage income is $330,000 ($180,000 + $150,000). Since this amount is over the $250,000 threshold, they owe the additional 0.9% Medicare tax on $80,000 ($330,000 -$250,000). The additional tax due is $720 ($80,000 × .009). Neither Josh’s nor Anna’s employer is liable for withholding and remitting the additional tax because neither of them met the $200,000 wage threshold. Either Josh or Anna (or both) can submit a new Form W-4 to their employer that will result in additional income tax withholding to ensure the $720 is properly paid during the year. Alternatively, they could make quarterly estimated tax payments. If the amount is not paid until their federal income tax return is filed, they may be responsible for the estimated tax penalty on any underpayment amount (whether the underpayment is actually income taxes or the additional Medicare taxes).

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions about these provisions or any other tax compliance/planning issues, and to receive your free personal finance consultation!

Herman and Company CPA’s proudly serves Rye Brook NY, Larchmont NY, Scarsdale NY, Purchase NY, Pound Ridge NY, Mamaroneck NY, Stamford CT and beyond.

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Our 2013 Annual Year-End Tax Planning Letter

 

 Our 2013 Annual Year-End Tax Planning Letter. 

The clock is ticking on your chances to take 

advantage of great tax savings opportunities!

Tax planning and tips from scarsdale cpa

 

 Fall, 2013 

To our clients and friends, 

It’s that time of year when we think about spending, spending for the holidays. But I’d like you to also think about savings. That is, thinking about ways to lower your tax bill. I believe ignoring your taxes until next year could be an expensive mistake. I’d like to suggest that you have us (or your preparer if you are not a client of our office) prepare an estimate now of your current year’s tax liability and then review strategies to see if there are ways to keep extra money in your pocket for the holidays and beyond.

We’re going to provide you with lots of food for thought in this letter. 

As I sit down to write this year’s annual tax letter, I am turning nostalgic. I long for the “good old days”. My wife and I were talking at dinner recently about the good old days. We tried to come up with a list of things that are better today than they were back “in the day”. Our list was short, technology, television, phones, automobiles, medical care to name a few things. Unfortunately, one item not on the list was the tax laws. 

The passage very late last year of The American Taxpayer Relief Act of 2012 makes 2012 seem like the good old days! I would have named the new law something else, but they didn’t ask me.

In addition, The Affordable Care Act (“Obamacare”) is kicking in, in full force along with its’ increased taxes on interest, dividends and capital gains (depending on your level of income).

Some of our clients will see little change in their taxes this year as many of the law changes kick in above specified income thresholds. But “There are many, many high-income taxpayers now who are finding themselves facing tax rates in excess of 50%,” said Suzanne Shier, a tax strategist and Director of Wealth Planning at Chicago-based Northern Trust Corp. “That really gets their attention.” Ours too!

So . . . this year-end it makes a great deal of sense to review strategies to reduce your taxes. At this point, you likely have a fairly complete picture of your 2013 income from sources such as salary, retirement plan distributions, and dividends. The total of those, combined with other predictable income items, provides a good starting point for tax planning. Doing nothing could leave you paying significantly more in taxes and is a lousy tax planning strategy. Year-end tax planning is very important this year. At a minimum you should know what to expect on your 2013 tax return which may look quite different than past years’ returns.

I encourage you to make 2013 year-end tax planning a priority and we are here to help and guide you through the process! 

Although we’ve done our best to keep this year’s annual letter as short as possible, it is again considerably lengthier than then we would have liked. As a result, we have divided this year’s letter into two letters of which this is the first. The second letter contains twenty-one strategies for tax reduction.

For more tips now and throughout the year follow us on . . . 

Facebook at facebook.com/hermancpa

Twitter at twitter.com/hermancpa

Linkedin at linkedin.com/in/newyorkcpa

Our blog at blog.hermancpa.com

Overview 

Let’s start with income thresholds. Starting in 2013, individual taxpayers with incomes under $200,000 and married taxpayers with incomes under $400,000 will feel minimal impact under the new laws. Keep reading though as there are still opportunities to reduce taxes. Above these levels, your taxes are likely going up and maybe significantly.

