Affordable Care Act Penalty

Under the Affordable Care Act, there is a requirement to maintain minimum essential coverage. A penalty is imposed if an individual does not maintain the minimum coverage for themselves or any of their dependents for 1 or more months. The penalty is added to an individual’s tax return and accounted for as an additional amount of Federal tax owed.

minimum-essential-coverage

However, the penalty is treated differently under the Internal Revenue Code than other unpaid taxes. If a taxpayer fails to timely pay the penalty imposed under the Affordable Care Act they will not be subject to any criminal prosecution or penalty with respect to this failure. The use of liens and seizures otherwise authorized for collection of taxes does not apply to this penalty either.

If you have an amount due on your tax return before this penalty would be imposed, you can pay the normal income tax liability and leave the minimum coverage penalty unpaid and you will not be forced to pay it. They may send you threatening letters, but they cannot come after your personal assets or subject your wages to garnishment. Unfortunately, if you are overpaid on your income taxes and owe the penalty, they can reduce your refund by the penalty but not less than zero.

Be aware that the restriction on liens only applies to the filing a notice of federal tax lien, no to the lien itself. A federal tax lien arises automatically whether it is recorded or not. The failure to pay becomes a lien on the taxpayer’s property once assessed, but they cannot enforce that lien. The penalty will accrue interest if it is left unpaid, but once again all a taxpayer will likely receive is a nasty letter stating the balance.

The issue begins once the taxpayer with an unpaid penalty dies. If a taxpayer dies without having paid the penalty then the lien can be enforced upon their estate making the assets in the taxpayer’s estate subject to the penalty and interest that accrued on the balance.

So while you would not be forced to pay the penalty while you are living, your estate would be subject to any outstanding penalty upon your death.


If you have any questions regarding the Affordable Care Act Penalty, please contact us at (314) 993-4285 or office@hkaglobal.com.

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Why funding a Roth IRA with disposable income first makes sense.

 

You have funded your 401(k) enough to receive a full company match (either traditional or Roth.)  You are paying all of your bills when they are due each month.  You have enough cash set aside for emergencies.  There is some cash left over.  Now you want to continue to save for retirement.  Continuing to fund your traditional or Roth 401(k) is a good idea.  A great idea would be to fully fund a Roth IRA before moving back to your 401(k).  You are able to take out your contributions to a Roth IRA at any time.  One day…One year…Ten years.  Any dollar you take out first comes out of your contributions so there is no worry that a portion of earnings will become taxable with possible penalties.  This is not the case for either a traditional or Roth 401(k).

If you are over the income levels to contribute directly to a Roth, no worries.  Contribute to a traditional IRA and then convert this to a Roth the next day.  Since the first contribution was nondeductible on your tax return, the conversion is tax free.  Subsequently, any withdrawals at any time, first come out of this converted amount, which will be tax free since you had basis in the full amount of the original conversion.

The only downside of doing this versus opening a taxable, non-retirement investment account, is that any growth is unable to be taken out without penalty.  This is the same downside to any retirement account.  The growth must be used for “retirement” (after you are 59 1/2 years old with a few other exceptions) to avoid penalty.

There are other nuances to Roth IRAs, such as what happens if you have a traditional IRA that has grown in value and you convert that to a Roth?   Are those dollars able to be taken out of your Roth after the conversion without penalty?  If you have this or any other questions, please do not hesitate to give us a call at (314) 993-4285.

An important message to our friends and family.

As many of you are aware, fraud is at an all-time high. We wanted to make our friends and family aware of recent scams involving phone messages, e-mails, and faxes by people reporting to be the Internal Revenue Service (IRS). The IRS will NOT call, fax, or e-mail you. If you receive any type of correspondence from the IRS, or someone claiming to be an IRS agent, please send us that information as soon as possible. We want to keep you and your information safe and out of the wrong person’s hands.

 

If you get a phone call from the IRS, call us; do not return their call.
If you get an e-mail from the IRS, call us; do not return their e-mail
If you receive a notice from the IRS, send it to us and we will contact you immediately.

If you have any questions, we’re just a phone call away, don’t hesitate to call our office at 314-993-4285.

