Monthly Archives: March 2016

What you need to know about health insurance tax forms

Expect the deluge of 2015 tax documents to include new forms, courtesy of additional Affordable Care Act reporting requirements that take effect this year. If you had health coverage during 2015, you may receive one or more information returns you haven’t seen before.

Here’s an overview of three health insurance-related returns.

  • Form 1095-A. You’ll get this form, the “Health Insurance Marketplace Statement,” if you bought your health coverage from the online healthcare.gov marketplace. The form has information about your insurance, who was covered by your policy, and when the coverage was in effect.
  • Form 1095-B. Your insurance company or other health insurance provider will send you this new-for-2015 information statement if you purchased your insurance outside of the government marketplace. “Form 1095-B, Health Coverage,” provides information about who your health policy was issued to, who was covered by the policy, and the months of coverage.
  • Form 1095-C. You may receive this new form from your employer if you’re a full-time employee and your employer meets certain requirements. “Form 1095-C, Employer-Provided Health Insurance Offer and Coverage,” tells you what coverage your employer offered, who in your family was covered, and when the coverage was in place.

You don’t need to attach any of these forms to your federal income tax return. However, you will need to have Form 1095-A in hand to complete your return. (You can file before you receive Forms 1095-B or 1095-C.)

Not sure which forms to look for? Contact Carl Heinemann, your Chattanooga CPA, for help.

Are last year’s retirement account withdrawals fully taxable?

Remember that retirement account withdrawal you made last year? If not, you’ll get a reminder when you receive Form 1099-R. Your plan trustee or custodian sends this information return to you and to the IRS to report distributions you received from pensions, annuities, IRAs, profit-sharing, and other retirement plans.

Form 1099-R looks simple. But do the numbers on the form tell the whole story? While the reported distributions are generally taxable, in some cases the amount shown and the amount you’ll pay tax on will differ.

For instance, say you took money from a traditional IRA in which you have basis. This could happen if you were unable to deduct your entire contribution in the year you made it. In this situation, the taxable portion of your withdrawal will be less than the gross distribution reported on Form 1099-R. You account for the difference on “Form 8606, Nondeductible IRAs.”

Qualified charitable contributions transferred directly from your IRA to the charity of your choice also reduce the taxable amount of the distribution shown on Form 1099-R. In this case, you indicate the reason for the difference on the first page of your federal income tax return, Form 1040, with the notation “QCD.”

Did you roll part or all of the distribution from one IRA into another qualified IRA? As long as you made only one transfer during the past twelve months, and did so within a 60-day time period, the amount you rolled over is generally tax-free. If you qualify for this exception, enter “Rollover” beside the line where you report the amount on page one of Form 1040.

Please get in touch with Carl Heinemann, your Chattanooga CPA, for more information. We’ll be happy to explain the tax treatment of IRA and other retirement account withdrawals.

What filing status is right for you?

Your federal income tax filing status can affect exemptions, reportable income, deductions, credits, tax rates, liability, the type of form you file, and whether you need to file at all. In addition, some states require that you use the status reported on your federal return. That can affect the amount of state tax you pay.

Five filing statuses are available under current tax law. Here’s an overview to help you determine which one is right for you.

  • Single. You’re considered single if you’re unmarried, divorced, or legally separated as of the last day of your taxable year (generally December 31).
  • Married filing jointly. When you’re legally married under the laws of your state, you and your spouse can elect to combine your income and file a joint return. In cases of divorce or separate maintenance decrees, the laws of your state determine whether you’re considered married. Under proposed regulations issued in 2015, same-sex marriages are recognized for federal income tax purposes when the marriage is recognized by any state.
  • Married filing separately. As a married couple, you can choose to file joint or separate returns. When you file separately, you can change your mind later and amend your return to file jointly. However, you can’t switch from joint status to married filing separately after the due date of the original return. Joint returns offer benefits such as a higher standard deduction. But separating your tax liability from your spouse’s by filing separate returns can be beneficial in some situations. Just be aware that certain breaks, such as the child and dependent care credit, may not be available if you chose this filing status.
  • Head of household. This is the filing status to use if you’re single and provide more than half the cost of maintaining a household for a dependent who lives with you. You may also be able to use head of household status when you’re single and maintaining a separate household for a parent — including one living in a nursing home. Head of household tax brackets are more generous than those for single filers, but less broad than the brackets for married filers who complete a joint return.
  • Qualifying widow or widower. If you were widowed during the year and have not remarried, you have the option of filing jointly with your late spouse. When you’re widowed and have dependent children, you can continue to use joint tax rates for two additional years following the year your spouse died. This status lets you benefit from the favorable tax rates of joint filers and claim the highest standard deduction.

Contact Carl Heinemann, your Chattanooga CPA, for help in determining which filing status fits your situation.