Increase in Top Tax Rate. Beginning in 2013, a new top tax rate of 39.6% takes effect. This rate applies to taxable income in excess of $450,000 (joint returns and surviving spouses), $425,000 (heads of household), $400,000 (single taxpayers other than head of household and surviving spouse), and $225,000 (married filing separately).

Increased Tax Rate on Certain Capital Gains and Dividends. While the favorable tax rates in effect before 2013 for capital gains and dividend income were generally made permanent by the American Taxpayer Relief Act of 2012, a new 20% rate has been added for high incomers. Thus, rates of 0%, 15%, and 20% apply to capital gain and dividend income, depending on your tax bracket. These rates apply for alternative minimum tax purposes also.

New Taxes in 2013. There are a couple of new taxes that take effect in 2013: a 3.8% tax on net investment income above a threshold amount, and a .9% additional tax on wages and self-employment income above a threshold amount. For both taxes, the threshold amount is $200,000 ($250,000 if married filing jointly or $125,000 for married filing separately). Net investment income includes most rental income and net gain attributable to the disposition of property other than property held in a trade or business (i.e. capital gains).

Increased Threshold for Deducting Medical Expenses. Medical and dental expenses that exceed a certain percentage of your adjusted gross income (AGI) are deductible. For years before 2013, that percentage was 7.5%. For 2013 and later years, the deduction floor is increased to 10%. So not only are your health insurance premiums likely to be higher, you now cannot deduct as much of your out-of-pockets medical costs as previously. However, for tax years through 2016, the floor is 7.5% if you or your spouse has reached age 65 before the end of that year. Reduction in Personal Exemptions and Itemized Deductions for High-Income Taxpayers There is a reduction in personal exemptions and itemized deductions for taxpayers with adjusted gross income over $250,000 (single people other than head of household and surviving spouse), $300,000 (joint returns), $275,000 (head of household), and $150,000 (married filing separately), which will have the effect of increasing taxes and tax rates on affected taxpayers. We need to consider whether these new taxes affect you and, if so, whether you have paid a sufficient amount of taxes through withholdings and estimated tax payments so as to avoid any underpayment or late payment penalties.

Alternative Minimum Tax. If you are subject to the alternative minimum tax (AMT), some of your deductions may be worthless. Thus, if we anticipate that you will be subject to the AMT, we need to consider the timing of deductible expenses that may be limited under AMT.

What does this mean? Well for many wealthy taxpayers, the rate on long-term capital gains and qualified dividends now can be as much as 25%, including the new surtax and limits on deductions. That’s a 67% increase from the 15% rate in 2012. The tax rate on other investment income such as royalties, interest and rents can exceed 43%.

There is a lot to cover and any one strategy can save you lots. So here we go. 

Tax Rates: 

For 2013, the amount of income needed to reach into a bracket has increased slightly.

This table shows the tax rate that applies on income up to the amount shown. Incomes above the amounts shown in the 35% column are taxed at a rate of 39.6%. 

10% 15% 25% 28% 33% 35%
2013 Joint Federal Tax Brackets 17,850 72,500 146,400 223,050 398,350 450,000
2013 Single Fed’l Tax Brackets 8,925 36,250 87,850 183,250 398,350 400,000
2013 AMT Tax Rates 26% 28%
Applies to AMT income over 80,800 260,300
2013 NY Joint Tax Brackets 4.50% 5.25% 5.90% 6.85% 7.85% 8.97%
Applies to taxable income over 16,000 23,000 26,000 40,000 300,000 500,000
2013 NJ Joint Tax Brackets 1.40% 1.75% 3.50% 5.53% 6.37% 8.97%
Applies to taxable income over 0 20,000 50,000 70,000 80,000 500,000
2013 CT Joint Tax Brackets 3.0% 5.0% 6.5% CTSingle brackets are
Applies to taxable income over Zero 20,000 1,000,000 half of joint brackets

Top Marginal Tax Rates for 2013

Connecticut  6.70%
New Jersey  8.97%
New York  8.82%
New York City  3.648%
California  13.3% 

A Unique Strategy for Your Situation 

In this environment where change is the new normal, we need to consider all options. So let’s see if we can save you some tax dollars and guide you to avoid missteps that could increase your taxes. Each year at this time we give you a number of strategies to consider. Your personal tax situation is

unique to you. Taking advantage of even one or two of these planning strategies could save you real money.