To report fraudulent or suspicious activity, contact the Treasury Inspector General for Tax Administration. Please click the link below to see a list the IRS has compiled of known tax fraud alerts:

http://www.irs.gov/uac/Tax-Fraud-Alerts

 

Identity Theft and Tax Returns

Identity thieves have been using people’s social  security numbers and personal information to file fraudulent tax returns for the past few years, and it is becoming an increasingly large problem. Statistics show that the IRS investigations of tax-related identity theft is up more than 60% since 2012. If an identity thief beats you to the filing of your tax return, your return will be delayed, sometimes for more than a year which can be devastating to those who were counting on their refund.

 

If you find yourself to be a victim of identity on your tax return we can help you take the necessary steps to resolve the issue. First, you will need to file your return by mail with Form 14039 Identity Theft Affidavit which shows the IRS that you are aware of the problem and are the correct taxpayer. Second, you will want to contact the FTC to file an identity theft report and make sure all of your credit cards are secured. Third, contact your local police department so that they may investigate the matter further.

 

To protect yourself, make sure you keep all of your documents in a secure place, shred all documents when disposing of them, never carry your social security card in your wallet/purse, and beware of any scams asking for your social security number or other sensitive information over the phone.

 

Please feel free to give us a call if you suspect your identity may have been used to fraudulently file a tax return, 314-993-4285

 

Relevant links:

http://www.consumer.ftc.gov/features/feature-0014-identity-theft

 

http://www.irs.gov/uac/Newsroom/Tips-for-Taxpayers,-Victims-about-Identity-Theft-and-Tax-Returns-2014

 

Tips for Taxpayers Who Missed the Filing Deadline

deadline
The IRS has some advice for taxpayers who missed the tax filing deadline.


– File as soon as possible
. If you owe federal income tax, you should file and pay as soon as you can to minimize any penalty and interest charges. There is no penalty for filing a late return if you are due a refund.


– Penalties and interest may be due.
 If you missed the April 15 deadline, you may have to pay penalties and interest. The IRS may charge penalties for late filing and for late payment. The law generally does not allow a waiver of interest charges. However, the IRS will consider a reduction of these penalties if you can show a reasonable cause for being late.


– E-file is your best option.
 IRS e-file programs are available through Oct. 15. E-file is the easiest, safest and most accurate way to file. With e-file, you will receive confirmation that the IRS has received your tax return. If you e-file and are due a refund, the IRS will normally issue it within 21 days.


– Pay as much as you can. 
If you owe tax but can’t pay it all at once, you should pay as much as you can when you file your tax return. Pay the remaining balance due as soon as possible to minimize penalties and interest charges.


– Installment Agreements are available.
 If you need more time to pay your federal income taxes, you can request a payment agreement with the IRS. Apply online using the IRS Online Payment Agreement Application tool or file Form 9465, Installment Agreement Request.


– Refunds may be waiting.
 If you’re due a refund, you should file as soon as possible to get it. Even if you are not required to file, you may be entitled to a refund. This could apply if you had taxes withheld from your wages, or you qualify for certain tax credits. If you don’t file your return within three years, you could forfeit your right to the refund.

 

Questions? Give us a call! 314-993-4285

 

-Taken from IRS.gov

The Real Value of a 401(k) Plan

We all know putting money aside in a tax deferred account is a good idea.  Businesses should offer these to employees for many reasons, not the least which is that an employee that saves is a good employee.  The cost of administering retirement plans can be daunting.  SIMPLE’s are the cheapest and Defined Contribution plans tend to be the most expense.  The traditional 401(k) plan isn’t always the best bang for the buck, however, these plans pack punch that often go overlooked by the small business owner.  Two great reasons to consider a traditional 401(k) are as follows:

 

  • The extra $10,000.  In 2014 an employee may contribute up to $17,500 toward their retirement.  But, if your plan is so designed they may then be able to contribute an additional $10,000 as an after tax in-plan IRA contribution.  This additional contribution is without regard to whether or not regard to discrimination testing, short answer, the business owner can also make this contribution!  So a business owner who is also an employee participating in the Company 401(k) plan can contribute up to $39,500 to a retirement plan without having to set up pension and profit sharing plans and be subject to nondiscrimination testing.  Here’s the math for an owner/employee older than 50:

 

Traditional 401(k) contribution:                                  $17,500

Catch-up 401(k)                                                            5,500

After tax in-plan contribution                                       10,000

     Total 401(k) plan contributions                            $33,000

Traditional self-directed IRA contribution                   $5,500

Catch-up IRA                                                               1,000

     Total IRA contribution                                           $6,500

Total retirement account contributions                    $39,500

 **PLANNING NOTE:  Roll this extra $10,000 over into a self-directed IRA and convert both contributions to a Roth immediately for a $16,500 Roth contribution in spite of earnings limits.

