2014 ACA Changes - What you should expect

Beginning this tax season, you may notice some changes on your tax return related to the Affordable Care Act, commonly referred to as just ACA or Obamacare.
We've created the following guide to help inform you of potential changes, and to ensure that you understand how the ACA might impact your tax situation this year. In this guide, you'll find specific information around (a) how the ACA might affect your taxes, (b) which new forms you'll need to look for, and (c) what documentation we'll need from you in order to complete your tax return.
To begin, find the description that best represents your current situation.

I enrolled in a health plan through my employer, private insurance, Medicare or Medicaid.

You're all set! All you will need to do is indicate that you have minimum essential coverage, a general term that includes individual market policies, job-based coverage, Medicare, Medicaid, CHIP, TRICARE and certain other coverage. For a full list of qualifying plan types, visit www.healthcare.gov/fees-exemptions/plans-that-count-as-coverage/.

NEW TAX FORMS TO EXPECT

• Form 1095-C: Your employer may provide a separate Form 1095-C to you and to the IRS, which provides information about your plan and who was covered.
• Form 1095-B: Private insurers and self-funded plans may provide each policyholder and the IRS with information summarizing the coverage provided on Form 1095-B.
• Note: This year is a transition period for Forms 1095-B and 1095-C, so these forms are not a requirement for tax year 2014.

WHAT I NEED FROM YOU

• All of the usual documentation you provide
• Form 1095-C or 1095-B, if you received it from your employer or private insurer.

I purchased a health plan through a Health Insurance Marketplace.

To get started, just let us know that you purchased your plan through a Health Insurance Marketplace, also known as a health exchange.
Did you receive a government subsidy in the form of a tax credit to purchase health insurance through the online Health Insurance Marketplace?
Unlike most tax credits, this tax credit or subsidy could be applied to insurance premiums throughout 2014 when your coverage began. Whether or not you choose to receive this subsidy during the year, we are required to reconcile your credit on your tax return at year end.
If you overestimated your 2014 household income when you applied for the tax subsidy, you will receive the remainder of the subsidy in the form of a refundable credit, which will increase the refund amount or decrease the amount owed on your tax return. But if you earn more than you projected, you will have to pay a portion or all of the subsidy back, which will decrease the refund amount or increase the amount owed on your tax return.
In addition to a change in income, make sure to report all life changes (i.e. getting married or having a child) through your Marketplace to ensure your subsidy is correct.

NEW TAX FORMS TO EXPECT

• Form 1095-A: If you purchased insurance through the Health Insurance Marketplace you will receive a new form, Form 1095-A, which will show details of your insurance coverage including the effective date, amount of premium and the advance premium tax credit.
• Form 8962: If you are eligible to receive a premium tax credit in 2014, information about your advance premium tax credit will be reported and the actual premium tax credit will be determined on Form 8962.

WHAT I NEED FROM YOU

• All of the usual documentation you provide
• Form 1095-A, if you purchased health insurance through the Health Insurance Marketplace

I don't have health insurance.

Under the ACA, individuals who did not have health insurance for more than three months in 2014 must pay a tax penalty. However, according to Congressional Budget Office, an estimated 20 million Americans may qualify to waive that penalty this year. To find out if you qualify for an exemption, review the material below.
How do I know if I qualify for an exemption?
The Affordable Care Act recognizes there are legitimate reasons people may be exempt from paying a tax penalty for not having health insurance.
Some of the common exemption reasons include:

• Can't afford health insurance; the lowest-priced coverage available would cost more than 8 percent of their household income
• Had difficulty signing up for health insurance through a state or federal marketplace
• Had medical expenses you couldn't pay in the last 24 months that resulted in substantial debt
• Had an individual insurance plan cancelled, and believe other marketplace plans are unaffordable
• Received a shut off notice from a utility company

For the full list of exemptions, please check www.healthcare.gov/fees-exemptions/exemptions-from-the-fee/
If you've been uninsured for fewer than three consecutive months of the year, you don't need to apply for an exemption. This will be handled when we file your 2014 taxes. Also, if you are not required to file a tax return because your income is too low, you don't need to apply for an exemption.
If you believe you qualify for one of the exemptions, please notify us as soon as possible, so we will be able to let you know whether you can claim it on your tax return or apply through the Health Insurance Marketplace along with the required documentation in certain cases. Different exemptions require different forms, so be sure to apply with the correct document. You can find and print all of the forms at healthcare.gov/exemptions.
For those exemptions that should be filed through the Health Insurance Marketplace, the approval process can take a couple of weeks, so don't wait until we file your taxes to apply for an exemption. Instead, submit your application as soon as possible. That way, it will be documented and processed in time, and we can file your tax return as soon as the IRS begins accepting returns in January.