What to do between now and December 31, 2013. 

But first a word from our sponsor, the AMT!

The alternative minimum tax (AMT) 

If you are ensnared in the AMT, remember that many deductions normally allowed, ARE NOT allowed for the AMT calculation…personal exemptions, the standard deduction, state and city income taxes and real estate taxes.

So . . . taxpayers who have significant deductions, such as those who live in states that have relatively high personal income tax rates and high real estate taxes like New York, are a likely victim for the clutches of the AMT. There are other deductions that could trigger the AMT too, such as exercising incentive stock options, taking numerous personal exemptions for a large family, experiencing significant deductible medical expenses, or large miscellaneous itemized expenses (such as employee business expenses).

The AMT makes year-end planning difficult and potentially dangerous if done in a vacuum. By reducing regular tax liability through deductions, deferral and overall rate reductions, the alternative minimum tax liability exposure is increased. Since many of the strategies that are used for reducing your regular taxes will backfire when it comes to the AMT, you really need to know your exposure to the AMT.

If in fact you are in the AMT, the irony is that unlike the basic strategy (discussed below) of postponing income, you may want to actually accelerate income into 2013 since the AMT tax rate is in fact lower. Yes, this is a bit confusing! All planning is highly personalized and unique to each individual and must consider multiple years to be truly effective.

So what to do now? 

Although there are serious tax reform proposals being discussed by Congress, as of now tax rates are not scheduled to increase in 2014. The following are some of the strategies you should review before year end to see if they make sense in your situation. The focus should not be entirely on tax savings. These strategies should be adopted only if they make sense in the context of your total financial picture.

These are the usual and most common strategies:

Deferring Income into 2014Options for deferring income include: (1) if you are due a year-end bonus, asking your employer to pay the bonus in January 2014; (2) if you are considering selling assets that will generate a gain, postponing the sale until 2014; (3) delaying the exercise of any stock options you may have; (4) if you are selling property, considering an installment sale; (5) consider parking investments in deferred annuities; (6) establishing an IRA, if you are within certain income requirements; and (7) if your employer has a 401(k) plan, consider putting the maximum salary allowed into it before year end.

Accelerating Deductions into 2013. Usually we want to accelerate what deductions we can into the current year to offset the higher income this year. This would also be an appropriate strategy if we anticipate lower income next year.

Options include: 

(1) consider prepaying your property taxes in December; (2) consider making your January mortgage payment in December; (3) if you owe state income taxes, consider making up any shortfall in December rather than waiting until your return is due; (4) since medical expenses are deductible only to the extent they exceed 10% (7.5% if you or your spouse are 65 before the end of the year) of your adjusted gross income (AGI), if you have large medical bills not covered by insurance, bunching them into one year may help overcome this threshold; (5) making any large charitable contributions in 2013, rather than 2014; (6) selling some or all of your loss stocks; and (7) if you qualify for a health savings account, consider setting one up and making the maximum contribution allowable.

Generally we want to delay recognizing income to defer the payment of additional taxes. However,

depending on your projected income, it may make sense to accelerate income into 2013 and delay deductions.

Accelerating Income into 2013. Besides harvesting gains from your investment portfolio, other options for accelerating income include:

(1) if you own a traditional IRA or a SEP IRA, converting it into a Roth IRA and recognizing the conversion income this year; (2) taking IRA distributions this year rather than next year; (3) selling stocks or other assets with taxable gains this year; (4) if you are self-employed with receivables on hand, trying to get clients or customers to pay before year end; and (5) settling lawsuits or insurance claims that will generate income this year.

Deferring Deductions into 2014. If you anticipate a substantial increase in taxable income, we may want to explore deferring deductions into 2014 by looking at the following: (1) postponing year-end charitable contributions, property tax payments, and medical and dental expense payments, to the extent you might get a deduction for such payments, until next year; and (2) postponing the sale of any loss-generating property.