 

Like it?  Call your financial advisor ASAP!

Eight Tax-Time Errors to Avoid

error
If you make a mistake on your tax return, it usually takes the IRS longer to process it. The IRS may have to contact you about that mistake before your return is processed. This will delay the receipt of your tax refund.

The IRS reminds filers that e-filing their tax return greatly lowers the chance of errors. In fact, taxpayers are about twenty times more likely to make a mistake on their return if they file a paper return instead of e-filing their return.

Here are eight common errors to avoid:

1. Wrong or missing Social Security numbers. Be sure you enter SSNs for yourself and others on your tax return exactly as they are on the Social Security cards.

2. Names wrong or misspelled. Be sure you enter names of all individuals on your tax return exactly as they are on their Social Security cards.

3. Filing status errors. Choose the right filing status. There are five filing statuses: Single, Married Filing Jointly, Married Filing Separately, Head of Household and Qualifying Widow(er) With Dependent Child. See Publication 501, Exemptions, Standard Deduction and Filing Information, to help you choose the right one. E-filing your tax return will also help you choose the right filing status.

4. Math mistakes. If you file a paper tax return, double check the math. If you e-file, the software does the math for you. For example, if your Social Security benefits are taxable, check to ensure you figured the taxable portion correctly.

5. Errors in figuring credits, deductions. Take your time and read the instructions in your tax booklet carefully. Many filers make mistakes figuring their Earned Income Tax Credit, Child and Dependent Care Credit and the standard deduction. For example, if you are age 65 or older or blind check to make sure you claim the correct, larger standard deduction amount.

6. Wrong bank account numbers. Direct deposit is the fast, easy and safe way to receive your tax refund. Make sure you enter your bank routing and account numbers correctly.

7. Forms not signed, dated. An unsigned tax return is like an unsigned check – it’s invalid. Remember both spouses must sign a joint return.

8. Electronic signature errors. If you e-file your tax return, you will sign the return electronically using a Personal Identification Number. For security purposes, the software will ask you to enter the Adjusted Gross Income from your originally-filed 2011 federal tax return. Do not use the AGI amount from an amended 2011 return or an AGI provided to you if the IRS corrected your return. You may also use last year’s PIN if you e-filed last year and remember your PIN.

For tax needs feel free to contact us at 314-993-4285.

Tax Return Forget Me Nots

Red bow on finger

 

Before you submit your tax documents to your accountant for completion of your tax return, take a look at the top 5 most commonly overlooked items below to make sure you’ve included everything:

1. Long term care insurance:  Missouri allows for a deduction from taxable income for a portion of your long term care insurance. Many other states allow a deduction or sometimes a tax credit for these premiums.  Although this is one of the questions in the full version of the organizer, because we are so conditioned that medical expense is limited to 10 % of AGI, we forget that the state may allow for some benefit of these itemized deductions. Long term care insurance should be included on your return to take full advantage of this opportunity.

2. Electronic 1099s:  Many brokerage firms now have the option of sending your 1099s directly to your CPA.  All firms are different, but you may be able to save our email address as your CPA in your brokerage online account and have the 1099s securely emailed to us when they are ready.

3. Business expenses and AMT:  The top marginal tax rate is now 39.6%.  This could mean you are out of the Alternative Minimum Tax (AMT) now or will be in the near future.  While you were not deducting any unreimbursed business expenses while in AMT, now you could deduct them.  If you do not track and send them to us, you will not deduct them.  Remember to send us all business expenses (including mileage driven) with your tax documents so you are not missing out on these deductions.  Also, although there are a few states that do, most states do not have AMT so your expenses would be deductible on the state side even if you are still in AMT so go ahead and send everything to us even if you think you will be in AMT.

4. Non Cash Charitable Donations:  Donating items to charities such as the Salvation Army or Goodwill can save you substantial tax.  Websites such as www.itsdeductible.com and www.satruck.org/valueguide give the approximate values of used furniture, clothing, or appliances.  They make what used to be a difficult process, tracking values of donated items, easy and it will save you real money.  Many times, the values these websites give for items in good condition are higher then you may expect.