WHAT I NEED FROM YOU

• All of the usual documentation you provide
• If you are getting an exemption through the Health Insurance Marketplace (also called an exchange) and not claiming the exemption directly on the tax return, you will also need to provide the exemption certificate number.

What if I'm not exempt?
If you don't have health insurance and don't qualify for an exemption, you will have to pay a penalty when you file for your 2014 tax return. If that's the case, don't worry: We will help you calculate the exact amount of your tax penalty and work to identify any qualifying deductions that may help offset this fee.
The tax penalty, also referred to as the “individual shared responsibility payment”, is based on your family size and income. The penalty will be prorated based on the number of months you are uninsured and will increase each year.
For tax year 2014, the annual one-time tax penalty will be $95 per adult, or one percent of your total income, whichever is greater. For uninsured children in your family, the penalty is $47.50 per child, with a family maximum of $285 for the year. The tax penalty is assessed on your 2014 tax return.
Each year following 2014, the penalty increases — in 2015 the penalty is $325 per person, $162.50 per child — or two percent of your income. By 2016, the penalty rises to $695 per adult, $347.50 per child — or 2.5 percent of your household income.
We know that the tax filing process can sometimes be overwhelming and that the Affordable Care Act could potentially further complicate the process. Please know that we are here to help you navigate these changes.

Tax Season to Begin in January, Says IRS:  Although there were more than 50 changes in the recent passage of the extenders legislation (the Tax Increase Prevention Act of 2014), the IRS announced that it still plans to open the 2015 filing season as scheduled in January. According to its recent News Release, the IRS will begin accepting tax returns filed electronically on 1/20/15. Paper tax returns will begin processing at the same time. The IRS also reminds taxpayers that filing electronically is the most accurate way to file tax returns and get a refund.

IRS Budget Cuts May Mean Slower Processing of Returns

IRS Commissioner Koskinen announced that he doesn't think the late passages of the one-year tax extenders bill will delay the start of the filing season because the extension was straightforward. However, he is concerned about the continued budget cuts, saying that the cuts are past the fat now and into the muscle headed toward the bone. Refunds may be delayed, agency telephone assistance will be difficult to obtain, and the audit ratio will drop even further.

Congress passes tax extender package & President signs Appropriation bill with tax provisions

Late Tuesday, December 16, the Senate, by a vote of 76 to 16, passed the tax package, H.R. 5771. This legislation includes the "Tax Increase Prevention Act of 2014" (TIPA), which was passed by the House on Dec. 3 by a vote of 378 to 46 and which extends through 2014 over fifty currently expired "extender" provisions. This tax package also includes H.R. 647, the "Achieving a Better Life Experience (ABLE) Act of 2014," which was passed by the House on Dec. 3, by a vote of 404 to 17, and which establishes a new type of tax-advantaged savings program for individuals with disabilities and makes a number of other non-extender tax changes.

The bill will be sent to the President for his signature. It is expected that these tax provisions will be quickly signed into law.

On December 16, the President signed into law H.R.83, the "Consolidated and Further Appropriations Act, 2015," which the Senate had previously passed on December 13 and the House had passed on December 11. This Act includes a number of multiemployer pension reform provisions, as well as an exclusion from provisions of the Affordable Care Act for expatriate health plans.   

2014 YEAR-END TAX PLANNING

Year-end tax planning is especially challenging this year because Congress has yet to act on a host of tax breaks that expired at the end of 2013. Some of these tax breaks may be retroactively reinstated and extended, but Congress may not decide the fate of these tax breaks until the very end of this year (and, possibly, not until next year). These breaks include, for individuals: the option to deduct state and local sales and use taxes instead of state and local income taxes; the above-the-line-deduction for qualified higher education expenses; tax-free IRA distributions for charitable purposes by those age 70-1/2 or older; and the exclusion for up-to-$2 million of mortgage debt forgiveness on a principal residence. For businesses, tax breaks that expired at the end of last year and may be retroactively reinstated and extended include: 50% bonus first year depreciation for most new machinery, equipment and software; the $500,000 annual expensing limitation; the research tax credit; and the 15-year writeoff for qualified leasehold improvements, qualified restaurant buildings and improvements and qualified retail improvements.