Among the services we provide . . . is a tax projection and planning analysis. We gather current year tax information from our clients and use it to project their taxes for the current year. We then determine what strategies we may be able to implement to reduce their 2013 and 2014 taxes.

Gifting Strategies to Maintain Family Wealth 

Anyone is permitted to make gifts of up to $14,000 per year to an unlimited number of people without having to pay gift taxes. Married couples can make combined gifts of up to $28,000. A married couple wishing to make gifts to two married children and four grandchildren can make gifts of up to $224,000 per year ($28,000 to each child, grandchild and child’s spouse) without paying any gift taxes. This is a simple way to reduce the size of one’s future taxable estate. There are a number of other ways to reduce your taxable estate. Please contact us for further insight.

Above and beyond the annual gift exclusion of $14,000, the federal applicable exemption amount for gifts during a lifetime is $5,250,000. This is by far the highest it has ever been. Wealthy individuals, who have both the means and desire to do so, might plan on making the gifts up to the exclusion amount. This amount could be reduced in the future. As every estate and financial planning expert will tell you, making lifetime gifts is a simple and effective estate tax minimization strategy. Giving away assets at no gift tax cost will allow both the present value and its appreciation to forever escape the Federal estate tax.

Retirement Plan Distributions 

Taxpayers receiving retirement plan distributions should note that while such distributions are not subject to the 3.8% surtax, they could raise your adjusted gross income over the $200,000 threshold, making all other unearned income fair game for the tax. One possible solution would be to convert your IRA to a Roth IRA. You will recognize income now, but future Roth distributions will be tax free.

Roth Conversions 

High-income taxpayers with traditional IRAs or rollover IRAs have an opportunity, first available in 2010, to roll over their IRAs into a Roth IRA. Many of you reading this may want to consider this. Over time it could save you and your heirs big taxes. However, it does not make sense in all cases and needs to be analyzed carefully.

For those who previously chose not to convert to a Roth, keep in mind that the Obamacare surtax applies primarily to investment income, not IRA distributions.

Distributions from traditional and rollover IRAs are generally taxable when received. Contributions to Roth IRAs are non-deductible when made, but all principal and earnings will be distributed tax free. Therefore, Roth IRAs may be preferable to traditional IRAs.

When you convert to a Roth IRA, you must pay tax on the converted amount in the year of conversion. 

There’s another important point on this. The government gives you a do over, called re-characterization. You are allowed to change your mind if the value of your now Roth IRA goes down and you don’t want to pay taxes on the old higher value. You can put it back to a regular IRA like nothing ever happened. And what makes this even better is that the government gives you until you file your tax return for that year. So in a perfect world, if you convert on January 2, 2014 and you extend your 2014 tax return, you would actually have until October 15, 2015, to look back, see how it is doing and perhaps re-characterize it. But if you had converted your traditional IRA to a Roth on December 15, 2014, you only have a ten-month window to evaluate its performance. It’s still worth considering.

Last point on this, issues related to transferring wealth to succeeding generations also come into play here and should be considered. There is a lot to think about when it comes to whether or not to convert an IRA to a Roth IRA. Reasons for us to chat!

Expiring Energy-Related Tax Credit 

There is an expiring energy-related tax credit that may be worth looking at. The residential energy credit is available only through the end of 2013. If you are contemplating energy improvements to your home, you may want to accelerate the improvements into 2013. The credit is 10% of the amounts paid or incurred for qualified energy efficiency improvements installed during the tax year and the amount of residential energy property expenditures paid or incurred during the tax year, up to a maximum credit of $500.

Changes enacted in the past few years: For 2013, taxpayers in the lowest two tax brackets will pay zero tax on capital gains and qualifying dividends.

Among the services we provide . . . 

is personal financial recordkeeping. We track your income and expenses and provide comprehensive reports so you’ll know where your money is coming from and where it’s going. We reconcile your bank, credit card and brokerage accounts to monthly statements. Reports show your net worth changes! If you’d like, we can even pay your bills for you. This service is also great for an elderly or disabled relative. 

Some other late-year moves to save 2013 taxes: 

• If self-employed, hold off sending bills to your customers until January or if you want to accelerate income, send bills out ASAP.