Section 179 changes can benefit you

Section 179 changes can benefit you

The extenders law passed in late December did more than increase the amount of Section 179 depreciation expensing for 2015. The law also made changes to the rules that took effect as of January 1, 2016. Here’s an overview of some of the modifications.

Maximum expensing amounts made permanent. When you buy machinery, equipment, or furniture for your business, Section 179 lets you take an immediate deduction instead of depreciating the cost over the useful life of the asset. For 2015, the maximum amount you can expense is $500,000 of the cost of qualifying property you placed in service during the year. The $500,000 is reduced (but not below zero) when the cost of the property exceeds $2,000,000.

The extenders law made these amounts permanent. Beginning in 2016, both caps will be adjusted annually for inflation.

Note that the law did not change the requirement that your deduction is limited to the amount of your taxable income for the year. You can still carry unused amounts to future years.

Qualifying property definition expanded. The definition of qualifying property now permanently includes off-the-shelf software and qualified real property such as leasehold, restaurant, and retail property.

For 2015, the maximum Section 179 expense deduction you can elect for qualified real property is $250,000. This expensing cap is eliminated as of January 1, 2016.

In addition, starting in 2016, you can write off the cost of air conditioning and heating units. They’re now considered qualifying property.

Got questions about Section 179? Give Carl Heinemann, your Chattanooga CPA, a call. We’re here to help.

Trim vacation costs without skimping on fun

With a little planning and a dash of discipline, you can reduce vacation costs without sacrificing fun or relaxation. Consider these tried-and-true tips:

  • Package deals. Travel companies often bundle airfare, car rentals, and hotels to entice vacationers. Some deals are real bargains. But be sure to study the specifics. Read the fine print. A deal that seems great on paper may go awry if the hotel is located in a seedy part of town or the only rental car offered is an economy model that barely accommodates your family’s luggage.
  • A room with a view — and a kitchen. Buying groceries on vacation is a great way to save on meals. Even if you prepare a light dinner a few times a week, the cost savings can be substantial, especially in high-priced cities. You might also consider sleeping in (it’s a vacation, after all) and eating just brunch and dinner on occasion.
  • Off-season savings. If your vacation schedule is flexible, booking reservations a few weeks outside regular holiday time frames can shave hundreds of dollars off your vacation bill. Hotel managers want paying guests, and when most tourists leave town you may find excellent accommodations at lower prices.
  • Coupons. Guidebooks, the Internet, and travel agencies all provide discount coupons for hotels, museums, and tours. If you’ve picked a locale, try exploring online offerings using “coupon code” as your search term.
  • Child and senior discounts. Look for restaurants in your chosen locale that offer “children eat free” bargains, or hotels touting lower rates for seniors.
  • Budget before and during the trip. In the months before your vacation, make regular contributions to a travel savings account. Knowing that the money to pay off credit card charges is tucked away in a bank account at home can be a great stress reliever on vacation. To keep your budget within bounds, give your kids a spending limit each vacation day. As an added bonus, your family’s younger members may learn a valuable lesson in fiscal discipline.
  • Lodge with relatives. Spending your entire vacation with Uncle Joe or Cousin Betty might not rise to the top of your fun-in-the-sun bucket list. But enjoying their hospitality for a night or two will do wonders for your vacation budget.

If you’d like additional ideas for trimming vacation costs, please contact Carl Heinemann, your Chattanooga CPA..

How to hire — and fire — family members

Working with family can be a pleasure. It can also be a pain, especially if you have to terminate the employment arrangement. Here are tips to help you ease the strain on family relationships.

  • Hire for the right reasons. Adhere to the skill sets needed to keep your business operating effectively. Hiring your son because he’s struggling to find a job or employing your niece so she’ll be nearby are not good business reasons for bringing staff on board.
  • Set clear expectations. Communicate the job’s performance requirements to your family member right from the start, clearly enumerating company policies for promotion, compensation, and termination. Make it plain that unethical conduct will not be tolerated and that every employee will be held to the same standard of behavior. Other employees will perceive any favoritism shown to family members. If a poor performer is allowed to “skate,” morale, performance, and your credibility will suffer.
  • Document performance. Throughout your family member’s tenure with your company maintain a detailed personnel file that tracks behavior resulting in disciplinary actions. In the unfortunate case of a necessary firing, a well-documented file will provide a narrative record that lays out your reasons and clearly communicates the evidence leading to your decision.
  • Keep the termination process fair and open. You may want to involve a direct supervisor or a human resources professional to ensure that your company is appropriately represented and to prevent the conversation from lapsing into emotional arguments. Focus the termination meeting on job performance and provide an opportunity for feedback. Use the meeting to suggest resources and contacts to help with the transition to a new career. Give your family member the option of resigning with dignity.

The bottom line: Effective communication can help you keep family and business relationships intact. Contact Carl Heinemann, your Chattanooga CPA,  if you need more suggestions.