Higher-income-earners have unique concerns to address when mapping out year-end plans. They must be wary of the 3.8% surtax on certain unearned income and the additional 0.9% Medicare (hospital insurance, or HI) tax. The latter tax applies to individuals for whom the sum of their wages received with respect to employment and their self-employment income is in excess of $200,000 ($250,000 for married couples filing jointly and $125,000 for married couples filing separately).

The surtax is 3.8% of the lesser of: (1) net investment income (NII), or (2) the excess of modified adjusted gross income (MAGI) over an unindexed threshold amount ($250,000 for joint filers or surviving spouses, $125,000 for a married individual filing a separate return, and $200,000 in any other case). As year-end nears, a taxpayer's approach to minimizing or eliminating the 3.8% surtax will depend on his estimated MAGI and net investment income (NII) for the year. Some taxpayers should consider ways to minimize (e.g., through deferral) additional NII for the balance of the year, others should try to see if they can reduce MAGI other than net investment income, and other individuals will need to consider ways to minimize both NII and other types of MAGI.

The additional Medicare tax may require year-end actions. Employers must withhold the additional Medicare tax from wages in excess of $200,000 regardless of filing status or other income. Self-employed persons must take it into account in figuring estimated tax. There could be situations where an employee may need to have more withheld toward year end to cover the tax. For example, an individual earns $200,000 from one employer during the first half of the year and a like amount from another employer during the balance of the year. He would owe the additional Medicare tax, but there would be no withholding by either employer for the additional Medicare tax since wages from each employer don't exceed $200,000. Also, in determining whether they may need to make adjustments to avoid a penalty for underpayment of estimated tax, individuals also should be mindful that the additional Medicare tax may be overwithheld. This could occur, for example, where only one of two married spouses works and reaches the threshold for the employer to withhold, but the couple's income won't be high enough to actually cause the tax to be owed.

We have compiled a checklist of additional actions based on current tax rules that may help you save tax dollars if you act before year-end. Not all actions will apply in your particular situation, but you (or a family member) will likely benefit from many of them. We can narrow down the specific actions that you can take once we meet with you to tailor a particular plan. In the meantime, please review the following list and contact us at your earliest convenience so that we can advise you on which tax-saving moves to make:

Year-End Tax Planning Moves for Individuals

•Realize losses on stock while substantially preserving your investment position. There are several ways this can be done. For example, you can sell the original holding, then buy back the same securities at least 31 days later. It may be advisable for us to meet to discuss year-end trades you should consider making.

•Postpone income until 2015 and accelerate deductions into 2014 to lower your 2014 tax bill. This strategy may enable you to claim larger deductions, credits, and other tax breaks for 2014 that are phased out over varying levels of adjusted gross income (AGI). These include child tax credits, higher education tax credits, and deductions for student loan interest. Postponing income also is desirable for those taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances. Note, however, that in some cases, it may pay to actually accelerate income into 2014. For example, this may be the case where a person's marginal tax rate is much lower this year than it will be next year or where lower income in 2015 will result in a higher tax credit for an individual who plans to purchase health insurance on a health exchange and is eligible for a premium assistance credit.

•If you believe a Roth IRA is better than a traditional IRA, consider converting traditional-IRA money invested in beaten-down stocks (or mutual funds) into a Roth IRA if eligible to do so. Keep in mind, however, that such a conversion will increase your adjusted gross income for 2014.

• If you converted assets in a traditional IRA to a Roth IRA earlier in the year, the assets in the Roth IRA account may have declined in value, and if you leave things as is, you will wind up paying a higher tax than is necessary. You can back out of the transaction by recharacterizing the conversion, that is, by transferring the converted amount (plus earnings, or minus losses) from the Roth IRA back to a traditional IRA via a trustee-to-trustee transfer. You can later reconvert to a Roth IRA.

•It may be advantageous to try to arrange with your employer to defer, until 2015, a bonus that may be coming your way.

•Consider using a credit card to pay deductible expenses before the end of the year. Doing so will increase your 2014 deductions even if you don't pay your credit card bill until after the end of the year.

•If you expect to owe state and local income taxes when you file your return next year, consider asking your employer to increase withholding of state and local taxes (or pay estimated tax payments of state and local taxes) before year-end to pull the deduction of those taxes into 2014 if doing so won't create an alternative minimum tax (AMT) problem.