• Apply now for a social security number for any children born in 2013 as you’ll need to put the number on your tax return (complete IRS Form SS-5).

• Increase your basis in S corporations or partnerships to make deduction of 2013 operating losses possible.

• If adopting a child in 2013, take advantage of the tax credit for up to $12,970 of qualified expenses, subject to phase outs.

• Use credit cards to prepay deductible expenses.

• Increase withholdings to eliminate or reduce estimated tax penalties.

• One of the biggest deductions available to all businesses, and one that will be dramatically reduced in 2014, is the Section 179 expensing election. This is the last year for expensing up to $500,000 of Section 179 property. The maximum amounts drops to $25,000 next year!

• Keep in mind deductible mileage rates: for unreimbursed business travel – 56.5 cents per mile; for medical and moving – 24 cents per mile; for charitable activities – 14 cents per mile. A log of such travel should be maintained in order to take a mileage deduction.

If you would like to discuss any topic concerning your specific situation, please give us a call. As always we are available to help you with any tax, accounting, bookkeeping, investment, insurance or estate planning needs. But don’t wait until mid-December! If you are not a client of our office and wish to consider implementing any of these strategies, or just want to talk about your particular situation, please call us for a free consultation.

Sincerely, 

Paul S. Herman, CPA

paul@hermancpa.com

Circular 230 Disclosure: Any U.S. federal tax advice included in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding U.S. federal tax-related penalties or (ii) promoting, marketing or recommending to another party any tax-related matter addressed herein. Any suggestions contained herein are general, and do not take into account an individual’s specific circumstance or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Recipients who are not clients of this office should consult their applicable professional advisors prior to acting on the information set forth herein.

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Long-Term Care Insurance FAQ

Scarsdale CPA Paul Herman has all the answers to your personal finance questions!
▼ Is it worthwhile for me to purchase long term insurance?

There are good arguments for and against purchasing this type of insurance, and every person’s situation will differ.

Long-term insurance information from scarsdale accountant

With life expectancy rates on the rise, purchasing long-term insurance makes sense for many Americans.

Even though Long-Term Care Insurance can be costly up front, it could save you from paying much more in the long run. The home care coverage that is included in the policies could possibly allow you to live independently for more time before having to switch to assisted living. Since the price of this service increases with time, if you choose to purchase it, it is much better to do so earlier than later.

If this policy is too expensive for you, it may be a better idea to apply for Medicaid. Some of these policies may not give you enough money to stay at home and will force you into assisted living if you don’t have sufficient funds to support yourself and your personal help.

▼ What features should I look for in a Long-Term Care Insurance Policy?

The four main factors that you will want to take into consideration when looking for a LTCI policy are: flexibility, eligibility, inflation, and duration.

Check to make sure that the flexibility of your policy allows for personal help so you can stay in your home for as long as possible before assisted living is absolutely necessary. Some of the policies will allow you to be paid cash for you to distribute as you please.

Make sure that your policy will pay for more than just what is medically necessary. These policies may not cover all of your needs.

Make sure that you are protected against inflation; you can place a clause into the policy that your payout adjusts 5% annually to cover you against raising prices.

Remember that a policy which lasts 5 years is probably more than you would need. A policy of two to three years will generally be enough.

▼ Do I really need Long-Term Care Insurance?

Over 40% of the American population will eventually need to be in a nursing home or an assisted living facility. Your chances of needing this depend on a number of health factors.

▼ Is it worthwhile for me to purchase long term insurance?

There are good arguments for and against purchasing this type of insurance, and every person’s situation will differ.

Even though Long-Term Care Insurance can be costly up front, it could save you from paying much more in the long run. The home care coverage that is included in the policies could possibly allow you to live independently for more time before having to switch to assisted living. Since the price of this service increases with time, if you choose to purchase it, it is much better to do so earlier than later.

If this policy is too expensive for you, it may be a better idea to apply for Medicaid. Some of these policies may not give you enough money to stay at home and will force you into assisted living if you don’t have sufficient funds to support yourself and your personal help.

▼ What is the elimination period?