5. Charitable Mileage and Supplies:  If you use your vehicle for charitable organizations, you can deduct these miles as charitable donations.  If you purchase supplies on behalf of a charitable organization to use at an event, these are charitable donations.  There is a place on your organize for each of these items so remember to include them if they apply to you.

Thanks for allowing the HKA family to work with you again this year on your 2013 tax returns.  If you are not currently a client and wish to learn more about us and what we can do for you, please click here.

Ten Things to Know about Farm Income and Deductions

farm
If you earn money managing or working on a farm, you are in the farming business. Farms include plantations, ranches, ranges and orchards. Farmers may raise livestock, poultry or fish, or grow fruits or vegetables. Here are 10 things about farm income and expenses that the IRS wants you to know.

1. Crop insurance proceeds. Insurance payments from crop damage count as income. They should generally be reported the year they are received.

2. Deductible farm expenses. Farmers can deduct ordinary and necessary expenses as business expenses. An ordinary farming expense is one that is common and accepted in the farming business. A necessary expense is one that is appropriate for that business.

3. Employees and hired help. You can deduct reasonable wages you paid to your farm’s full and part-time workers. You must withhold Social Security, Medicare and income taxes from your employees’ wages.

4. Items purchased for resale. If you purchased livestock and other items for resale, you may be able to deduct their cost in the year of the sale. This includes freight charges for transporting livestock to your farm.

5. Repayment of loans. You can only deduct the interest you paid on a loan if the loan proceeds are used for your farming business. You cannot deduct interest on a loan used for personal expenses.

6. Weather-related sales. Bad weather may force you to sell more livestock or poultry than you normally would. If so, you may be able to postpone reporting a gain from the sale of the additional animals.

7. Net operating losses. If deductible expenses are more than income for the year, you may have a net operating loss. You can carry that loss over to other years and deduct it. You may get a refund of part or all of the income tax you paid for past years, or you may be able to reduce your tax in future years.

8. Farm income averaging. You may be able to average some or all of the current year’s farm income by spreading it out over the past three years. This may lower your taxes if your farm income is high in the current year and low in one or more of the past three years. This method does not change your prior year tax. It only uses the prior year information to figure your current year tax.Things to Know.

9. Fuel and road use. You may be able to claim a tax credit or refund of federal excise taxes on fuel used on your farm for farm work.

10. Farmers Tax Guide. More information about farm income and deductions is in Publication 225, Farmer’s Tax Guide. You can download it at IRS.gov, or call the IRS at 800-TAX-FORM (800-829-3676) to have it mailed to you.

Nine Tips on Deducting Charitable Contributions

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Giving to charity may make you feel good and help you lower your tax bill. The IRS offers these nine tips to help ensure your contributions pay off on your tax return.

1. If you want a tax deduction, you must donate to a qualified charitable organization. You cannot deduct contributions you make to either an individual, a political organization or a political candidate

2. You must file Form 1040 and itemize your deductions on Schedule A. If your total deduction for all noncash contributions for the year is more than $500, you must also file Form 8283, Noncash Charitable Contributions, with your tax return.

3. If you receive a benefit of some kind in return for your contribution, you can only deduct the amount that exceeds the fair market value of the benefit you received. Examples of benefits you may receive in return for your contribution include merchandise, tickets to an event or other goods and services.

4. Donations of stock or other non-cash property are usually valued at fair market value. Used clothing and household items generally must be in good condition to be deductible. Special rules apply to vehicle donations.

5. Fair market value is generally the price at which someone can sell the property.

6. You must have a written record about your donation in order to deduct any cash gift, regardless of the amount. Cash contributions include those made by check or other monetary methods. That written record can be a written statement from the organization, a bank record or a payroll deduction record that substantiates your donation. That documentation should include the name of the organization, the date and amount of the contribution. A telephone bill meets this requirement for text donations if it shows this same information.

7. To claim a deduction for gifts of cash or property worth $250 or more, you must have a written statement from the qualified organization. The statement must show the amount of the cash or a description of any property given. It must also state whether the organization provided any goods or services in exchange for the gift.

8. You may use the same document to meet the requirement for a written statement for cash gifts and the requirement for a written acknowledgement for contributions of $250 or more.

9. If you donate one item or a group of similar items that are valued at more than $5,000, you must also complete Section B of Form 8283. This section generally requires an appraisal by a qualified appraiser