•Take an eligible rollover distribution from a qualified retirement plan before the end of 2014 if you are facing a penalty for underpayment of estimated tax and having your employer increase your withholding is unavailable or won't sufficiently address the problem. Income tax will be withheld from the distribution and will be applied toward the taxes owed for 2014. You can then timely roll over the gross amount of the distribution, i.e., the net amount you received plus the amount of withheld tax, to a traditional IRA. No part of the distribution will be includible in income for 2014, but the withheld tax will be applied pro rata over the full 2014 tax year to reduce previous underpayments of estimated tax.

•Estimate the effect of any year-end planning moves on the alternative minimum tax (AMT) for 2014, keeping in mind that many tax breaks allowed for purposes of calculating regular taxes are disallowed for AMT purposes. These include the deduction for state property taxes on your residence, state income taxes, miscellaneous itemized deductions, and personal exemption deductions. Other deductions, such as for medical expenses of a taxpayer who is over age 65 or whose spouse is over age 65 as of the close of the tax year, are calculated in a more restrictive way for AMT purposes than for regular tax purposes. Where you are subject to the AMT, or suspect you might be, these types of deductions should not be accelerated.

•You may be able to save taxes this year and next by applying a bunching strategy to "miscellaneous" itemized deductions, medical expenses and other itemized deductions.

•You may want to pay contested taxes to be able to deduct them this year while continuing to contest them next year.

•You may want to settle an insurance or damage claim in order to maximize your casualty loss deduction this year.

• Take required minimum distributions (RMDs) from your IRA or 401(k) plan (or other employer-sponsored retired plan) if you have reached age 70-1/2. Failure to take a required withdrawal can result in a penalty of 50% of the amount of the RMD not withdrawn. If you turned age 70-1/2 in 2014, you can delay the first required distribution to 2015, but if you do, you will have to take a double distribution in 2015-the amount required for 2014 plus the amount required for 2015. Think twice before delaying 2014 distributions to 2015-bunching income into 2015 might push you into a higher tax bracket or have a detrimental impact on various income tax deductions that are reduced at higher income levels. However, it could be beneficial to take both distributions in 2015 if you will be in a substantially lower bracket that year.

• Increase the amount you set aside for next year in your employer's health flexible spending account (FSA) if you set aside too little for this year.

• If you are eligible to make health savings account (HSA) contributions in December of this year, you can make a full year's worth of deductible HSA contributions for 2014. This is so even if you first became eligible on Dec. 1, 2014.

• Make gifts sheltered by the annual gift tax exclusion before the end of the year and thereby save gift and estate taxes. The exclusion applies to gifts of up to $14,000 made in 2014 to each of an unlimited number of individuals. You can't carry over unused exclusions from one year to the next. The transfers also may save family income taxes where income-earning property is given to family members in lower income tax brackets who are not subject to the kiddie tax.

Year-End Tax-Planning Moves for Businesses & Business Owners

•Businesses should buy machinery and equipment before year end and, under the generally applicable "half-year convention," thereby secure a half-year's worth of depreciation deductions for the first ownership year.

•Although the business property expensing option is greatly reduced in 2014 (unless legislation changes this option for 2014), don't neglect to make expenditures that qualify for this option. For tax years beginning in 2014, the expensing limit is $25,000, and the investment-based reduction in the dollar limitation starts to take effect when property placed in service in the tax year exceeds $200,000.

•Businesses may be able to take advantage of the "de minimis safe harbor election" (also known as the book-tax conformity election) to expense the costs of inexpensive assets and materials and supplies, assuming the costs don't have to be capitalized under the Code Sec. 263Auniform capitalization (UNICAP) rules. To qualify for the election, the cost of a unit-of-property can't exceed $5,000 if the taxpayer has an applicable financial statement (AFS; e.g., a certified audited financial statement along with an independent CPA's report). If there's no AFS, the cost of a unit of property can't exceed $500. Where the UNICAP rules aren't an issue, purchase such qualifying items before the end of 2014.

•A corporation should consider accelerating income from 2015 to 2014 where doing so will prevent the corporation from moving into a higher bracket next year. Conversely, it should consider deferring income until 2015 where doing so will prevent the corporation from moving into a higher bracket this year.