The elimination period is the time you will need to wait from the time you are ready to get the long term insurance to the time in which you will actually receive it. This period of time is negotiable in the terms of the contract and the longer this time period is, the cheaper the premium.

▼ How are Long Term Insurance Companies rated?

These companies are rated in the same manner in which stocks and bonds are rated, through Standard and Poor’s.

▼ How can I ensure that I have adequate coverage?

  • Make sure that your policy can be renewed every year
  • Know that if you are disabled, yet able to work part time, you will still receive coverage
  • Choose a waiting period (elimination period) of three to six months, to keep the premium down, and then set aside a nest egg for that time.
  • Make sure you will be eligible to receive coverage until the age of 65, when your retirements will kick in.
  • Make sure that the policy will pay if you cannot perform the work in your field.

The elimination period is the time you will need to wait from the time you are ready to get the long term insurance to the time in which you will actually receive it. This period of time is negotiable in the terms of the contract and the longer this time period is, the cheaper the premium.

Scarsdale tax preparers at Herman & Company CPA’s are here to help you with all your personal finance needs. Please contact us for all inquiries and to receive your free personal finance consultation!

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2014 HSA Amounts

By Paul Herman

Scarsdale tax preparers at Herman & Company CPA’s have all the answers to your personal finance questions!

Health savings accounts (HSAs) were created as a tax-favored framework to provide health care benefits mainly for small business owners, the self-employed, and employees of small- to medium-sized companies who do not have access to health insurance. Health Savings Account advice from Scarsdale CPAThe tax benefits of HSAs are quite substantial. Eligible individuals can make tax-deductible (as an adjustment to AGI) contributions to HSA accounts. Funds in the account may be invested (somewhat like an IRA), so there is opportunity for growth. The earnings inside the HSA are free from federal income tax, and funds withdrawn to pay eligible health care costs are tax free.

An HSA is a tax-exempt trust or custodial account established exclusively for paying qualified medical expenses of the participant who, for the months for which contributions are made to an HSA, is covered under a high-deductible health plan. Consequently, an HSA is not insurance; it is an account that must be opened with a bank, brokerage firm, or other provider (i.e., insurance company). It is therefore different from a flexible spending account in that it involves an outside provider serving as a custodian or trustee.

The 2014 inflation-adjusted deduction for individual self-only coverage under a high-deductible plan is limited to $3,300, while the comparable amount for family coverage is $6,550. This is an increase of 1.5% and 1.6%, respectively, from 2013. For 2014, a high-deductible health plan is defined as a health plan with an annual deductible that is not less than $1,250 for self-only coverage and $2,500 for family coverage, and the annual out-of-pocket expenses (including deductibles and copayments, but not premiums) must not exceed $6,350 for self-only coverage or $12,700 for family coverage.

Scarsdale CPA Paul Herman is here to help you with all your personal finance needs. Please contact us for all inquiries and to receive your free personal finance consultation!

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The Affordable Care Act

Scarsdale tax preparers at Herman & Company CPAs have all the answers to your personal finance questions!

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (together, the Affordable Care Act), was landmark legislation that dramatically affects how health care is delivered in the United States. Healthcare and finance insight from Scarsdale tax preparersProvisions of the legislation affect not only those directly involved in providing health care, but also most individuals and employers.

The health care reform legislation is extremely complex, and many items in the legislation change rules and regulations that were already in place. The IRS, Department of Labor (DOL), Department of Health and Human Services (HHS), and other agencies have the monumental task of interpreting the legislation and providing guidance. Many temporary and proposed regulations, as well as some final regulations, have been issued.

The purpose of this legislation was to provide affordable minimum health care benefits to all individuals. With that in mind, the legislation provides for the establishment of qualified health plans that must provide essential health benefits consisting of minimum essential coverage.

Caution: Some of the rules originally enacted have already been repealed and the effective date of other rules has been modified. It is possible that more changes will occur as these rules are implemented. This information is current as of July 11, 2013.