•A corporation should consider deferring income until next year if doing so will preserve the corporation s qualification for the small corporation alternative minimum tax (AMT) exemption for 2014. Note that there is never a reason to accelerate income for purposes of the small corporation AMT exemption because if a corporation doesn't qualify for the exemption for any given tax year, it will not qualify for the exemption for any later tax year.

•A corporation (other than a "large" corporation) that anticipates a small net operating loss (NOL) for 2014 (and substantial net income in 2015) may find it worthwhile to accelerate just enough of its 2015 income (or to defer just enough of its 2014 deductions) to create a small amount of net income for 2014. This will permit the corporation to base its 2015 estimated tax installments on the relatively small amount of income shown on its 2014 return, rather than having to pay estimated taxes based on 100% of its much larger 2015 taxable income.

•If your business qualifies for the domestic production activities deduction for its 2014 tax year, consider whether the 50%-of-W-2 wages limitation on that deduction applies. If it does, consider ways to increase 2014 W-2 income, e.g., by bonuses to owner-shareholders whose compensation is allocable to domestic production gross receipts. Note that the limitation applies to amounts paid with respect to employment in calendar year 2014, even if the business has a fiscal year.

•To reduce 2014 taxable income, consider deferring a debt-cancellation event until 2015.

•To reduce 2014 taxable income, consider disposing of a passive activity in 2014 if doing so will allow you to deduct suspended passive activity losses.

•If you own an interest in a partnership or S corporation consider whether you need to increase your basis in the entity so you can deduct a loss from it for this year.

These are just some of the year-end steps that can be taken to save taxes. Again, by contacting us, we can tailor a particular plan that will work best for you. We also will need to stay in close touch in the event Congress revives expired tax breaks, to assure that you don't miss out on any resuscitated tax saving opportunities.

2015 STANDARD MILEAGE RATES

Beginning on 1/1/2015, the standard mileage rates for cars, vans, pickups, and panel trucks will be 57.5 cents per mile for business miles, 23 cents per mile for medical or moving purposes, and 14 cents per mile for charitable purposes. The business expense rate is up 1.5 cent per mile from 2014, while the medical and moving expense rates are down 0.5 cent per mile from the 2014 rates. The charitable rate is set by law and remains unchanged from last year's rate. The portion of the business standard mileage rate treated as depreciation is 23 cents per mile for 2012 and 2013, 22 cents per mile for 2014, and 24 cents per mile for 2015. When computing the allowance under a Fixed and Variable Rate (FAVR) plan, the standard vehicle cost cannot exceed $28,200 for autos or $30,800 for trucks and vans. Notice 2014-79, 2014-52 IRB .

Fiscal Cliff Legislation is "Law"

President Obama has signed into law the American Taxpayer Relief Act of 2012 (H.R. 8) that allows tax rates to rise on the nation’s highest earners while also extending dozens of tax cuts for individuals and businesses. Specifically, the bill:

Raises the top tax rate to 39.6 percent for married couples earning $450,000; single taxpayers earning $400,000. These amounts will be indexed for inflation.

Raises long-term capital gains and qualifying dividends tax rate to 20 percent (from 15 percent) for taxpayers in the 39.6 percent tax bracket for regular and alternative minimum tax.

Permanently extends Bush-era tax cuts from 2001 and 2003 for all other taxpayers.

Reinstates phase out of personal exemptions and overall limitation on itemized deductions for married couples filing jointly earning over $300,000 and single taxpayers earning over $250,000.

Raises the maximum estate tax rate to 40 percent but keeps the exemption amount at $5 million, adjusted for inflation.

Extends for 5 years (through 2018) the American Opportunity Tax Credit to pay for higher education, and special relief for families with 3 or more children for the refundable portion of the child tax credit and increased percentage for the earned income tax credit.

Patches the AMT for 2012 and adjusts the exemption amount for inflation going forward.

Extends through 2013 the following individual tax benefits: above the line deduction for teacher expenses, relief from cancellation of debt income for principal residences, deduction for mortgage insurance premiums as interest, election to deduct state and local sales taxes in lieu of income taxes, above the line deduction for qualified education expenses, tax-free distributions from IRA accounts for charitable purposes.

Extends through 2013 certain business tax provisions that expired at the end of 2011 including: work opportunity credit, the Section 179 asset expensing at $500,000,

Extends 50 percent bonus depreciation through 2013.

Extends through 2013 certain energy tax incentives that expired at the end of 2011 including: energy efficient credit for existing homes, energy efficient credit for new homes