Employer Responsibility

Beginning in 2015, certain applicable large employers (i.e., generally those who had an average of at least 50 full-time employees in the previous calendar year) that do not offer health insurance coverage to their full-time employees (and their dependents), or employers that offer health insurance coverage that is unaffordable or does not provide a certain minimum value, must pay a penalty if the employer is notified that any full-time employee receives a premium assistance credit to purchase health insurance in the individual market through a state insurance exchange or a cost-sharing-reduction subsidy to help with out-of-pocket expenses. Any penalty paid under this provision is not deductible as a business expense for federal income tax purposes.

To determine if an employer is an applicable large employer, the full-time equivalent value of the hours worked by part-time employees must be calculated and added to the employer’s number of full-time employees. This calculation can be challenging. Although part-time employees must be considered when determining applicable large employer status, applicable large employers only need to offer full-time employees (and their dependents) adequate health insurance coverage to avoid paying a penalty. However, the rules for determining full-time status can be complicated for certain variable-hour employees. Employers will be subject to many new notice and reporting requirements.

Individual Mandate for Health Coverage

The health care reform legislation requires most U.S. citizens and legal residents (i.e., applicable individuals) to have minimum essential health insurance coverage every month beginning on or after January 1, 2014. Those who do not have such health insurance will be subject to a penalty for each month they do not have minimum essential coverage. The penalty will be the greater of a flat fee amount (for each individual not covered by health insurance) or a percentage of household income over a threshold amount. For applicable individuals who are at least age 18, the maximum applicable annual dollar amount is $95 for 2014, $325 for 2015, and $695 for 2016 and later years. An inflation adjustment will be applied in calendar years beginning after 2016. For individuals under age 18, the maximum applicable penalty is 50% of these amounts.

Individuals who meet certain financial or hardship criteria are exempt from the mandate. In addition, members of an Indian tribe and individuals who are members of certain religious sects or members of certain health care sharing ministries are exempt from the mandate.

Premium Assistance Credits and Cost-sharing-reduction Subsidies

To assist individuals in meeting the mandate for having minimum essential health insurance coverage, the legislation also provides for premium assistance credits and cost-sharing-reduction subsidies. Beginning in 2014, some individuals will qualify for a premium assistance credit to help them pay the premiums on health insurance purchased in the individual market through the state insurance exchanges that will be operational beginning October 1, 2013. Individuals can elect to have this credit payable in advance directly to the insurer.

The premium assistance credit will be available (on a sliding scale basis) for individuals and families with incomes up to 400% of the federal poverty level ($45,960 for an individual or $94,200 for a family of four, using 2013 poverty level figures) who are not eligible for Medicaid, CHIP, a state or local public health program, employer-sponsored insurance that is both affordable and provides a certain minimum value, or other acceptable coverage.

Excise Tax on High-cost Employer-sponsored Health Coverage (Cadillac Plans)

Beginning in 2018 under the current law, a nondeductible 40% excise tax will be levied on so-called Cadillac plans. These plans are employer-sponsored health plans with annual premiums (i.e., excess benefits) exceeding $10,200 for self-only coverage and $27,500 for any other coverage. Slightly higher premium thresholds apply for retired individuals age 55 and older who are not eligible for enrollment in Medicare or entitled to Medicare benefits, and for plans that cover employees engaged in high-risk professions. For coverage under a group health plan, the 40% excise tax will be imposed on insurance companies, but it is expected that employers (and their employees) will ultimately bear this tax in the form of higher premiums passed on by insurers. Employers will be responsible for the tax if coverage is provided by employer contributions to HSAs or Archer MSAs.

Employers will be responsible for calculating the excess benefit amounts and reporting those amounts to the applicable insurer. Employers that currently offer generous health benefits (especially if the benefits are to the owners and related persons) should carefully analyze their plans to see if changes are needed to avoid having plans that will be subject to this tax. Additional guidance will be issued on this excise tax (additional legislation may change some of these provisions).

Scarsdale CPA Paul Herman is here to help you with all your personal finance needs. Please contact us for all inquiries and to receive your free personal finance consultation!

Herman and Company CPA’s proudly serves White Plains NY, Mount Kisco NY, Scarsdale NY, Bedford NY, Mamaroneck NY, Chappaqua NY, Rye NY and beyond.

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Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.